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Managerial Accounting Chapter 2
Terms in this set (54)
A company that sells intangible services rather than tangible products.
A company that resells tangible products previously bought from suppliers. Includes retailers and wholesalers.
Merchandising company that sells to consumers.
Merchandising companies that buy in bulk from manufacturers, mark up the prices, and then sell those products to retailers.
A company that uses labor, plant, and equipment to convert raw materials into new finished products.
Types of Manufacturer Inventory
Raw materials inventory, work in process inventory, finished goods inventory.
Raw Materials Inventory
All raw materials (direct materials and indirect materials) not yet used in manufacturing.
Work in Process Inventory
Goods that are partway through the manufacturing process but not yet complete.
Finished Goods Inventory
Completed goods that have not yet been sold.
The activities that add value to a firm's products and services: Includes R&D, design, production or purchases, marketing, distribution, and customer service.
Research and Development (R&D)
Researching and developing new or improved products or services or the processes for producing them.
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.
Promotion and advertising of products or services.
Delivery of products or services to customers.
Support provided for customers after the sale.
Life-cycle assessment (LCA)
Studying the environmental and social impacts of a product or service over its entire life, from "cradle to grave".
A means of product design in which a company tries to mimic, or copy, the natural biological process in which dead organisms (plants and animals) become the input for another organism or process.
The unfortunate practice of overstating a company's commitment to sustainability.
Anything for which managers want a separate measurement of costs.
A cost that can be traced to a cost object.
A cost that relates to the cost object but cannot be traced to it.
To attach a cost to a cost object.
To assign a direct cost to a cost object.
To assign an indirect cost to a cost object.
The cost of all resources used throughout the value chain.
Inventoriable Product Costs
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. (Costs incurred during the "production or purchases" stage of the value chain)
Costs that are expensed in the period in which they are incurred; often called "operating expenses" or "selling, general and administrative expenses" (SG&A).
Always expensed in the period in which they are incurred and never become part of an inventory account.
Inventoriable Product Costs in Merchandiser include:
Cost of merchandise itself, Freight-In, and Customs/Duties.
Inventoriable Product Costs (manufacturing costs) in Manufacturer include:
Direct materials, direct labor, and manufacturing overhead.
Direct Materials (DM)
Primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product.
Direct Labor (DL)
The cost of compensating employees who physically convert raw materials into the company's products; labor costs that are directly traceable to the finished products.
Manufacturing Overhead (MOH)
All manufacturing costs other than direct materials and direct labor; also called factory overhead and indirect manufacturing costs.
3 Components of Manufacturing Overhead
Indirect materials, indirect labor, and other indirect manufacturing costs.
Materials whose costs are difficult to trace to specific products. (Ex: janitorial supplies, oil and any physical components of the finished product that are very inexpensive.)
Labor costs that are difficult to trace to a specific product. Includes the cost of all employees IN THE PLANT other than those employees directly converting the raw materials into the finished product. (Ex: salaries, wages, and benefits of plant forklift operators, plant security officers, plant janitors, and plant supervisors.)
Other Indirect Manufacturing Costs
All manufacturing overhead costs aside from indirect materials and indirect labor.
The combination of direct material and direct labor costs.
The combination of direct labor and manufacturing overhead costs. Costs of converting raw materials into finished goods.
Earnings generated from the company's primary ongoing operations; the company's earnings before interest and taxes.
An inventory system in which both Cost of Goods Sold and Inventory are updated every time a sale is made.
An inventory system in which Cost of Goods Sold is calculated at the end of the period, rather than every time a sale is made.
Cost of Goods Manufactured
The cost of manufacturing the goods that were finished during the period.
Calculation of Cost of Goods Sold for Manufacturer
1.) Calculate the cost of the direct materials used during the year. (Beg. Raw Materials + Direct Materials purchased during the year and freight-in and import duties - End Raw Materials)
2.) Calculate the cost of goods manufactured. (Beg. Work in Process Inventory + Manufacturing costs incurred during the year (DM, DL, MOH) - End Work in Process Inventory)
3.) Calculate the cost of goods sold. (Beg Finished Goods Inventory + Cost of Goods Manufactured - End Finished Goods Inventory)
Costs that can be influenced or changed by management.
Costs that cannot be changed or influenced in the short run by management. (Ex: Taxes)
The difference in cost between two alternative courses of action.
A cost that has already been incurred.
Costs that stay constant in total despite wide changes in volume.
Costs that change in total in direct proposition to changes in volume.
Total Cost Equation
Total Fixed Cost + (Variable cost per unit x Number of units)
The total cost divided by the number of units.
Average Cost per Unit Equation
Total Cost / Number of units
The cost of producing one more unit.
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