Chapter 08 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 8 COST CONCEPTS AND CLASSIFICATIONS I. Questions 1. The phrase “different costs for different purposes” refers to the fact that the word “cost” can have different meanings depending on the context in which it is used. Cost data that are classified and recorded in a particular way for one purpose may be inappropriate for another use. 2. Fixed costs remain constant in total across changes in activity, whereas variable costs change in proportion to the level of activity. 3. Examples of direct costs of the food and beverage department in a hotel include the money spent on the food and beverages served, the wages of table service personnel, and the costs of entertainment in the dining room and lounge. Examples of indirect costs of the food and beverage department include allocations of the costs of advertising for the entire hotel, of the costs of the grounds and maintenance department, and of the hotel general manager’s salary. 4. The cost of idle time is treated as manufacturing overhead because it is a normal cost of the manufacturing operation that should be spread out among all of the manufactured products. The alternative to this treatment would be to charge the cost of idle time to a particular job that happens to be in process when the idle time occurs. Idle time often results from a random event, such as a power outage. Charging the cost of the idle time resulting from such a random event to only the job that happened to be in process at the time would overstate the cost of that job. 5. a. Uncontrollable cost b. Controllable cost c. Uncontrollable cost 6. Product costs are costs that are associated with manufactured goods until the time period during which the products are sold, when the product 8-1
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Chapter 8 Cost Concepts and Classifications costs become expenses. Period costs are expensed during the time period in which they are incurred. 7. The most important difference between a manufacturing firm and a service industry firm, with regard to the classification of costs, is that the goods produced by a manufacturing firm are inventoried, whereas the services produced by a service industry firm are consumed as they are produced. Thus, the costs incurred in manufacturing products are treated as product costs until the period during which the goods are sold. Most of the costs incurred in a service industry firm to produce services are operating expenses that are treated as period costs. 8. Product costs are also called inventoriable costs because they are assigned to manufactured goods that are inventoried until a later period, when the products are sold. The product costs remain in the finished goods inventory account until the time period when the goods are sold. 9.
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This note was uploaded on 07/18/2011 for the course ECON 102 taught by Professor Sadassad during the Spring '11 term at Abant İzzet Baysal University.

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Chapter 08 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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