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Question & Answer:

  • What are the three major elements of product costs in a manufacturing company?
  • Distinguish between the following
    (a) Direct materials
    (b) Indirect materials
    (c) Direct labor
    (d) Indirect labor and
    (e) Manufacturing overhead.
  • Explain the difference between a product cost and a period cost.
  • Describe how the income statement of a manufacturing company differs from the income statement of a merchandising company.
  • Describe the schedule of cost of goods manufactured. How does it tie into the income statement?
  • Describe how the inventory accounts of a manufacturing company differ from the inventory account of a merchandising company.
  • Why are product costs sometimes called inventoriable costs? Describe the flow of such costs in a manufacturing company from the point of incurrence until they finally become expenses on the income statement.
  • Is it possible for cost-such as salaries or depreciation to end up as assets on the balance sheet? Explain.
  • What is meant by the term cost behavior?
  • A variable cost is a cost that varies per unit of product, whereas a fixed cost is constant per unit of product. Do you agree? Explain.
  • How do fixed costs create difficulties in costing units of product?
  • Why is manufacturing overhead considered an indirect cost of a unit of product?
  • Define the following terms, differential cost, opportunity cost, and sunk cost.
  • Only variable costs can be differential costs. Do you agree? Explain.
  • Mary Adams is employed by Acme Company. Last week she worked 34 hours assembling one of the company’s products and was idle 6 hours due to material short-ages. Acme’s employees are engaged at their workstations for a normal 40-hour week. Ms Adams is paid $15 per hour. Allocate her earnings between direct labor cost and manufacturing overhead cost.
  • John Olsen operates a stamping machine on the assembly line of Drake Manufacturing Company. Last week Mr. Olsen worked 45 hours. His basic wage rate is $14 per hour, with time and a half for overtime (time worked in excess of 40-hours per week). Allocate MR. Olsen’ wages for the week between direct labor cost and manufacturing overhead cost.
  • Costs associated with the quality of conformance can be broken down into four broad groups. What are these four groups and how do they differ?
  • In their efforts to reduce the total cost of quality, should companies generally focus on decreasing prevention costs and appraisal costs?
  • What is probably the most effective way to reduce a company’s total quality costs?
  • What are the main uses of quality cost reports?