If you want Job 2 and you want to live at home, you will benefit by the higher salary and the lower living expenses. Qualitatively, you will want to consider whether the time spent commuting is worth the extra money you will be netting from living at home. PA Req. The more units they produce, the lower the average fixed cost per unit.
PB Reqs. PB a. PB Req. A Req. Boulos: As a result of flooding, PowerBox suffered the complete loss of all inventories at its facility at 5 Research Triangle Way. Industrial Insurance covers these inventories under policy Briefly describe a service company, a merchandising company, and a manufacturing company.
Give an example of each type of company, but do not use the same examples as given in the chapter. Service companies are in business to sell intangible services. Merchandising companies are in business to sell tangible products they buy from manufacturers. Manufacturing companies use labour, plant, and equipment to convert raw materials into new finished products. How do service, merchandising, and manufacturing companies differ from each other? How are service, merchandising, and manufacturing companies similar to each other?
List as many similarities and differences as you can identify. What is the value chain? What are the six types of business activities found in the value chain? Which type s of business activities in the value chain generate costs that go directly to the income statement once incurred? What type s of business activities in the value chain generate costs that flow into inventory on the balance sheet?
All costs along the value chain for service companies, all except for purchases for merchandisers, and all except for production for manufacturers go directly to the income statement once they are incurred. Purchases flow into inventory for a merchandiser and production flows into inventories for a manufacturer. Compare direct costs to indirect costs. Give an example of a cost at a company that could be a direct cost at one level of the organization but would be considered an indirect cost at a different level of that organization.
Explain why this same cost could be both direct and indirect at different levels. A direct cost can be traced to a cost object whereas an indirect cost relates to the cost object but cannot be traced to it. The salary of a car sales manager is a direct cost to the sales department, but an indirect cost of the car itself. The salary of a sales manager is directly traceable to the sales department because that is the only place the manager works in the company.
The salary is an indirect cost of the car because it is impossible to determine how much of it belongs to a specific car. Why does it matter whether a cost is an inventoriable product cost or a period cost? Inventoriable product costs are all costs of a product that GAAP requires companies to treat as an asset inventory for external financial reporting. These costs are not expensed until the product is sold. Period costs are costs that are expensed in the period in which they are incurred, often called Operating Expenses, or Selling, General, and Administrative Expenses.
An inventoriable product cost is treated as an asset until the product is sold; it will benefit a future period. A period cost is expensed when it is incurred as it has no future value.
Compare inventoriable product costs to period costs. Using a product of your choice, give examples of inventoriable product costs and period costs. Explain why you categorized your costs as you did. Levi Strauss makes jeans. The inventoriable product costs would include denim, thread, zippers, labour, and factory overhead. All of these costs are related to the production of the jeans and are therefore inventoriable.
The costs of advertising the jeans in magazines are period costs because they occur regardless of when the inventory is sold and are expensed in the current period. The commissions paid to employees who sell the jeans to merchandisers, and the cost of shipping the jeans to buyers are all period costs because they are incurred once the jeans have been produced and have no future value to the company.
Describe how the income statement of a merchandising company differs from the income statement of a manufacturing company. Also comment on how the income statement from a merchandising company is similar to the income statement of a manufacturing company.
The Cost of goods sold section of the income statement is different for a merchandiser and a manufacturer because a merchandiser buys finished goods whereas a manufacturer produces finished goods. The merchandiser uses the cost of purchases in the computation of Cost of goods sold, where the manufacturer uses the Cost of goods manufactured in the computation of Cost of goods sold. The rest of the income statement is the same for both merchandisers and manufacturers. It includes Sales revenue, Gross profit, Operating expenses, and Operating income.
How are the cost of goods manufactured, the cost of goods sold, the income statement, and the balance sheet related for a manufacturing company? What specific items flow from one statement or schedule to the next? Describe the flow of costs between the cost of goods manufactured, the cost of goods sold, the income statement, and the balance sheet for a manufacturing company.
The Cost of goods manufactured includes all the costs of production, direct material, direct labour, and manufacturing overhead.
This amount is used in the preparation of the income statement in the computation of Cost of goods sold where it is added to beginning Finished goods inventory to determine Cost of goods available for sale.
The remaining Finished goods that have not been sold is shown on the balance sheet as inventory. What makes a cost relevant or irrelevant when making a decision? Suppose a company is evaluating whether to use its warehouse for storage of its own inventory or whether to rent it out to a local theatre group for housing props.
Describe what information might be relevant when making that decision. When making a decision, a cost is considered relevant or irrelevant depending on whether it changes between the alternatives in the decision. Some relevant costs to consider in the evaluation of whether to use the warehouse for storage or whether to rent it would be the cost of storage elsewhere, how much rent could be charged for the warehouse, insurance costs, and so forth.
