New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

ACC 202 Chapter 2

by: Marissa Sarlls

ACC 202 Chapter 2 ACC 202

Marissa Sarlls
GPA 3.75

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

ACC 202 Chapter 2 Notes
Managerial Accounting (202, Wilhelm)
Jana Wilhelm
Class Notes
Accounting, acc
25 ?




Popular in Managerial Accounting (202, Wilhelm)

Popular in Accounting

This 5 page Class Notes was uploaded by Marissa Sarlls on Sunday January 10, 2016. The Class Notes belongs to ACC 202 at University of Kentucky taught by Jana Wilhelm in Spring 2016. Since its upload, it has received 31 views. For similar materials see Managerial Accounting (202, Wilhelm) in Accounting at University of Kentucky.


Reviews for ACC 202 Chapter 2


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 01/10/16
Chapter 2: Managerial Accounting and Cost Concepts Cost Classifications for Assigning Costs to Cost Objects Cost object—anything for which cost data are desired—including products, customers, jobs, and organizational subunits o Either direct or indirect o Direct cost—can easily and conveniently traced to a specified cost object o Indirect cost—can’t be easily traced so we don’t track it  EX: manager’s salary when producing a bunch of soup…it’s a common cost but it is a direct cost of the manufacturing division  P. 28 Exhibit 2-1 o Common cost—a cost that is incurred to support a number of cost objects but cannot be traced to them individually o For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot’s wage is caused by any one passenger taking the flight Manufacturing Costs  Raw materials—any materials used in the final product o Direct materials—integral part and can be traced to finished product (ex: seats to install on plane) o Indirect materials—not worth the effort to trace; part of mnfg OH (ex: glue for a chair)  Labor o Direct labor—consists of labor costs that can be traced to individual units of product; aka touch labor because workers typically touch the product while being made o Indirect labor—can’t be physically traced to particular products; also part of mnfg OH  Ex: janitors, supervisors, material handlers, and night security o Manufacturing OH—includes all manufacturing costs except direct materials and direct labor  Includes items such as indirect materials, indirect labor maintenance and repairs on production equipment; and heat and light, property taxes, depreciation, and insurance on manufacturing facilities Non-Manufacturing Costs (SG&A)  Selling costs—all costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer o Advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses  Administrative costs—all costs associated with the general management of an organization rather than with manufacturing or selling o Executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organization as a whole Product or Period Costs  Costs are recognized as expenses on the income statement in the period that benefits from the cost  The matching principle is based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized  Product costs—all costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and mnfg OH o Inventoriable costs—synonym for product costs o Productcost=DM+DL+MnfgOH  Period costs—Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued o All S&A expenses are treated as period costs o Periodcost=Sellingexpenses+Administrativeexpenses  Prime cost—the sum of DM and DL o Primecost=DM+DL  Conversion cost—the sum of DL cost and mnfg OH cost; these costs are incurred to convert materials into the finished product o Conversioncost=DL+MnfgOH Predicting Cost Behavior  Cost behavior—refers to how a cost reacts to changes in the level of activity  Cost structure—the relative proportion of each type of cost in an organization  Variable cost—a cost that varies, in total, in direct proportion to changes in the level of activity; it is constant per unit  Activity base—a measure of whatever causes the incurrence of a variable cost. o Sometimes referred to as a cost driver  Fixed cost—a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity o Committed fixed cost—investments in facilities, equipment, and basic organization structure that cant be significantly reduced even for short periods of time without making fundamental changes o Discretionary fixed costs—aka managed; those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research  Relevant range—the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid  Cost behavior patterns such as salaried employees are often called step-variable costs  Mixed cost—contains both variable and fixed cost elements; aka semivariable costs  y=a+bX o Y is the total mixed cost o a is the total fixed cost (the vertical intercept of the line) o b is the variable cost per unit of activity (the slope of the line) o X is the level of activity EX: The cost of providing x-ray services to patients at Harvard Hospital --The fixed portion is the minimum cost of service ready & available --The variable portion is the cost incurred for actual consumption of service Analysis of Mixed Costs  The fixed portion of a mixed cost represents the minimum cost of having a service ready and available for use  The variable portion represents the cost incurred for actual consumption of the service  Account analysis—a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves  Engineering approach—a detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs Cost Behavior with a Scattergraph Plot  Total maintenance cost, Y, is plotted on the vertical axis  Cost is dependent variable  Activity, X, is plotted on horizontal axis and is the independent variable  Cost behavior is linear when in relevant range High-Low Method (for calculating mix)  Based on the rise-over-run formula for the slope of the straight line Y 2−Y 1  Variable cost = slope of line = rise/run = X 2−X 1  Use periods with lowest & highest level of activity Costof high−Costof low change∈cost  Highactivitylevel−Lowactivitylevel= change∈activity  Fixed cost element = total cost – variable cost element  Always use the costs at highest levels of activity Least-Squares Regression Method (most accurate)  Least-squares regression method—uses all of the data to separate a mixed cost into its fixed and variable components  A regression line of y=a+bX is fitted to the data  Vertical deviations are called errors Traditional and Contribution Format Income Statements  Traditional income statements are prepared primarily for external reporting purposes  Two categories: COGS and S&A expenses o gross margin=sales−COGS o NOI=grossmargin−S∧Aexpenses o COGS reports the product costs; S&A expenses report period costs o COGS=beginmerch.inventory+purchases−S∧Aexpenses  Contribution approach—an income statement format that organizes costs by their behavior. Costs are separate into variable and fixed categories rather than being separated into product and period costs for external reporting purposes o COGS is a variable cost o Emphasis on cost behavior aids cost-volume-profit analysis  Contribution margin—the amount remaining from sales revenues after all variable expenses have been deducted o This amount contributes toward covering fixed expenses and then towards profits for the period Decision Making  Differential cost—a difference in cost between two alternatives o Incremental cost—an increase in cost between two alternatives o Decreases in cost are decremental costs  Differential revenue—the difference in revenue between two alternatives o Or marginal cost and marginal revenue  Opportunity cost—the potential benefit that is given up when one alternative is selected over another  Sunk cost—a cost that has already been incurred and that cannot be changed by any decision made now or in the future Appendix 2B: Cost of Quality  Quality of conformance—the degree to which a product or service meets or exceeds its design specifications and is free of defects or other problems that mar its appearance or degrade its performance o When a product is free of defects, meets needs, etc.  Quality cost—costs that are incurred to prevent defective products from falling into the hands of customers or that are incurred as a result of defective units o Prevention cost—costs that are incurred to keep defects from occurring ; support activities whose purpose is to reduce the number of defects  Quality circles—small groups of employees that meet on a regular basis to discuss ways of improving quality  Statistical process control—a charting technique used to monitor the quality of work being done in a workstation for the purpose of immediately correcting any problems o Appraisal costs—costs that are incurred to identify defective products before the products are shipped to customers ; AKA inspection costs o Internal failure costs—costs that are incurred as a result of identifying defective products before they are shipped to customers o External failure costs—costs that are incurred when a product or service that is defective is delivered to a customer (Ex: warranty repairs and replacements, recalls, etc)  Appraisal can only find defects whereas prevention can eliminate them  Exhibit 2B-2: Quality Cost Reports  Quality cost report—details the prevention costs, appraisal costs, and costs of internal and external failures that arise from the company’s current quality control efforts  In graphic form  Doesn’t include customer ill-will  ISO 9000 standards—Quality control requirements issues by the International Organization for Standardization that relate to products sold in European countries


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.