1.

How does the cost accounting function assist in the management of abusiness?
Answer: The cost accounting function assist in the management of a business
throughcalculate and report to management various costs incurred by organization in
theprocess of making a final product/service. So cost accounting supplies a part of all the
necessary information needed by management to take informed decisions.

3. How do the activities of manufacturers, merchandisers, and service businesses differ?

Employees in manufacturing jobs usually are less educated but are specifically trained to
perform the task for which they are hired. Many workers perform repetitive and routine tasks
as part of the assembly process. However, workers in manufacturing companies are
increasingly engaged not solely in direct production-related activities, but instead do other
types of work that require more specialized education. Some of these jobs may include
research and development, design, business services like logistics and marketing, software
development and after-sales service.

Similarly, workers in merchandising companies are also hired according to their skill level
and educational background. Employees who handle routine sales transactions, box goods for
shipping or stock items on store shelves can be trained specifically for those routine tasks.
Yet, business managers, marketing strategists or design specialists all require more
formalized training to learn the intricacies of their business

4. In what ways does a typical manufacturing business differ from a merchandising concern?
In what ways are they similar?
Answer: Historically, manufacturing tools consisted of mechanical devices or tools in the
hands of skilled craftsmen. Over time, automated machinery and assembly lines in large
factories replaced slower processes. While the manufacturing industry relies heavily on
machinery for its production processes taking place on the factory floor, the business side of
each company has also become more modernized. Standard office equipment such as
computers, phones and copiers are necessary to run these companies.
Similarly, merchandising companies also use office and business essentials to run their
businesses. However, their use of technology takes a different turn as they rely heavily on the
internet, media channels such as radio and television for advertising and print displays for in-
store signage. They also need to create attractive displays for marketing and exhibiting their
products.

5. How is cost accounting information used by management? Why is unit cost information
important to management? For a manufacturer, what does the plan ning process involve, and
how is cost accounting information used in planning?
Answer: Cost accounting provides the detailed cost information that management needsto
control current operations and plan for the future. Management uses thisinformation to decide
how to allocate resources to the most efficient andprofitable areas of the business. Cost
accounting is used internally by management in order to make fullyinformed business decision.
Unlike financial accounting, whichprovides information to external financial statement users,
cost accounting is notrequired to adhere to set standards and can be flexible to meet the needsof
management.

8. How is effective control achieved in a manufacturing concern?

Answer:
The cost information system is important because it monitors the results of all functions in
the company. The detailed analysis of costs, the calculation of production cost, the loss
quantification and the estimation of work efficiency provide a solid basis for financial
control.
Unit costs are a key indicator of the efficiency and productivity of a business. They are also
critical to the profitability and competitiveness of many businesses

17. How is cost accounting related to: financial accounting?; managerial accounting?
In financial accounting, Cost accounting is one of the important elements of accounting
information about the problems of internal managerial control. Financial accounts are unable
to meet information needs about the cost structure of a product. The need for cost
determination and controls necessitated new set of principles of accounting and thus emerged
‘Cost accounting’ as a specialised branch of accounting. Cost accounting is the process of
accounting for costs. It includes the accounting procedures relating to recording of all income
and expenditure and preparation of periodical statements and report with the object of
ascertaining and controlling costs. Such cost accounting is a good technique for ascertaining
profitability and for decision making.

In managerial accounting, Cost accounting helps the internal management by directing their
attention on inefficient operations and assisting in a day-to-day control of business activities.
The costing data needs to be arranged, re-analysed and processed further for effective role in
managerial process. In addition to costing and accounting data, managerial functions need the
use of socio-economic and statistical data (e.g., population break-ups, income structure, etc.).
Cost and financial accounting do not provide such information and this limitation pave the
way for the emergence of management accounting. Management accounting is a systematic
approach to planning and control functions of management. It generates information for
establishing plans andcontrols. It provides for a system of setting standards, plans, or targets
and reporting variances between planned and actual performances for corrective actions.
Thus, Management accounting consists of cost accounting, budgetory control, inventory
control, statistical methods, internal auditing and reporting. It also covers financial
accounting. Management accounting is the process of identification, measurement,
accumulation, analysis, preparation, interpretation and accumulation of financial information
used by management to plan, evaluate, and control within an organisation and to assure
appropriate use of and accountability for its resources.

22. What are the basic elements of production cost?

As per CAS-4, Cost of Production shall consist of material consumed, direct wages and
salaries, direct expenses, works overheads, quality control cost, research and development
cost, packing cost, administrative overheads relating to production. To arrive at cost of
production of goods dispatched /used for captive consumption, adjustment for stock of Work-
in-process, finished goods, recoveries of sales of scrap, wastage etc. shall be made.

23 How would you define the following costs: direct materials, indirect materials, direct
labor, indirect labor, and factory overhead?
 Direct material
Direct material costs are the costs of raw materials or parts that go directly into producing
products. For example, if Company A is a toy manufacturer, an example of a direct material
cost would be the plastic used to make the toys.
Direct labor
Direct labor costs are the wages, benefits, and insurance that are paid to employees who are
directly involved in manufacturing and producing the goods – for example, workers on the
assembly line or those who use the machinery to make the products.
Indirect materials: Indirect materials are materials that are used in the production process
but that are not directly traceable to the product. For example, glue, oil, tape, cleaning
supplies, etc. are classified as indirect materials.
Indirect labor: Indirect labor is the labor of those who are not directly involved in the
production of the products. An example would be security guards, supervisors, and quality
assurance workers in the factory. Their wages and benefits would be classified as indirect
labor costs.
Factory overhead is the costs incurred during the manufacturing process, not including
the costs of direct labor and direct materials. Factory overhead is normally aggregated into
cost pools and allocated to units produced during the period. It is charged to expense when
the produced units are later sold as finished goods or written off.

24. Distinguish prime cost from conversion cost. Does prime cost plus conversion cost equal
the total manufacturing cost?
Answer: Prime costs are defined as the expenditures directly related to creating
finishedproducts, while conversion costs are the expenses incurred when turning
rawmaterials into a product.
25. In what way does the accounting treatment of factory overhead differ from that of direct
materials and direct labor costs?
Answer: According to generally accepted accounting principles (GAAP),
manufacturingoverhead must be included in the cost of Work in Process Inventory and
FinishedGoods Inventory on a manufacturer's balance sheet, as well as in the Cost of
GoodsSold on its income statement. Manufacturing overhead (also known as factory
overhead, factory burden,production overhead) involves a company's manufacturing
operations. It includesthe costs incurred in the manufacturing facilities other than the costs of
directmaterials and direct labor.Direct labor costs are added to the Work-in-Process account
at the end of the workweek. Indirect labor costs are added to the Factory Overhead account.