Presentation to Be Given at the Next Meeting

Phase 2 Individual Project

Roger Raddatz

Colorado Technical University

Abstract

This paper will cover what types of cost information are reported to support managerial purposes and decisions and what is a cost object and how is it used by the management accountant. It will also describe 2 major categories of purposes that are supported by cost information, describe how cost information supports both of these categories and Explain how to arrive at the derivation of cost.

Keywords: cost, management, cost information

There are several types of cost information a manager uses to make decisions. One of these costs is manufacturing costs. These costs include direct material costs which are the costs of the materials that go into making a product, direct labor costs which is the labor that is physically in contact with the item being made, an the last part of direct material cost is manufacturing overhead cost which are those cost that are associated with making the product but are not included in direct material cost and direct labor costs. There are also non manufacturing cost which include the selling of the item being manufactured and the administrative cost such as accounting and other parts of staff not associated with the making of that item.

An other way of looking at cost is the idea of product cost and period costs. Product cost is an interesting concept because it is not necessarily a cost until the item that is being made is sold. Once the item is sold it is counted as a cost. Period costs are those costs not included in the product cost and also took place within a cretin period of time.

Mixed costs for a company are usually the utilities. These items unlike rent or a mortgage very in their amount due to how much that utility is being used.

The last group of cost is quality cost. These are costs that are entailed to ensure that a product is free of defects. The first two are quality costs and prevention costs. These costs are uncured to prevent defective merchandise from reaching the customer. The other two are internal failure cost and external failure costs. These costs are incurred because despite all efforts the merchandise will have defects(Acounting for Management 2011).

There are two major categories of cost, one is planning and the other one is evaluation. Planning is when the cost helps figure out the selling price of an item. The equation looks something like this: Cost + Fixed profit percentage = Selling price (Heil, unknown). The term cost in this equation means all costs associated with making whatever product that is being sold. The profit percentages are just that how much percent they want to mark up the price for profit and of course add those things together and it equals the price of the product or service. The evaluation of a good or service determines weather that good or service is profitable.

My grandmother ran her own copper enameling business while she was alive. She didn't consciously do it but every time she made a product she used the equation stated above. Then as time went on she would determine whether a product was still profitable by seeing how long her stock lasted. If a product sold quickly and she had to make a lot, it was a good product. However, if it stayed on hand for months it was obviously not so good for business so she would stop production of that product.

Cost is used in its most general since in all these equations. The cost stands for the price of materials, labor, utilities, rent and everything an organization must spend. However, it also represents the price of the good or service that is being provided.

Cost information is used