Session 03

Session 03 - Session 3 More About Costs and A Little About...

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More About Costs and A Little About Budgets Session 3
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Accounting for Product Costs
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The Flow of Manufacturing Costs – Another Cost Classification Scheme for Manufacturing Firms Product Costs vs. Period Costs Product Costs: Sum of the direct and indirect costs that are assigned (traced and allocated) to a product. Product costs "attach“ to the product and are included in the cost of inventory. Period Costs: All other operating costs. Period costs are expensed in the same period in which they are incurred. Thus, they are not included in the valuation of inventory.
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Cost of Goods Manufactured vs. Cost of Goods Sold The flow of costs for a manufacturing firm: Direct Labor Work-in-Progress Direct Materials Manufacturing Overhead Product Costs Finished Goods Cost of Goods Sold are stored in inventory Until the goods are sold
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• Recall the "Inventory Equation" from financial accounting: = Beginning Finished Goods Inventory Cost of Goods Sold Ending Finished Goods Inventory Cost of Goods Manufactured +
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To illustrate the accounting for a manufacturing enterprise, consider the following example: Opening Balances: Dir Materials = 20 K; WIP = 40 K; Finished Goods = 102 K. Closing Balances: Dir Materials = 26 K; WIP = 36 K; Finished Goods = 105 K. Dir Materials Purchased = 110 K Overhead = 50% of Direct Labor Cost of Goods Sold = 345 K What are the (1) Cost of Goods Manufactured, (2) the Conversion Cost (= Labor costs + Overhead costs), (3) the Direct Labor Cost, and (4) the Overhead Cost?
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The approach is the same as solving the inventory t-accounts, as you did in financial accounting (by entering the information in the appropriate accounts): EB 105 EB 36 EB 26 345 COGS COGM 348 348 COGM Lab + O’head 240
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Session 03 - Session 3 More About Costs and A Little About...

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