Chapter 13 Comments 8th ed

Chapter 13 Comments 8th ed - Instructor Comments Chapter...

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Instructor Comments Chapter Thirteen Welcome to chapter 13. This is an important chapter for you. The chapter focuses on cost accounting; i.e., how costs are accumulated in a manufacturing business and how these costs are assigned to a product in the manufacturing process. A solid understanding of how costs are accumulated to arrive at the cost of a product is especially important because management in a manufacturing business should know the cost of its products in order to reasonably determine a sales price. The proper accumulation of costs is also important in order to control manufacturing costs and keep them within management’s expectations. Remember your earlier introduction to the Cost Concept or Cost Principal . We already know that all businesses incur costs in an attempt to earn revenues. These costs can be classified either as assets or expenses. We have learned that a cost that possesses future benefits is called an “asset” . The words, “unexpired cost” or “unused cost” are frequently used to describe an asset. Also, we know that costs that are “expired” or “used up” (costs that possess no future benefit) are called “expenses” . The Matching Principal requires that, as costs (assets) are used up in an attempt to produce revenue, these costs become expenses that are deducted from revenues during the same accounting period in the income statement in order to determine net income. These cost concepts and the matching principal are also applicable to cost (or manufacturing) accounting. The application of these ideas however, is somewhat more complex. Note Exhibit 13-5, part II on page 501. This information is vital to your understanding of how costs flow in a manufacturing company (part A) as compared to a merchandising company (part B).
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Make sure that you understand the difference between “product costs” and “period costs” on page 507. Period costs are exactly that - costs of the accounting period that are expensed when
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Chapter 13 Comments 8th ed - Instructor Comments Chapter...

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