Complete Study Guide for ACC 20200
Course Year: 2023-2024
,Chapter 1
, Managerial Accounting and Cost Concepts
Purpose of Cost Breakdown
1.Cost Objects 1.Direct Costs
2.Indirect Costs
2.Manufacturing Companies 1.Manufacturing Costs
- Direct Materials
- Direct Labor
- Manufacturing Overhead
2. Nonmanufacturing Costs
- Selling Costs
- Administrative Costs
3.Financial Statements 1.Product Costs
2.Period Costs
4.Predicting Cost Behavior in response to 1.Variable Costs
changes in activity 2.Fixed Costs
3.Mixed Costs
5.Making decisions 1.Relevant Costs
2.Irrelevant Costs
Cost Objects
- Cost Object: anything for which a cost is desired (products, customers,
departments, etc.)
1.Direct Cost
- Direct Cost: cost that can be easily traced to a specific cost object
- Example: the salary of the Tokyo sales manager for Jordan shoes or the cost of paper
for printing brochures for a specific customer
2.Indirect Cost
- Indirect Cost: cost that cannot be easily traced to a specific object
- Example: the factory manager’s salary at Campbell soup relative to chicken soup;
why? Because his salary is incurred due to him running the entire production, not
just chicken soup; it would be diQerent if we were talking about costs for
manufacturing department b/c in that case it would be a direct cost
o The salary in the first case is a common cost
o Common Cost: cost incurred to make many cost objects but cannot be
traced to one individually
, Manufacturing Companies
1.Manufacturing Costs
Direct Cost Categories
1.1Direct Materials Costs
- Direct materials Costs: raw materials that become an integral part of the finished
product and whose costs can be conveniently traced to the finished product
o Example: seats in a plane, chips in phones, etc.
1.2Direct Labor Costs
- Direct Labor Costs: labor costs that can be easily traced to individual units; aka
touch labor
o Example: assembly line worker, electricians building a house, etc.
o Prime Cost: direct materials costs + direct labor costs
Indirect Cost Categories
1.1Manufacturing Overhead Costs
- Manufacturing Overhead Costs (indirect manufacturing costs, factory
overhead): all manufacturing costs except direct materials and direct labor
o Examples:
§ Indirect materials: raw materials whose costs cannot be easily
traced to finished products
• The glue to assemble a chair, the welder machine in making
planes, etc.
§ Indirect labor: labor whose costs cannot be easily traced to a
finished product but play a key role in running a factory
• Janitors, security guards, etc.
§ Also includes depreciation of machines, utility costs, property taxes,
insurance premiums that all are key in operating the factory
- Remark:
o Conversion costs: direct labor + manufacturing overhead
1.2Nonmanufacturing Costs (selling, general, and administrative costs or SG&A)
- Selling Costs: costs incurred to secure customer orders/get order to them
o Examples: advertising, shipping, sales salaries, sales commissions, etc.
o Can be direct or indirect
§ For instance, the cost of an ad campaign dedicated to one specific
product is direct cost
, § While the salary of a marketing manager overseeing a lot of products
in indirect
- Administrative Costs: costs associated with the general management of an
organization as a whole rather than manufacturing and selling
o Examples: legal counsel, general accounting, etc.
o Can be direct or indirect
§ The salary of an accountant tracking accounts receivable in the
Western division is direct
§ The salary of the financial oQicer overseeing all company regions is
indirect
Course Year: 2023-2024
,Chapter 1
, Managerial Accounting and Cost Concepts
Purpose of Cost Breakdown
1.Cost Objects 1.Direct Costs
2.Indirect Costs
2.Manufacturing Companies 1.Manufacturing Costs
- Direct Materials
- Direct Labor
- Manufacturing Overhead
2. Nonmanufacturing Costs
- Selling Costs
- Administrative Costs
3.Financial Statements 1.Product Costs
2.Period Costs
4.Predicting Cost Behavior in response to 1.Variable Costs
changes in activity 2.Fixed Costs
3.Mixed Costs
5.Making decisions 1.Relevant Costs
2.Irrelevant Costs
Cost Objects
- Cost Object: anything for which a cost is desired (products, customers,
departments, etc.)
1.Direct Cost
- Direct Cost: cost that can be easily traced to a specific cost object
- Example: the salary of the Tokyo sales manager for Jordan shoes or the cost of paper
for printing brochures for a specific customer
2.Indirect Cost
- Indirect Cost: cost that cannot be easily traced to a specific object
- Example: the factory manager’s salary at Campbell soup relative to chicken soup;
why? Because his salary is incurred due to him running the entire production, not
just chicken soup; it would be diQerent if we were talking about costs for
manufacturing department b/c in that case it would be a direct cost
o The salary in the first case is a common cost
o Common Cost: cost incurred to make many cost objects but cannot be
traced to one individually
, Manufacturing Companies
1.Manufacturing Costs
Direct Cost Categories
1.1Direct Materials Costs
- Direct materials Costs: raw materials that become an integral part of the finished
product and whose costs can be conveniently traced to the finished product
o Example: seats in a plane, chips in phones, etc.
1.2Direct Labor Costs
- Direct Labor Costs: labor costs that can be easily traced to individual units; aka
touch labor
o Example: assembly line worker, electricians building a house, etc.
o Prime Cost: direct materials costs + direct labor costs
Indirect Cost Categories
1.1Manufacturing Overhead Costs
- Manufacturing Overhead Costs (indirect manufacturing costs, factory
overhead): all manufacturing costs except direct materials and direct labor
o Examples:
§ Indirect materials: raw materials whose costs cannot be easily
traced to finished products
• The glue to assemble a chair, the welder machine in making
planes, etc.
§ Indirect labor: labor whose costs cannot be easily traced to a
finished product but play a key role in running a factory
• Janitors, security guards, etc.
§ Also includes depreciation of machines, utility costs, property taxes,
insurance premiums that all are key in operating the factory
- Remark:
o Conversion costs: direct labor + manufacturing overhead
1.2Nonmanufacturing Costs (selling, general, and administrative costs or SG&A)
- Selling Costs: costs incurred to secure customer orders/get order to them
o Examples: advertising, shipping, sales salaries, sales commissions, etc.
o Can be direct or indirect
§ For instance, the cost of an ad campaign dedicated to one specific
product is direct cost
, § While the salary of a marketing manager overseeing a lot of products
in indirect
- Administrative Costs: costs associated with the general management of an
organization as a whole rather than manufacturing and selling
o Examples: legal counsel, general accounting, etc.
o Can be direct or indirect
§ The salary of an accountant tracking accounts receivable in the
Western division is direct
§ The salary of the financial oQicer overseeing all company regions is
indirect
