Managerial Accounting: Cost Classification and Financial Statements Assignment – Chapter 10

Summary

Managerial accounting focuses on cost classification and financial statements. Students learn how to categorize costs and prepare financial statements for a manufacturing company.

Cost Classification

Costs are sorted into categories. These include product costs and general and administrative costs. Costs are also classified as assets or expenses.

Product Costs

Product costs include direct materials, direct labor, and manufacturing overhead. These costs are accumulated and allocated to products. The cost of a product that has been sold is classified as an expense.

Financial Statements

Financial statements include the income statement, balance sheet, and statement of cash flows. The income statement shows sales revenue, cost of goods sold, and net income. The balance sheet shows assets, liabilities, and equity.

Cost Allocation

Cost allocation methods are described. These include allocating costs based on space occupied or the number of products handled. The benefits and drawbacks of these methods are discussed.

Key terms

Product costs

Costs that are directly related to the production of goods.

Period costs

Costs that are not directly related to the production of goods.

General and administrative costs

Costs that support the overall operations of a business.

Cost of goods sold

The direct costs attributable to the production of the goods sold by a company.

Income statement

A financial statement that reports a company's financial performance over a specific accounting period.

Balance sheet

A financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.

Questions this document helps with

• What are the main components of product cost for a manufacturing entity?
• How do merchandising companies determine product cost?
• What are the three main financial statements?

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