Give an example of a situation in which there is a cost that is a differential cost but not a variable cost. A differential cost is the difference in cost between two alternative courses of action whereas a variable cost is a cost that changes in total in direct proportion to changes in volume. If a company was deciding between renting office space downtown more expensive or in the suburbs less expensive , the cost of rent would be an example of a differential cost that is not a variable cost.
Rent is a fixed cost. Student answers may vary. Describe the product that is being produced and the company that produces it. Describe the six value chain business activities that this product would pass through from its inception to its ultimate delivery to the customer. List at least three costs that would be incurred in each of the six business activities in the value chain.
Classify each cost you identified in the value chain as either being an inventoriable product cost or a period cost.
Explain your justification. All the costs, with the exception of production costs, are period costs. Only the production costs are inventoriable. A cost object can be anything for which managers want a separate measurement of cost. List three different potential cost objects other than the product itself for the company you have selected. List a direct cost and an indirect cost for each of the three different cost objects in 5.
Explain why each cost would be direct or indirect. EP-2 b. Distinguish among service, merchandising, and manufacturing companies. Describe the value chain and its elements. Distinguish between direct and indirect costs. Identify the inventoriable product costs and period costs of merchandising and manufacturing firms. Prepare the financial statements for service, merchandising, and manufacturing companies.
Describe costs that are relevant and irrelevant for decision making. Classify costs as fixed or variable and calculate total and average costs at different volumes. Managers and management accountants need to have a common understanding of concepts to ensure the right type of information is provided for the decision being made. They must have a clear understanding of the situation and the types of costs that are relevant. Section One: Distinguishes the three types of sectors: service, manufacturing and merchandising.
The handling of inventories and costs for both merchandising and manufacturing firms are covered product and period costs. The three levels of inventory of manufacturers are identified. Section Two: Describes the different components of the value chain and how these components are coordinated. Section Three: Describes a cost object and distinguishes between indirect and direct costs explaining the difference between traced and allocated.
Also, describes factors influencing costs. Prime costs and Conversion costs are defined and explained. This section also demonstrates the flow of costs through inventory accounts facilitated by preparation of the schedule of cost of goods manufactured. Section Six: Defines relevance and provides examples of when costs are relevant for decision making. Sunk costs are also presented. Section Seven: The behavior of variable and fixed costs is discussed.
Variable costs change in proportion to changes in the cost driver, whereas fixed costs in total are unaffected by cost-driver activity. If there is inventory it is generally for supplies and used in operations not to make profit. While merchandising companies have a single inventory item finished goods inventory listed on their balance sheets, manufacturing companies have the following categories: Direct-Materials Inventory — materials on hand and awaiting use in the production process.
Work-In-Process Inventory — goods undergoing the production process but not yet fully completed. Costs include appropriate amounts of the three major manufacturing costs i. Finished-Goods Inventory — goods fully completed but not yet sold. TIP 2:Students need to understand that manufacturing companies have a broad range of production activities that require tracking in three kinds of inventory: raw materials RM , work in process WIP , and finished goods FG.
Students should understand that all three of these inventories are assets. TIP 3:Have students work in teams or with a partner and complete EB Identify types of companies and their inventories 5 minutes. Call on a student to report the answers. Research and development - researching and developing new or improved products or services and the processes for producing them.
Design — detailed engineering of products and services and the processes for producing them. Production or purchases — resources used to produce a product or service or to purchase finished merchandise intended for resale.
Marketing — promotion and advertising of products or services. Distribution — delivery of products or services to consumers. Customer service — support provided for customers after sale. Coordinating activities across the value chain Most of the value chain activities occur in the above order. However, each element is not worked on independently without considering other elements. Cost Object - is something for which managers want a separate measurement of the cost of e.
Direct Costs — a cost that can be easily traced to the cost object; identified specifically and exclusively with a given cost objective in an economically feasible way.
Indirect Costs - not identified specifically and exclusively with a given cost objective in an economically feasible way Managers prefer to classify many costs as direct whenever it is "economically feasible" because it gives them greater confidence in their costs of products and services i. A particular cost can be direct for one cost objective but indirect for others. Use Exhibit to demonstrate this concept.
The store subscribes to a monthly DVD magazine which discusses the most current titles. If the cost object is the entire DVD product line, the cost of the magazine subscription can be classified as a direct cost. However, if the cost object is a single DVD pick a current popular movie to explain to students , the magazine subscription cost can no longer be directly traced to that single DVD.
