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Chapter 2

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ACC 406
Santoso Sugianto

ACC 406Introduction to Managerial AccountingCHAPTER 2 Basic Managerial Accounting Concepts Learning Objectives1 Explain the meaning of cost and how costs are assigned to products and servicesCost is the cash or cashequivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organizationManagers use cost information to determine the cost of objects such as products projects plants and customersCost vs Price Cost is what we pay for something and price is amount we charge our customers for our products or servicesDirect costs are traced to cost objects based on causeandeffect relationshipsIndirect ie overhead costs are allocated to cost objects based on assumed relationships and convenience2 Define the various costs of manufacturing products and providing services as well as the costs of selling and administrationOne of the most important cost objects of a company is its output Two types of output are tangible products and servicesProducts are goods that either are purchased or produced by converting raw materials through the use of labor and indirect manufacturing resources such as plants lands and machinery Services are tasks performed for a customer using an organizations products or products or facilitiesProduct 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 expense as as cost of goods sold on the income statement when the inventory is soldSelling 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 organizationsThe cost of goods manufactured COGM represents the total product cost of goods completed during the period and transferred too finished goods inventory The cost of goods sold COGS represents the cost of goods that were sold during the period and therefore transferred from finished goods inventory to cost of goods sold For a retailer there is no COGM and COGS equals the beginning inventory plus net purchase minus ending inventory For manufacturing and merchandising firms cost of goods sold is subtracted from sales revenue to arrive at gross margin In addition for manufacturing firms cost of goods manufactured must be first be calculated before calculating
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