Management Accounting prepares reports only for management’s internal use.

Example of Period Costs are selling, administrative, and warehouse costs:

Product Costs include all costs that are required to make a product.

Prime costs are direct labor plus manufacturing overhead.

A Direct Cost is a cost that can be easily and conveniently traced to one product

When a product is sold, the costs are “matched” to the sales revenue and reported on the balance sheet as cost of goods sold.

A Direct Cost is a cost that cannot be easily and conveniently traced to a product.

Period costs are reported on the income statement in the period they are incurred.

Examples of Indirect Labor are salaries of the plant managers, supervisors, and quality inspectors.

Fixed Costs changes in total, in direct proportion to changes in the level of activity. The total cost increases/decreases as units made increases/decreases.

Fixed Costs do not change with changes in the volume of activity (within a relevant range).

Variable cost is constant if expressed on a per unit basis.

The fixed cost per unit will change as the number of units change.

A Sunk Cost is a cost that is already paid for and can not be changed by a decision made now or in the future.

Job Costing is used when products are mass produced and very similar or identical in nature. – in a continuous flow environment.

A predetermined overhead rate is an estimate of how much it will cost the company in manufacturing overhead costs each time an activity is done.

The total cost of a job includes direct material, direct labor, and manufacturing overhead.

Job costing is used by companies with many different products or services.

Equivalent Units –

Equivalent Units are the number of comparable whole units you would have if all units processed during the period were complete.

Separate work in process accounts are used for each department or manufacturing process.

Direct Materials are raw materials that become a part of the finished product.

Underapplied overhead occurs when (estimated) costs are less than actual costs.

Cost Of Goods Sold is product not yet sold that is reported balance sheet.

The overhead account is debited for the actual overhead costs as incurred.

Cost of goods manufactured is the cost of making completed products during a period.