CHAPTER 2
Basic Cost Management Concepts and Accounting for Mass Customization Operations

ANSWERS TO REVIEW QUESTIONS

2-1 Product costs are costs that are associated with manufactured goods until the time period during which the products are sold, when the product costs become expenses. Period costs are expensed during the time period in which they are incurred.

2-2 Product costs are also called inventoriable costs because they are assigned to manufactured goods that are inventoried until a later period, when the products are sold. The product costs remain in the Work-in-Process or Finished-Goods Inventory account until the time period when the goods are sold.

2-3 The most important difference between a manufacturing firm and a service industry firm, with regard to the classification of costs, is that the goods produced by a manufacturing firm are inventoried, whereas the services produced by a service industry firm are consumed as they are produced. Thus, the costs incurred in manufacturing products are treated as product costs until the period during which the goods are sold. Most of the costs incurred in a service industry firm to produce services are operating expenses that are treated as period costs.

4. The five types of production processes are as follows:

▪ Job shop: Low production volume; little standardization; one-of-a-kind products. Examples include custom home construction, feature film production, and ship building.

▪ Batch: Multiple products; low volume. Examples include construction equipment, tractor trailers, and cabin cruisers.

▪ Assembly line: A few major products; higher volume. Examples include kitchen appliances and automobile assembly.

▪ Mass customization: High production volume; many standardized components; customized combination of components. An