Which of the following cost is not a product cost?

Which of the following cost is not a product cost?

Classification of costs

It is a non-full cost model that is based on allocating to the product or service all the variable costs of production, so it would almost be more correct to speak of “Variable Costing”, although it is generally referred to as “Direct Costing”.

The non-full cost models, both the Rational Allocation model and the Variable Cost model, arise from the limitations of the full cost models, which can be summarized as follows:

Since not all raw materials are consumed and not all production is sold, only the Variable Cost model passes on 100% of the fixed costs in results, and therefore, it is the one that yields the lowest result. The Full Cost model, on the other hand, shows the highest profit figure (1,288,000, compared to 1,500,000 for the variable cost model). However, this difference in results of €212,000 is offset by another difference of the same amount but of opposite sign in the valuations of the final stocks of raw materials (€4,000) and finished products (€208,000).

What are the product costs?

The cost elements of a product or its components are direct materials, direct labor and indirect manufacturing costs, this classification provides the necessary information for measuring revenue and pricing the product.

How are costs classified?

Production costs can be divided into two main categories: DIRECT OR VARIABLE COSTS, which are proportional to production, such as raw materials, and INDIRECT COSTS, also called FIXED COSTS, which are independent of production, such as taxes paid by the building.

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What is product cost and period cost?

Product costs are recorded as an asset in the balance sheet until the time of sale. Period costs are recognized as an expense in the period in which they are incurred.

Variable costs

In other words, these are costs that, although they cannot be passed on or measured proportionally to the final product, are equally necessary for the correct operation of the company, but are not essential.

This subject of analysis and decisions is studied and brought together in what is known as cost or management accounting. The main mission of both is to find out where each cost of the company originates and where in the production chain its effect could be allocated. In this way, we can better understand the needs of the company and take measures to be more efficient in economic terms.

If direct manufacturing costs are generally made up of labor and direct raw materials used in the production process, we can therefore say that, in general terms, the remaining costs are indirect.

As far as taxes are concerned, there are taxes that are proportional to the price of the product sold, and others that simply go in tranches, or are conditioned by hybrid factors between the variable and the fixed. Examples are VAT, IS or personal income tax.

How is the production cost for the period determined?

Cost of production = prime cost + indirect expenses. Operating expenses = distribution expenses + administrative expenses + financing expenses.

What are the manufacturing costs?

Total manufacturing costs are essentially a cost analysis that calculates how each of the company’s departments contributed to producing a final product. … Rather, total manufacturing costs include all related costs incurred in the period.

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What is work-in-process cost?

The process costing system is the one by which production costs are charged to the processes, to the accumulated systems of production costs, by department or by cost center. … Example of a process costing system.

Variable costs examples

Distribution costs are those costs that allow a product in its final stage (i.e., ready to be offered to the consumer) to reach the consumer. It is a cost composed of different elements, such as packaging, storage and transportation, among others.

In any case, the calculation of the distribution cost must be made individually for each type of product. In this way, a real and more accurate distribution cost will be obtained, which will make it possible to adapt the market price and offer a product of optimum quality at a price adapted to the consumer’s needs.

How are the escalated costs classified?

Staggered: These are costs that remain constant up to a certain point, then grow to a certain level and so on, i.e. the fixed part of the staggered costs changes abruptly at different levels of activity since these costs are acquired in indivisible parts.

What are the different types of costs?

Types of costs according to their identification

Direct costs: these are easily identifiable with the product or service offered by the company. Indirect costs: these costs are difficult to associate with a specific product or service.

How are variable costs classified?

Classification of variable costs

Proportional variable cost: correspond to costs strictly linear to the activity. … Progressive variable cost: correspond to costs that vary proportionally to production levels, therefore, they vary with an increasing unit value.

Fixed costs

Materials constitute the first cost element. This element is made up of the cost of all the materials acquired by the company and used in the production of a product; they are classified as follows:

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Also called manufacturing overhead or indirect charges. They represent those disbursements incurred in the production process, other than direct material and direct labor, which cannot be directly assigned and attributed to each production unit, production process or cost center, or whose identification is inconvenient, however, they are indispensable to achieve the manufacturing process and to maintain the factory in conditions to operate normally. Indirect manufacturing costs are made up of indirect materials, indirect labor and other indirect manufacturing costs.

Examples of other indirect or manufacturing overhead costs are costs incurred for maintenance (machinery, tools, vehicles, etc.); fixed charges (depreciation, insurance, taxes, rents); power, heating and lighting; special service department costs (purchasing department, reception, warehouse, cost accounting, cafeteria); miscellaneous manufacturing overhead costs (additional costs for defective products, production waste, among others).

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