leachistüdent\'s quiz are randomly selected. apter 2 Essay Questions 1. Define t
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leachistüdent's quiz are randomly selected. apter 2 Essay Questions 1. Define the following: (a) direct materials, (b) indirect materials, (d) direct labor,(la) 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.Explanation / Answer
1) a ) Direct Material: Direct Material and components are used to make product is known as direct material.
b) Direct Labor: Direct Labor are those who are directly involved in the production of goods.
c ) Indirect Labor: Indirect Labor is those who are not directly involved in the production of goods or in other words not involved to convert raw material into finished goods.
d) Manufacturing Overhead: Manufacturing overhead includes all factory related cost for example Depreciation on Machinery used in production, Rent of factory building, salary of manufacturing manager etc.
2) Difference between Product and Period cost
Product cost: These are the cost which is assigned to the product. This cost includes Direct Material, Direct Labor and manufacturing Overhead.
Period Cost: Period cost is not a part of manufacturing but treated as expense for the period in which they arise. Example Rent, Depreciation, Salaries etc.
3) Variable Cost: It is a cost which is change due to change in production output but variable cost per unit will same.
For Example Variable cost per unit=$3 Production 5000 units=Total Variable cost=$15000 but when production changes from 5000 to 4000 units =Total Variable cost=$12000.
Fixed Cost: Total Fixed cost will not be change due to change in production but fixed cost per unit will be change due to change in production.
For example: Fixed Cost =$10000 when production =5000 units, fixed cost will remains the same $10000 when production is =4000 units.
Mixed Cost: It is the combination of both fixed and variable cost. For example commission of employees is fixed $2000 +5% of any increase in production.
4) Effect of increase in volume on
a) Unit Fixed cost: Unit fixed cost is decrease due to increase in volume of production.
b) Unit variable cost is unaffected due to increase in volume of production.
c) Total Fixed cost: Not changed due to increase in production.
d) Total Variable cost: Total variable cost is increase due to increase in production.
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