Chapter 1: Basics
comparing managerial and financial accounting
managerial accounting
determining the unit costs of manufacturing a product
financial accounting
reporting the total goods manufactured and sold
managerial cost concepts
manufacturing costs
manufacturing
activities and processes that convert raw materials into finished goods
direct materials
raw materials are the basic parts used in the manufacturing process
raw materials that can be physically and directly associated with the finished product during
the manufacturing process are direct materials
indirect materials
(1) materials that do not physically become part of the finished product or (2) are
impractical to trace to the finished product because their physical association with the
finished product is too small in terms of cost
è -> such materials are a part of manufacturing overhead
direct labor
work of factory employees that can be physically and directly associated with converting
raw materials into finished goods
indirect labor
work of employees that has no physical association with the finished product or for which it
is impractical to trace costs to the goods produced
è such work is part of manufacturing overhead
manufacturing overhead
costs that are indirectly associated with the manufacture of the finished product
costs that cannot be classified as direct materials or direct labor
indirect materials, indirect labor, deprecation of factory buildings and machines, and
insurance, taxes, and maintenance on factory facilities
total manufacturing costs
sum of the product costs – direct materials, direct labor, and manufacturing overhead –
incurred in the current period
Chapter 1 1/4
, product vs period costs
product costs
costs that are a necessary and integral part of producing the finished product (such as direct
materials, direct labor, and manufacturing overhead)
period costs
costs that are matched with the revenue of a specific time period rather than included as
part of the cost of a salable product
manufacturer financial statement
income statement
Chapter 1 2/4
comparing managerial and financial accounting
managerial accounting
determining the unit costs of manufacturing a product
financial accounting
reporting the total goods manufactured and sold
managerial cost concepts
manufacturing costs
manufacturing
activities and processes that convert raw materials into finished goods
direct materials
raw materials are the basic parts used in the manufacturing process
raw materials that can be physically and directly associated with the finished product during
the manufacturing process are direct materials
indirect materials
(1) materials that do not physically become part of the finished product or (2) are
impractical to trace to the finished product because their physical association with the
finished product is too small in terms of cost
è -> such materials are a part of manufacturing overhead
direct labor
work of factory employees that can be physically and directly associated with converting
raw materials into finished goods
indirect labor
work of employees that has no physical association with the finished product or for which it
is impractical to trace costs to the goods produced
è such work is part of manufacturing overhead
manufacturing overhead
costs that are indirectly associated with the manufacture of the finished product
costs that cannot be classified as direct materials or direct labor
indirect materials, indirect labor, deprecation of factory buildings and machines, and
insurance, taxes, and maintenance on factory facilities
total manufacturing costs
sum of the product costs – direct materials, direct labor, and manufacturing overhead –
incurred in the current period
Chapter 1 1/4
, product vs period costs
product costs
costs that are a necessary and integral part of producing the finished product (such as direct
materials, direct labor, and manufacturing overhead)
period costs
costs that are matched with the revenue of a specific time period rather than included as
part of the cost of a salable product
manufacturer financial statement
income statement
Chapter 1 2/4
