# Chapter 3 Part I What are costs?

```Chapter 3
Basic Cost Concepts
Part I
What are costs?
Direct and Indirect Costs
Examples and types of Indirect costs
1
Example 1
Prime Cost and Conversion Cost
2
Part II
Relevant Range
Cost Behaviors:
Variable and Fixed Costs
Mixed Costs
Step-Cost
Unit Cost and Marginal Cost
Product Costs and Period Costs
Cost of Goods Sold
3
Cost Flows for a manufacturing firm, the Inventory
Formula, and T-Accounts
Example 2
Income Statement for a Manufacturing Firm
Example 3
Income Statement for a Service Firm
Problems 3-50 and 3-53
4
Part III
Cost Concepts for Planning and Decision Making
Relevant and Differential Costs
Opportunity Cost
Sunk Costs
Controllable costs
5
Example 1
Indirect materials
Indirect labor
Rent
Depreciation
Taxes
Insurance
total
Estimated Activity
Activity, June 2004
\$20,000
14,000
120,000
45,000
4,000
3,000
\$206,000
4,000 Machine hours
510 Machine hours
Example 2
Work-in-process 1/1/04
Work-in-process 12/31/04
Finished Goods 1/1/04
Finished Goods 12/31/04
Raw materials 1/1/04
Raw materials 12/31/04
Direct materials purchased
Direct labor incurred
Actual activity (see example 1)
Example 3
\$24,000
18,900
54,000
55,000
18,000
19,200
110,000
\$220,000
3,800 MH
(see examples 1 and 2)
Sales
Operating expenses:
Salaries
Marketing costs
\$1,154,000
\$90,000
\$124,000
\$212,000
6
Problem 3 – 50
The following data pertain to Duvernoy Company for the year ended December 31, 2012:
January 1, 2012 January 1, 2013
Purchases of direct materials
\$60,000
Direct labor
\$45,000
Indirect labor
\$25,000
Factory insurance
\$12,000
Depreciation-Factory
\$80,000
Repairs and maintenance-Factory
\$15,000
Marketing expenses
\$66,000
\$55,000
Direct materials inventory
\$20,000
\$35,000
Work-in-process inventory
\$33,000
\$35,000
Finished goods inventory
\$23,000
\$20,000
Prepare a schedule of cost of goods manufactured and an income statement for Duvernoy
Company.
Problem 3 – 53
The following information was taken from the accounting records of Blazek
Manufacturing Company. Unfortunately, some of the data were destroyed by a computer
malfunction.
Case A
\$100,000
\$15,000
\$16,000
?
\$25,000
?
\$10,000
?
\$18,000
\$15,000
\$20,000
?
\$7,000
?
Sales
Finished goods inventory, Jan. 1, 2004
Finished goods inventory, Dec. 31, 2004
Cost of goods sold
Gross margin
Operating Income
Work-in-Process inventory, Jan. 1, 2004
Direct material used
Direct labor
Total manufacturing costs
Work-in-Process inventory, Dec. 31, 2004
Cost of goods manufactured
7
Case B
?
\$8,000
?
\$43,000
\$3,000
\$1,000
\$2,000
\$14,000
\$8,000
\$9,000
?
\$35,000
?
\$45,000
```