Spring 2023 Accounting 2304 Chapter 4 Handout Materials

School: Baylor University - Course: ACC 2304 - Subject: Accounting

CHAPTER 4 Product Costing for Manufacturing Companies I.Product Cost (Manufacturing Cost) vs. Period Cost (Nonmanufacturing Cost) A.Define Product (Manufacturing) Cost: 1.Direct Material(DM)- The main ingredients: material that can be easily and directly identified and traced to a product 2.DirectLabor(DL)- Easily traceable The salary paid to those that actually work directly on the product 3.Manufacturing Overhead(MOH)- Anything that happens in the factorythat isn't DM or DL (electricity, security guards, insurance, supervisors) Consists of both B.Define Period (Nonmanufacturing) Cost: Costs associated with the__selling & administration_____________________of the business CLASS PREP 1:PERIOD COSTS Complete this sentence: Period Costs are expensed whenincurred________. Give 5 examples of period costs: 1. Advertising 2. Selling commissions 3.Administration salaries 4.Warehouse costs 5.Headquarters overhead (this is not an all inclusive list) CLASS PREP 2 Lake Company produces a tote bag that is very popular with college students. Choose the term (product, PR or period, PE) that best describes the cost in each of the following situations.If a product cost, define it as DM, DL, MOH. 1. The cloth used in making the bag is considered a(n): 2.Sales commissions on sales of the tote bags are considered a(n): 3.Depreciation on the production equipment is considered a(n): 4.Depreciation on the office equipment is considered a(n): 5.The salary of the president of the company is considered a(n): 6.The wages of the production employees areconsidered a(n): 7.Materials used to repair the machines 8.Salary of the production line supervisor C.A few questions: 1.When doproductcosts become an expense? When the product is sold --COGS 2.When doperiodcosts become an expense? As incurred 3.Are product or period costs "inventoriable"?What does that mean? Product cost are capitalized to inventory and stay on the balance sheet until sold or scrapped II.Product Cost Flows A. Manufacturing Companies - 3 Types of Inventory: 1.Raw Materials (RM) Materials used in the production process Includes DM and IM 2.Work in Process (WIP) Products started but not yet completed Consists of DM used, DL and App OH 3.Finished Goods (FG) Completed product ready for sale Final inventory account

B. Merchandising Companies - 1 Type of Inventory 1.Finished Goods