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GNBCY - Chap02 - Cost Concepts
GNBCY - Chap02 - Cost Concepts
Cost Concepts
Chapter 2
The Product
Selling Administrative
Costs Costs
Understand cost
classifications used to
prepare financial
statements: product costs
and period costs.
Sale
Prime Conversion
Cost Cost
MegaLoMart
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Merchandise Inventory Inventories
• Raw Materials
• Work in Process
• Finished Goods
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables
Materials waiting to
Receivables
be processed.
Merchandise Inventory Inventories
Partially complete • Raw Materials
products—some
• Work in Process
material, labor, or
• Finished Goods
overhead has been
added.
Completed products
awaiting sale.
Prepare an income
statement including
calculation of the cost of
goods sold.
Withdrawals
Beginning Additions Ending
balance + to inventory = balance + from
inventory
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Conversion
Beginning raw Direct materials
materials inventory + Direct labor
costs are costs
+ Raw materials + Mfg. overhead incurred to
purchased = Total manufacturing convert the
= Raw materials costs
available for use
direct material
in production into a finished
– Ending raw materials product.
inventory
= Raw materials used
in production
Manufacturing Work
Raw Materials Costs In Process
Manufacturing Work
Raw Materials Costs In Process
Work
In Process Finished Goods
Understand cost
classifications used to
predict cost behavior:
variable costs and fixed
costs.
Number of autos
produced in a month
Number of autos
produced in a month
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 42
Total Fixed Cost
Number of autos
produced in a month
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 44
Cost Classifications for Predicting Cost
Behavior
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
Understand cost
classifications used for
assigning costs to cost
objects: direct and indirect
costs.