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UNT ACCT 2020 - Chapter 2: Manufacturing cost allocation
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I. Manufacturing Cost CategoriesII. Products Cost vs. Period CostIII. Classifications of costsIV. VariableV. FixedVI. MixedVII. High Low methodACCT 2020 1st Edition Lecture 3Outline of Last Lecture I. Managerial Accounting: an OverviewII. Work of ManagementIII. Managerial Accounting Activities:IV. Strategic management skillsV. Customer value propositionsVI. Enterprise Risk managementVII. Process Management SkillsVIII. Theory of constraintsIX. Six skills of effective leadersX. The Importance of Ethics in businessXI. Corporate social responsibilityOutline of Current Lecture I. Manufacturing Cost CategoriesII. Products Cost vs. Period CostIII. Classifications of costsIV. VariableV. FixedVI. MixedVII. High Low methodThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Current LectureI. Manufacturing Cost Categories- The producto Direct material Raw materials that become an integral part of the product and that can be conveniently traced directly to it⁃ Ex. Flour for the loaf of breado Direct labor Those labor cost that can be easily traced to the individual units of the product⁃ Wages paid to bakerso Manufacturing overhead Costs that cannot be easily traced to the specific units produced, basicallyeverything else. If it relates to the manufacture of the product.⁃ Indirect material: used to support production like lubricants and cleaning supplies for machines or equipment⁃ Indirect labor: wages paid to laborers not directly involved in production, ex: supervisors, janitors etc. ⁃ The building, the lighting, the desks, the utilities. These costs are also included - Non-manufacturing costso Selling costs Costs necessary to secure the order and delivery of the producto Administrative costs All executive, organizational, and clerical costsII. Products Cost vs. Period Cost- Product costo Product costs include direct materials, direct labor, and manufacturing overhead. - Period costso Include all selling costs and administrative costs- Quick checko Which of the following costs would be considered a period cost rather than a product cost in a manufacturing company? Property taxes on headquarters and selling commissionIII. Classifications of costs- Prime costo Direct materials + Direct Labor- Conversion costo Labor + overheado Cost behavior refers to how a cost will react to changes in the level of activityIV. Variable- Varies in total, in direct proportion to changes in the level of activity. In some cases you total texting bill (if not on plan) is bases on how many texts you send. 1text=10ct 5=50o Cost per unit remains constant. In some cases a cost per text is constant. 1=10c no matter how many centso Activity Base (cost driver): A measure of what causes the incurrence of a variable cost⁃ Units produced/machine hours/labor hours/miles drivenV. Fixed- Remains constant and total regardless of changes in the level of activity. A monthly cellphone contract that is unlimited. o Cost per unit varies inversely with changes in activity. If you talk 1 minute, then my cost per minute is $60. If I talk 10 minutes, then my cost per minute is $10- Committedo Long-term, cannot be significant reduced in the short-term Depreciation and building payments- Discretionary: o Maybe be altered in the short term by current managerial decisions.  Advertising and R&D- Fixed cost and the relevant rangeo If the company needs 1020 square feet, they must take the available option of 2000. Thiscreates different thresholds, which has a flat relative range. If they needed 2500, theyd still have to go to 3000o Not affected by change in the activity level, while variable cost decreases with activity level. VI. Mixed- The total cost line can be expressed as an equation: Y= a + bx- Total utility bill(Y) = fixed cost (a) + price per unit (b) multlipled by the number of units used (x)- In Account Analysis- each account is classified as either cariable or fixed bases on analyst- Engineering analysis is bases on their knowledge of manufacturing view- Graphing o Plot the dependent (cost) on y axis independent variable, cost driver, on the x axis on a scatter grapho TOTAL COST (x) vs ACTIVITY (y)VII. High Low methodo Portion that’s mixed vs. portion variableo Find the month with the highest, and lowest with activityo Change in cost $9800-$7400 2400 = $6/hrChange in activity 850hrs-450hrs 400hrSales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 unitsare sold. Using the high-low method, what is the variable portion of sales salaries and commissions?- $0.10/unitFixed?-


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UNT ACCT 2020 - Chapter 2: Manufacturing cost allocation

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