Module 1: Introduction To Managerial Accounting
Module 1 Slpintroduction To Managerial Accountingeverything Umbrella
Prepare a table with three columns to include the following information:
- Classify the costs of this new product as direct materials, direct labor, manufacturing overhead, selling, or administrative.
- Classify the costs listed as either product costs or period costs.
List of expenses incurred by Everything Umbrella Inc.
- Cost of advertising the product.
- Fabric used to make the umbrellas.
- Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame.
- Wages of workers who assemble the product.
- President’s salary.
- The salary of the supervisor of the people who assemble the product.
- Wages of the product tester who stands in a shower to make sure the umbrellas do not leak.
- Cost of market research survey.
- Salary of the company’s sales managers.
- Depreciation of administrative office building.
Paper For Above instruction
Introduction
Managerial accounting plays a critical role in aiding companies like Everything Umbrella Inc. in decision-making, planning, and control by providing detailed financial and non-financial information. When considering the launch of a new pocket-sized umbrella, it becomes essential to classify costs appropriately to facilitate budgeting, cost control, and strategic planning. This paper presents a detailed classification of the expenses associated with the new product into cost categories—direct materials, direct labor, manufacturing overhead, selling, or administrative—and differentiates between product and period costs. Accurate classification of these costs is fundamental for cost management and profitability analysis, which ultimately influences the decision to produce the new umbrella.
Cost Classification
| Expense Item | Cost Category (DM/DL/OH/Sell./Adm.) | Type of Cost (Product/Period) | Explanation |
|---|---|---|---|
| Cost of advertising the product | Sell. | Period cost | Advertising expenses are linked to marketing efforts and are not directly associated with production, thus classified as period costs. |
| Fabric used to make the umbrellas | DM (Direct Materials) | Product cost | The fabric is a primary material used in production, directly attributable to each umbrella, classified as direct materials. |
| Maintenance of cutting machines used to cut the umbrella fabric | OH (Manufacturing Overhead) | Product cost | Maintenance of machinery is necessary for manufacturing but not directly traceable to one unit, classified as manufacturing overhead. |
| Wages of workers who assemble the product | DL (Direct Labor) | Product cost | Wages paid to assembly workers are directly involved in making the umbrellas, thus considered direct labor. |
| President’s salary | Adm. (Administrative) | Period cost | The president’s salary pertains to executive management and administrative functions, classified as administrative period costs. |
| Salary of the supervisor of the assembly workers | OH (Manufacturing Overhead) | Product cost | The supervisor’s salary supports the manufacturing process and is considered manufacturing overhead. |
| Wages of the product tester who ensures umbrellas do not leak | DL (Direct Labor) | Product cost | The tester directly inspects the finished product, making wages part of direct labor costs. |
| Cost of market research survey | Sell. | Period cost | Market research relates to marketing and strategic planning, categorized as a period cost. |
| Salary of the company’s sales managers | Sell. | Period cost | Sales managers’ salaries are associated with selling activities and classified as selling period costs. |
| Depreciation of administrative office building | Adm. | Period cost | Depreciation of administrative facilities is an administrative expense and a period cost. |
Conclusion
Classifying costs accurately helps Everything Umbrella Inc. in budgeting, cost control, and profitability analysis. Proper understanding of which costs are direct or indirect, product or period, influences managerial decisions on product pricing, production levels, and marketing strategies. Effective classification enables the firm to identify the costs directly associated with manufacturing the new pocket-sized umbrella and distinguish these from costs incurred for administrative or marketing purposes, thereby facilitating better financial analysis and strategic planning.
References
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