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Chapter 2

ACC 406 Chapter 2

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ACC 406
Anthony Chan

CHAPTER 2 – BASIC MANAGERIAL ACCOUNTING CONCEPTS 1. Explain the meaning of cost and how costs are assigned to products and services.  Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization  Managers use cost information to determine the cost of objects such as products, projects, plants, and customers  Direct costs are traced to cost objects based on cause and effect relationships  Indirect (ex. overhead) costs are allocated to cost objects based on assumed relationships and convenience 2. Define the various costs of manufacturing products and providing services as well as the costs of selling and administration.  Products are goods that either are purchased or produced by converting raw materials through the use of labour and indirect manufacturing resources, such as plant, land, and machinery. Services are tasks performed for a customer or activities performed by a customer using an organizations products or facilities  Product costs are those costs, both direct and indirect, of acquiring a product in a merchandising business and preparing it for sale or of producing a product in a manufacturing business. Product costs are classified as inventory on the balance sheet and then expensed as cost of goods sold on the income statement when the inventory is sold  Selling costs are the costs of marketing and distributing goods and services and administrative costs are the costs of organizing and running a company  Both selling and administrative costs are period costs 3. Prepare income statements for manufacturing and service organizat
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