It would be classified as an indirect cost of the single DVD. Direct-Labour Costs - the cost of compensating employees who physically convert raw materials into the finished product; the labor costs that can be traced specifically and exclusively to the manufactured goods in an economically feasible way Manufacturing Overhead Costs Indirect Manufacturing Costs or Manufacturing Overhead - include all costs other than direct material or direct labor that are associated with the manufacturing process e.
Product Costs - costs e. Period Costs - costs called operating expenses, or selling, general and administration expenses that are deducted as expenses during the current period without going through the inventory stage. Note that manufacturing companies have three categories of product costs while only one is present for merchandisers.
TIP 3:Break down manufacturing overhead into three sub-categories to help students remember what types of costs are classified as overhead. The following subcategories can be used: 1 indirect materials i. Service company — simplest income statement as they do not sell products, thus there is no cost of goods sold. Merchandising companies — income statement includes cost of goods sold CoGS , which is generally the largest cost on the income statement.
Cost of goods sold is the cost of the the products that the company purchases from its suppliers. Manufacturing companies — income statement includes cost of goods sold, however the calculation is different from a merchandising firm as a manufacturing company makes their goods instead of buying them.
Before the company can determine the cost of products sold to include on the income statement , they must first determine the cost of all the finished products during the period, referred to as cost of goods manufactured. Cost of goods manufactured CoGM — summarizes the cost of activities that take place in a manufacturing plant over the period.
Flow of costs through inventory accounts — all product costs raw materials, direct labor, and manufacturing overhead of a manufacturing company flow from the balance sheet through inventory accounts and eventually are expensed on the income statement once the goods are sold expensed as cost of goods sold. This can be done by reviewing Exhibits , , and and by contrasting the differences. Emphasize the logical flow of all three types of income statements.
TIP 2: The schedule of cost of goods manufactured summarizes the activities that take place in a manufacturing plant over the period Exhibit Work through an example EA of a schedule and the cost of goods sold calculation on the board. When presenting the CoGM Schedule, break it down into four parts to help students remember the sections needed 1.
Direct materials, 2. Direct Labor, 3. Factory Overhead and 4. Analysis of WIP Inventory accounts. TIP 3: Use Exhibits and to explain the logical flow of costs in a manufacturing environment. Point out that the first two inventories RM and WIP show up on the schedule, while the third inventory FG shows up on the income statement as part of the cost of goods sold calculation. It may be helpful to show the flow of costs through use of T-accounts rather than using numbers, write descriptions in the T- account.
This will set a good foundation when journal entries for a manufacturing company are presented in the chapter on job-costing. Relevant and irrelevant costs Relevant information is the predicted future costs and revenues that will differ among alternatives. Although past data may be helpful in predicting future costs and revenues, past data is irrelevant in making future decisions. Differential cost — difference in cost between two alternatives relevant cost.
Sunk cost — costs that have already been incurred. Future decisions cannot change past costs. Thus, sunk costs are classified as irrelevant and not considered in decision making. Each unit costs the same, however, as activity increases, total cost increases. Relevant Range - the limits i. You can use the costs required to operate their vehicle. Explain how each liter of gas costs the same, however, the more kilometers driven, their total cost of gas will increase given the same price of gas.
The cost of gas is considered a variable cost. On the other hand, their insurance company provides a yearly insurance rate. Regardless of whether they drive 10km, km or km, the cost of insurance stays constant, making it a fixed cost. TIP 2: Explain the concept of relevant range and fixed costs. For example, a clothing manufacturing company, has the capacity to make shirts each month. The relevant range for cost classification is 0 to shirts.
In this range, fixed costs remain constant. However, if the company wants to double production, they will need to purchase more sewing machines and have to rent a bigger factory. Once the company operates outside the relevant range, total fixed costs will increase. TIP 3: Use the following chart to summarize variable and fixed costs. The understanding and ability to differentiate between these costs will remain crucial for subsequent topics. The three most common types of companies a.
Service b. Merchandising i. Retailers ii. Wholesalers c. Manufacturing i. Raw materials ii. Work in process iii. Finished goods 2. Value Chain a. Research and Development b. Production or Purchases d. Marketing e. Distribution f. Customer Service 3. Cost Objects a. Direct Costs b. Indirect Costs 4. Costs for internal decision making and external reporting a. Total costs for internal decision making b.
Inventoriable product costs for external reporting i. Specified inventoriable costs ii. Period costs operating expenses 5. Inventoriable Product Costs for Merchandising Companies a. Cost of the merchandise itself b. Freight-in and any import duties 6. Inventoriable Product Costs for Manufacturing Companies a. Direct Materials b.
