Week 1 Discussion Threads...KMB - Cost Terms,...

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Cost Terms, Classifications, and Behavior (graded) Be careful, Craig. Although service companies don't have tangible goods that they sell, they have fixed assets like property, plant and equipment. I think you were trying to say that service firms like accountants and doctors, generally don't have "inventory" in the sense of product on the shelf ready to sell, but they do have supplies (like paper, toner, and vaccinations) that are considered expenses rather than COGS because they are not items that are for resale (rather they are incidentals to the service being sold). As to merchandisers versus manufacturers, for a manufacturing company, there are a lot more components to cost of goods sold that need to be recognized than for the merchandiser. Can anyone state the formulas? (hint: In defining the COGM formula, I would be looking at Exhibit 2-1 on page 28. After understanding Exhibit 2-1, I would look at the absorption costing (traditional) income statement approach in Exhibit 3-12 on page 103 and trace in the COGM from Exhibit 3-11 that also uses the absorption costing (traditional) approach. The formulas on page 43 are for a merchandising company as compared with those for a manufacturing company whose formulas are used on page 103 and in Exhibit 3-11.) Anyone?? Craig, I thing you meant to add manufacturing overhead rather than subtract it, but, otherwise, yes, that is the formula I was looking for. COGM must account for the WIP inventory besides considering direct materials, direct labor, and mfg ovhd. Also, I want to point out that before we get to the COGM we have to account for one of the other types of inventory, namely direct materials inventory (that formula is beginning inventory raw or direct materials +raw or direct materials purchased - ending raw or direct materials inventory = direct materials used in the COGM formula (see Exhibit 3-11). Finally, we get to the last type of inventory when we deal with COGS. COGS accounts for the finished goods inventory as shown on page 103. Exactly, Dale! A merchandiser would not have direct labor since no one is one the assembly line. Wages would be all selling costs or administrative costs. A merchandiser wouldn't used direct materials or have work in process inventories because all goods would be finished goods (finished in the sense that they are ready to sell). A merchandiser would not have ,manufacturing overhead because there is no manufacturing being done. Utilities to run the store and supplies to bag the the shoppers' purchases and depreciation and property taxes and insurance on the store are not really "overhead" in the manufacturing sense but rather selling costs. Insurance and property taxes on the office are administrative costs. Does this help? Excellent, Douglas! ALL types of organizations MUST use the traditional (also called full costing or absorption
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This note was uploaded on 03/26/2012 for the course AC505 AC505 taught by Professor Dillan during the Spring '10 term at Keller Graduate School of Management.

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Week 1 Discussion Threads...KMB - Cost Terms,...

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