Short Answer Questions 1 What are the major differences betw

Short Answer Questions 1. What are the major differences betwee n managerial accounting and financial accounting? 2. Identify three elements of cost incurred in manufacturing a product and indicate the distinguishing characteristics of each. 3. What is the difference between a period cost and a product cost?

Solution

Answer for 1)

Difference between financial accounting and management accounting:

1)A financial accounting is used to prepare financial statements of business to provide necessary financial information for interested parties.

The managerial accounting contains both manetary and non monetary information that is used by the Managers to make decisions.

2)Financial accounting is compulsory as it is required by law.

Managerial accounting is not compulsory.

Answer for 2)

Three basic elements of costs are:

1)Direct Material:

It cosists of purcase price of the materials and other directly attributable costs like freight etc and net off any trade discounts received.

2) Direct labour:

It consists of all costs like wages,taxes and benefits of labour who are associated with the manufacturing process directly.

3) Factory overhead:

It consists of all other costs which are associated with manufacturing but not come under direct labour or direct material like depreciation etc.

Answer for 3)

A product costs are costs which are part of manufacturing of products like direct labour, direct material, manufacturing Overheads where as period costs doesn\'t necessarily form part of manufacturing process like rent of office building etc.

Answer for 4)

A predetermined overhead rates are allocated certain amount per unit based on labour hours used or machinery hours used or direct material quantity used or so on. It helps the business in allocation of resources and setting prices.

Answer for 5)

If overhead applied to Work in progress is less than what overhead actually incurred than it is said to be under applied and if it more that what over head actually incurred than it is said to be over applied.

Actual overhead are debited and applied overhead are credited and at the end of accounting period if the overhead have debit balance then it is under applied or if it have credit balance then it is over applied.