Chapter 2 - 1 Chapter 2 Cost Terms, Concepts, and...

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Unformatted text preview: 1 Chapter 2 Cost Terms, Concepts, and Classifications 2 Organizations and Their Objectives Planning, directing and motivating, and controlling were identified in Chapter 1 as the three major activities of managers. Managers perform these activities in organizations that have objectives. 3 Organizations and Their Objectives An organization is a group of people united for a common purpose. It therefore consists of people, not physical assets. The common purpose toward which an organization works is called its objectives . Managers set the objectives through strategic planning that occurs in two phases. 4 Organizations and Their Objectives In phase one, managers decide where in the market place the company will compete. This is the product market strategy and the decision is usually made at the corporate level. In phase two, managers decide how each business unit (for example, a division) is going to compete. 5 Organizations and Their Objectives This is the competitive strategy and the decision is usually made at the business unit (divisional) level. It needs to consider: Five Competitive forces : power of buyers , power of suppliers , threat of/from new competitors , threats of/from existing competitors , and effects of substitution. Competitive advantages of between cost leadership (low-cost) strategy vs. differentiation. 6 Organizations and Their Objectives In addition to the choice of competitive strategy, business units are assigned missions or goals such as building market share, maintaining market share, and deliberately maximizing short-term profits, even at the expense of long-term profits. 7 Comparing Merchandising and Manufacturing Activities Merchandisers(ex.Walmart) Buy finished goods. Sell finished goods. Manufacturers Buy raw materials. Manufacture goods Sell finished goods. Manufacturers face the problem of work in progress. Key difference Goods might be in different stages of completion, not quite ready for sale 8 Manufacturing Cost Concepts The focus changes from financial statement costs to product costing. Under financial accounting, cost is a measure of resources used or given up to achieve a stated purpose. Under managerial accounting, product costs are the costs a company assigns to units produced. 9 Manufacturing Costs Three main components: Direct materials: those materials that become an integral part of the product and that can be conveniently traced directly to the product....
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Chapter 2 - 1 Chapter 2 Cost Terms, Concepts, and...

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