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Chapter 16: 14RQ (page 884)

What are product costs?

Short Answer

Expert verified

The product cost is the cost of purchasing or producing goods.

Step by step solution

01

Definition of product

The product refers to the final or finished goods which are produced in order to sell the goods to the customers.

02

Definition of the product cost

The product cost is defined as the cost of purchasing or the cost of making the product for the business. This cost is recorded on the asset side of the balance sheet as inventory, and it is recorded as the cost of goods sold (expense) when the product is sold.

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Most popular questions from this chapter

Explain the difference between a direct cost and an indirect cost.

Preparing an income statement and calculating unit cost for a service company

The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:

Salaries and wages \( 10,000

Windshield repair materials 4,100

Depreciation on truck 500

Depreciation on building and equipment 900

Supplies used 450

Utilities 4,550

The Glass Doctors earned \)25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.

Requirements

1. Prepare an income statement for the month of July.

2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.

3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

d. Salaries of the company’s top executives.

Distinguishing between direct and indirect costs Granger Cards is a manufacturer of greeting cards. Classify its costs by matching the costs to the terms.

  1. Direct materials
  2. Direct labor
  3. Indirect materials
  4. Indirect labor
  5. Other manufacturing overhead

a. Artists’ wages

b. Wages of materials warehouse workers

c. Paper

d. Depreciation on manufacturing equipment

e. Manufacturing plant manager’s salary

f. Property taxes on manufacturing plant

g. Glue for envelopes

What are the three manufacturing costs for a manufacturing company? Describe each.
See all solutions

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