Basic Cost Management Concepts andAccounting for Mass Customization Operations
ANSWERS TO REVIEW QUESTIONS
2-1Product costs are costs that are associated withmanufactured goods until the time period during whichthe products are sold, when the product costs becomeexpenses. Period costs are expensed during the timeperiod in which they are incurred.2-2The most important difference between a manufacturingfirm and a service industry firm, with regard to theclassification of costs, is that the goods produced by amanufacturing firm are inventoried, whereas the servicesproduced by a service industry firm are consumed as theyare produced. Thus, the costs incurred in manufacturingproducts are treated as product costs until the periodduring which the goods are sold. Most of the costsincurred in a service industry firm to produce services areoperating expenses that are treated as period costs.2-3Product costs are also called inventoriable costs becausethey are assigned to manufactured goods that areinventoried until a later period, when the products aresold. The product costs remain in the Finished-GoodsInventory account until the time period when the goodsare sold.2.4The five types of production processes are as follows:
Job shop: Low production volume; littlestandardization; one-of-a-kind products. Examplesinclude custom home construction, feature filmproduction, and ship building.
Batch: Multiple products; low volume. Examplesinclude construction equipment, tractor trailers, andyachts.
2002 The McGraw-Hill Companies,Inc.
Managerial Accounting, 5/e 2-