Chapter 6 Final

Question 1

The purpose of calculating individual product (and service) cost include:

Answer 1

• Computing the inventory values and cost of goods sold for financial statements
• Helping various product managers make decisions regarding pricing, production, promotion, adding or dropping a product, whether to outsource selected products or services

Question 2

Basic Cost Flow Model

Answer 2

= Beginning Balance + Transfers in - Transfer out = Ending Balance

• BB+TI-TO = EB

Question 3

Direct Costs

Answer 3

Direct materials and labor are assigned to a product

Question 4

Indirect Costs

Answer 4

Manufacturing overhead (indirect) costs = (1) indirect materials, (2) indirect labor, (3) other (ex. utilities, depreciation)

Question 5

Manufacturing overhead (indirect) costs are allocated base on some measure of activity

Answer 5

• Predetermined Overhead Rate = Estimated Overhead $/Estimated Allocation Base
• 3 common Estimated allocation bases : (1) machine hours, (2) direct labor hours, (3) direct labor costs

Question 6

Three basic types of product costing systems:

Answer 6

1. Job costing - “Job Shop”; customized; traces costs to individual units or specific jobs
2. Process costing - “Continuous Flow Process”, homogenous/Identical items; no need to trace costs to the individual unit level
3. Operations costing - “Batch Production”