Chapter 18, Problem 1APSA

Requirement 1.

To determine

Introduction:

Variable cost is the cost which is associated with the amount of goods or services the company produces. It varies with the level of production volume. If the company’s production increases, Variable cost will increase. However, in case there is no production, no Variable cost will be incurred.

Fixed cost is the cost which does not vary with the level of production. It is not affected with the change in production level. A company continues to incur its Fixed cost even in the case if there is no production at all.

Product costs are the cost of Direct Material, Direct Labour and Manufacturing Overheads used in making the product.

Period costs are usually associated with the selling function of the business or its general administration. Period costs are reported in the accounting period in which they best match with revenues, when they expire or in the current accounting period. Interest expenses are also in the nature of period expense.

To state:

Whether the costs are (a) either Variable or Fixed and (b) either Product or Period

Requirement 2.

To determine

Introduction:

Manufacturing costs are the costs necessary to convert Raw Materials into products. These costs include the cost of Direct Material, Direct Labour and Manufacturing Overheads.

Direct Material is the cost of materials used in production of a product.

Direct Labour is that portion of Labour cost of the production process that is assigned to a unit of production.

Manufacturing Overheads are applied to production units based on a variety of possible allocation systems, such as direct labour hours or machine hours.

To calculate:

Manufacturing cost per drum set

Requirement 3.

To determine

Introduction:

Manufacturing costs are the costs necessary to convert Raw Materials into products. These costs include the cost of Direct Material, Direct Labour and Manufacturing Overheads.

Variable cost is the cost which is associated with the amount of goods or services the company produces. It varies with the level of production volume. If the company’s production increases, Variable cost will increase. However, in case there is no production, no Variable cost will be incurred.

To determine:

Total cost and per unit cost of the plastic for casings

Requirement 4.

To determine

Introduction:

Manufacturing costs are the costs necessary to convert Raw Materials into products. These costs include the cost of Direct Material, Direct Labour and Manufacturing Overheads.

Fixed cost is the cost which does not vary with the level of production. It is not affected with the change in production level. A company continues to incur its Fixed cost even in the case if there is no production at all.

To determine:

Total cost and per unit cost of property taxes