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Lecture 1

ACC 406 Lecture Notes - Lecture 1: Interest Expense, Gross Profit, Earnings Before Interest And Taxes


Department
Accounting
Course Code
ACC 406
Professor
Anthony Chan
Lecture
1

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What is cost
Cost means recourses used in order to actualize a specific object (cost object, cost
objective)
In a general sense, cost refers to value forgone to achieve a purpose
In a specific sense, cost refers to economic recourses paid for goods and services
Manufacturing companies have three inventory accounts:
1. Raw Material Inventory Accounts
2. Work in process (goods in process) Inventory Accounts
3. Finish goods Inventory Accounts
Where, merchandising companies only have:
Finish goods Inventory Accounts
In Manufacturing Accounting there are 3 cost components:
1. Direct Materials – those inputs physically become part of the product
Eg: paper to produce books
2. Direct labour – wages for those employees who convert direct materials into products
Eg: wages paid to assembly live workers
3. Overhead – includes all other costs associated with the manufacturing process except
for direct materials and labour
Eg: factory rent, factory repair, maintenance, utility, insurance, indirect materials (factory
supplies), indirect labour
MANUFACTURING COST = Direct materials + Direct Labour + Overhead
Direct Labour
Direct Materials
Overhead
Indirect
Materials
Indirect
Labour
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