Manufacturing Cost CategoriesThe Product CostExam # 1 Study Guide Lectures: 1 - 4Lecture 1 (September 3)- 3 Processes of Managerso Planning Establish goals —> specify how goals will be achieved. —> Develop budgeto Controlling How are things going? 1000-dollar revenue goal, 2 weeks into the month… revenue only 200. Either they are doing something wrong or they have made an improper goal.  The controlling function gathers feedback to ensure plans are being followed Feedback in the form of performance reports that compare actual results to projected goalso Decision Making What should we be selling? Who should we be serving? How should we execute?- How does Managerial accounting apply to you?o Marketing Majors Planning (how much should we budget for TV? print? advertising?) Controlling (its he budget of price cut increasing unit sales as expected? are we accumulating too much inventory during the holiday shopping season?) Decision-making (should we sell our service in a bundle or separately?) o Accounting majors Many accounting graduates begin working for public accounting firms. However, most leave at some point to work in other organizations. The IMA estimates that 80% of accountants are in an accountant role. - Customer Value Propositionso Customer intimacy strategy Understand and respond to individual customer needs.  Ex: luxury hotels and department stores. o Operational Excellence Strategy Deliver products and services faster, more conveniently, and at lower prices. Ex: Wal-Mart; as fast, as low cost, as possible. Maybe not best customer service, but inventory always availableo Product Leadership Strategy Offers High quality products, not just standard. THE BEST.  Apple, Bose. Trying to offer innovative products to their customers. - Theory of Constraintso A constraint, also called a bottleneck, is anything that prevents you from getting what you want. The theory of constraints is based on the observation that effectively managing the constraint is the key to success. o ONLY ACTIONS THAT STRENGTHEN THE WEAKEST LINK IN THE CHAIN CAN IMPROVE THE PROCESSACCT 2020 1nd Edition1. Identify the weakest link2. Allow the weakest link to set the tempo 3. Focus on improving the weakest link 4. Recognize that the weakest link is stronger- Importance of Ethicso Remember that if ethics didn’t exist, there would be no trust among participating members of the market. If business practices were corrupt, prices would go up and product quality would decrease. o The institute of Management Accountant (IMA) creates managerial guidelines that accountants SHOULD follow. (Remember there are no laws governing the guidelines of internal accounting)o Do not disclose confidential information unless legally obligated to do so, and communicate information fairly and objectively- Six skills of effective leaders1. Technical competence (MOST IMPORTANT)2. High integrity3. Understand how to implement organizational change4. Strong communication skills5. Capable of motivating and mentoring other people6. Effectively manage team-based decision processes- Definitionso Strategy: is a “game plan” that enables a company to attract customer by distinguishing itself from competitors. The focal point of a company’s strategy should be its target customerso Risk Management: Evaluate all risks for company, then mitigate and reduce risk by implementing controls; Ex: harmful products = more rigorous testingo Business process: is a series of steps that are followed in order to carry out some task in business.o Value chain: The Chain of processes that end in value for the business. Ex: R&D → product design → manufacture → marketing→ distribution → customer serviceo Corporate Social Responsibility: Can’t reduce cost in expense of other factors like society, the environment or health. o Lean production: the components are not bought until ordered, the product not made until it was ordered. Often called JIT (just in time) production. Lecture 2 (September 5)- Manufacturing Cost Categorieso The Product Cost 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 bread Direct labor: those labor cost that can be easily traced to the individual units of the product; Ex. Wages paid to bakers Manufacturing overhead: costs that cannot be easily traced to the specific units produced, basically everything else. (If it relates to the manufacturing of the product). Manufacturing Overhead also can be split into several costs…⁃ 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 - Non-manufacturing costso Selling costs: costs necessary to secure the order and delivery of the producto Administrative costs: all executive, organizational, and clerical costs- Products Cost vs. Period Costo Product costs include direct materials, direct labor, and manufacturing overhead, while period costs Include all selling costs and administrative costs.  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 commission are both period costs- Prime cost vs. Conversion Costso Prime costs vary directly with the amount of product produced; Direct materials + Direct Labor, while conversion costs are those required to turn raw materials into sellable goods; Labor + overhead.- Cost Categorieso Variable costs vary in total, in direct proportion to changes in the level of product produces. In some cases you total texting bill (if not on plan) is bases on how many texts you send. 1text=10ct so 5texts=50cents. The cost per unit remains constant. o Fixed costs remain constant and total regardless of changes in the level of activity. A monthly cellphone contract that is unlimited would be constant. In this case, cost per unit varies inversely with changes in activity. If you talk 1 minute, then my cost per minute is $60/min. If I talk 10 minutes, then my cost per minute is $10/min. fixed costs often have a relevant range. For example, if a company needs 1020 square feet and the only options are 1000sqft, 2000sqft, or 3000sqft, they must