Question

a) What are the three types of product costs in a manufacturing environment?

b) Certain costs, like selling and administrative costs, are not directly related to production but are still necessary for a business to function. These costs are not capitalized as product costs, but instead expensed when they are incurred. What is the general term for these types of costs?

C) DULL Corp. had estimated overhead costs of $72.000 for the month of November. Allocated overhead costs for the month were $82,000 and actual overhead costs for the month were $78,000. Prepare the journal entry to adjust DULL'S Manufacturing Overhead account.

d) Lee manufactures several heterogeneous products that all consume manufacturing overhead in different ways. What method of cost management would Lee most likely use to allocate its overhead?

e) Operating income calculated using absorption costing can be (1) greater. (2) less than or (3) equal to operating income calculated using variable costing. Briefly explain how each of these three scenarios can occur.

Answer 1

Dear Student,

As per the Chegg Policy, the first four questions should be answered. Kindly take note of it.

Part A

The three types of product costs in a manufacturing environment are: 1. Direct materials costs 2. Direct labor costs. 3. Manufacturing overhead. (Product costs are directly related to the production of goods. They fixed and variable in nature)

Part B

Certain costs, like selling and administrative costs, are not directly related to production but are still necessary for a business to function. These costs are not capitalized as product costs, but instead expensed when they are incurred. The general term used for these types of costs is period costs. (These are also referred as indirect costs. They are recognized in the income statement when they are incurred. They fixed and variable in nature)

Part C

As allocated manufacturing overhead is higher than actual manufacturing overhead. The amount of cost of goods sold is reduced by crediting it.

Accounts title and explanation	Debit	Credit
Manufacturing overhead	4000
Cost of goods sold (82000-78000)		4000

Part D

Lee manufactures several heterogeneous products that all consume manufacturing overhead in different ways. Lee most likely uses activity-based costing method to allocate its overhead. (In activity-based costing method, different activity rates are determined for different cost pools. Then overhead is allocated of different products as per their usage of particular activity using its activity rate).