Question

1. Define the following: (a) direct materials, (b) indirect materials, (c) direct labor, (d) indirect labor, and (e) manufacturing overhead.

2. Explain the difference between a product cost and a period cost. 

3. Distinguish between (a) a variable cost, (b) a fixed cost, and (c) a mixed cost.

4.what effect does an increase in volume have on (a) unit fixed costs, (b) unit variable costs, (c) total fixed costs, and (d) total variable costs?

5. Define the following terms: (a) cost behavior and (b) relevant range.  

6. Distinguish between discretionary fixed costs and committed fixed costs.

7. Define the following terms: differential cost, opportunity cost, and sunk cost.

 

Answer 1

1a.

Direct material: The material creating integral part of the finished product that is identifiable and chargeable. An example of it is sugar cane; this is the raw material of the product sugar.

1b.

Indirect material: The material not in the integral part is indirect material; its cost can’t be charged or identified. An example of it is lubricating oil; this is an indirect requirement and its cost can’t be identified product basis.

1c.

Direct labor: The labor used for production purpose or service purpose is direct labor. Example of it is the workers working in sugar industry for producing sugar.

1d.

Indirect labor: The labors those who are not directly involved for producing goods or servicing items. Example of it is the supervisor in the production area.

1e.

Manufacturing overhead: All sorts of indirect costs directly associated with factory are manufacturing overhead. Examples are depreciation of machine, manager’s salary, etc.