Professional Documents
Culture Documents
Chap 02 Notes
Chap 02 Notes
Chap 02 Notes
Chapter 2
Chapter Two
The Product
Prime Conversion
Cost Cost
Marketing or Administrative
Selling Cost Cost
Sale
MegaLoMart
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Prepaid Expenses
Prepaid Expenses
Inventories
Merchandise
Inventory Raw Materials
Work in Process
Finished Goods
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Materials
Receivables
waiting to
Prepaid Expenses be processed.
Prepaid Expenses
Partially complete Inventories
Merchandise
products – some
Inventory Raw Materials
material, labor, or Work in Process
overhead has been Finished Goods
added.
Completed products
awaiting sale.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Income Statement
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory $ 14,200
+ Purchases 234,150
Goods available
for sale $ 248,350
- Ending
merchandise
inventory (12,100)
= Cost of goods
sold $ 236,250
Beginning
Additions Available
balance + $$$ = $$$$$
$$
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Conversion
Beginning raw Direct materials
materials inventory + Direct labor
costs are costs
+ Raw materials + Mfg. overhead incurred to
purchased = Total manufacturing convert the
= Raw materials costs
direct material
available for use
in production into a finished
– Ending raw materials product.
inventory
= Raw materials used
in production
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Minutes Talked
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Variable Cost Per Unit
Telephone Charge
Per Minute
Minutes Talked
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Total Fixed Cost
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
• Financial reporting
• Predicting cost behavior
• Assigning costs to cost objects
• Decision making
Machine Material
Breakdowns Shortages
Power
Failures
Support activities
Prevention whose purpose is to
Costs reduce the number of
defects
Incurred to identify
defective products
Appraisal Costs before the products are
shipped
Incurred as a result of
Internal Failure
identifying defects
Costs before they are shipped
Incurred as a result of
External Failure defective products
Costs being delivered to
customers
* AsMcGraw-Hill/Irwin
a percentage of total sales. In each year sales totaled $50,000,000. Copyright © 2006, The McGraw-Hill Companies, Inc.
Quality Cost Reports: Graphic Form
$10 20
9
Quality 18
7
External External
can also 14
External External
6 Failure Failure
be 12 Failure Failure
5
prepared 10
4 Internal
Failure
in 8 Internal
Failure
3 Internal
Failure
graphic 6 Internal
Failure
2
Appraisal form. 4
Appraisal
Appraisal Appraisal
1 2
Prevention Prevention Prevention Prevention
0 0
1 2 1 2
Year Year
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Uses of Quality Cost Information