Exam 14: Costs and Cost Behaviour

In a manufacturing operation, costs can be divided into product costs and period expenses. (a) Explain the difference between product costs and period expenses. (b) Give two examples of costs classified as product costs. (c) Give two examples of costs classified as period expenses.

Paul's Ltd is considering increasing its production by 5%. If production increases, what is the most likely impact on costs?

Management requires information about the cost of products for all of the following reasons except to:

The basic difference between management and financial accounting is that the financial accounting system relies on accounting information whereas management accounting does not.

Hardware Products manufactures a wide variety of products in its plant located in Boston, Massachusetts. Listed below are some of the manufacturing and administrative activities identified by management.

Absorption costing is a method of allocating direct and indirect costs of production to a cost object.

A dependent variable represents the cost of an activity, while the independent variable represents the level of the activity.

Absorption costing would be based on which of the following?

Veronica's Clothing Manufacturers supplies the following information. Direct materials cost is $3.00 per unit; direct labour is $4.50 per unit. Variable overhead is $1.50 per unit; fixed overhead is $2.00 per unit. Secretarial salaries are $7.00 per unit and advertising amounts to $4.00 per unit. What is the total manufacturing cost per unit under absorption costing?

When sales exceeds production, absorption costing shows a higher profit than variable costing because a portion of fixed costs are charged to inventories and thereby deferred to future periods.

Java Ltd manufactures two products, A and B. The manufacturing processes for the two products are very similar. The following are excerpts from the product data for these two products for this year: Overhead costs total $285 000. What is the cost per unit for each of A and B in respect of overhead costs using absorption costing, if costs are absorbed on the basis of direct labour hours?

Indirect costs are not included in the calculation of the overhead absorption rate as it is generally thought to be too complex to share these costs equitably.

Adel Department Store incurred $8000 of indirect advertising costs for its operations. The following data were collected for its three departments: How much of the indirect advertising costs would have been allocated to the Shoe Department if newspaper ad space were the allocation base?

The overhead absorption rate is determined by using:

Discounts, increased prices and diminishing returns are all reasons why a variable cost function will not necessarily behave in a linear fashion.

Costs that would be included in the factory overhead account would normally not include:

Period costs are:

The selling price of products is determined by market forces but can also be dependent on the cost of the product, particularly where there is little or no competition.

Adel Department Store incurred $8000 of indirect advertising costs for its operations. The following data were collected for its three departments: How much of the indirect advertising costs would have been allocated to the Automotive Department if sales were the allocation base?

Costs directly associated with specific goods are: