NaimExplain

What distinguishes inventoriable and period costs among manufacturing companies, merchandising companies, and service-sector companies? Answer: Manufacturing-sector companies convert materials into finished goods. These costs are inventoriable under IFRS/ASPE. The three manufacturing inventories depict stages in the conversion process: direct materials, work in process.

Why are average costs different from unitized fixed costs? Answer: Analysis requires a focus on total costs, not unit costs. An average cost rate is appropriate only when the quantity of identical units produced is constant. The unitized (or, per unit) cost rate varies as the quantity of distinct units produced varies. The higher the quantity produced, the lower the unitized rate for a fixed cost pool.

How are variable and fixed costs different from one another and how do they relate to direct and indirect costs? Answer: A variable cost changes in total proportion to changes in the related level of total activity or volume. A fixed cost remains unchanged in total for a given time period over a relevant range of volume. A cost may be either direct and variable or direct and fixed. Another cost may either be indirect and variable or indirect and fixed.

What distinguishes two manufacturing cost classification systems: direct and indirect, prime and conversion? Answer: A direct cost is any cost that can be traced to the cost object in an economically feasible way. All direct costs are defined as prime costs. Indirect costs are related to a specific cost object but cannot be traced in an economically feasible way. All indirect manufacturing costs are conversion costs that may also include direct manufacturing labour. Classification of direct and indirect depends on the cost object.