4.1Identify the major purposes of product costing. For each purpose discuss whether information about current or

future product costs is required. What implication does your answer have for developing a product costing system?

4.6"We don't need a product costing system. We are a small manufacturer with a just-in-time approach so that our inventories are minimal. We have no influence over product price; whatever the big fellows do, we follow. Anyway, our accountant only comes in on Fridays and she is already far too busy to bother with a productcosting system".

Is this a reasonable attitude? Explain why.

6.1What are the distinguishing features of service organisations? Consider the extent to which these features are present in the following industries:

(a) Electricity, gas and water supply.

(b) Information media and telecommunications.

(c) Education and training.

Class Activity 1

How much did your mobile phone cost to produce?

(Think about cost categories rather then actual $ amounts)

First, answer in terms of manufacturing cost only.

Secondly, consider what other costs (upstream and downstream) would be relevant.

Class Activity 2

If you were thinking about starting a new business making and selling earrings,what categories of cost would you consider (from the value chain) when making the decision about whether to go ahead?

Value chain Upstream Downstream functions Costs in Research Manufacturing Customer the value and Design > Supply Value of or Marketing > Distribution development service chain production products Product External financial reports costs for: Short-term profitability analysis / pricing / make or buy Longer term (strategic) profitability analysis / pricing / product mixBudgeted direct labour cost 80 000 hours 6 $22 per hour Actual direct labour cost 78 000 hours 6 $25 per hour Budgeted manufacturing overhead $1 048 000 Actual manufacturing overhead: Depreciation $256 000 Property taxes 19 000 Indirect labour 88 000 Supervisory salaries 210 000 Electricity 48000 Insurance 25 000 Factory rent 290 000 Indirect material (see data below) 64 000 Indirect material: Beginning inventory, 1 January $60 000 Purchases 84 000 Ending inventory. 31 December 80 000