Product versus period costs, Cost Accounting

Assignment Help:

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.

 

 


Related Discussions:- Product versus period costs

Evaluate the expected earning, During his career in the energy industry, T-...

During his career in the energy industry, T-Bone McAdams has accumulated $5,000,000 in "surplus savings" that he is planning to donate to his college alma mater, Oklahoma A&M, in

What would be the impact on net income, Brandywine Homecare, a not-for-prof...

Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2011. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $

Price to set on the job, Bakeson Bearings Ltd is preparing to submit a bid ...

Bakeson Bearings Ltd is preparing to submit a bid for a bearings order.  Janet Lake,  CEO of the Manufacturing Division, has asked Jason Docker, the management accountant, to prepa

Financial statement issues that are unique to manufacturers, Financial Stat...

Financial Statement Issues that are Unique to Manufacturers Different from the retailers, manufacturers have three exclusive inventory category: 1) Raw Materials, 2)Work in

Transaction affect the cash flows statement, If a company trades in a build...

If a company trades in a building towards a new building and does not recognize a gain or loss (because of code section 1031), will this transaction affect the cash flows statement

Statement of changes in working capital, A statement of changes in working ...

A statement of changes in working capital assists us in locating where such changes took place. In the first example we try to demonstrate the increase or decrease in particular it

Evaluate outstanding balance, Winston Duff is planning to borrow $225,000 ...

Winston Duff is planning to borrow $225,000 to purchase a new home. Mr. Duff is considering two fixed-rate financing alternatives offered by Horsepen Creek State Bank. The first

Calculate the equivalent units of production, A company manufactures two pr...

A company manufactures two products, Product A manufactured in Process Y and Product B manufactured in Process Z. The following information is available for a period:

Calculate the approximate yield to maturity of the bonds, Netflix Inc wants...

Netflix Inc wants to issue discount bonds with a market value equal to 45% of their face value. The income tax rate of Netflix is 30%. The bonds will carry 3.5% coupon, paying inte

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd