assi 1 Essay

Submitted By preetmanish
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Pages: 11

http://www.eduers.com/gmat/GMAT-Score-Ranges.htmAssignment 1 (Question 2) Answer A : Manufacturing costs: Manufacturing costs are the cost necessary to convert raw material into product. All the manufacturing cost must be attached to the unit produced for external financial reporting under US GAAP. The resulting unit costs are used for inventory valuation on the balance sheet and for the calculation of the cost of goods sold on the income statement. The Manufacturing cost for a product should be viewed within the context of the factory in which the product will be built. Manufacturing cost is typically divided in three categories such as direct material cost, direct labor cost, and factory overhead cost.
Direct Material costs: It is defined as costs of material that are used in finished product. For instance, costs of wood that are used to make wooden table or cupboard. Direct material do not usually include small, low cost items, such as lubricant , glue, screw, nails, which is treated as indirect material and included in factory overhead. All these items are integral part of finished product; it may not be possible to trace such items to the product.

Direct labour costs: This is the cost of wages of the individuals who are physically involved in converting raw material in to finished product For instance, wages of person cutting wood into specified length and wages of the assemblers are direct labour cost in a furniture factory. In manufacturing, the total of direct labour and direct material cost is referred to as prime cost because of their direct association with the finished product.

Factory overhead cost: Factory overhead refers to all other cost incurred in the manufacturing activity which cannot be directly traced to physical unit in an economically feasible way. For example, the wages of person who inspect the completed furniture and the depreciation on the factory equipment are part of the factory overhead cost. Factory overhead cost describe as an indirect manufacturing cost. For instance, The wages or salary paid to cleaners, maintenance personal, production supervisor and material handler are classified as an indirect labour cost and included in factory overhead cost.

Product cost: Product cost is of inventory head, also called inventorial cost. They are assets until the product are sold, they become expenses, i.e. Cost of goods sold. All manufacturing costs are product cost Example, direct material, direct labour, and factory overhead cost. Now days it become important factor to a survival business. For instance, company produce 40,000 units of goods costing $ 8,000 , for sale of the product the company would spent more capital on production,creativity,marketing,transport etc. at that time the company will trace the costing of the product which be more and would record the total cost per unit of the product produced.

Answer B The backpacks sold at $30 at the current rate and here cost of direct material is only $ 8 and cost of direct labour is $7, so the total variable cost is $15 to produce backpacks. As per my opinion as a Jeemaʼs accountant, I say Jemma can’t reduce half of price of current rate, because $15 cost is only variable cost other factory overhead cost such as transportation ,rent, advertising, electricity etc. still remaining. If she reduce price half then she got loss in business. I do not strongly recommend her to do loss business by wasting time and money both. Jemma stated her business of backpacks before 10 year ago and it was successfully run as a brand name of Drop Dead. It was also more popular with secondary school and university student. Now all students are no longer happy with the floppy backpacks because according to trend of fashion they all required new style and new coloured brief case with designing. As An accountant of Jeemaʼs I think still Jeema has many contact of student