Question

Assume that you would like to invest in a company.Required:a)What is your cost object(5pts)? (Do not define cost object; please write down the item or service that you want to produce and sell)b)What is the Direct Materialof your product or service(5pts)?c)What are the overhead costs of your product or service(5pts)?d)Assume that you would liketo assign overhead costs to your product or service. Which method you would prefer to use for assigning overhead costto your product or service(In other words,how do you allocate overhead costs to your product or service) (5 pts)? Why (Please explain the reason of your selection)(5 pts)?e)Shall we add “the insurance cost of cars used in marketing department” to the cost of your product or service? If not, Why(5pts)?

Answer 1

a) Cost objects are - Chappel,Banana Chips,Potato chips,Tapioca chips,Pots

b) Direct Materials - Rubber/Plastic ,

- Raw banana,Oil,Salt

- Raw potato,Oil,Salt

- Raw tapioca,Oil,Salt

- Mud

c) Overhead Costs - Legal expenses,Depreciation,Rent,Insurance,Administrative Salary

d) Volume based costing/allocation.

Beacuse it is the traditional method used and it is easy to allocate the cost in this method.

e) No.Since insurance is an overhead expense ,it is to be allocated over all departments.Its not the expense of Marketing Department alone.So it cant be treated like that.