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Lecture 2

BUS 202 Lecture Notes - Lecture 2: Direct Labor Cost, Management Accounting, Finished Good

20 pages71 viewsSpring 2017

Department
Business
Course Code
BUS 202
Professor
Joseph D' Adamo
Lecture
2

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University of Rhode Island
BUS 202 Managerial Accounting 2016 - 2017
Joseph M. D’Adamo
Course Outline #2: Manufacturing Cost Concepts and Terminology
Page 1 of 20
I. Manufacturing Companies
A. Manufacturing Product Costs vs. Manufacturing Period Costs
Direct Materials (DM) Selling, General & Administrative Expenses
Direct Labor (DL) Interest Expense
Manufacturing Overhead (OH) Income Tax Expense
INVENTORIABLE COSTS SAME AS MERCHANDISERS
1. Manufacturing Inventories = Product Cost on SFP/BS reported as Current Assets
a. Raw Materials Inventory (RM) Stores
Raw Materials Inventory: Cost of materials on hand such as cloth, plastic, wood, etc.
b. Work In-Process Inventory (WIP) Factory
Work In-Process Inventory: Cost (DM, DL, and OH) of partially-completed goods on hand
c. Finished Goods Inventory (FG)
Finished Goods Inventory: Cost (DM, DL, and OH) of completed goods held for sale on hand
2. Manufacturing Cost of Goods Sold Expense on CIS
Cost of Goods Sold: Cost (DM, DL, and OH) of finished goods sold and delivered (ownership transferred)
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Course Outline #2: Manufacturing Cost Concepts and Terminology
Page 2 of 20
B. Categories of Manufacturing Product Costs
1. Direct vs. Indirect Manufacturing Product Costs
a. Definition of a Direct Cost
Direct Cost: A cost that can be traced to a cost object because a cause-and-effect relationship exists
Traceability: The ability to cost-effectively observe, measure, and assign the effects of specific costs to specific
cost objects
Direct Manufacturing Product Costs: Costs of production inputs that can be traced and assigned to specific outputs
(products) because:
a cause-and-effect relationship exists between the production inputs and the specific products output
the costs can be cost-effectively traced and assigned to the specific products because the benefit of
the product cost information exceeds the cost of the system to measure and report the information
DIRECT MFG COSTS = DM + DL = PRIME COSTS
Example: A shirt manufacturer used 5,000 yards of cloth to complete a production run of 2,000 dress shirts.
Cost-Effectively Traced and Assigned
Cause Effect
Cloth Input Easy to Measure and Report Shirts Output
5,000 Yards 2,000 Dress Shirts
Cost of Yards Input Significant Amount of Product Cost Cost per Shirt Output
Benefit of Information > Cost of Information
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Course Outline #2: Manufacturing Cost Concepts and Terminology
Page 3 of 20
b. Definition of an Indirect Cost
Indirect Cost: A cost that cannot be practically traced to a cost object
Indirect Manufacturing Product Costs: Costs of production inputs and factory operations that are classified as
overhead and allocated to specific outputs (products) in rational manner because:
a cause-and-effect relationship does not exist between the costs and the specific products output
the costs cannot be cost-effectively traced to the products
INDIRECT MFG COSTS = MANUFACTURING or FACTORY OH
Factory = Manufacturing = Production
Example:
During the last week of July 2016, McGrew-Hall, a book publisher, manufactured 5,000 financial accounting texts
and 8,000 managerial accounting texts. The company incurred the following production costs during that week:
Cost of Paper Used
DIRECT
Direct Materials
Cost of Polishing Supplies Used
INDIRECT
Overhead: Indirect Materials
Wages of Production Line Employees
DIRECT
Direct Labor
Wages of Production Runners
INDIRECT
Overhead: Indirect Labor
Production Manager Salary
INDIRECT
Overhead
1. Identify the production costs above that McGrew-Hall directly traced and assigned to the financial
accounting texts vs. the managerial accounting texts.
$110,000 DM + $31,785 DL = $141,785
2. Identify the production costs that McGrew-Hall included in overhead and allocated to the financial
accounting texts vs. the managerial accounting texts in a rational manner.
$1,800 + $8,500 + $2,000 = $12,300 OH
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