Chapter 1: Managerial accounting and cost concepts. In this chapter we explain how managers need to rely on different cost classifications for different purposes. The four main purposes emphasized in this chapter include preparing external financial reports, predicting cost behavior, assigning costs to cost objects, and decision making. | Managerial Accounting and Cost Concepts Chapter 01 Chapter 1: Managerial Accounting and Cost Concepts. In this chapter we explain how managers need to rely on different cost classifications for different purposes. The four main purposes emphasized in this chapter include preparing external financial reports, predicting cost behavior, assigning costs to cost objects, and decision making. The Product Direct Materials Direct Labor Manufacturing Overhead Classifications of Manufacturing Costs Manufacturing costs are usually grouped into three main categories: direct materials, direct labor, and manufacturing overhead. These costs are incurred to make a product. Direct Materials Raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: A radio installed in an automobile Direct materials are raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it. Examples include the aircraft engines on a Boeing 777, the Intel processing chip in a personal computer, the blank video cassette in a pre-recorded video, and a radio in an automobile. Direct Labor Those labor costs that can be easily traced to individual units of product. Example: Wages paid to automobile assembly workers Direct labor consists of that portion of labor cost that can be easily traced to a product. Direct labor is sometimes referred to as “touch labor,” since it consists of the costs of workers who “touch” the product as it is being made. Manufacturing Overhead Manufacturing costs that cannot be easily traced directly to specific units produced. Examples: Indirect materials and indirect labor Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. These costs cannot be easily traced to specific units produced (also called indirect manufacturing cost, factory overhead, and factory burden). Manufacturing overhead includes indirect materials that are part | Managerial Accounting and Cost Concepts Chapter 01 Chapter 1: Managerial Accounting and Cost Concepts. In this chapter we explain how managers need to rely on different cost classifications for different purposes. The four main purposes emphasized in this chapter include preparing external financial reports, predicting cost behavior, assigning costs to cost objects, and decision making. The Product Direct Materials Direct Labor Manufacturing Overhead Classifications of Manufacturing Costs Manufacturing costs are usually grouped into three main categories: direct materials, direct labor, and manufacturing overhead. These costs are incurred to make a product. Direct Materials Raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: A radio installed in an automobile Direct materials are raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it. Examples include the .
