Chapter 2 - Basic cost management concepts and accounting for mass customization operations. 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 and Accounting for Mass Customization Operations Chapter 2 Process of Management Decision Making Directing Control Planning Strategy Formulation Managers need cost information to perform each of these functions. Learning Objective 01 Leaning Objective 1 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. Learning Objective 2 Merchandiser Current Assets Cash Receivables Prepaid Expenses Merchandise Inventory Manufacturer Current Assets Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods Cost Classifications on Financial Statements – Balance Sheet Leaning Objective 3 Product costs appear on the income statement | Basic Cost Management Concepts and Accounting for Mass Customization Operations Chapter 2 Process of Management Decision Making Directing Control Planning Strategy Formulation Managers need cost information to perform each of these functions. Learning Objective 01 Leaning Objective 1 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. Learning Objective 2 Merchandiser Current Assets Cash Receivables Prepaid Expenses Merchandise Inventory Manufacturer Current Assets Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods Cost Classifications on Financial Statements – Balance Sheet Leaning Objective 3 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) Since retailers, wholesalers, and manufacturers sell inventoriable products, their balance sheets are also affected by product costs. Merchandisers, such as Wal-Mart, list the product cost as merchandise inventories on the balance sheet in the current assets section. (LO3) Manufacturers have three types of inventory. Raw-material inventory includes all materials before they are placed into production. (LO3) Work-in-process inventory refers to manufactured products that are only partially completed at the date when the balance sheet is prepared. (LO3) Finished-goods inventory refers to manufactured goods that are complete and ready for sale. The values of the work-in-process and finished-goods .
