Module17and18Solutions

Financial & Managerial Accounting for MBAs 2nd

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©Cambridge Business Publishers, 2010 Solutions Manual, Module 13 13-1 Module 17 Product Costing: Job and Process Operations QUESTIONS Q17-1. The importance of inventory costing is a function of the dollar size of inventories. Because merchandising and manufacturing organizations have larger inventory investments than most service organizations, inventory costing is more important to them. The complexity of inventory costing is a function of the number of major inventory categories and the difficulties encountered in assigning costs to each category. Because manufacturing organizations have three major inventory categories with many cost elements assigned to work- in-process and finished goods, inventory costing is more complex in manufacturing organizations than it is in service or merchandising businesses. Q17-2. Product costing is the process of assigning costs to inventories as they are converted from raw materials to finished goods. Service costing is the process of assigning costs to services. Q17-3. When costs are incurred in connection with manufacturing activities, they are product costs; when they are incurred in connection with other activities, they are period costs. The future service potential of manufacturing buildings and equipment is transformed into the future service potential of manufactured products. Depreciation on manufacturing buildings and equipment is absorbed by the product; hence, this depreciation is a product cost. The future service potential of office buildings and equipment expires with the passage of time. Depreciation on office buildings and equipment is not absorbed by products; hence, this depreciation is a period cost. Q17-4. The three major product cost elements are direct materials, direct labor, and manufacturing overhead.
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Q17-5. A predetermined overhead rate is determined at the start of the year by dividing the predicted overhead costs for the year by the predicted activity for the year. Predetermined overhead rates are used to avoid delays in product costing and to avoid variations in cost assignments that might result from seasonal variations in costs or the overall volume of activity. Q17-6. In process production, a single product is produced on a continuous basis. Typical products produced on a continuous basis include beverages, electric wire, cotton yarn, and newsprint. In job production (also called job order production), products are produced in single units or in batches of identical units. Single unit jobs might include a house, a ship, or a satellite. Typical batch jobs include machine parts, clothing, and furniture. Q17-7. Engineering is primarily concerned with determining how a product should be produced. On the basis of an engineering analysis and with the aid of cost data, engineers develop manufacturing specifications for each product. Production scheduling personnel prepare a production order for each job. The production order assigns a unique identification number to a job and specifies such details as the quantity to be produced in the job, the total raw
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Module17and18Solutions - Module 17 Product Costing Job and...

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