1. Communicate the Impact of Poor Cost Information on a Decision
Principles of Cost Analysis and Management

2. Terminal Learning Objective
Action: Communicate the Impact of Poor Cost Information on a Decision.
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Demonstrate Understanding of Cost Terminology
Present the Impact of Poor Cost Information on a Decision

3. There Are Many Possible Ways to Measure Costs
Consider the Following Types of Cost:
direct, indirect, variable, fixed, sunk, period, inventoriable, reimbursable, capital, standard, conversion, prime, carrying, incremental, separable, joint, project, controllable, current, historical, normal, discretionary, full, responsibility, imputed, opportunity, mixed, out-of pocket, relevant,
target, absorption, average, quality, estimated,
and unit

4. Relevance of Information
Has anyone recently purchased a new vehicle?
What were your top three criteria? Why?
Where did you get your information? Why?
What influenced your decision?
How will you use the vehicle?
How much will you drive it?
In what stage of your life are you?

5. Relevance of Information (Cont.)
How might your information needs differ if you were deciding where to pursue your Masters degree?
How would your decision criteria differ?
What different sources of information would you choose?

6. LSA #1 Check on Learning
Q1. Who defines the relevance of information? A1. Q2. True or False: Different individuals usually prefer one source of information? A2. Q3. True or False: The why is just as important, if not more so, than the what? A3.
Q1. Who defines the relevance of information?
A1. The user or decision maker.
Q2. True or False: Different individuals usually prefer one source of information?
A2. False, Different individuals might prefer different sources of information for various reasons.
Q3. True or False: The why is just as important, if not more so, than the what?
A3. True, ?????

7. LSA #1 Summary
During the facilitation of this block of instruction we covered the many ways to measure cost, the relevance of information and we illustrated how the user defines needs for information.

8. Let’s Start a Business What should we sell? List five products:
Product: Cost: 1. 2. 3. 4. 5.
Total Cost:

9. Let’s Start a Business (Cont.)
Costing methodology:
Calculate unit cost
Add a markup on cost to guarantee a profit
Set selling price

10. Let’s Start a Business (Cont.)
Calculate Average Unit $ Cost:
Total Cost / 5 units =
$ per unit
Add a 30% markup on cost to calculate Selling Price:
* ( ) = $ per unit

11. Let’s Start a Business
What’s wrong with this picture? Product: Selling Price:
Car $
Cup of coffee $
Notebook computer $
Suit $
DVD Player $

12. What Went Wrong? Followed the costing methodology to the letter
Calculated unit cost and selling price to the penny
What went wrong?
Costing methodology not appropriate for our purpose of setting prices for diverse items

13. Self-Study Practical Exercise / Review

14. LSA #2 Check on Learning
Q1. Would the methodology used in the demonstration have passed an audit? A1.

15. LSA #2 Summary
During this lesson, we discussed various types of cost and ways to measure. We then conducted a class demonstration to further outline and solidify the Learning Step Activities.
We also conducted the Self-Study PE on the SSFAS 4

16. TLO Summary
Action: Communicate the Impact of Poor Cost Information on a Decision.
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international Learners):
Demonstrate Understanding of Cost Terminology
Present the Impact of Poor Cost Information on a Decision