The Ending Balance of A(n)____________________ Inventory Account for a Producing

question 58

Essay

The ending balance of a(n)____________________ Inventory account for a producing department must agree with the amount shown for that department in the cost of production report.

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Definitions:

Total Costs

The sum of all expenses incurred in the production of goods or services, including direct and indirect costs, both variable and fixed.

Step-Down Method

A method of allocating costs whereby one service department’s cost is allocated to all remaining service departments and operating departments, and so on, until all service department costs are allocated to final products.

Death Spiral

A situation occurring when transfer prices include fixed costs and users reduce their use of the internal product or service. This further increases the transfer price (based on average cost) and more users reduce their demand.