Week 2 Important Flashcards
Inventoriable costs
Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold only when the product is sold. These costs are included in work-in-process and finished goods inventory (they are ‘inventoried’) to accumulate the costs of creating these assets.
Period costs
Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the accounting period in which they are incurred because they are expected not to benefit revenues in future periods (because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches the expenses to revenues.
. Do service sector companies have inventoriable costs? Explain.
No. Service sector companies have no inventories of tangible products for sale and, hence, no inventoriable costs.
Overtime premium
Overtime premium is the wage rate paid to workers (for both direct labour and indirect labour) in excess of their straight-time (normal) wage rates.
Idle time
Idle time is a subclassification of indirect labour that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, material shortages, poor scheduling and the like.
product cost
A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include:
• pricing and product-mix decisions,
• preparing financial statements for external reporting under Australian Accounting Standards.
What are three common features of cost accounting and activity management?
Three common features of cost accounting and activity management are:
• calculating the costs of products, services and other cost objects
• obtaining information for planning and control and performance evaluation
• analysing the relevant information for making decisions
- Distinguish between manufacturing sector, retail sector and service sector companies.
- Manufacturing sector companies purchase materials and components and convert them into different finished goods.
Retail sector companies purchase and then sell tangible products without changing their basic form.
Service sector companies provide services or intangible products to their customers.
Only manufacturing and retail companies have inventories of goods for sale.
Each of the following cost items pertains to one of these companies: Westinghouse (a manufacturing sector company), Kmart (a retail sector company) and Google (a service sector company):
a. Cost of electronic items purchased by Kmart for sale to its customers
b. Electricity used to provide lighting for assembly-line workers at a Westinghouse refrigerator assembly plant
c. Depreciation on Google’s computer equipment used to update directories of websites
d. Electricity used to provide lighting for Kmart’s store aisles
e. Wages of personnel responsible for quality testing of components for Westinghouse refrigerators during the assembly process
f. