Product Costing and Cost Accumulation in aBatch Production Environment
ANSWERS TO REVIEW QUESTIONS
3-1(a)Use in financial accounting: In financial accounting,product costs are needed to determine the value of inventory on the balance sheet and to compute thecost-of-goods-sold expense on the income statement.(b)Use in managerial accounting: In managerialaccounting, product costs are needed for planning,for cost control, and for decision making.(c)Use in cost management: In order to manage,control, or reduce the costs of manufacturingproducts or providing services, management needs aclear idea of what those costs are.(d)Use in reporting to interested organizations: Productcost information is used in reporting on relationshipsbetween firms and various outside organizations. Forexample, public utilities such as electric and gascompanies record product costs to justify rateincreases that must be approved by state regulatoryagencies.3-2In a job-order costing system, costs are assigned tobatches or job orders of production. Job-order costingsystems are used by firms that produce relatively smallnumbers of dissimilar products. In a process-costingsystem, production costs are averaged over a largenumber of product units. Process-costing systems areused by firms that produce large numbers of nearlyidentical products.3-3Concepts of product costing are applied in serviceindustry firms to inform management of the costs of producing services. For example, banks record the costs
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Managerial Accounting, 7/e 3-