15_Overheads - Objectives for today Overview of cost...

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ACC 333 (Farrell), Fall 2011, Class 15 1 ACC 333 (Farrel ) Fal 2011, Class 15 1 Objectives for today Overview of cost concepts Why focus on costs? Basic definitions Accumulating and allocating costs Classifying, allocating, and reporting costs with absorption costing Classifying and reporting costs with variable costing ACC 333 (Farrel ) Fal 2011, Class 15 2 Why focus on costs? Many managerial decisions involve revenue and cost management – e.g., Production, distribution, pricing, marketing Managers cannot make these decisions without measuring the costs of activities required to generate firm value Measuring costs requires an understanding of what a cost is, and the ways costs can be used in decision-making
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ACC 333 (Farrell), Fall 2011, Class 15 2 ACC 333 (Farrel ) Fal 2011, Class 15 3 Basic definitions From the last slide: Managers cannot make these decisions without measuring the costs of activities required to generate firm value Costs are sacrifices of resources • materials for the containers and the chips • wages for production workers and supervisors • maintenance, insurance, and electricity at the plant – For P&G, costs to process payments from Pringles distributors include: • wages for the accounting clerks and supervisors • computer time ACC 333 (Farrel ) Fal 2011, Class 15 4 Basic definitions (continued) Managers cannot make these decisions without measuring the costs of activities required to generate firm value Anything for which a separate measure of costs is needed is called a cost objective – Cost objectives can be defined as: • products (e.g., Pringles) • activities (e.g., processing customers' payments) • departments (e.g., production, distribution) • customer type (e.g., national, regional, local) – Before any decisions that involve costs can be made, the cost objective needs to be defined
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ACC 333 (Farrell), Fall 2011, Class 15 3 ACC 333 (Farrel ) Fal 2011, Class 15 5 Basic definitions (continued) Managers cannot make these decisions without measuring the costs of activities required to generate firm value These activities are called “ cost drivers – A measure of some underlying activity that affects the dollar amount of costs • Units produced, hours worked, miles driven – Typically measured in nonfinancial terms • Nonfinancial measure (cost driver) financial measure (cost) ACC 333 (Farrel ) Fal 2011, Class 15 6 In-class activity #1 Identifying possible cost drivers at The Enquirer
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ACC 333 (Farrell), Fall 2011, Class 15 4 ACC 333 (Farrel ) Fal 2011, Class 15 7 Accumulating costs All organizations have cost accounting systems to measure and record costs In general, these systems record costs in a variety of “buckets” based on the similarity of the costs • All phone bills (land lines, cellular) go into the “phone costs” bucket • All costs of materials to make a product (cardboard,
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This note was uploaded on 03/19/2012 for the course ACCACC 333 taught by Professor Anne during the Fall '11 term at Miami University.

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15_Overheads - Objectives for today Overview of cost...

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