product costing Flashcards
what are product costs
recorded as an asset in the inventory until the product is sold
what is product costing
determining the costs of products in inventory or sold to customers
what are period costs
costs that are recorded as expenses in the period in which they are incurred
e.g. sg&a expenses
interest expenses
types of product costs
direct materials
direct labour
manufacturing overhead
what is an overhead
includes all manufacturing costs except for materials and labour
like property taxes, insurance
what are balance sheet inventories for cost accounting
raw materials
work in progress
finished goods
predetermined overhead rate
estimated total manufacturing overhead cost for the coming period / estimated total units in the allocation base for the coming period
overhead applied
POHR x actual activity
if manufacturing overhead is under applied
applied OH is less than actual OH
if manufacturing overhead is overapplied
applied OH is greater than actual Ohm
under and overapplied overhead for smaller amounts (close to cost of goods sold) - where to allocate
COGS
under and overapplied overhead allocation
work in progress, finished goods or cost of goods sold
purchase of raw materials on account
purchase of materials is recorded in raw materials (debited)
cost of raw materials is transferred to…
use of direct materials is recorded in work in process (debited) and raw materials (credited)
direct costs for the month….
direct labor cost increase work in process (debited) and increase wages payable (credited, liability)
actual manufacturing overhead costs incurred for the month….
actual overhead costs, as incurred, increase manufacturing overhead (debited) and increase accounts payable or accrued wages payable
manufacturing overhead is applied to work in process using POGR and actual activity
manufacturing overhead is applied to WIP (debited) using POHR and actual activity rate
if actual and applied manufacturing overhead are not equal at the end of fiscal period….
adjustment is required.
when is the manufacturing overhead account cleared?
at the end of the year
cost of goods sold transfered from work in process to finished goods
when the goods are completed, they are moved from work in process (balance sheet, credited) to finished goods inventory (balance sheet, debited)
cost of goods sold is transfered from finished goods inventory to COGS in income statement
when the goods are sold, they are transfered from balance sheet (credited) to cogs in income statement (debited)
absorption costing
all manufacturing costs are absorbed in the cost of the product
variable costing
direct materials, direct labor, variable manufacturing overhead treated as product costs
fixed manufacturing overhead, variable and fixed selling and administrative expenses treated as period costs
ABC method
allocates overhead costs to products
