Chapter 1 Reading Summary Lo4: Define andgive examples of different hpes of costs LoI: Describe the key differences between financial accounting and managerial accounting. The different types of costs include Financial accounting information is aimod atExtcmalusers, those outside the organization such as investors, creditors, und regulators. at internal users, or those working inside the organization, such as business owners, managers, and employees. o Out-of-pocket costs involve an actual cash eccounting information is aimed out of your pockef" for things such as food, These are oasts you pay clothing, and entertairment. Opportunity cost is the cost of not doing something. It is the o or lost Managers need information that is the specific decision at hand. to opportunity) of the path not taken. Direct or indirect costs The maragerial accounting systems neads to and Costs that carnot be traced to the cost objoct, or that are not worth the effort of tracing, are called o information to the managers who are responsible for achieving these more specific objectives. o Costs that cun be reasomably traced to the cost object are called costs Variable or fixed costs o Variable costs are those that change, in total, in direct LOZ: Describe how, managerial sccounting is tsed in different types of arganitations to support the key functlons af management. to changes in activity levels. o Fixed costs are those that stay thein total Regurdless of the type and size of the organization they manage, all managers perform the same basic functions: regardless of activity level casts representll of the costs associated with Plarningt The first step in planning is to establish along with the tacties that will be used to achieve those goals. producing a physical product. casts are the costs associated with runming the weans putting the pam into action. ioxoleri managers keeping track of how they are doing business and selling the product as opposed to manufacturing the produet Product or period costs und whether any actions must be taken to adjust tho pa:. costs be treated us GAAP requires that all product casts, or costs that are assigned to the product as it is being manufactured. o Traditional businesses are classified into one of three categories: ims purcbase raw materials from suppliers and oNanmanufacturing costs are called period costs because they are convert them into finished products during the pcriod incurrod. compmics sell the goods that manufacturers produce. Relevant or irrelevant costs Merchandisers that sell exclusively to other businesses are called wholesalers Merctandisers that sell to the general public are called retuilors. A relevant cost has the potential to an irrelevant cost will not o a docision; a decision pracid a service to customers or clients. Many small businesses provide servioes to consumers and other basinosses, including hair salons, law firms, architeets, and home repair specialists