Cost of Production Report (CPR) Questions and Answers

Question 1 The MST Manufacturing Company produces one product that passes through a single process in a manufacturing cycle lasting approximately 18 days. Therefore, there will generally be some work-in-process inventories at the end of each month. After MST started its manufacturing operations on 1 January, the costs of production for the rest of the month are given as follows:   Materials $…

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Classification of Cost

The idea of cost accounting is to collect, classify, record, and suitably allocate expenditures to determine the costs of products or services. After collecting costs, these are classified to ensure their identification with cost centers or cost units.  Costs have different features or characteristics, and they are grouped or classified based on their common characteristics. The process of groupin…

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Cost Center and Cost Unit

In cost accounting, costs are understood in terms of cost centers and cost units. With this in mind, it is essential to know what these terms mean. What Is a Cost Center? The Institute of Cost and Management Accountants (ICMA), which is based in London, defined a cost center a location, person, or item of equipment (or a group of these) for which costs may be ascertained and used for the purposes…

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Sunk Costs

Definition Sunk cost is a cost that has already been incurred and cannot be avoided or changed. Consequently, sunk costs are irrelevant to current decision-making. Explanation Sunk costs have already been incurred. No matter the decision, a sunk cost cannot be changed. Hence, these costs are irrelevant in the decision-making process. Importantly, if sunk costs are included in the decision-making p…

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Imputed Cost

Definition Imputed Cost—is the cost allocated for resources or use of a service which does not involve a cash outlay. They are hypothetical costs and are not recorded in the books of accounts. There are those costs which do not involve cash outlay. These are not included in the cost accounts. But they are important and management gives greater importance to such costs. Interest on capital is such…

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Difference Between Controllable and Uncontrollable Costs

All costs are controllable by someone in an organization. For this reason, the difference between controllable and uncontrollable costs depends on the choice of reference point. At the same time, time is a factor that influences controllability. Controllable costs are costs that can be made easily, and also that can be easily and effectively controlled by the responsible party. Costs that cannot b…

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Difference Between Direct Costs and Indirect Costs

Direct Costs: Definition Direct costs are costs that can be conveniently and economically identified with some cost objectives, or which can be associated with specific segments under consideration. Indirect Costs: Definition Indirect costs are costs that cannot be conveniently and economically identified with cost objectives and must be allocated—on some equitable basis—to the cost objectives or…

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Difference Between Product Costs and Period Costs

In a manufacturing organization, an important difference exists between product costs and period costs. Product Costs Product costs (also known as inventoriable costs) are costs assigned to products. These costs are identified as being either direct materials, direct labor, or factory overheads, and they are traceable or assignable to products.  Product costs only become an expense when the produc…

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Committed and Discretionary Fixed Costs

Fixed costs can be classified as either committed costs or discretionary costs. This depends on their immediate impact on the organization. Committed Fixed Costs Committed fixed costs, otherwise known as capacity costs, are the costs required to maintain current production capacity.  These costs arise from long-range decisions made by top managers about the size and nature of their organization. T…

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Semi-Variable Costs

Semi-Variable Costs: Definition It is sometimes not possible to classify a cost as either fixed or variable. When this is the case, the cost is known as a semi-variable cost. These costs contain both a fixed element and a variable cost element.  Semi-variable costs are also referred to as mixed costs or semi-fixed costs. Costs of this kind may change, but they do not change in direct proportion to…

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