Chapter 11

Cost Accounting

In This Chapter

arrow Measuring costs: The second-most important thing accountants do

arrow Recognizing the different needs for cost information

arrow Determining the right costs for different purposes

arrow Assembling the product cost of manufacturers

arrow Padding profit by producing too many products

Measuring costs is the second most important thing accountants do, right after measuring profit. (Well, the Internal Revenue Service might think that measuring taxable income is the most important.) But really, can measuring a cost be very complicated? You just take numbers off a purchase invoice and call it a day, right? Not if your business manufactures the products you sell — that’s for sure! In this chapter, I demonstrate that a cost, any cost, is not as obvious and clear-cut as you may think. Yet, obviously, costs are extremely important to businesses and other organizations.

Consider an example close to home: Suppose you just returned from the grocery store with several items in ...

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