Chapter 3, Problem 1RQ

List and explain four purposes of product costing.

To determine

Enlist and explain the four purposes of the product costing.

Explanation of Solution

Product costing: The process of assigning the production costs to all output of the organization is referred to as the product costing.

Product costs: Product costs are the costs which are incurred in the production of the goods. These costs include the direct materials, direct labor, and manufacturing overhead cost.

Four purpose of the product costing.

• Use in financial accounting: The product cost are required to calculate the value of the inventory on the balance sheet and to calculate the cost of goods sold expense on the income statement.
• Use in managerial accounting: The product costs are required in managerial accounting to make the better planning, for controlling the cost of the product and to make the better decisions.
• Use in cost management: The products costs are required in the cost management to have a control or to reduce the cost of the manufacturing products or services and to give the clarity of the particular cost.
• Use in reporting to interested organizations: The product costs information are used to report the relationship that exits between the firms and the other outside organizations.