Accounting 203 – Management Accounting
Chapter 2: Managerial Accounting & Cost Concepts
Manufacturing Costs
Define
Direct Materials
Example
Direct Labor
Manufacturing Overhead
NON Manufacturing
Costs
Selling Costs
Define
Example
Define
Example
Administrative costs
PRODUCT COSTS
PERIOD COSTS
Prime Cost
Conversion Cost
Example: Nooksack Expeditions (rafting company, river tours):
Cost Behavior
Define
Variable COST
Example
$30
Fixed COST
$500
Committed Fixed Costs
Discretionary fixed Costs
Variable Costs
Fixed Costs
Example: Nooksack Expeditions (rafting :
License fees: $25,000 per year PLUS $3 per rafting party
Cost Behavior
RELEVANT RANGE
Define
Variable COST
Fixed COST
MIXED COSTS
Mixed Costs
Scattergraph
Independent
Variable
Dependent
Variable
High – Low
Method
FORMULA:
Example
High Low Method Practice: A hospital.
Define:
Patient-Days
Maintenance Costs
Maintenance
Patient-Days Costs Incurred
High Activity
Low Activity
Change
Assignment: Using High-Low, develop a Cost formula where y = Total Maintenance Costs.
Practice: Piedmont Wholesale Florists has maintained records of the number of
orders and billing costs in each quarter over the past several years.
Number of Orders
Billing Costs
Year 1—1st
1,500
$42,000
2nd
1,900
46,000
3rd
1,000
37,000
4th
1,300
43,000
Year 2—1st
2,800
54,000
2nd
1,700
47,000
3rd
2,100
51,000
4th
1,100
42,000
Year 3—1st
2,000
48,000
2nd
2,400
53,000
3rd
2,300
49,000
Create a line using High-Low based on the first
Year of data.
Line:
Calculations
High:
Low:
Y = ____x + ______
Difference:
M = _______/_________ = $__________
Create a line using High-Low based on the all
data.
Line:
Calculations
High:
Low:
Y = ____x + ______
Difference:
M = _______/_________ = $__________
What is total cost if volume is: 900? Or 2,900?
Traditional and Contribution Format Income Statements:
Traditional Formt:
Cost of Goods Sold
Sales
Selling
Administrative
$6,000
12,000
3,100
1,900
Net Operating
Income
Contribution Margin Format
Cost of Goods Sold
$6,000
Sales
12,000
Variable Selling
600
Variable Administrative
400
Fixed Selling
2,500
Fixed Administrative
1,500
Variable Expenses:
Contribution Margin
Fixed Expenses:
Net Operating Income
Cost Objects
Define
Examples
Define
Examples
Direct Costs
Indirect Costs
Cost Classifications for Decision
Making
DIFFERENTIAL COSTS – fixed or
variable
OPPORTUNITY COST
SUNK COST
Porter Company manufactures furniture, including tables.
Required: Classify these costs according to the various cost terms
used in the chapter.
Product Costs
Variable
Wood used in a table
1 ($100/table)
2
3
4
5
6
7
8
9
Labor cots to
assemble the table
(40/table)
Salary of the factory
supervisor
($38,000/year)
Cost of electricity to
produce tables
($2/machine hour)
Depreciation of
machines used to
produce tables
($10,000/year)
Salary of the
company president
($100,000/year)
Advertising expense
($250,000/year)
Commissions paid to
salespersons
($30/table sold)
Rental income
forgone on factory
space
Fixed
Period
(S&A)
DM
DL
MOH
Sunk
Opp.