Explain the difference between a product cost and a period cost.
Why is manufacturing overhead considered an indirect cost of a unit of product?
b) What is an under-applied overhead?
Provide two reasons why overhead might be under applied in a given period.
1. Inadequate management of overhead costs may lead to unexpectedly high overhead expenses.
2. Some of the overhead costs are fixed, and if the actual amount of the allocation base for the period is less than what was estimated at the start, the overhead will not be used as much as it should be.
c). The production manager of a company is arguing that a 10% decrease in the selling price of a product will have the same impact on profit as a 10% increase in the variable expenses. Do you agree? Why or why not?