MOS 1023: Pg 75-89: Cost Flows and Cost Terminology:

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Management and Organizational Studies
Course Code
Management and Organizational Studies 1023A/B
Maria Ferraro

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Pg 75- 86 – Cost Flows and Cost Terminology: Product and Period Costs: Production costs  costs associated with getting products ready for sale  Always appear ABOVE gross margin (=rev – product costs)  Include: o Salaries, equipment maintenance, supplies, depreciation Period Costs  not directly related to the readying of products and services  Include items incurred with the passage of time o Rent, advertising, customer service, accounting o Selling and admin costs  Always appear BELOW gross margin Cost Flows in Service Organizations:  Service firms have non-tangible products  Financial statements provide limited info about opportunity costs o It is vital to use info on accounting statements in accordance with nonfinancial info to make the best decision  Financial statements separate product from period costs, BUT, o combine controllable with noncontrollable costs and o fixed costs with variable costs Cost Flows in Merchandising Organizations: Merchandising firm  buy goods and resell substantially the same product to consumers  Maintain inventory of goods they buy and sell Inventory Equation:  Distinguishes cost of goods purchased from COGS o Firms expense the cost of the item only when the item is sold  Equation: COGS = Cost of Beginning INV + Cost of goods purchased during period – Cost of ending INV o Use FIFO to determine which inventory gets sold 1 st Income Statement:  Only difference between service firms and merchandising firms in the Inventory Accnt  Major item is cost of purchasing goods from suppliers o Includes: amnts paid to suppliers but also the cost of transportation and preparation of goods for sale Cost Flows in Manufacturing Firms: QV slides 16 - 24 Manufacturing firms  use labour and equipment to transform purchased raw materials into final products Cost Terminology: Non-production Costs:  Variable: o Cost of transportation of goods to retail, sales commissions  Fixed: o Rent, salaries to marketing professionals  Selling and Admin costs  costs incurred with the management of firm o Management salaries, cost of maintain
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