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1、ConfirmingPagesCHAPTERTHREEBasicCostManagementConceptsAfterstudyingthischapter,youshouldbeableto...1.Understandthestrategicroleofbasiccostmanagementconcepts2.Explainthecostdriverconceptsattheactivity,volume,structural,andexecutionallevels3.Explainthecostconceptsusedinprod
2、uctandservicecosting4.Demonstratehowcostsflowthroughtheaccounts5.PrepareanincomestatementforbothamanufacturingfirmandamerchandisingfirmLEARNINGOBJECTIVE1Aswewillseeinthischapter,irrespectiveoftheircompetitivestrategy,successfulfirmsfindthatUnderstandthestrategicroleofthey
3、needtoapplycostmanagementeffectivelyand,indoingso,tounderstandthekeyconceptsbasiccostmanagementconcepts.andtermsofcostmanagement.Webeginwithanexamplefirmthatillustratestheimportanceofunderstandingthecomplexityofafirm’soperations—thenumberanddiversityofitsproducts,producti
4、onprocessesandlocations,distributionnetworks,andtypesofcustomers.Complexityonanyofthesedimensionswillhaveconsequencesforcosts,andthemanagementaccountanthasdevelopedthenecessaryvocabularytoidentifyanddescribetheseeffects.Agoodexampleofafirmthatdealseffectivelywithcomplexit
5、yisProcter&Gamble(P&G),oneoftheworld’sleadingconsumerproductscompanies,makerofsuchwell-knownproductsasTidedetergentandCresttoothpaste.P&Ghasachievedsuccessthroughprod-uctexcellenceandcontinuousimprovement.Onekeyareaofcontinuousimprovementisthefirm’semphasisoncostreduction
6、throughproductandprocesssimplification.Toaccomplishthis,P&Gusesaconceptthatwestudyinthischapter:theinfluenceofproductandprocesscomplexityonoverallcosts.Intheearly1990s,P&Ghadasmanyas50differentvarietiesofsomeofitsbrands,includingdifferentsizecontainers,andflavors.Inadditi
7、ontovariety,thenumberoftradepromotions,discounts,rebates,andcouponsthataffectedP&G’snetpricewerecomplex.Thehighcomplexityinproductsandpricingincreasedmanufacturingcosts,inventoryholdingcosts,sellinganddistributioncosts,customerservicecosts,administrativeandaccountingcosts
8、,andotheroperatingcosts.Overaperiodoffiveyears,P&Greduceditsproductvarietybyone-half,anditsprofi
