Lecture Managerial accounting: Creating value in a dynamic business environment (10/e): Chapter 2 - Ronald W. Hilton, David E. Platt

Chapter 2, basic cost management concepts. After completing this chapter, you should be able to: Explain what is meant by the word cost; distinguish among product costs, period costs, and expenses; describe the role of costs in published financial statements. | Basic Cost Management Concepts Chapter 2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 2: Basic Cost Management Concepts and Accounting for Mass Customization Operations What Do We Mean By a Cost? A cost is the measure of resources given up to achieve a particular purpose. 2- At the most basic level, a cost may be defined as the sacrifice made, usually measured by the resources given up, to achieve a particular purpose. (LO1) Product Costs, Period Costs, and Expenses Product costs are costs associated with goods for sale until the time period during which the products are sold, at which time the costs become expenses. Period costs are costs that are expensed during the time period in which they are incurred. Expenses are the consumption of assets for the purpose of generating revenue. 2- A product cost is a cost assigned to goods that were either purchased or . | Basic Cost Management Concepts Chapter 2 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 2: Basic Cost Management Concepts and Accounting for Mass Customization Operations What Do We Mean By a Cost? A cost is the measure of resources given up to achieve a particular purpose. 2- At the most basic level, a cost may be defined as the sacrifice made, usually measured by the resources given up, to achieve a particular purpose. (LO1) Product Costs, Period Costs, and Expenses Product costs are costs associated with goods for sale until the time period during which the products are sold, at which time the costs become expenses. Period costs are costs that are expensed during the time period in which they are incurred. Expenses are the consumption of assets for the purpose of generating revenue. 2- A product cost is a cost assigned to goods that were either purchased or manufactured for resale. Another term for product cost is inventoriable cost, since a product cost is stored as the cost of inventory until the goods are sold. In the period of the sale, the product costs are recognized as an expense called cost of goods sold. Period costs are all costs that are not product costs. They are expensed in the period they are incurred. An expense is the cost incurred when an asset is used up or sold for the purpose of generating revenue. (LO2) Cost Classifications on Financial Statements – Income Statement Product Costs Cost of goods sold Period Costs Operating expenses 2- Product costs appear on the income statement as cost of goods sold in the period in which the products were sold. This is true for merchandising and manufacturing companies. Period costs appear on the income statement in the period in which they were incurred. Selling and administrative expenses are an example of period costs. (LO3) Types of Production Processes 2- Production .

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