in a meeting among company executives and cost accountants, the CEO asked for th
ID: 2370893 • Letter: I
Question
in a meeting among company executives and cost accountants, the CEO asked for the product costs for the company's newest product lin. The cost ccountant replied, "Product ost depends on the reasoning for knowingit." Do you agree?
A. NO. A company myst choose to use either the direct or indirect cost method for external finanical reporting purposes.
B. Yes. For external financial purposes, only production costs would be included in product cost. Internal strategic decisions would likely consider other value chain costs.
c. No.A company must inlcude both direct and indirect costs for internal and external financial reporting purposes.
D. Yes. For internal finanial reporting purposes, only prodution osts would be included in product cost.
Explanation / Answer
B. Yes. For external financial purposes, only production costs would be included in product cost. Internal strategic decisions would likely consider other value chain costs.
I AGREE in part to the cost accountants answer. This is a reason behind it. To begin with, I disagree that every product, in normal circumstances, has a definite unit cost structure. But the real thing is that it has variable costs that can be easily traced to a cost unit and has also got its allocation of fixed costs.
Now, having said this, the only thing that remains is the cost per unit of the product regardless of the reason for knowing it. Here, I agree with the cost accountant is the fact where circumstances are not normal but extraordinary. In such cases, the normal cost is not taken, but the relevant cost is considered. Relevant cost is as defined as under:
1. Incremental in nature
2. A cash flow (this may be cash inflow or cash out flow
3Dependant upon a future decision to be taken or not to be taken
Therefore, in this case, when the reason for the decision changes so does the relevant cost and it in turn, has an effect on the product cost.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.