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    1. Why do managers need to understand product and period costs? In your explanation, please also briefly describe product and period costs, along with their differences.
    2. As a manager in a business, you have to make many decisions on how budgeting takes place. If you had a choice in a company where you are a manager, would you use top down budgeting or bottom up budgeting?

    © BrainMass Inc. brainmass.com October 7, 2022, 5:23 pm ad1c9bdddf
    https://brainmass.com/business/management-accounting/period-product-costs-601545

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    Accounting Questions on Product and Period Costs and Budgeting
    1. Why do managers need to understand product and period costs? In your explanation, please also briefly describe product and period costs, along with their differences.
    Business costs are placed into two categories: product costs and period costs. Product costs are costs that are included in the cost of goods manufactured. Product costs are the costs linked to the manufacturing process such as: material, labor costs and overheads. The costs have to recognize when the revenue is generated for the goods. In other words, the product costs are only realized when the sale of the product is realized. The product costs are debit in the cost of goods manufactured, which is expensed at the time of sale of the goods. Product costs are classified as direct material, direct labor and factory overhead.

    Period costs are any costs not classified as a product cost. Since period costs are not related to the cost of goods manufactured, the expense must be incurred in the period they are incurred. Period costs can be classified into selling costs and administrative costs. Period cost examples are advertising, sales commission, office supplies, office deprecation, legal and research and development costs (The information was obtained at http://accountingexplained.com/managerial/costs/product-and-period-costs "Product Cost vs Period Cost").

    2 .As a manager in a business, you have to make many decisions on how budgeting takes place. If you had a choice in a company where you are a manager, would you use top down budgeting or bottom up budgeting? Explain why.
    The creation of the budget process is classified as either a top down or a bottom up process. The decision to use top down or bottom has a profound impact on the organization. There are a lot of large organizations that create their budget on the top down approach. In this case, there are a small number of executives that make strategic plans for the company. Also, the company will be able to require the lower level managers to hit performance goals based on the budget. This method will reduce cost and time to implement a budget. A disadvantage is that the executive must have detailed knowledge of the budget items, if not, the budget will not be correct. The lower level managers will feel that they have no input in the budget process. Another advantage is the budget will stretch the managers to meet the goal (The information was obtained at http://www.accts.com/articles/strategy.htm "Budget Strategy: Top-down or Bottom-to-Top?).
    In the bottom up approach, the budgeting process allows for the lower levels of management to be created their own budget. An advantage is increased ownership in the budget. Also, there will be better information because the knowledgeable managers are involved in the process. Further, there are better communication between departments. Finally, senior managers can focus on creating strategy for the company. The disadvantages of bottom up are bad decisions can be made by inexperienced managers. Also, managers may set easy targets to achieve. Further, the budget may not be in line with the corporate objectives. Finally, the budgeting process can be slow (The information was obtained at http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Top%20down%20and%20Bottom%20up%20Budgeting.aspx?tagName=top_x0020_down&weburl=http%3a%2f%2fkfknowledgebank.kaplan.co.uk&listid=1d06790a-eef1-4037-8b41-f862a89ff68e&Source=http%3a%2f%2fkfknowledgebank.kaplan.co.uk%2fKFKB%2fWiki+Pages%2fTop+down+and+Bottom+up+Budgeting.aspx "Top down and Bottom up Budgeting").
    My preference is the bottom up approach. Managers at every level of the company will be engaged. This will allow the managers to be happy participant in the process. The senior executives can set stretch goals for managers to achieve.
    References.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 7, 2022, 5:23 pm ad1c9bdddf>
    https://brainmass.com/business/management-accounting/period-product-costs-601545

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