Product versus period costs, Cost Accounting

Product Versus Period Costs

Another way to look at manufacturing costs is to think of them as attaching to a product. In other words, goods result from the manufacturing process and "product costs" are the summation of direct labour, direct materials, and factory overhead. This is perhaps simple enough to understand. But, how are such costs handled in accounting records?

To create your understanding of the answer to this question, think back to your prior studies about how the retailer accounts for its inventory costs. When inventory is purchased/buy, it constitutes benefit on the balance sheet which is the "inventory". This inventory remains as the benefit until the goods are sold, at which point inventory is gone, and cost of inventory is transferred to the cost of goods sold on income statement to be matched with the revenue from the sale.

By analogy, a manufacturer pours money into the direct materials, manufacturing direct labour and overhead. Should this spent money be expensed on income statement immediately? No! This collection of the costs constitutes the benefit on the balance sheet ("inventory"). This inventory remains as benefit until the goods are sold, at which point the inventory is gone, and the cost of the inventory is transferred to cost of goods sold on income statement (to be matched with revenue from sale). There is small difference between a retailer and the manufacturer in this regard, except that the manufacturer is acquiring its inventory via a series of expenditures (for material, labour, etc.), somewhat than in one fell swoop. What is significant to note about product costs is that they attach to inventory and are thus said to be the "inventorial" costs.

 

 

Posted Date: 7/21/2012 3:34:34 AM | Location : United States







Related Discussions:- Product versus period costs, Assignment Help, Ask Question on Product versus period costs, Get Answer, Expert's Help, Product versus period costs Discussions

Write discussion on Product versus period costs
Your posts are moderated
Related Questions
Listed below are some balances of XYZ, Inc as of and for the year ended December 31, 2012 and 2013 Year ending 12/31/13   Reven

Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit an

Assume that a primary care physician practice performs only physical examinations.  However, there are three levels of examinations I, II, III - that vary in depth and complexity.

XYZ Company is a family-owned bicycle manufacturing company located in Stow, Ohio.  Until recently,it had maintained slow but steady growth in producing and marketing its only pr



Total costs include both variable costs and fixed costs. Variable costs are costs which can beeasily identified or related to a cost per unit or activity level of some kind for exa

Idea behind Activity-Based Costing The most important ideas behind activity-based costing are as given as: Activities cause costs; activities involve ordering, ma

Shrinkage - Production Process This refers to a disappearance or loss of material inputs utilized throughout the production process. It happens mainly via the evaporation. Thi