Managerial Acc & Cost Concepts Classifying Costs

• Cost Objects


  Anything for which cost data are desired - including products, customers, plants, office locations, and departments
• Direct cost 


  cost that can be easily and conveniently traced to a special cost object
• Example of direct cost


  product mangers salary

  fabric of one dress
• Indirect costs 


  cost that can not easily and conveniently traced to a specified cost object
• Examples of an indirect cost

  glue use in manufacturing use
• manufacturing companies separate their manufacturing cost into 2 categories

  manufacturing and nonmanufacturing
• What are manufacturing costs

  product cost

  direct material, direct labor, and manufacturing overhead
• Product cost 


  include all costs involved in making a product
• Direct Materials (DM)


  raw materials that become an integral part of the finished product and whose cost can be conveniently traced to the finished product
• Example of direct materials


  steering wheels

  tires

  battery for a cellphone
• Direct Labor 


  labor costs that can be easily traced to individual units of product
• Examples of direct labor


  assembly line workers

  only those whose hands make the product
• Manufacturing Overhead


  all manufacturing costs that are not direct materials or direct labor

  can't be easily traced to specified products
• Examples of manufacturing overhead 


  indirect labor

  indirect materials

  factory rent, depreciation, property tax

  anything that deals with the factory
• Prime Cost


  direct materials and direct labor
• Conversion Cost 


  direct labor and manufacturing overhead
• Non-manufacturing costs 


  period costs
• Period costs 


  include all costs that are not product costs

  selling and administrative costs
• Examples of period cost


  sales commission

  rent on the admin building

  marketing/ admin costs
• What do you expense immediately

  period costs
• Cost Behavior 


  is how a cost reacts in the level of activity
• Variable Costs

  varies in total

  in direct proportion to changes in the level of activity

  changes when volume changes
• these are typically variable cost

  direct labor

  direct materials
• Fixed Cost


  cost that remains constant in total, regardless of changes in the level of activity
• Examples of fixed costs


  manager's salary, rent, property tax

  manufacturing overhead
• MOH can be both

  variable and fixed cost
• Factory Property Taxes

  product cost

  MOH

  fixed
• Salesperson's Commissions

  period costs

  variable
• Assembly Workers

  product

  direct labor

  variable
• hard drives used in computer production

  product

  direct materials

  variable
• lubricants for production equipment

  product

  MOH

  variable
• Supervisor's salary factory

  product

  MOH

  fixed
• Advertising cost

  period

  fixed
• Factory rent

  product

  MOH

  fixed
• Ink used in textbook production


  product

  direct materials

  variable
• Executive life insurance

  period

  fixed
• Direct materials and direct labor is always

  variable
• Direct labor $ 90,000 Advertising $ 40,000 Factory supervision $ 35,000 Sales commissions $ 15,000 Depreciation, office equipment $ 4,000 Indirect materials $ 5,000 Depreciation, factory building $ 20,000 Administrative office salaries $ 1,000 Utilities, factory $ 2,500 Direct materials $ 105,000 Insurance, factory $ 6,000 Property taxes, factory $ 7,000

  What is the total amount of product cost?

  $270,500
• If the conversion costs are $70,000, direct labor costs are $20,000, and direct material costs are $40,000, then the manufacturing overhead must be:

  $50,000
• the tables are made of wood that cost $100 per table

  product

  direct materials

  variable