MGA 202 Study Guide - Income Statement, Earnings Before Interest And Taxes, Fixed Cost

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This chapter explains how managers need to rely on different cost classifications for different purposes. The four main purposes emphasized in this chapter include preparing external financial reports, predicting cost behavior, assigning costs to cost objects, and decision making. Our initial focus is on manufacturing companies since their basic activities include most of the activities found in other types of business organizations. Identify and give examples of each of the three basic manufacturing cost categories. Identify and give examples of each of the two basic nonmanufacturing cost categories. Distinguish between product costs and period costs and give examples of each. Note that product costs are expensed in the income statement when the products are sold. Period costs are expensed in the income statement in the period incurred. Managers who understand how costs behave are better able to predict costs and make decisions under various circumstances. Cost behavior describes how a cost changes as the level of activity changes.

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