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Management Cycle
Planning: Budgeting

Control: Implementing and checking performance against budget. Feedback: Managers and other employees learn about favorable and unfavorable results.
Costs
Costs are planned, incurred, and used for feedback. Costs are classified in several (mutually exclusive) ways:
-Direct and Indirect
-Fixed and Variable
-Value-adding and nonvalue-adding
-Period and Product
A)Direct Costs
May be traced directly to the product or service in an economically feasible manner.
A)Indirect Costs
Are not material or are impossible to trace economically.
B)Value-adding Costs
Increase the market value of the product or service.

E.g. rust proofing a car
B)Nonvalue-adding Costs
Increase the cost but not the market value of a product or service.

E.g. Material handling in plant.
C)Product Costs
Incurred during the manufacture of a product.(plant, manufacturing, factory, production)

These costs are inventoried by including them in the cost of producing the product and are not expensed until sold as COGS.
C)Period Costs
Expensed as incurred usually weekly, monthly, and yearly.(office, administration, selling, marketing, distribution)
Product Costs includes...
  • Direct Materials (DM)
  • Direct Labor (DL)
  • Overhead (OH)
Overhead
  • Indirect Materials
  • Indirect Labor
  • Rent
  • Utilities
  • Taxes
  • Depreciations
  • etc. related to factory
Inventories for a Manufacturer
  • Direct Materials (raw materials)
  • Work in Progress (WIP)
  • Finished Goods (FG)
Non Mutually Exclusive costs
Prime Costs=DM+DL

Conversions Costs=DL+OH
Oppurtunity Costs
Costs foregone by selecting an alternative over another.
Sunk Costs
Costs incurred in the past that does not change.
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