Managerial Accounting Exercise 1-6 (Identifying product costs in a manufacturing company) Tiffany Crissler

Exercise 1-6 Identifying product costs in a manufacturing company

Tiffany Crissler was talking to another accounting student, Bill Tyrone. Upon discovering that the accounting department offered an upper-level course in cost measurement, Tiffany remarked to Bill, "How difficult can it be? My parents own a toy store. All you have to do to figure out how much something costs is look at the invoice. Surely you don't need an entire course to teach you how to read an invoice."

Required

a. Identify the three main components of product cost for a manufacturing entity.

b. Explain why measuring product cost for a manufacturing entity is more complex than measuring product cost for a retail toy store.

c. Assume that Tiffany's parents rent a store for $7,500 per month. Different types of toys use different amounts of store space. For example, displaying a bicycle requires more store space than displaying a deck of cards. Also, some toys remain on the shelf longer than others. Fad toys sell quickly, but traditional toys sell more slowly. Under these circumstances, how would you determine the amount of rental cost required to display each type of toy? Identify two other costs incurred by a toy store that may be difficult to allocate to individual toys.

Tutorial:  E1-6 Tiffany Crissler