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
Reamer Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next ye

Atkinson's Reliable Tools makes two products that use similar raw materials: #587Q and #253X. Estimated production needs for a unit of each product follows. #587Q #253X Steel (in p


Direct Labour Rate Variance It is the difference among the actual direct labour rate and the standard direct labour rate for the total hours worked. Utilizing an equation,

(a) Calculate the number of US imports with and without the tariff. (b) Calculate the dead weight loss of the tariff. (c) Calculate the loss in consumer surplus resulting fro

Q. Given the below information, what is the dollar amount that the LIFO liquidation added to gross margin?   Number of Units Price per Unit

Cost Volume Profit Analysis 1. Post Publishers has collected the following data for recent months: Month                 Issues published              Total cost May

Amazing acrobatics performs acrobatics in stadiums around the world. The average show sells about 1,000 tickets at $60 per ticket. Each show requires a team of 45 highly trained sp

King Airlines King Airlines is one of many low-cost airlines in Europe. The managers want to expand the business and have an opportunity to purchase a second-hand plane to op

Day Corporation purchased a patent on January 1, 2012 for $360,000. The patent had a useful life of 10 years at that date. In January of 2013, Day successfully defends the patent