Errol Clarke 9/20/16 Assignment 2-1 ACCT 202 – FUNDAMENTALS OF MANAGERIAL ACCOUNTING SECTION 2 – PRODUCT COSTING ASSIGNMENT 2-1   WHY it is important for a company to know what a product or service costs them to make or provide?  WHY do accountants need this?  WHY do managers need this?     What is meant by the value chain? (See chapter 2 which you already read)

Errol Clarke

9/20/16

Assignment 2-1

ACCT 202 – FUNDAMENTALS OF MANAGERIAL ACCOUNTING

SECTION 2 – PRODUCT COSTING

ASSIGNMENT 2-1

1. WHY it is important for a company to know what a product or service costs them to make or provide?  WHY do accountants need this?  WHY do managers need this?

2. What is meant by the value chain? (See chapter 2 which you already read).

3. Describe how costs can be classified by “function” (manufacturing, non-manufacturing, etc.) WHY is it important that we be able to make this distinction?

4. Compare and contrast the types of things that comprise “Inventory” for a manufacturer versus a merchandising operation.  For a retailer, what types of costs go into “inventory”?  For a manufacturer?

5. What’s job-order costing?  What type of companies use it?  How about process costing?  Who’s that for?  WHY do we need different ways of accumulating costs?

6. What are the three elements of cost that go into any product or service?  Explain in words what these are?

7. What’s normal costing?  How does it differ from actual costing?  WHY would a company need this?

8. What’s this predetermined overhead rate (POHR)?  What’s the purpose?  How is it computed?  What do we do with it once we have it?

9. WHY is it necessary to allocate or assign overhead?  What is different about overhead versus direct materials and direct labor?

10. What’s a cost driver?  WHY is it important to pick a cost driver carefully?

11. Let’s say we have a company and we expect our manufacturing overhead for the upcoming year will be $900,000.   We also expect that we will work 60,000 direct labor hours which will cost $30 per hour, for a total of $1,800,000. 

1. What would be our POHR if we chose to allocate the overhead using direct labor hours (DLH) as our driver? 

2. What if instead, we chose to allocate the overhead based on direct labor cost ($).  NOW what would our POHR be?

12. A company manufactures widgets and uses job-order costing for its manufacturing operations.  At the start of the month, there were no jobs in process.

During the month, it worked on 2 jobs:  #325 and #326.

At the start of the year, the company estimated $250,000 in overhead and 10,000 direct labor hours. Overhead is applied on the basis of direct labor hours.

Job #325 consisted of 500 widgets.  Direct costs associated with the job were $10,000 in direct materials and 250 direct labor hours at an average rate of $16 per hour.

Job #326 consisted of 750 widgets.  Direct costs associated with this job were $13,000 in direct materials and 500 direct labor hours at an average rate of $15 per hour.

1. 1. Calculate the costs of jobs #325 and #326.
   2. What would be the sales price for each of the jobs?