Question

On January 31, the managers of Interstate Inc. seek to determine the cost of producing their product during January for product pricing and control purposes. The company can easily determine the costs of direct materials and direct labor used in January production, but many fixed indirect costs are not affected by the level of production activity and have not yet been incurred. The managers can reasonably estimate the overhead costs for the year based on the fixed indirect costs incurred in the past periods. Assume the managers decide to allocate an equal amount of these estimated costs to the products produced each month. Explain why this practice may not provide a reasonable estimate of product costs in January.

Answer 1

Answer:

Cost - benefit analysis :

Cost - benefit analysis alludes to the procedure that ascertains and analyzes the cost spent on and the benefit got from the project.This is utilized to make feasible decisions .These analysis assume crucial job in long-run capital investment decisions.

The purposes behind or reasons for the given work failing to give a sensible estimate to the January item costs are as per the following:

1.The per unit cost of the item may fluctuate every month dependent on the production level

2.The production level also may fluctuate each month.

3.The items produced in the long stretches of higher production worth will have lower costs while the product expenses of the items produced in long stretches of lesser productions will have greater expenses..