In Chapter 3, you were introduced to 3 types of costs associated with a manufactured product direct materials, direct labor, and manufacturing overhead. Explain how these costs are associated with

In Chapter 3, you were introduced to 3 types of costs associated with a manufactured product – direct materials, direct labor, and manufacturing overhead. Explain how these costs are associated with the manufactured product. Why are some of these costs allocated to the product through costing methods such as job order costing or process costing? As part of your response, be sure to provide a specific example of a company’s manufacturing costs.

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CHAPTER 3
Chapter Outline
Chapter Outline
3.1 Costing of Products And Services
3.2 Costing of Direct Costs
Costing of Direct Materials
Costing of Direct Labor
3.3 Costing Factory Overhead
Predetermined Overhead Rate
Disposition of The Overhead Variance
Multiple Overhead Rates
Alternative Concepts of Volume
3.4 Cost of Providing Services
3.5 A Product Costing Illustration
3.6 Service Center Costs
Direct Method
Step (Sequential) Method
Reciprocal Method
Treatment of Revenues
Allocation of Costs By Behavior
3.7 Ethical Issues For Cost Allocation
What is the Cost of a Brake Job?
As a high school wrestling coach working in Florida, Greg Herman satisfied his love
for automobiles by working as an auto mechanic during the summer months. He also
found himself occasionally repairing friends’ cars year-round. Demand for his repair
expertise began to boom, so Greg used his savings as seed money for a new business,
Greg’s Auto Repair.
Greg started his enterprise with a firm hope of making a profit, and he has realized
profits. However, times are changing. Revenues for this year have reached over $2 mil-
lion and are expected to increase in the future. Costs are, on the other hand, increasing
faster than revenues. Greg does not know what his profit margins are for brake jobs,
mufflers, and body work because he has no idea what it costs him to make repairs.
Most of his accounting has been a “shoebox approach,” in which receipts, deposit
slips, and invoices go into a box. Periodically, a local CPA firm, Ginsburg & Arogeti,
sends a staff accountant to sort the box’s contents and prepare financial statements.
Greg needs cost information about repairs, and his accounting system does not pro-
vide it. For example, he needs to know: What does it cost to make one repair of each
type? Are repair costs higher this month than last month? With profits going down,
which jobs are losing profit margin? And, behind all of these questions is: How should

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