Is rent expense a period cost or a product cost?
When a company incurs rent for its manufacturing operations, the rent is a product cost. It is common for the rent to be included in the manufacturing overhead that will be allocated or assigned to the...
View ArticleWhat are direct costs?
Direct costs can be traced directly to a cost object such as a product or a department. In other words, direct costs do not have to be allocated to a product, department, or other cost object. For...
View ArticleWhat is the difference between product costs and period costs?
A manufacturer’s product costs are the direct materials, direct labor, and manufacturing overhead used in making its products. (Manufacturing overhead is also referred to as factory overhead, indirect...
View ArticleIs the rental cost of a building considered overhead?
The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is an indirect product cost. Indirect product costs are allocated or assigned to products...
View ArticleWhy does a cost system developed for inventory valuation distort product cost...
The cost system for inventory valuation may have been developed to provide a reasonable total cost of inventory and a reasonable total cost of goods sold in order to have reasonably accurate financial...
View ArticleWhy is the distinction between product costs and period costs important?
The distinction between product costs and period costs is important for 1) properly measuring net income during a period of time and 2) reporting the proper cost of inventory on the balance sheet....
View ArticleUnder accrual accounting, how are worker comp premiums handled?
Worker comp insurance premiums should be charged to the areas where the related wages and salaries are charged. Let’s assume that the net cost of worker comp insurance after discounts and dividends is...
View ArticleAre insurance premiums a fixed cost?
The cost of the insurance premiums for a company’s property insurance is likely to be a fixed cost. The cost of worker compensation insurance is likely to be a variable cost. Whether a cost is a fixed...
View ArticleAre direct costs fixed and indirect costs variable?
Direct product costs such as raw materials are variable costs. Variable product costs increase in total as more units of products are manufactured. Costs that are direct to a department could be...
View ArticleWhat is cost allocation?
Cost allocation is the assigning of a common cost to several cost objects. For example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the...
View ArticleAre salaries and wages part of expenses on the income statement?
Salaries and wages of the current accounting period are reported as expenses on a service company’s current income statement. Salaries and wages of a manufacturer are more complicated. The salaries and...
View ArticleIn least squares regression, what do y and a represent?
Here are the meanings of the components or symbols used in the least squares equation of y = a + bx: y is the dependent variable, such as the estimated or expected total cost of electricity during a...
View ArticleWhat is elastic demand?
Elastic demand means that demand for a product is sensitive to price changes. For example, if the selling price of a product is increased, there will be fewer units sold. If the selling price of a...
View ArticleWhat is a cost center?
A cost center is often a department within a company. The manager and employees of a cost center are responsible for its costs but are not responsible for revenues or investment decisions. A...
View ArticleWhat is a responsibility center?
A responsibility center is a part or subunit of a company for which a manager has authority and responsibility. The company’s detailed organization chart is a logical source for determining...
View ArticleWhat is responsibility accounting?
Responsibility accounting involves a company’s internal accounting and budgeting. The objective is to assist in the planning and control of a company’s responsibility centers—such as decentralized...
View ArticleWhat is the difference between a cost center and a profit center?
A cost center is a subunit of a company that is responsible only for its costs. Example of cost centers are the production departments and the service departments within a factory and administrative...
View ArticleWhat is meant by the full cost of a product?
Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of materials, labor, and both...
View ArticleHow can a manufacturer determine the precise cost of its products?
A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than materials and some labor) are indirect costs....
View ArticleShould a manufacturer’s selling prices be based on costs?
A manufacturer’s selling prices should not be based on costs alone. One reason is that the actual cost of each product is not known with precision. At best, each product’s cost is an average that...
View Article
