COMMERCE 2AB3 Chapter Notes - Chapter 2: Behaviorism, Flat Rate, Balance Sheet
27 Apr 2018
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Department
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Managerial Acct.
Chapter 2: Managerial Cost Concepts and Cost Behaviour Analysis
Managerial Cost Concepts
- Managers must need information to have the ability to plan, direct and control their
operations
- Questios that should e ask…
o What costs are involved in making a product or providing a service?
o If we decrease production volume, will costs decrease?
o What impact will automation have on total costs?
o How can we beat control costs?
- Accountants define cost as…
o An economic resource given up or foregone to accomplish a particular objective
o Cost Object: An item that we calc. a cost which the cost info. can be measured
and accum.
▪ Two steps to measure is Cost Accum. And Assigmt.
• Cost Accum: the process of tracking, measuring and recording the
costs incurred in an organized way (formal costing system)
• Cost Assgmt: the process of assigning/ charging/ attaching the
accumulated costs to the related cost objects that are responsible
for incurring the costs
o Can be assigned by Tracing or Allocation
Manufacturing Costs
- Manufacturing
o Consists of activities and processes that convert raw materials into finished gds
o Direct MaterialsDirect LabourManufacturing Overhead
- Direct Materials
o Raw Materials that can be physically and directly associated with the finished
product during the manufacturing process
▪ Eg. Flour in the baking of bread; syrup in the bottling of soft drinks
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o Indirect Materials are not fully associated with the completion of the product.
They have two characteristics
▪ Thy do not physically become part of the finished product
▪ They cannot be easily traced because their physical association with the
finished product is too small
• Can be known as a cost for manufacturing overhead
- Direct Labour
o Work completed by the employees that can be physically/ directly impact with
converting raw materials into finished gds is Direct Labour
o Some work can be cannot be assoc. with the finale of the product; Known as
Indirect Labour
▪ It is the work of factory employees that has no physical assoc. w/ the
finished product
▪ It is work for which it is impractical to trace costs to the gds produced
• Eg. Timekeepers, supervisors, Architects
▪ Classified as Manufacturing costs
- Manufacturing Overhead (Indirect Manu. Costs, burden) (Also known as factory
overhead)
o All manu. Costs other than direct materials and labour
o Costs which are indirectly assoc. w/ the manufacturer of the completed product
▪ Ca also e au. Costs whih are’t lassified as diret laour/
materials
o Includes indirect materials/ labour, depr. Of buildings/ machines, insurance,
taxes, maintenance
o Stats say:
▪ Direct Materials: 54% ; Direct Labour: 13% ; Manufact. Overhead: 33%
o Direct Labour continues to fall due to automation; many are increasing
productivity by decreasing labour
Prime Costs and Conversion Costs
- Prime Costs: Sum of all direct materials costs and direct labour costs (direct man. Costs)
- Conversion Costs: Sum of all direct labour costs and manu. Overhead costs = costs of
converting raw materials into completed products
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find more resources at oneclass.com
Document Summary
Chapter 2: managerial cost concepts and cost behaviour analysis. Managers must need information to have the ability to plan, direct and control their operations. Manufacturing: consists of activities and processes that convert raw materials into finished gds, direct materials direct labour manufacturing overhead. Direct materials: raw materials that can be physically and directly associated with the finished product during the manufacturing process, eg. Flour in the baking of bread; syrup in the bottling of soft drinks. Indirect materials are not fully associated with the completion of the product. It is the work of factory employees that has no physical assoc. w/ the finished product. It is work for which it is impractical to trace costs to the gds produced: eg. Timekeepers, supervisors, architects: classified as manufacturing costs. Costs, burden) (also known as factory overhead: all manu. Costs other than direct materials and labour: costs which are indirectly assoc. w/ the manufacturer of the completed product, ca(cid:374) also (cid:271)e (cid:373)a(cid:374)u.
