Chapter_20_for_Class - Chapter 20 Cost Concepts and Cost...

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Unformatted text preview: Chapter 20 Cost Concepts and Cost Allocation Cost Information and the Management Cycle Objective 1 Describe how managers use information about costs in the management cycle Use of Cost Information in the Management Cycle During the management cycle, managers use information about costs to Plan Execute Review Report Planning Manufacturing companies Mangers use estimates of product costs to Develop budgets for production, materials, labor, and overhead Determine the selling price or sales level required to cover all costs (if thats within the companys control). Planning (contd) Retail companies Managers use estimates of the cost of merchandise purchases to Develop budgets for purchases and net income Determine the selling prices or sales units required to cover all costs Planning (contd) Service organizations Managers use the estimated costs of rendering services to Develop budgets Estimate revenues Manage the organization's work force Executing Manufacturing companies Managers use estimated product costs to Predict the gross margin and operating income on sales Make decisions about matters such as Dropping a product line Outsourcing the manufacture of a part Bidding on a special order Negotiating a selling price Executing (contd) Retail companies Managers use the estimated cost of merchandise purchases to Predict the gross margin, operating income, and the value of merchandise sold Make decisions about matters such as Reducing selling prices for clearance sales Lowering selling prices for bulk sales Dropping a product line Executing (contd) Service organizations Managers use the estimated cost of services to Estimate profitability Make decisions about matters such as Bidding on future business Lowering or negotiating fees Dropping a service Reviewing Managers want to know about significant differences between estimated costs and actual costs Identification of variances helps determine the causes of overruns Useful in order to avoid such problems in the future Reporting Managers expect to see the following reports Income statements that show actual costs of operating activities Balance sheets that show the value of inventory Performance reports that summarize the variance analyses done in the reviewing stage Cost Information and Organizations Manufacturing organizations Need information about the costs of manufacturing products Include costs of Direct materials (DM or RM raw materials) Direct labor (DL) Manufacturing overhead (MOH or just OH; also known as Factory Overhead ) Cost Information and Organizations (contd) Retail organizations Need information about the costs of purchasing products for resale These costs include Adjustments for freight-in costs (Debit Inventory for these costs; Freight-out costs, on the other hand, are usually a Selling Expense) Purchase returns and allowances Purchase discounts Cost Information and Organizations...
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Chapter_20_for_Class - Chapter 20 Cost Concepts and Cost...

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