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Chapter 17: Q17-1RQ (page 930)

Question: Why do managers need to know the cost of their products?

Short Answer

Expert verified

Answer:

Manager need to know about the cost of their product to decide the selling price of the product and to control the cost of raw material and other resources required to produce the products. It is computed to know the cost of goods sold and the cost of inventory.

Step by step solution

01

Cost of the products

Cost of the product is defined as the total cost incurred by an organization for manufacturing the products. It includes both direct and indirect cost.

02

Use of the cost of the product

The cost of the product is used by the management of the company to determine the selling price of the product by adding the profit margin to the cost. If the cost of the product is high due to which selling price is high, then the manager need to control the cost of raw materials etc. The manager compute the cost of goods sold for the income statement and the cost of inventory for the balance sheet.

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Most popular questions from this chapter

Young Foundry uses a predetermined overhead allocation rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 2018, the company expected to incur the following:

Manufacturing overhead costs

\(840,000

Direct labor cost

1,480,000

Machine hours

70,000 hours

At the end of 2018, the company had actually incurred:

Direct labor cost

\)1,230,000

Depreciation on manufacturing plant and equipment

620,000

Property taxes on plant

35,500

Sales salaries

26,000

Delivery driver’s wages

22,500

Plant janitor’s wages

17,000

Machine hours

60,000 hours

Requirements

4. Prepare the journal entry to adjust for the underallocated or overallocated manufacturing overhead. Does your entry increase or decrease Cost of Goods Sold?

Question: What is the purpose of a job cost record?

Following is a list of cost system characteristics and sample companies. Match each to either job order costing or process costing.

a. Companies that produce small quantities of many different products.

Goldenrod Company makes artificial flowers and reports the following data for the month:

Purchases of materials, on account

$51,000

Materials requisition:

Direct material

42,300

Indirect materials

500

Labor incurred (not yet paid):

Direct labor

20,300

Indirect labor

1,340

Journalize the entries relating to materials and labor.

Question: Record the following journal entries for Smith Company:

6. Purchased raw materials on account, \(10,000.

7. Used \)6,000 in direct materials and \(500 in indirect materials in production.

8. Incurred \)8,000 in labor costs, of which 80% was direct labor.
See all solutions

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