Managerial accounting is not hard.The reason most students think it is, is because many people struggle when explaining the concept.If you do not have a good teacher any subject is hard.
Flow Of Costs
Let’s learn about the cost flowing a manufacturing business which produces envelopes. will also learn about how to differentiate between classifications of cost.
To produce an envelope one needs pieces of paper and glue.they need to take the piece of paper folded in a certain way and apply glue in certain parts of the paper .when the proper instructions are followed we will end up with a finished product an envelope that we are ready to sell.these three steps are the three stages of production.
In the manufacturing business we have three inventory accounts .
raw materials are all the materials we will need in the factory.working process represents all the products that are in process partly finished or just started. finally finished goods are ready to be sold as you can see each inventory account is tightly connected to the stages of production I want you to concentrate on the work in process account.
In order to start producing the envelope we need the paper in the glove these are the materials that are directly including the production we call them direct materials we also need these two workers to fold the paper and apply the glue correctly there are directly involved into the production and therefore we call them direct labor finally we will need to include manufacturing overhead this is the factory space over your head the electricity and so on manufacturing overhead will not be covered in this lesson you just need to know that we needed in order to start the production in the manufacturing overhead we include the janitor who’s indirect labor who cleans the factory space so we can work he will also need a broom in order to clean.
The indirect materials the section name other includes the electricity the factory space you’re renting and so on the amount of manufacturing overhead we applied to the working process account is an estimate you will see in later lessons why.
You need to know how to differentiate between product costs and period because the costs are the ones that are associated with the production like direct materials direct labor and manufacturing overhead.
Are the selling expenses your company will incur or if you have decided to pay for an advertising to be made for your products these are expensive they rectally on the income statement.
Another distinction you need to make use between fixed costs and variable costs fix because are always constant like renting out the factory or the supervisor seller.
Variable costs are does that very you with the level of activity like direct materials and direct labor the more units are produced the higher the cost of both materials and labour.
This is the cost formula it is simple algebraic equation the total cost equals fixed costs.
Plus unique.Use times the variable cost per unit.
Finally peace of mind I hope you understood if you do then you always have these button which is called.
And this one which is play play the video as many times as you need I won’t mind at all.