Module 2 Flashcards
(42 cards)
Manufacturing Company
Primary Activity: Convert raw materials into finished products
Inventory: 1. raw materials 2. WIP 3. Finished goods
Customer: Consumer, merchandiser, manufactures
Examples: Mars, PEPSI, Nike
Merchandising
Primary Activity: adds value to finished product
Inventory: merchandise inventory
Customer: consumer, merchandiser
Examples: Target, Amazon, Walmart
Service
Primary Activity: Provides intangible service
Inventory: no inventory or v little
Customer: consumers
Examples: AT&T, Lawyers, Accountants, Barbers
Value chain
all of the activities a company incurs that adds value to its products or services; Total Cost
Inventoriable Product Costs (= COGS Expense)
costs incurred during the production or purchase phase of the value chain; held on the balance sheet until sold
Direct costs
traced directly to the product / cost object
direct material
primary raw materials that become a physical part of the finished product
manufacturing overhead
all manufacturing costs other than direct materials or direct labor
Cost object
anything for which managers want a separate measurement of cost
Period Costs (= SG&A or operating expense)
ll other costs along the value chain; expensed in the period in which they are incurred (straight to income statement)
indirect costs
relates to the product / cost object but cannot be traced directly to it
direct labor
cost of compensating employees who physically convert raw materials into the finished product
conversion costs
costs to convert direct materials into a finished product; direct labor and manufacturing overhead
value chain =
total cost
conversion costs made of
direct labor + manufacturing overhead
manufacturing overhead made of
indirect materials, indirect labor, other manufacturing costs
Period cost examples
R&D, marketing, distribute, customer service
Job costing: type of product
unique, large or custom-built items made in small batches
Job costing: cost of product
usually high costs per item
Job costing: assignment of cost to products
specific costs are accumulated by job or batch
Examples of a typical company using job order costing
Boeing airplanes, custom home, autos, high-end products, service (accountants and lawyers)
- Schedule Production
document: production schedule
journal entry: none
never record estimates
- Purchase raw materials
document: bill of materials, raw materials record
journal entry: raw material inventory and $ or accounts payable
When do product costs go on income statement?
when finished goods are sold
