Product cost - clarification

[Yitzi_K]

I was taught that if a cost is very small (generally <10%) compared to the item cost (eg shipping totalling $100 for 1000 items of $20ea, the shipping cost p/unit is only $0.10 each) it's always recorded as a period cost straight away, as it is immaterial to include such a small amount to each item.

But in Checkpoints (Q10.4) it has a question where stickers for an item are 1000 for $50, hence $0.05 per item. The items themselves cost $60. Yet in the answers, it says the $0.05 IS included as a product cost, because it is directly attributable.

Are they right, or am I, or are both correct as long as you can justify it?

[eeps]

I think your correct. I agree, since the $0.05 is too small to really effect the cost of one sticker, it should be recorded as Period Cost rather than a Product Cost. I don't really see how you could justify $0.05 as a product cost... it's just too insignificant.

the Checkpoint answers are probably wrong on that question.

[pooshwaltzer]

Context matters...each Q will be circumstantially different.  

are both correct as long as you can justify it?

On the exam there'd be no such obscurity. A theoretical distinction will be attributed to a short answer response using priors drawn from relevant principles and qualitative considerations.

PS - A direct cost is rarely a period cost...IF EVER! Materiality does not concern discernment between what is clearly a fungible input (product cost) as opposed to an overhead (admin, corp et al).

[Fyrefly]

In VCE world, yes, you are correct.

In the exam though, if they want to throw this one at you, they'll make it *really* obvious... like... maybe a 1c shipping cost for an $80 item.

[sam.utute]

I just finished going through Accounting Unit 4 Checkpoints 2010, and I found a stack of mistakes in answers, questions and the templates. Don't stress too much about getting different answers to Checkpoints. If you really want to do revision I'd probably get Insight or Neap study guides. I bought every single one out and I can tell you that Checkpoints sucks. Seriously sucks.

[Yitzi_K]

Yeh I'm working my way through Checkpoints and I've heaps of mistakes in the first chapter alone. I don't understand how that can happen though, surely they'd have the solutions checked. And Checkpoints are normally very good.

[mojomojo]

My teacher said any product costs that're less than $1.00 should not be added to the value of the stock as they're not significant information to decision makings.

[Fyrefly]

My teacher said any product costs that're less than $1.00 should not be added to the value of the stock as they're not significant information to decision makings.

You need to keep in mind that it's all relative.

What if each unit of stock only cost $3?
It is quite clearly significant in such an instance.

Keep the rules of materiality in mind.

[Fyrefly]

Materiality...

More than 10% = material
Less than 5% = immaterial
*But* between 5-10% is discretionary.

[mmmmm]

what if the cost of the stock is 10.50? would you round it off to 10 or something because the 50 cents is insignificant?