Lecture 1: Introducing Costs
This is Layla, and she needs our help. She recently finished school and wants to start a business. She’s always liked antique furniture, so she had this great idea to start manufacturing wooden dining room tables.
A management accountant friend of hers told her it’s very important to record all her costs. She does not know much about management accounting, and she asked us to help her. Let’s make a list of all the costs she will need to incur to make the tables.
First, she’ll need some wood or raw material. Somehow she needs to join the wood, for that she will make use of nails and glue.
Now, Layla is not much of a carpenter herself, so her neighbour John offered to help her at a fee. Layla’s apartment is way too small to do woodwork in, so she rents a shed down the street.
Now woodwork is a very dirty business, there’s lots of dust flying around, and she needs to get a cleaner in once a week to clean out the shed and make sure it’s clean.
John’s power tools need electricity to operate, and there needs to be proper lighting and a security system in the shed.
Since the business is only starting out, Layla doesn’t have a big budget for marketing, so she will just set up a Facebook page and take out a Facebook ad once a month. She will do this via smartphone, which she will get on a contract from a mobile service provider.
Now we have listed all the costs. What can we use this information for?