Managerial Accounting

1. What are the three major elements of product costs in manufacturing company?

Direct materials, direct labor and manufacturing overhead.

2. Distinguish between the following:

(a) Direct materials: the materials that become part of the finished product and costs can be traced to the finished product.

(b) Indirect materials: insignificant materials as part of manufacturing overhead.

(c) Direct labor: costs that can be physically and easily traced to individual units. Also known as “touch labor”

(d) Indirect labor: costs that cannot be physically traced o the creation of products.

(e) Manufacturing overhead: includes all costs except direct materials and direct labor, only costs associated with operating the factory.

3. Explain the difference between product and period cost.

Product costs are all the cost involved in acquiring or making a product. Period costs are all the costs that are not product costs. Also know as all the selling and administrative expenses.

4. Describe how the income statement of a manufacturing company differs from the income statement of a merchandising company.

They differ in the determination of COGS:

(a) Merchandising Company: we need to know beginning and ending balances and the purchases. COGS= B. Merchandise Inventory + Purchases – E. Merchandise Inventory.

(b) Manufacturing Company: we need to know the COG Manufactured and the beginning and ending balances. COGS= B. FG Inventory + COGM – E. FG Inventory

5. Describe the schedule of cost of goods manufactured. How does it tie into the income statement?

The COGM schedule is used to calculate the cost of producing products for a period of time. The COGM amount is transferred to the FGI account during the period and is used in calculating COGS on the income statement. The COGM schedule reports the total manufacturing cost for the period that were added to WIP, and adjusts these costs for the change in the WIP inventory account to calculate the COGM....