Specify whether each of the following costs incurred are product costs (as opposed to period costs);...
Specify whether each of the following costs incurred are product costs (as opposed to period costs); variable costs (as opposed to fixed costs); and relevant to future plans (as opposed to irrelevant):
Indicate with a check mark in a box if yes (or leave a blank space if not):
| Product Cost | Variable Cost | Relevant Cost | Briefly Explain.... | |
|---|---|---|---|---|
| Unit-of-production depreciation on manufacturing equipment purchased three years ago | ||||
| Straight-line depreciation expense on computer equipment purchased two years ago used by sales-persons. | ||||
|
Sales commissions that will be paid to sales-persons only if a special order is accepted this month. |
||||
| One-time, initial cost of new customer relationship management software that the marketing department will need to pursue a new project | ||||
| Salary of a supervisor that will be paid whether or not a special order is accepted this month. |
Homework Answers
| Product Cost | Variable Cost | Relevant Cost | Briefly Explanation | |
| Unit-of-production depreciation on manufacturing equipment purchased three years ago | YES | YES | YES | Normally, depreciation is treated as fixed Manufacturing OH & allocated to products on a fixed oH absorption rate. But under units of production method of depreciation, as it can be identified with no.of units produced in a particular year, it is treated as a variable product cost & all variable costs are relevant for future decision -making. |
| Straight-line depreciation expense on computer equipment purchased two years ago used by sales-persons. | NO | NO | NO | These are period costs , ie. More identified with passage of time, rather than units produced on the shop-floor. |
| Sales commissions that will be paid to sales-persons only if a special order is accepted this month. | NO | YES | YES | These are not product costs--ie. Not costs incurred to manufacture-- but variable --only on products sold --& are relevant for pricing the special order-units |
| One-time, initial cost of new customer relationship management software that the marketing department will need to pursue a new project | NO | NO | YES | Neither can be identified with units produced nor variable to produce/sales--but relevant for taking a decision about the project. |
| Salary of a supervisor that will be paid whether or not a special order is accepted this month. | NO | NO | NO | Incurred irrespective of no.of units produced or sold--a fixed administrative cost |
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