Professional Documents
Culture Documents
Chapter 2 - Cost Accounting
Chapter 2 - Cost Accounting
Chapter 2 - Cost Accounting
◼ Variable
◼ Fixed
◼ Mixed
◼ Step
$
$
# of Units # of Units
Within the
relevant range
Cost Reaction to Changes in Activity
# of Units # of Units
Unit $ Unit $
Within the
# of Units relevant range # of Units
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Total and Unit Cost Behavior
Total Cost Unit Cost
variable
$ $
fixed
# of Units # of Units
Within the
relevant range
Determining Cost Behavior
◼ Cost Predictor ◼ Cost Driver
❑ Activity accompanied ❑ Activity that has a
by consistent, direct cause-effect
observable changes in relationship on cost
a cost item
◼ Product costs
❑ Direct material—Measurable part of a product
❑ Direct labor—Labor used to manufacture a
product or perform a service
❑ Overhead—Indirect production cost
◼ First appear on the balance sheet in
inventory accounts
◼ Transferred to the income statement when
product is sold
Period Costs
◼ Period costs
❑ Selling and administrative costs
❑ Distribution costs
◼ Cost to warehouse, transport, and/or deliver a product or
service
◼ Major impact on managerial decision making
◼ Appear on the income statement when
incurred
◼ Expensed when incurred
The Conversion Process
CONVERSION
Degrees of Conversion
Low Moderate High
Moderate
◼ Low ◼ High
❑ Department stores ❑ Manufacturing
❑ Gas stations ❑ Construction
❑ Jewelry stores ❑ Agriculture
❑ Travel agencies ❑ Architecture
◼ Moderate ❑ Auditing
❑ Mining
❑ Florists
❑ Printing
❑ Meat markets
❑ Restaurants
❑ Oil-change businesses
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Service Company
Input
Purchase
supplies
Significant amount of labor
Tangible or intangible output
Use supplies,
labor, overhead Output
to provide service
Sell to
customer
Retail Company
Input
Output
Purchase
Warehouse
products
and/or display
for resale
Work in Process
Inventory
Finished Goods Cost of
Inventory Goods Sold
Income
Balance Sheet Statement
Product Cost—Direct
◼ Direct Material
❑ Conveniently and economically traced
to cost object
◼ Direct Labor
❑ To manufacture a product or perform a service
❑ Includes wages paid to direct labor employees,
production bonuses, payroll taxes
❑ May include holiday and vacation pay, insurance,
retirement benefits
Product Cost—Indirect
◼ Overhead Actual
Allocating Overhead:
Actual Cost System