Chapter 4, Problem 1DQ

Why would management be concerned about the accuracy of product costs?

To determine

Explain the reason why the management would be concerned about the accuracy of product costs.

Explanation of Solution

Product costs

Product costs means to deciding the cost of the product. It consists of direct materials, direct labor, and factory overhead. Direct materials and direct labor are appears in direct costs that can be traced to the product, and factory overhead include indirect costs like indirect materials and indirect labor that should be allocated to the product.

Explain the reason why the management would be concerned about the accuracy of product costs as follows:

Management needs exact products costs, for that reason its decisions about products are correct. Managers are concerned about the precision of product costs, which are used for decisions such as determining the product mix, ascertaining the product price, and deciding whether to discontinue a product line or not.