Cost Term Concept And Classification of Managerial Accounting Solutions : 01. Concepts and Classification;
A product cost is any cost involved in the purchase or the manufacture of goods. In the in the case of manufactured goods, this costs consists of direct materials, direct labor and manufactured overhead. A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred.
02. Since product cost follow units of product into inventory, they are sometimes called inventoriable cost, the flow is from direct materials, direct labor and manufacturing overhead into work in process. As goods are completed, their cost is removed from work in process
and transferred into finished goods. As goods are sold, their cost is removed from finished goods and transferred into cost of goods sold in an expense on the income statement. Managerial Accounting Solutions03. A variable cost is a cost that varies, in, total. In direct production to change in the level of activity. A variable cost is a constant per unit of product. A fixed cost is a fixed in total, but will vary inversely on a per unit basis with changes in the level of activity.
04. When fixed costs are involved, the cost of a unit of product will depend on the number of units being manufactured. As production increases, the cost per unit will fall as the fixed cost is spread over more units. Conversely, as production declines, the cost per unit will rise, since a constant fixed cost figure will be spread over fewer units.
05. A differential cost is a cost that differs between alternatives in a decision. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future.
06. Differential costs can be either variable or fixed. For example, the alternatives might consist of purchasing one machine rather than another in order to make a product. The difference in the fixed costs of purchasing the two machines would be a differential cost.
07. Exercise-2.9
A few of these costs may generate lively debate .for example, some may argue that the cost of advertising a Madonna rock concert is a variable cost since the number of people who come to the rock concert depends upon how much advertising there is .However, one can argue that if the price is within reason, any Madonna rock concert in New York City will be sold out and the function of advertising is simply to let people know the event will be happening. Moreover, while advertising may affect the number of persons who ultimately buy tickets, the advertising costs don’t go up. Managerial Accounting Solutions
Cost behavior
Variable Fixed
1. X-ray film used in the radiology lab at Virginia
Mason Hospital in Seattle …………………………… x
2. The cost of advertising a Madonna rock
concert in New York city ………………………….. x
3. Depreciation on the Planet Hollywood
restaurant building in Hong Kong ……………………. x 4.The electrical cost s of running a roller coaster
at Magic Mountain …………………………………… x
5. Property taxes on your local cinema …………………… x
6. Commission paid to salespersons at
Nordstroms ……………………………………………….. x
7.property insurance on a Coca- Cola bottling
plant ………………………………………………………… x
8. The cost of synthetic materials used to make
Nike running shoes …………………………………………. X
9. The cost of shipping Panasonic televisions to
retail stores ……………………………………………….. x
10. The cost of leasing an ultra-scan diagnostic
machine at the American hospital in Paris …………….. X
08. Exercise-2.5
Cost Behavior Selling and Product
Variable Fixed Administrative Cost Cost
1. Hamburger burns at a
McDonald’s outlet ……….. x x
2. Advertising by a dental
Office ……………………… x x
3. Apples processed and canned
by a Del Monte Corporation. x x
4. Shipping canned apples from a
Del Monte plant to customers. x x
5. Insurance on a Bausch and
lomb factory producing
contract lenses ……………. X x
6. Insurance on IBM’s corporate
Headquarter ……………… x x
7. Salary of a supervisor
overseeing production of
computer board at
Hewlett-Packard …………… x x
8. Commissions paid to
Encyclopedia Britannica
salespersons ……………….. x x
9. Depreciation of factory
lunchroom facilities at a
General Electric plant ………. x x
10. Steering wheels installed
in BMWs …………………… x
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