1.2 Flashcards
Financial Accounting
Deals with external reporting with a historical focus
Management Accounting
Reporting to internal users and has a future orientation
Cost Accounting
Supports both financial and management accounting. Has an internal and external focus and underlies effective reporting for both internal and external users
Cost (management accounting)
A measurement in monetary terms of the amount of a resource used for some purpose
Cost (financial accounting)
The sacrifice measured by the price paid or required to be paid to acquire a good or service.
Direct materials
Tangible manufacturing inputs that can b practically traced to the product (metal for a tractor)
Direct labor
The cost of human labor that can be practically traced to the product. (Welder welding a tractor)
Manufacturing overhead
All manufacturing costs that are not direct labor or material (Indirect material, labor, and factory overhead)
Indirect material
Tangible inputs that can’t be practically traced to the product (Staples used in a staple machine)
Indirect labor
Cost of human labor connected with the manufacturing process that can’t be easily traced to the product (assembly line supervisors or janitorial staff)
Factory operating costs (examples)
Utilities, real estate taxes, insurance, depreciation
What are the two types of manufacturing cost classifications?
Prime costs and conversion costs
Prime costs
The costs that are directly attributable to a product. (Equals direct material plus direct labor)
Conversion costs
The costs of converting raw materials into a finished product. (Equals direct labor plus manufacturing overhead)
What are the two categories of non-manufacturing costs
Selling (marketing) expenses and administrative expenses
Administrative expenses
Costs incurred by a company not directly related to producing or marketing a product (executive salaries and depreciation on headquarters building)
Selling (marketing) Expenses
Costs incurred on getting the product from the factory to the consumer (product transport, sales personnel salaries, advertising)
Product costs
Are capitalized as part of finished goods inventory and go on to become cost of goods sold (also called inventoriable costs)
Period costs
Costs that are not capitalized into finished goods inventory but are expensed as incurred
Absorption costing
Treats all manufacturing costs (direct material, direct labor, variable overhead, and fixed overhead as product costs and all selling and administrative expenses as period costs
Which form of accounting uses absorption costing
External financial accounting
Variable costing
Capitalizes only variable manufacturing costs and treats all other costs (including fixed production costs as period costs)
What are the two types of costs
Direct and indirect
Direct costs
Can be easily associated with a particular cost object in an economically feasible way
Indirect costs
Cannot be easily attributed to a particular cost object
Cost Object
any entity to which costs can be attributed
Cost driver
A basis used to assign cost to a cost object
Cost pool
An account in which a variety of similar costs with a common cause are accumulated (i.e. manufacturing overhead)
Common costs
A costs that is shared by two or more users. Must be allocated in a systematic way. (i.e. depreciation on a headquarters building for different departments)
