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Question 2.5
a) Direct Materials: The cost of raw materials which can be easily identified with
the unit of production. For example, the cost of glass is a direct material cost
in light bulb manufacturing. The manufacture of products or goods required
material as the prime element
b) Indirect Materials: Materials that are used in a production process, but are not
directly traceable to a cost object. Its considered overhead costs and treated
accordingly
c) Direct Labor: Employee or workers who are directly involved in the production
of goods or service
e) Manufacturing Overhead: All of the costs that a factory incurs, other than the
variable costs required to build products, such as direct materials and direct
labor. This overhead is applied to the units produced within a reporting period
Question 2.6
The following are the major difference between product cost and period cost:
- Product cost is the cost which can be directly assigned to the product. Period
cost is the cost which related to a particular accounting period.
- Product cost is based on volume, because they remain same in the unit price,
but differ in the total value. On the other hand, time is taken as a basis for
period cost because as per the matching principle, the expenses should
match the revenue and therefore, the costs are ascertained and charged in
the accounting period in which they are incurred.
- Product cost is included in the inventory valuation, which is just opposite in
the case of Period cost
- Product cost comprises of all the manufacturing and production cost, but
period cost considered all the non-manufacturing costs like marketing, selling
and distribution.
- Product cost change with the change in the activity level meanwhile period
cost remain unchanged irrespective of the activity level
Question 2.13
b) Opportunity Cost : The value of the best alternative forgone, where a choice
needs to be made between mutually exclusive alternatives given limited
resources
c) Sunk Cost: Cost that has already been incurred and cannot be recovered. Its
sometimes contrasted with respective costs, which are prospective cost that
may be incurred or changed if an action is taken
Question 2.14
Question 2.2
Question 7.4
a) Unit level activity : Unit level activities are performed for each unit that is
produced
b) Batch level activity : Batch level activity are performed for each batch
regardless of how many units are in the batch
Question 7.6
- Cost must first be allocated to activity cost pools and then they are allocated
from the activity cost pools to products, customers, and other cost objects.