What I will learn?

• 1. Planning: Using a predetermined cost of producing a product or providing a service will help a company to determine the total costs of many products it wishes to produce in the future and therefore it will know how much resources to dedicate to such quantity of output.
• 2. Valuation: A cost of a product if known can provide a basis for determining the real value of any units produced, sold and those remaining in inventory as stock. If we wish to take up an insurance policy, the insurance company will be interested in knowing the cost or value based on the cost.
• 3. Selling Price: Selling price is made up of two components, the cost and profit of the product, this means knowing the cost of a product is very key for any profit seeking entity.
• 4. Profitability: The only way we can tell if our business is profitable is through clearly identifying the total cost and the selling price in order to establish profitability. Without knowing the costs of producing what we have sold it becomes difficult to determine profitability.