Chapter 23, Problem 8BTN

To determine

Concept introduction:

Process costing system: Process costing systems is a system to assign the costs where the production goes through different processes. A product may take several processes to complete and when these processes are separable, the process costing system is applied to ascertain the cost of each process.

The flow of cost refers to the steps taken by costing system to assign the different types of costs to the product or process. Under the process costing system the cost flows through following steps:

• Direct Material: In the first step of the cost flow, the direct material is taken out from the material inventory and used in the production.

• Direct Labor: Direct labor is the labor used in the production process that is directly allocable to the product.

• Manufacturing overheads: After applying prime costs (Direct material and direct labor), manufacturing overhead are applied to the product or process, Manufacturing overhead costs includes indirect material indirect labor and other indirect costs that are not directly traceable with the production.

Requirement-1:

To identify: The number of raw materials used to make cheese pizza and use of these material in making the pizza.

To determine

Requirement-2:

To identify: The differences in use of raw material by a local pizza store and a national pizza chain in making the pizza

To determine

Requirement-3:

To determine: The profitable business in comparing the local pizza store with a national pizza chain