Direct Labour c. Manufacturing Overhead i. Indirect materials ii. Indirect labour iii. Other indirect manufacturing costs d. Prime and Conversion costs e. Income Statements a. Service Companies b. Merchandising Companies c. Manufacturing Companies i. Calculating Cost of Goods Manufactured ii. Flow of costs through the accounts 8. Comparing Balance Sheets 9. Other Cost Terms a. Controllable versus uncontrollable costs b. Relevant and irrelevant costs c. Fixed and variable costs d.
Service Corporation B. Merchandising Corporation C. Manufacturing Corporation D. Not-for-profit Corporation 2. Which of the following is NOT a value chain activity? Production C. Distribution D. Quality Control 3. Which of the following is a direct cost in the production of tire jacks for a machine shop? Utilities B. Taxes C. Steel D. Rent 4. Which of the following is an indirect cost in the construction cost of a home for a building company? Professor Tietz is a certified public accountant, a certified management accountant, and a certified information systems auditor.
His research is focused on the effective, efficient and equitable delivery of healthcare. Pearson Higher Education offers special pricing when you choose to package your text with other student resources. If you're interested in creating a cost-saving package for your students contact your Pearson Higher Education representative.
Looking for technical support for your Pearson course materials? Pearson Always Learning. Browse by discipline. Sign in or sign up Find your rep Exam copy bookbag. Updating your exam copy bookbag…. Download resources Buy this product Students, buy access Additional options. About This Product Packages. Print this content. In this section: About This Product Features New to This Edition Table of Contents About the Author s Preface PDF Courses About This Product Description Braun, Managerial Accounting builds a solid foundation in managerial accounting concepts, within a less intimidating and more student-friendly context by making information easier to find, making topics easier to understand, and making examples more engaging for students.
Visual Walk-Through A chapter-opening vignette shows why the topics in the chapter are important to companies and business people. Excel Exhibits To give students a glimpse into the real world presentation of managerial accounting topics, all financial statements and schedules are presented in Excel. Accounting in the Headlines Accounting in the Headlines, an award-winning blog by renowned author Wendy Tietz, does just that with stories about real companies and events that can be used in the accounting classroom to illustrate introductory financial accounting concepts.
Concise, tailorable, and updated on a weekly basis, these articles easily fit into the typical introductory accounting curriculum, whether the course is delivered in-person or online.
Accounting in the Headlines assignable questions. Students have the opportunity to practice important Accounting skills in Microsoft Excel, helping them to master key concepts and gain proficiency in Excel. Students simply download a spreadsheet, work live on an accounting problem in Excel, and then upload that file back into MyAccountingLab, where they receive reports on their work that provide personalized, detailed feedback to pinpoint where they went wrong on any step of the problem.
Demo Doc Problems and Solutions appear in chapters 4, 5, 6, and 9. These provide walk-through problems for demonstration and comprehension of the concepts. Case Appendix MyAccountingLab This innovative tool will provide students with direction on case analysis. Each scenario is a stand-alone case, allowing instructors to assign only those cases that are applicable to their course. SOX and Production System made more concise. Updates for currency of examples, topics, or Canadianizations.
Further expansion of the strategic aspects and the link between theory and application in management accounting both for majors and general business students Updates to ethics section—not all illegal behaviour is unethical Chapter 2: Building Blocks of Managerial Accounting Updates for currency of examples, topics, or Canadianizations Further expansion of the strategic aspects and the link between theory and application in management accounting both for majors and general business students Chapter 3: Cost Behaviour formerly Chapter 6 New chapter placement—this was formerly chapter 6.
Updates for currency of examples, topics, or Canadianizations Includes a more applied discussion of the link between theory and the relevant tasks of running a business. Further linkage between theory and practice that keeps the text relevant to majors and nonmajors alike.
Simplified language. Updates for currency of examples, topics, or Canadianizations Revised organization to enhance readability and pedagogical value. Improved clarity by providing definitions e. Inclusion of further examples to clarify that hybrid costing is not only applicable in manufacturing.
Chapter 6: Process Costing formerly Chapter 5 Updates for currency of examples, topics, or Canadianizations Further expansion of the strategic aspects and the link between theory and application in management accounting both for majors and general business students Reorganized so that the mechanics of process costing comes before sustainability.
More reference to service companies. Section on weighted average vs. FIFO methods included as an Appendix. Chapter 7: Activity Based Costing formerly chapter 4 Updates for currency of examples, topics, or Canadianizations Further expansion of the strategic aspects and the link between theory and application in management accounting both for majors and general business students Included content on high cost of ABC.
Mentions individuals who collect the data in the ABC system. Revised definition of value-added activity.
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