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ACCT 2102, Week 2

by: Randi

ACCT 2102, Week 2 ACCT 2102

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About this Document

This week we covered chapter 2. We learned concepts/vocabulary related to Manufacturer and Merchandiser companies. We also studied their cost systems and the different calculations pertaining to each.
Principles of Accounting II
Class Notes
Accounting, Managerial Accounting Notes, manufacturer, merchandiser, valuechain, costs, directmaterial, directlabor, MOH, indirectcosts, Marketing, R&D, Inventory, Design
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This 10 page Class Notes was uploaded by Randi on Sunday August 28, 2016. The Class Notes belongs to ACCT 2102 at University of Georgia taught by Farmer in Fall 2016. Since its upload, it has received 16 views. For similar materials see Principles of Accounting II in Accounting at University of Georgia.


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Date Created: 08/28/16
Week  2  Notes     ACCT 2102 PROF.  FARMER     Chapter  2   Concepts:     § Value  Chain   o A  Value  Chain  is  the  steps  (or  links)  in  the  operating  cycle  that  provide  value   to  a  company’s  product  or  service.     o There  are  6  stages/links   1. Research  &  Development:  Think  about  what  you  want  to  do  and  figure   out  how  you  want  to  do  it   2. Design:  Begin  to  make  your  product   3. Production/Purchase   • Manufacturers  =  Production   • Merchandisers  =  Purchase   **This  is  the  differentiating  link  because  Service  Businesses  do  not   have  this.  All  product  costs  are  incurred  in  this  link.   **Production/Purchase  is  the  only  product  cost.  All  other  links   are  period  costs   4. Marketing:  Advertise  your  product/service   5. Distribution:  Deliver  your  product/service     6. Customer  Service       § Direct/Indirect  Costs   o The  Cost  Object  determines  if  a  product  is  a  Direct  or  Indirect  cost   § Direct  Cost:     • A  cost  that  is  easy/convenient  to  trace  to  the  direct  cost   • If  you  know  exactly  what  product  you  need  and  how  much  it   is  going  to  cost,  it  is  a  Direct  Cost.  In  other  words,  you  need  it  in   the  “recipe”  to  create  your  product   • Can  consist  of  direct  material  costs  or  direct  labor   § Indirect  Cost:     • Any  cost  that  is  not  direct!   • Hard  to  trace  to  the  cost  object.  You  don’t  know  exactly  how   much  the  cost  will  be   • Usually  depreciation  costs  are  Indirect   • Also  known  as  MOH  (Manufacturing  Over  Head)       Week  2  Notes     Merchandiser  Costs  Value  Chain     • Merchandiser  Costs  are  split  into  Product  and  Period  costs.  From  there,  the  value   chain  continues   o Product  Costs  links   § Purchase   *Anything  used  to  get  the  product  in  place  and  to  the  company  is   under  the  Purchase  link.  For  example:  shipping,  tax/tariffs,   insurance,  purchase  price   o Period  Costs  links   § Research  &  Development   § Design   § Marketing   Operating  Expenses   § Distribution   § Customer  Service         Manufacturer  Costs  Value  Chain     • Manufacturer  Costs  are  split  into  Product  and  Period  costs.  From  there,  the  value   chain  continues.  The  Manufacturing  chain  is  more  detailed  the  Merchandising     o Product  Costs  links  –  can  be  further  divided  into  Direct  or  Indirect  costs   § Direct  Costs:   • Direct  Material   • Direct  Labor     Anything  that   § Indirect  Costs  (MOH):   happens  inside  the   • Factory  rent   factory  is  a  Product   • Factory  depreciation   • Factory  utilities     Cost!!   • Indirect  materials/labor   o Period  Costs  links   § Research  &  Development   § Design   § Marketing   § Distribution   § Customer  Service         THE  BIG  PICTURE:   All  of  this  information  is  used  to  help  figure  out  Cost  of  Goods  Sold,  Profit,  and  Ending   Inventory!       Week  2  Notes       *Product  Costs  affect  Gross  Profit!   *Both  Product  and  Period  costs  affect  Operating  Income!       Week  2  Notes         Merchandiser  Calculations     *Keep  in  mind  there  is  not  one  set  way  that  you  must  calculate  a  problem.  It’s   whatever  works  best  for  you!       • COGS:   *Merchandising  Inventory  =  COGS       Beginning  Merchandise  Inventory     +  Purchased  Merchandise  Inventory   -­‐  Ending  Merchant  Inventory   Option  1     =  COGS       OR…           (Unit  Production  Cost)       X    (Number  of  Units  sold)     Option  2     =  COGS             Week  2  Notes     • Gross  Profit:   Sales  Revenue   -­‐  COGS     =  Gross  Profit       § Operating  Income:     *also  known  as  Net  Income     Gross  Profit   -­‐  Operating  Expenses     =  OPY  (Operating  Income)       § Ending  Inventory:     Beginning  Merchant  Inventory     +  Purchased  Inventory   -­‐COGS   Option  1     =  Ending  Inventory         OR…       Week  2  Notes         (Unit  Product  Cost)       X  (Number  of  Units  in  Ending  Merchandise  Inventory)        Option  2     =  $  Ending  Merchandise  Inventory       Week  2  Notes     Manufacturer  Calculations   ***  Manufacturers  have  3  inventory  accounts.  This  will  affect  the  calculations  of   COGS  and  Ending  Inventory       • COGS:   1. Raw  Materials  Inventory  (RMI):   • This  is  where  you  hold  all  material  that  will  be  used  to  make  the   finished  product   • Purchasing  makes  this  account  increase     Beginning  Raw  Material   +  Purchased  Raw  Material   -­‐ Used  Inventory     =  Ending  Raw  Materials     2. Work  in  Process  (WIP)  Inventory:   • WIP  is  a  unit  of  a  product  that  is  under  production  and  not   finished  yet.  The  product  is  made  here.   • Product  costs  (DM/DL/MOH)  make  this  account  go  up   • Cost  of  Goods  Manufactured  (COGM)  is  the  cost  assigned  to  units   completed.  This  account  decreases  WIP.     Beginning  WIP   +Product  Costs     -­‐Costs  of  Goods  Manufactured  (COGM)     =Ending  WIP       Week  2  Notes       3. Finished  Goods  (FG)  Inventory:   • This  account  is  for  goods  that  have  been  completed.  This   account  goes  up  when  the  goods  have  been  finished.     Beginning  Finished  Goods   +  COGM   -­‐  COGS     =  Ending  Finished  Goods       • Gross  Profit:   Same  as  Merchandiser       Sales  Revenue   -­‐  COGS     =  Gross  Profit               Week  2  Notes       § Operating  Income:     Same  as  Merchandiser     Gross  Profit   -­‐  Operating  Expenses     =  OPY  (Operating  Income)       § Ending  Inventory:     You  calculate  this  based  off  which  one  you  want  to  know!         Week  2  Notes     Template  for  Manufacturer  Calculations           COGS:       Gross  Profit:       Beginning  Raw  Materials         Sales  Revenue   +  Purchases   -­‐  COGS   -­‐  Ending  Raw  Materials       Gross  Profit   Raw  Materials  Used     -­‐  Direct  Materials     Operating  Income:       Indirect  Materials   Gross  Profit     -­‐Selling,  General,  &  Administrative       costs  (this  is  everything  that’s  not  a   product  cost)     Direct  Materials   +Direct  Labor     OPY   +  MOH     Total  Manufacturing  Cost     +  Beginning  WIP   -­‐WIP     COGM   +  Beginning  FG   -­‐  Ending  FG     COGS    


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