All executive, organizational, and clerical costs.
A manufacturing company incurs many other costs in addition to manufacturing costs. For financial reporting purposes, most of these other costs are typically classified as selling costs and administrative costs. These costs are also called selling, general and administrative costs, or SG&A. Selling and administrative costs are incurred in both manufacturing and merchandising firms.
Selling costs include all costs necessary to secure customer orders and get the finished product into the hands of the customer. These costs are also referred to as order-getting and order-filling costs. Examples of selling costs include advertising, shipping, sales travel, sales commissions, sales salaries, and costs of finished goods warehouses.
Administrative costs include all executive, organizational, and clerical costs associated with the general management of an organization. Examples of administrative costs include executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall general administration of the organization as a whole.
Review Questions T/F
1. Managerial accounting is primarily concerned with the organization as a whole rather than with segments of the organization.
Review Questions T/F
False
Review Questions T/F
2. Managerial accounting places less emphasis on nonmonetary data than financial accounting.
Review Questions T/F
False
Review Questions T/F
3. Direct labor is a part of both prime cost and conversion cost.
Review Questions T/F
True
Review Questions T/F
4. Direct material cost combined with manufacturing overhead cost is known as conversion cost.
Review Questions T/F
False
Review Questions T/F
5. Wages paid to production supervisors would be considered direct labor.
Review Questions T/F
False
Review Questions T/F
6. Advertising is a product cost as long as it promotes specific products.
Review Questions T/F
False
Review Questions M/C
7. For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver lamps to customers is best described as a: A. prime cost. B. manufacturing overhead cost. C. period cost. D. differential (incremental) cost of a lamp.
Review Questions M/C
C. period cost
Review Questions M/C
8. Manufacturing overhead consists of: A. all manufacturing costs. B. indirect materials but not indirect labor. C. all manufacturing costs, except direct materials and direct labor. D. indirect labor but not indirect materials.
Review Questions M/C
C. all manufacturing costs, except direct materials and direct labor.
Review Questions M/C
9. Which of the following costs would not be included as part of manufacturing overhead? A. Insurance on sales vehicles. B. Depreciation of production equipment. C. Lubricants for production equipment. D. Direct labor overtime premium.
Review Questions M/C
A. Insurance on sales vehicles.
Review Questions M/C
10. Conversion cost consists of which of the following? A. Manufacturing overhead cost. B. Direct materials and direct labor cost. C. Direct labor cost. D. Direct labor and manufacturing overhead cost.
Review Questions M/C
D. Direct labor and manufacturing overhead cost.
Learning Objective 2
Distinguish between product costs and period costs and give examples of each.
Learning objective number 2 is to distinguish between product costs and period costs and give examples of each.
Product Costs
The three major elements of product costs in a manufacturing company are
1.direct materials,
2.direct labor, and
3.manufacturing overhead.
A product cost is any cost involved in purchasing or manufacturing goods.
In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.
A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred.
Examples of Product Costs Versus Period Costs
Product costs include direct materials, direct labor, and manufacturing overhead.
Period costs include all selling costs and administrative costs.
Inventory
Cost of Good Sold
Balance Sheet
Income Statement
Sale