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Accounting 212 Chapter 1 Notes

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by: Erin Morris

Accounting 212 Chapter 1 Notes 212

Marketplace > Radford University > Accounting > 212 > Accounting 212 Chapter 1 Notes
Erin Morris

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Chapter 1 Notes covered in Class, the Textbook, and the PowerPoint
Fundamentals of Managerial Accounting
Dr. Helen Roybark
Class Notes
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This 3 page Class Notes was uploaded by Erin Morris on Wednesday February 3, 2016. The Class Notes belongs to 212 at Radford University taught by Dr. Helen Roybark in Spring 2016. Since its upload, it has received 28 views. For similar materials see Fundamentals of Managerial Accounting in Accounting at Radford University.


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Date Created: 02/03/16
Chapter 1 – Managerial Accounting and Cost Concepts ­ Cost Object – anything for which cost data is desired, such as products, jobs, and  customers. ­ When assigning a cost, it is classified as either a Direct Cost or an Indirect Cost ­  Direct Cost  – Cost that can be easily and conveniently traced to a specific cost object  (Ex. Direct Materials and Direct Labor) ­ Indirect Cost – Cost that cannot be easily and conveniently traced to a specific cost  object (Ex. Manufacturing Overhead) ­ Note that there are three types of manufacturing costs (Direct Materials, Direct Labor,  and Manufacturing Overhead) and they are classified as Direct or Indirect Costs ­ Common Cost – a type of indirect cost that is incurred to support a number of cost  objects but cannot be traced to them individually  ­ Note that some costs can be direct or indirect depending on the cost object. For example:  a factory manager’s salary – if the cost object is a specific product, like tennis shoes, then the salary would be indirect; however, if the cost object is the entire manufacturing  division, then the salary would be direct.  Remember those three types of Manufacturing Costs? They’re back now…  Manufacturing Costs  Direct Materials – Materials that become an integral part of the finished product and  whose costs can be conveniently traced to the finished product like tires on a car  Note that Raw Materials include both Direct and Indirect Materials  this is kinda super  important because there are bunches of indirect materials that they use and they really  add up (like all those pennies you don’t think you need and then if you could go back and count all of the ones you didn’t keep, you’ve probably lost a fortune – just think of them  like indirect materials [indirect materials fall under manufacturing overhead])  Direct Labor – Labor that can be easily traced to individual units of product  also  called Touch Labor because direct labor usually involves physical contact with the  product  Indirect Labor is like Indirect Materials (both are under Manufacturing Overhead) and  this labor is like janitors and night guards because they don’t actually make the product  but they still gotta get paid  Manufacturing Overhead – Literally every Manufacturing cost that isn’t Direct  Materials or Direct Labor (other names for this category include: indirect manufacturing  cost, factory overhead, and factory burden)  SUPER IMPORTANT NOTE! Manufacturing Overhead is MANUFACTURING  COSTS  so basically only things necessary for running the factory, the rest of the costs  not included in manufacturing cost will be covered in nonmanufacturing costs (which is  totally coming up soon!)   Nonmanufacturing Costs (see, told you they were soon…guess I could’ve said they  were next, but whatever)  Selling Costs – Costs necessary to secure the order from the customer and deliver the  product to the customer; can be direct or indirect (For example, an advertising campaign  dedicated to one product is a direct cost of that product, and the salary of a marketing  manager who oversees numerous products would be indirect)  Administrative Costs – include all costs associated with the general management of an  organization (executive, organizational, and clerical costs); can be direct or indirect  Product Costs – Manufacturing Costs (direct materials, direct labor, manufacturing  overhead)  start as inventory account on the balance sheet and at the time of sale they  are moved to the Cost of Goods Sold account on the income statement  Period Costs – Nonmanufacturing Costs (selling costs and administrative costs)   expense account on the income statement  Prime Costs – the sum of direct materials and direct labor costs  Conversion Costs – sum of direct labor and manufacturing costs, because these are the  costs that are incurred to convert materials into the finished product  Most Common Cost Classifications  Variable Costs – Costs that vary, in total, in direct proportion to changes in the level of  activity (Note that variable cost per unit is constant)  the measure of what causes a  variable cost is called the Activity Base (A.K.A. the Cost Driver)  Fixed Costs – Costs that remain constant, in total, regardless of changes in the level of  activity (Note that the average fixed cost per unit varies inversely with changes in  activity) o 2 Types: Committed (long­term and cannot be significantly reduced in the short­ term) and Discretionary (can be changed in the short­term by current managerial  decisions)  Mixed Costs – Contains both variable and fixed elements; total mixed cost line can be  expressed as  Y = a + bx o Y = the total mixed cost o A = the total fixed cost o B = the variable cost per unit of activity o X = the level of activity  Relevant Range – the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid  outside the relevant range a fixed cost may no longer  be strictly fixed or a variable cost may no longer be strictly variable  High­Low Method – used to estimate the fixed and variable costs of a mixed cost  Steps to the High­Low Method: o Identify the periods with the lowest and highest levels of activity and use them to  find the variable cost:  Variable Cost = (Cost at the High Activity Level – Cost at the Low  Activity Level) / (High Activity Level – Low Activity Level)  OR  Variable Cost = Change in Cost/Change in Activity o Next determine the fixed cost using the total cost from either the high or low  activity level and the variable cost  Fixed Cost = Total Cost – Variable Cost o The Variable Cost is B in the equation for mixed cost and the Fixed Cost is A  Least­Squares Regression Method – considered more accurate than the High­Low  method because it uses all of the data points   Income Statement Formats – Traditional and Contribution  Traditional Format – used for external reporting purposes  Contribution Format – used as an internal planning and decision­making tool


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