Acct 611 Notes on Chapter 2

Acct 611 Notes on Chapter 2 - Notes Product costs - are...

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Notes Product costs - are costs incurred in purchasing or making a product for resale. They are included in inventory. So product costs are recorded on the balance sheet until they are sold. When the product is sold, the costs are transferred to cost of goods sold and is reported on the income statement. Period costs – are any costs that are not product costs. They are expensed immediately as incurred, which means that they are reported on the income statement. All research, selling and administrative costs are period costs. Product costs for a manufacturing company are direct labor, direct materials and manufacturing overhead. Any costs involving the “factory” that are not direct materials or direct labor are part of manufacturing overhead. Wages paid to factory security guards or janitors in the factory are classified as indirect labor and are part of manufacturing overhead. However, administrative wages paid to corporate executives or their secretaries are period costs. In addition, when we are shipping our finished product to the customer, the
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