What is a product cost?

A product cost is a total cost of producing a good or service. This includes the costs of materials, labor, and overhead.

What are the main components of a product cost?

The main components of a product cost are direct materials, direct labor, and manufacturing overhead.

How do you calculate the product cost?

To calculate the product cost, you add the direct materials cost, the direct labor cost, and the manufacturing overhead cost.

Why is it important to accurately calculate product costs?

It is important to accurately calculate product costs because they can impact pricing decisions and profitability. If a company underestimates the cost of producing a good or service, it may sell them at a loss. Conversely, if a company overestimates the cost of producing a good or service, it may be uncompetitive in the market.

What are some common methods for reducing product costs?

There are many ways to reduce production costs. Some common methods include reducing the number of materials used, automating production processes, and streamlining operations. By reducing the number of materials used, automating production processes, and streamlining operations, companies can reduce their manufacturing overhead costs. This, in turn, reduces the product cost.

Product Costing Systems MCQ Quiz With Answers

1. The document that lists the type and quantity of each item of materials that is needed to complete a unit of product is known as the:

Materials requisition form
Bill of materials
Job cost sheet
Time ticket

2. A materials requisition form:

Specifies the type and quality of materials to be drawn from the storeroom
Identifies the job to which the costs of materials are to be charged
Controls the flow of materials into production
All of the above

3. A normal costing system applies overhead costs to jobs by:

Multiplying annual activity by the predetermined overhead rate
Multiplying the estimated activity by the estimated overhead cost
Multiplying the estimated activity by the predetermined overhead rate
Multiplying the estimated overhead cost by the predetermined overhead rate

4. Which of the following is not a reason for the difficulty associated with assigning manufacturing overheads to products?

Manufacturing overhead is an indirect cost
Manufacturing overhead consists of many different items
Manufacturing overhead costs tend to remain constant
Manufacturing overhead costs are known at the time of the calculation of the predetermined overhead rate

5. The work-in-process account contains the summarized balance of all units that are:

Unfinished at a given point in time
Complete at a given point in time
Transferred to the finished goods Inventory and in the process of being sold
Sold and in the process of being recorded in the financial records

6. Materials requisitioned from the storeroom include $1,000 of direct materials and $2,000 of indirect materials. Manufacturing overhead should be debited for what amount to record the transaction?

$1,000
$2,000
$3,000
$0

7. The cost of a completed job includes:

Actual materials, actual labor, and actual overhead
Actual materials, estimated labor, and estimated overhead
Estimated materials, estimated labor, and estimated overhead
Estimated materials, estimated labor, and actual overhead

8. The journal entry that transfers the costs of a completed product to the finished goods inventory includes:

A debit to finished goods inventory and a credit to cost of goods sold
A debit to finished goods inventory and a credit to work-in-process
A debit to work-in-process and a debit to finished goods inventory
A debit to work-in-process and a credit to cost of goods sold

9. If the amount of over-applied and under-applied overhead is material, which account (or accounts) would the amount be charged to?

Work-in-process
Finished goods inventory
Cost of goods sold
All the above

10. Which of the following is descriptive of a job order costing system rather than a process costing system?

A single product is produced either on a continuous basis or for long periods of time
Many different jobs are worked on during each period
Costs are accumulated by department
Unit costs are computed by department using each department's cost report

11. The number of partially completed units multiplied by the percentage of completion is referred to as:

Partially completed units
Whole units
Equivalent units
Work units

12. In a process costing system, blending units and costs from the current period with units and costs from the prior period is accomplished through the use of which of the following methods?

Equivalent units method
FIFO method
Weighted average method
None of the above

13. The production report includes which of the following?

A quantity schedule
Calculation of costs per equivalent unit
A reconciliation of all cost flows into and out of the department during the period
All of the above

14. To calculate equivalent units of production, the weighted average method requires:

That units from the beginning inventory are added to production in the current period
That units from the ending inventory are added to production in the current period
That units from the beginning inventory are added to both production in the current period and units in the ending inventory
That units from the beginning inventory are ignored

15. If work-in-process inventories increase by 500 units during the month and 1,300 units were transferred to the next department, how many units were started during the month?