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Chapter
We
Direct Materials
Direct Labor Mfg. Overhead Work-inProcess Finished Goods Cost-of Goods Sold
Direct Materials
Direct Labor Mfg. Overhead
Finished Goods
integral part of the finished product and can be physically traced to the product.
Direct Materials
Direct Labor Mfg. Overhead
Those
factory labor costs that can be Work-in- physically traced to the Finished Cost-of Process Goods Sold production ofGoods finished the product.
All
costs associated with the manufacture of a product except direct materials and direct labor.
Direct Materials
Costs incurred for They are Mfg. other than production expensed in Overhead activities. the period in which theySales are Cost of Goods Sold incurred. Income = Gross Margin Statement
Nonmanufacturing Expenses
Net Income
Materials
Direct General
All executive, organizational, and clerical costs associated with the general management Direct Work-inFinished Cost-of Labor Goods Goods Sold of the firm. Process
Mfg. Selling
Overhead
All costs necessary to secure customer orders andSalesthe products/services to the get customer. Cost of Goods Sold
Income Statement
Gross Margin
Nonmanufacturing Expenses
Net Income
Direct Materials Direct Labor Mfg. Overhead Work-inProcess Finished Goods Cost-of Goods Sold
Sales
Income Statement
Gross Margin
Nonmanufacturing Expenses
Period Costs
Net Income
Manufacturing Costs
Manufacturing Costs
Materials that are directly traceable to the goods or services being produced (physical observation).
Steel in cars, wood in furniture, etc.
Direct Materials
DM
in Theory
component
Every
DM
in Reality
apply cost-benefit rule
Must
DM What is Cost?
The
Shipping
Import
A
duties, and
Manufacturing Costs
Manufacturing Costs
All production costs other than direct materials and direct labor.
Utilities, security, janitorial, etc.
Factory Supervision,
Nonmanufacturing Costs
All
Costs
Administrative
Costs
Unused WIP
Unfinished
Income Statement
=
=
Unused WIP
Unfinished
Product Costs: Costs assigned to products (i.e., COGS - in Process Inventory. Work They attach themselves to units of product and S&A remain with the product until it is sold.
Income Statement
=
=
Gross Margin
Net Income
Unused WIP
Unfinished
Income Statement
=
=
DL
WIP
MOH Sales
Income Statement
=
=
Product Costs Vs. Period Costs DM, DL, MOH, S&A Costs
Product Costs
Work-inProcess
Finished Goods
Period Costs
Sale
Variable Costs
Total costs that vary in direct proportion to changes in the level of activity within the relevant range.
Fixed Costs
Costs that remain constant in total, regardless of the changes in activity within the relevant range.
Relevant Range
Anything for which a separate measurement of costs is desired Direct (products, customers, Costs departments, etc.)
Cost Object
Indirect Costs
Direct Costs
Costs that are related to and directly traceable to the identified cost objective. (Direct Material, Direct Labor)
Indirect Costs
Costs that are related to, but not traceable to, the identified cost objective. (Manufacturing overhead)
Cost Object
Production Marketing
Customer Service
Production Marketing
Customer Service
Production
On the other hand, for these decisions, we might be able to ignore some of the costs.
For external Research and financial reporting, Development Production Production we need only these Marketing Marketing costs because Customer Service Customer Service that is what GAAP Pricing Decisions we need. Strategic Design says Product-Mix Decisions Decisions
Strategic Profitability Analysis Tactical Profitability Analysis
Production