Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 38

Product Costing

Refer to the data in Exercise 6-31. Compute the individual product costs per unit assuming that Tiger Furnishings uses machine-hours to allocate overhead to the products.

Step 1 of 2

Product cost: The cost which is incurred due to production and product-related activities is product cost. Certain direct cost is product cost as it is directly related to production activities. Indirect cost can also be product cost if it is influenced by the production process.

In this method indirect costs can be computed either by direct labor hours or direct labor cost or manufacturing machine hours as allocation base.

Direct cost and indirect cost: The classification of cost into direct and indirect cost depend upon the cost object. A segment, product or department to which cost can be relate. A cost which is direct for a cost object can be indirect for another cost object.