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COMM 112
David Mc Conomy

COMM 112 Notes Chapter 1 & 2 Managerial accounting: is the provision of accounting information for a companys internal users (internal focused, no mandatory rules, subjective information possible, emphasis on the future0 Cost object: any item such as a product, customer, department, project, geographic region, plant and so on, for which a cost are measured and assigned Cost classification a coast is a payment of cash or the commitment to pay cash ion the future for the purpose of generating revenues Direct costs are those coasts that can be easily and accurately traced to a cost object Fixed cost is a cost that does not increase in total as output increase and does not decrease in total as output decreases Indirect cost are costs that cannot be easily and accurately traced to a cost object Variable cost is a cost that does not increase in total as output increase and does not decreases in total as output decreases Product cost are those cost, both direct and indirect or producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale Direct materials are those material that are a part of the final product and can be directly traced to the goods bring produced Direct labour is the labour that can be directly traced to the goods being produced Manufacturing overhead: all product costs other than direct materials and direct labour are put into a category call manufacturing overhead Note: always take into consideration the time period and use time in order to determine the overall cost for the raw material, goods over the given accounting period - In addition to calculate the prime cost and conversion cost, you must take the total cost and divide it by either overhead or labour cost in each scenario Direct labour cost and direct materials cost is how much is cost the organization to purchase the raw materials and how much labour is needed to create the product The overhead cost is the cost other than the direct materials and direct labour cost that are incurred in the manufacturing process The statement of cost of goods manufactured is prepared using the following step: Step 1 determine the cost of direct material used Step 2- Determine the total manufacturing costs incurred Step 3 Determine the cost of goods manufactured The cost of finished goods available for sale is determined by adding the beginning finished goods inventory to the cost of goods manufactured during the period. The cost of goods sold is determined by subtracting the ending finished goods inventory from the cost of finished goods available for sale Beginning inventory of materials + purchases Direct material used in production = Ending inventory of materials Total product cost = direct mat. + Direct labour + manufacturing OH Unit product cost = total product cost / number of units Prime cost = DM + DL Conversion cost = DL + Manufacturing OH Chapter 3 Cost behavior Cost behavior is the general term for describing whether a cost changes when the level of output changes. (fixed cost do not change, variable cost change with material cost , and # of units produced) Cost driver: a causal measurement that causes costs to change. Identifying and managing cost drivers helps managers better predict and control costs Relevant range: is the range of output over which the assumed cost relationship is valid for the normal operations of a firm. This limits the cost relationship to the range of operations that the firm normally expects to occur. * fixed costs are costs that in total are constant within the relevant range as the level of output varies (discretionary fixed costs can be changed or avoided relatively easily at management discretion) Variable costs are defined as costs that in total vary in direct proportion to changes in output within the relevant range Total variable costs = variable rate * amount of output Note: As a result managers will analyze aspects of FC and VC in order to determine where the main cost drivers . this will permit them to truly determine methods in which they will be able to be more efficient and to cut costs of production Mixed costs: are costs that have both fixed and variable components. (must break down this cost to the FC and the VC / unit Total cost = total fixed cost + (variable rate * # of units produced) Dependent variable: a variable whose value depends on the value of another variable Independent variable: is a variable that measures output and that explains changes in the cost or other dependent variables Step cost displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point, where it remains for a similar range of output High Low method Is a method of separating mixed costs into fixed and variable components by using just the high low data points. Step 1 find the high point and the low point for a given data set (high point is defined as the point with the highest activity or output level) Step 2 using high low points calculate the variable rate Variable rate = (high point cost low point cost) / (high point output low point output) Step 3 calculate the fixed cost using the variable rate (using either high or low point) Fixed costs = total cost at high point (variable rate * output high point) Fixed costs total cost at low point (variable rate *output low point) Step 4 form the cost formula for materials handling based on the high low method Total cost = fixed cost + (variable rate * output level)
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