Chapter 3

Cost Accounting

IN THIS CHAPTER

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

Bullet Recognizing the different needs for cost information

Bullet Determining the right costs for different purposes

Bullet Assembling the product cost of manufacturers

Bullet 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 may 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! This chapter demonstrates the fact that a cost — any cost — isn’t 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 that you’ve returned from the grocery store with several items ...

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