Question

John runs a bakery making artisan bread. Which of the following would be considered a product cost? (check all that apply)

Group of answer choices

energy utilities

the monthly rental payment on the bakery

the cost of the dough used to make the bread

the cost of the packaging materials (plastic bags) used for a loaf of bread

Answer 1

The product cost of a bakery will include

• energy utilties
• cost of dough used to make bread
• cost of packaging materials (plasic bags) for loaf of bread.

It's product cost does not include the monthly rently payment of bakery.

Reason:-

Energy Utilties:- Energy costs of a bakery go into the manufacturing/product costs as these costs are incurred on the basis of production i.e. on baking etc. It clearly depends upon the number of orders and thus, directly charged to the product costs.

Cost of Dough Used to Make Bread:-The cost of dough used to make bread is direct material for the bakery. It is used as a raw material for the bakery to produce end product. Thus, this cost will also be charged to the product directly.

Cost of Packaging Materials (plasic bags) for Loaf of Bread:- Packaging materials for loaf of bread are used on the number of breads that are baked. Thus, it is used to pack the breads' loafs. Therefore, it will also directly attributable to th ecost of product.

In short, above 3 costs are directly attributable to the product because these costs vary according to different number of productions.

Monthly Rent Payment of Bakery:- The rent of bakery has to be paid with no respect to the level of production/baking. Whether the product is produced or not, the payment of rent has to be made. Thus, it is not directly attributable to the cost of the product. It will be treated as fixed cost of the product.