Professional Documents
Culture Documents
Act 202. Chap002
Act 202. Chap002
Act 202. Chap002
Concepts
Chapter 02
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
2-2
The Product
2-3
Direct Materials
Raw materials that become an integral
part of the product and that can be
conveniently traced directly to it.
Direct Labor
Manufacturing Overhead
Manufacturing costs that cannot be easily
traced directly to specific units produced.
Nonmanufacturing Costs
Selling Administrative
Costs Costs
Sale
Classifications of Costs
Manufacturing costs are often
classified as follows:
Direct Direct Manufacturing
Material Labor Overhead
Prime Conversion
Cost Cost
2-9
Variable Cost
Units Machine
produced hours
A measure of what
causes the
incurrence of a
variable cost
Miles Labor
driven hours
2-12
Fixed Cost
Your monthly contract fee for your cell phone is
fixed for the number of monthly minutes in your
contract. The monthly contract fee does not
change based on the number of calls you make.
Monthly Cell Phone
Contract Fee
Committed Discretionary
Long-term, cannot be May be altered in the
significantly reduced in short-term by current
the short term. managerial decisions
Examples Examples
Depreciation on Buildings Advertising and
and Equipment and Real Research and
Estate Taxes Development
2-15
Range
Accountant’s Straight-Line
Approximation (constant
unit variable cost)
Activity
2-16
90
Rent Cost in Thousands
0
0 1,000 2,000 3,000
Rented Area (Square Feet)
2-17
Mixed Costs
The total mixed cost line can be expressed
as an equation: Y = a + bX
End of Chapter 02