 Distinguish between fixed cost, variable cost, and mixed cost

 A fixed cost is a cost that does not change with an increase or decrease in the amount of
goods or services produced or sold.
Example=Depreciation. Insurance. Interest expense. Property taxes. Rent. Salaries.
Utilities.
 Variable costs are costs that change as the quantity of the good or service that a business
produces changes.
Example= sales commissions, direct labor costs, cost of raw materials used in production,
and utility costs
 A mixed cost is a cost that contains both a fixed cost component and a variable cost
component.
Examples of Mixed Costs. Telephone expense: Fixed Component. Variable
Component. Cost of the system, cost of calls

 Define the following terms, Differential cost, sunk cost and opportunity
cost
 Differential cost refers to the difference between the costs of two alternative decisions
For example, if the cost of alternative A is $10 per year and the cost of alternative B
is $8 per year. The difference of $2 would be differential cost.
 A sunk cost refers to money that has already been spent and which cannot be recovered
For example, your rent, marketing campaign expenses or money spent on new equipment
can be considered sunk costs. A sunk cost can also be referred to as a past cost
 Opportunity costis the next best alternative foregone.The loss of other alternatives when
one alternative is chosen.
 For example, you spend time and money going to a movie, you cannot spend that time at
home reading a book, and you can't spend the money on something else.
 Only variable cost can be differential costs. Do you agree? Explain.
NO .The differential cost refers to the difference in costs between the two alternative courses of
actions. Thus, the differential costs can be fixed costs as well and not only variable costs.

 What are the three major type of product cost in manufacturing company?
Explain

The three major types of costs in manufacturing company are direct materials, direct labor, and

overhead.
 Direct materials cost the cost of direct materials which can be easily identified with the unit
of production. For example, if Company A is a toy manufacturer, an example of a direct
material cost would be the plastic used to make the toys.
 Direct labor refers to the salaries and wages paid to workers who are directly involved in the
manufacture of a specific product or in performing a service
For example, workers on the assembly line or those who use the machinery to make the
products.
 Manufacturing overheads costs represent all such costs which are incurred in production of
goods excluding direct materials and direct labor.
Examples of manufacturing overhead costs include the following: depreciation, rent and
property taxes on the manufacturing facilities.

 Define the following; Direct materials, Indirect materials, Direct labor,

Indirect labor, Manufacturing overhead.
 Direct materials cost the cost of direct materials which can be easily identified with the unit
of production
 Indirect material cost the cost of materials which is not directly related to the production
 Direct labor refers to the salaries and wages paid to workers who are directly involved in the
manufacture of a specific product or in performing a service
 Indirect labor refers to those employees that assist the direct labor in the performance of
their work. They are not involved directly in the service or production process
 Manufacturing overheads costs represent all such costs which are incurred in production of
goods excluding direct materials and direct labor.
 What is job costing, what is absorption costing, what is process costing
• Job costing involves the detailed accumulation of production costs attributable to specific
units or groups of units.Each job is different from others, work in process may not exist
• Absorption costing is a costing system that is used in valuing inventory. It not only includes
the cost of materials and labor, but also both variable and fixed manufacturing overhead costs
• Process costing involves the accumulation of costs for lengthy production runs involving
products that are indistinguishable from each other.All units of produce are homogenous,
work in process always exist

 What is plant-wide overhead rate? Why are multiple overhead rate rather
than a plant-wide overhead rate used in some company?
• Plant-wide overhead rate is a single overhead rate that a company uses to allocate all of its
manufacturing overhead costs to products or cost objects
• Multiple overhead rates. Manner of measuring product costs. A different
predetermined overhead rate is set for each department of a factory, rather than having a
single predetermined rate for the entire factory
• Some companies use multiple overhead rates rather than plant-wide rates to more
appropriately allocate overhead costs among product. Because plant-wide overhead rate is
single overhead rate that cannot get the accurate result for each product, on the other hand
multiple overhead rate makes individual allocate for each product. That’s why some
company   use multiple overhead rates rather than plant-wide rates to more appropriately
allocate overhead costs among product

 How is the product cost of a job calculated?

Add together the total direct materials costs, total direct labor costs and total manufacturing
overhead costs that incurred during the period to determine the total product costs. Divide the
result by the number of products that manufactured during the period to determine the product
cost per unit.