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managerial accounting
information is designed to meet the specific needs of a company's management (sometimes called cost accounting)
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Manufacturing Costs (three types)
- Direct Materials
- Direct Labor
- Factory Overhead
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Direct Materials
materials used to make a product
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Direct labor
people who work directly on the product
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Factory Overhead includes:
- indirect materials
- indirect labor
- factory depreciation
- factory rent
- factory utilities
- factory maintainence
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Indirect Materials
- materials used in the factory but do not become a part of the product
- i.e. small tools with a useful life of less than one year
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Indirect Labor
- labor of people who don't work directly on the product
- i.e. shift managers, security, janitors, etc
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Non-factory Costs (two types)
- administrative expenses
- marketing expenses
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Administrative Expenses
- cost of doing business
- corporate headquarters, interest on long-term debt, salaries of higher-ups
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Marketing Expenses
advertising, public relations, shipping to customers, maintaining inventory warehouses, maintaining retail stores
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Prime Cost
Direct Materials + Direct Labor
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Conversion Cost
Direct Labor + Factory Overhead
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Variable Cost
a cost which changes with changes in production
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Fixed Cost
- a cost that is constant
- i.e. rent, depreciation, indirect labor)
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Mixed Cost (aka Semi-Variable Cost)
- partially variable and partially fixed
- i.e. electricity, telephone, maintainence, etc.
- these costs could change depending on varying factors, and are therefor mixed costs
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Product Cost
- a cost that is capitalized and charged to an asset
- factory costs
- i.e. Ann Taylor, Inc. would have the following product costs: fabric used during production, factory janitorial supplies
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Period Cost
- a cost that will be expensed immediately
- non-factory costs
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Inventory Accounts (3)
- Materials
- Work in Process
- Finished Goods
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Cost Accounting Systems
- measure, record, and report product costs
- used to set prices, control operations, and develop financial statements
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Two types of cost accounting systems
- Job-order costing
- Process-cost system
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Job-order costing
- used to determine the cost of each job
- used when one has separate, distinct jobs
- i.e. swimming pool business, accounting firms, law firms, repair shops
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Work in Process Ledger
contains all job cost sheets
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Process-cost system
- accumulate costs by producing department
- used when one cannot divide jobs into separate, distinct jobs
- i.e. Mayfield, Tyson, anything mass produced, etc
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Journal entry for materials requisition
debit Materials, credit Accounts Payable
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Journal entry for labor
debit WIP, credit wages payable
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Factory Overhead Rate
- estimated FOH/estimated level of activity
- estimated level of activity can be direct labor or machine hours
- done throughout the year as new jobs are completed
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Factory overhead variance
- the difference between actual cost and estimated amount
- credit balance- favorable/overapplied
- debit balance- unfavorable/underapplied
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