From the course: Accounting Foundations: Managerial Accounting
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Overview of cost control
From the course: Accounting Foundations: Managerial Accounting
Overview of cost control
- The foundation of management accounting is cost control to really understand management accounting. You need to grasp the flow of costs in manufacturing, service, and merchandising organizations. Understanding cost flows is a useful way to understand how a business is structured or organized. Without accurate cost information it is difficult to set prices, evaluate performance, reward employees, or make production decisions. It is even difficult to know whether a company should be competing in a specific market. Costs of manufacturing products can be broken down into three elements, direct materials, direct labor and manufacturing overhead. Direct materials include the cost of raw materials that are used directly in the manufacture of products and are kept in the raw materials warehouse until used. Direct labor includes the wages and other payroll related expenses of factory employees who work directly on products. Manufacturing overhead includes all manufacturing costs that are not…
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