Chapter 4 Managerial Accounting Flashcards
Product Costs
PRODUCTION COST - consists of:
DIRECT LABOUR - refers to costs incurred to remunerate workers that are directly involved in the manufacturing processes. A variable cost.
DIRECT MATERIAL - material which can be traced directly to the finished product. A variable cost.
INDIRECT MATERIAL - Small quantities of materials that cannot be clearly identified in finished product.
MANUFACTURING OVERHEADS
- all other manufacturing costs incurred in producing the finished product
EXAMPLES
INDIRECT LABOUR
RENT
MAINTENANCE OF MACHINERY AND EQUIPMENT
EXCLUDING - ADVERTISING, MARKETING AND DISTRIBUTION COSTS
NON PRODUCTION COSTS
Consists of
Administrative costs - organizational, executive and clerical costs associated with the general management of an organization.
Includes insurance, water and electricity
Marketing, distribution and selling costs - all costs necessary to secure customer orders and that ensure the product ends up in the hands of the consumer.
PRODUCT AND PERIOD COSTS
PRODUCT COSTS
The costs incurred to manufacture a product that will be eventually sold, and then recognized as an expense .
PERIOD COSTS
All costs not included in the product costs such as selling and administrative costs found in the nominal accounts section and will be reflected on the statement of comprehensive income in the period in which they were incurred.
Controllable and controllable costs
Uncontrollable costs
- TAXES AND MUNICIPAL RATES
Sunk costs
Costs that have already been incurred and which cannot be changed by any decision now or in the future.
Eg long term lease
Opportunity costs
The cost of the next best alternative not chosen when a choice is made.
Fixed costs and variable costs
Fixed costs
- expenses which must be paid, irrespective of the volume of production
Variable costs
- expenses which will vary with volume of production.
Unit costs
- Stays the same even if vol of production changes
Break even analysis
Indicates how many units of a product need to be sold before a company will start making a profit.
Helps the organization determine the selling price as well as implications of cost hikes or reductions in profit.
FORMULAS -
TO DETERMINE IN UNITS:
0 = sellingpriceX - varaiblecostX - fixedcosts
= X units
TO DETERMINE IN RANDS:
FC/MIR = X rands
Net income ratio
NET PROFIT / SALES
