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
material ledger card.following transactions affecting material No115-8 occurred during march 1992. march 1 balanced on hand 500 gallons@Rs.20 per gallon maech 2 received 1200 gall

Income Statement Preparation The following information is taken from the records of Wadley's Car Wash for the year ended December 31, 2012. Income taxes . . . . . . . . . . .

Imagine a world in which there are only two investment assets: Hasbro Inc. Stock (HAS) and McDonalds stock (MCD). The table below lists annual total returns (%) for each of the las

Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings (the corporation uses the nearest full

Costs and Revenue Cost of the development work done in-house to 1 January 2009 has been £1.5m with a further cost of £50,000 per month from now until the software is ready

Price and Cost   information  play  no  role  in  negotiated  transfer  prices.  Do  you  agree? Describe.

Using some variation of business process mapping, graph out the mango concentrate supply chain focusing on when cost is added to the supply chain. (i.e. Display/draw the process

A small company employing around 25 people manufactures and sells anthropometric measuring equipment - equipment used mainly in hospitals to measure the height and other dimensions

You want to save $40,000 for a down payment on a new home. You expect to save $7,000 per year, be in the 25% tax bracket and hope to earn 4% on your investments. How long (in mon

Apollo Company manufactures a single product that sells for $168 per unit and whose total variable costs are $126 per unit. The company's annual fixed costs are $630,000. (1) Use t