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Week 1 Notes

by: Rachel Moore

Week 1 Notes ACCT 2102

Rachel Moore
GPA 3.33
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About this Document

These notes cover Chapter 2 which was discussed in class January 15 - January 22.
Principles of Accounting II
Class Notes
Accounting, Managerial, ACCT 2102, week 1, chapter 2, Farmer




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This 4 page Class Notes was uploaded by Rachel Moore on Friday January 22, 2016. The Class Notes belongs to ACCT 2102 at University of Georgia taught by Farmer in Spring 2016. Since its upload, it has received 417 views. For similar materials see Principles of Accounting II in Accounting at University of Georgia.


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Date Created: 01/22/16
ACCT 2102 January 15, 2016 – January 22, 2016 Chapter 2 Notes Building Blocks of Managerial Accounting What is profit?  Revenue – Expense = Profit What are the two basic ways of generating more profit?  Increase revenue or decrease expense. What is the difference between a cost and expense?  You can incur a cost before you recognize the expense.  Expenses drive profit.  Timing; incur cost/recognize expense.  Product cost = inventoriable cost.  Period cost = operating cost (expensed in the period in which it is incurred). Of the 3 basic business models discussed in the lecture document, which 2 hold inventory?  Merchandising and manufacturing Do you think accounting for the inventory of one is more complicated than the other?  Yes; manufacturing companies make what they sell How does inventory affect profit?  When it is sold ~ inventory becomes an expense known as cost of goods sold Are there any other types of costs a company would typically incur?  Yes; period costs  Service, manufacturing, and merchandising When do these costs become expenses?  In the period incurred Merchandiser vs Manufacturer Merchandiser Manufacturer 1. Product cost (incurred at 1. Direct product cost is a cost purchase) that is easy and convenient to  Purchase price trace to the cost object; no  Transportation to facility problems. (shipping)  DM – direct material;  Insurance “recipe” for cost object  Taxes/tariffs  DL – direct labor; “touch” 2. Period cost labor; wages paid to person who is physically assembling  Wages  Advertising product  Storage 2. Indirect product cost is not  Utilities easy or convenient to trace to the cost object; problems.  Rent  MOH – manufacturing  Depreciation  Transportation to customer overhead; all costs not direct or hard to trace to (shipping; distribution) cost object  Costs incurred just because it is a factory  Indirect labor (wages paid to managers, supervisors, maintenance, custodial)  Utilities  Rent  Depreciation  Maintenence 3. All product costs are incurred in the factory. 4. Period Costs (office/administrative cost)  All costs that refer to admin, sales, etc  Wages  Advertising  Storage  Utilities  Rent  Depreciation  Transportation to customer (shipping; distribution) Raw Material Inventory (RM) – Direct materials; stuff we buy to make our product; moves to WIP when we start using it. Work in Process (WIP) – Holds the units in process that have not been finished; all product costs included; finishing a unit makes the account decrease. Finished Goods (FG) – Stuff that is finished but has not been sold yet; account decreases when units are sold. Merchandiser vs Manufacturer How would you calculate the following? Merchandiser Manufacturer Cost of Goods Sold (COGS) UPC x¿unitssold=COGS BRM + P – use = ERM or BWIP +PC *– COGM = BI+P−EI=COGS EWIP BFG + COGM – COGS = EFG *PC = DM + DL + MOH Gross Profit (GP) SR–COGS=GP SR – COGS = GP Operating Income (OI) GP–SG∧A=OI GP – SG&A = OI Ending Inventory (EI) UPC x¿unitsEI=EI Abbreviation Key: UPC = Unit Product Cost BI = Beginning Inventory P = Purchases SR = Sales Revenue SG&A = Operating Expenses/Period Cost BRM = Beginning Raw Material ERM – Ending Raw Material BWIP = Beginning Work in Process PC = Product Cost COGM = Cost of Goods Manufactured EWIP = Ending Work in Process BFG = Beginning Finished Goods EFG = Ending Finished Goods  Net increase in raw material  you ended with more than you started with o Only way you will end with more than you started with  if you purchase more than you used o Net increase in raw material  you purchased more than you used  Net decrease in raw material  you ended with less than you started with o Only way you will end with less than you started with  if you used more than you purchased o Net decrease in raw material  you used more than you purchased  If you have a net increase in work in progress  cost of goods manufactured is less than total goods manufactured.  If you have a net decrease in work in progress  cost of goods manufactured is higher than total goods manufactured.  If you have a net increase in finished goods  ended with more than you started with o If you ended with more than you started with  COGM > COGS  If you have a net decrease in finished goods  ended with less than you started with o If you ended with less than you started with  COGM < COGS Equations Needed for Manufacturing Problem: BRM+P−ERM=RMused RMused−ℑ =DM DM+DL+MOH=Total Manufacturingcost Total ManufacturingCost+BWIP−EWIP=COGM COGM+BFG−EFG=COGS *Indirect Material (IM) is part of Manufacturing Overhead (MOH)


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