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Unformatted text preview: is profitable. There are a variety of actions that management might take if a product is not profitable on a
full-cost basis, which we will examine in Chapters 2 and 3. For the moment, it is sufficient to say that if the price
for a product or service is not greater than its full cost, it is a “loss leader.” Since a company cannot have all its
products or services be loss leaders, cost accounting serves to highlight where the cross subsidization is taking
place, thereby allowing senior management to assess whether that cross subsidization is consistent with the organization’s overall strategy.
Many organizations can benefit from comparing their costs with those of similar organizations manufacturing
similar goods or delivering similar services. Organizations that have franchises, for example, no doubt find it useful
to compare the costs of different franchisees. Full cost information can assist in this effort. Other organizations
may have access to industry norms either via common knowledge, trade associations, or other sources. For example, in the restaurant industry there are well-established norms for each cost element as a percent of revenue. This
applies not only to food and beverage costs, but to all other items, such a...
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This document was uploaded on 03/30/2014.
- Spring '14