From the course: Accounting Foundations: Managerial Accounting
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Controlling product cost flows
From the course: Accounting Foundations: Managerial Accounting
Controlling product cost flows
- Imagine a trip to your favorite fast food restaurant. Now consider all the costs incurred by that entire fast food organization, from the president's salary down to the cost of the lettuce for the sandwiches. For management accounting purposes, we can divide these costs into two groups: product costs and period costs. Costs closely associated with the products or services are called product costs. Examples in a fast food setting are the cost of the food, the wages of the food preparers, the salary of the store manager, and the rent on the store location. As you sit there ready to bite into your sandwich, you can look around and see all of these costs. In this sense, they are closely associated with the product, that is the sandwich, and are classified as product costs. In a manufacturing company such as DuPont, product costs, often referred to as manufacturing costs, are all costs necessary to create finished goods ready…
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