Cost Accounting
CONFIRMING PAGES
Chapter
2
Learning Objectives
After studying Chapter 2, you should be able to:
LO1 Identify and give examples of each of the three basic manufacturing cost categories. LO2 Distinguish between product costs and period costs and give examples of each. including calculation of the cost of goods sold.
LO4 Prepare a schedule of cost of goods manufactured.
LO5 Understand the differences between variable costs and fixed costs.
LO6 Understand the differences between direct and indirect costs.
LO7 Define and give examples of cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs.
LO8 (Appendix 2A) Properly account for labor costs associated with idle time, overtime, and fringe benefits.
LO9 (Appendix 2B) Identify the four types of quality costs and explain how they interact.
Costs Add Up
Understanding costs and how they behave is critical in business. Labor Ready is a company based in Tacoma, Washington, that fills temporary manual labor jobs throughout the United
States, Canada, and the UK— issuing over 6 million paychecks each year to more than half a million laborers. For example, food vendors at the Seattle
Mariners’ Safeco Field hire Labor Ready workers to serve soft drinks and food at baseball games. Employers are charged about $11 per hour for this service. Since Labor Ready pays its workers only about $6.50 per hour and offers no fringe benefits and has no national competitors, this business would appear to be a gold mine generating about $4.50 per hour in profit. However, the company must maintain 687 hiring offices, each employing a permanent staff of four to five persons. Those costs, together with payroll taxes, workmen’s compensation insurance, and other administrative costs, result in a margin of only about 5%, or a little over 50¢ per hour. ■
BU SI N E SS FOC U S
LO3 Prepare an income statement
Cost Terms, Concepts,
and
Chapter
2
Learning Objectives
After studying Chapter 2, you should be able to:
LO1 Identify and give examples of each of the three basic manufacturing cost categories. LO2 Distinguish between product costs and period costs and give examples of each. including calculation of the cost of goods sold.
LO4 Prepare a schedule of cost of goods manufactured.
LO5 Understand the differences between variable costs and fixed costs.
LO6 Understand the differences between direct and indirect costs.
LO7 Define and give examples of cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs.
LO8 (Appendix 2A) Properly account for labor costs associated with idle time, overtime, and fringe benefits.
LO9 (Appendix 2B) Identify the four types of quality costs and explain how they interact.
Costs Add Up
Understanding costs and how they behave is critical in business. Labor Ready is a company based in Tacoma, Washington, that fills temporary manual labor jobs throughout the United
States, Canada, and the UK— issuing over 6 million paychecks each year to more than half a million laborers. For example, food vendors at the Seattle
Mariners’ Safeco Field hire Labor Ready workers to serve soft drinks and food at baseball games. Employers are charged about $11 per hour for this service. Since Labor Ready pays its workers only about $6.50 per hour and offers no fringe benefits and has no national competitors, this business would appear to be a gold mine generating about $4.50 per hour in profit. However, the company must maintain 687 hiring offices, each employing a permanent staff of four to five persons. Those costs, together with payroll taxes, workmen’s compensation insurance, and other administrative costs, result in a margin of only about 5%, or a little over 50¢ per hour. ■
BU SI N E SS FOC U S
LO3 Prepare an income statement
Cost Terms, Concepts,
and