Chapter 20 - Cost concepts and cost allocation. Chapter 20 introduces various approaches managers use to classify costs and the concept of product costing and discusses the basic terminology used in accounting for internal operations. The reporting of manufacturing costs is highlighted and illustrated. | Cost Concepts and Cost Allocation Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State University Chapter 20 Learning Objectives Describe how managers use information about costs in the management cycle. Explain how managers classify costs and how they use these cost classifications. Define and give examples of the three elements of product cost and compute the unit cost of a product. Learning Objectives (cont’d) Describe the flow of costs through a manufacturer's inventory accounts. Compare how service, retail, and manufacturing organizations report costs on their financial statements and how they account for inventories. Define cost allocation and explain how cost objects, cost pools, and cost drivers are used to assign manufacturing overhead costs. Learning Objectives (cont’d) Using the traditional method of allocating manufacturing overhead costs, calculate product unit cost. Using activity-based costing to assign manufacturing overhead costs, calculate product unit cost. | Cost Concepts and Cost Allocation Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State University Chapter 20 Learning Objectives Describe how managers use information about costs in the management cycle. Explain how managers classify costs and how they use these cost classifications. Define and give examples of the three elements of product cost and compute the unit cost of a product. Learning Objectives (cont’d) Describe the flow of costs through a manufacturer's inventory accounts. Compare how service, retail, and manufacturing organizations report costs on their financial statements and how they account for inventories. Define cost allocation and explain how cost objects, cost pools, and cost drivers are used to assign manufacturing overhead costs. Learning Objectives (cont’d) Using the traditional method of allocating manufacturing overhead costs, calculate product unit cost. Using activity-based costing to assign manufacturing overhead costs, calculate product unit cost. Apply costing concepts to a service organization. Cost Information and the Management Cycle Objective 1 Describe how managers use information about costs in the management cycle Cost Information and the Management Cycle One of a company’s primary goals is to be profitable Owners expect to earn a profit Managers have a responsibility to Use resources wisely Generate revenues that will exceed the costs of the company’s operating, investing, and financing activities 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 Planning (cont’d) Retail companies Managers use estimates of the cost of merchandise purchases to Develop budgets for purchases and net income Determine the selling prices or .
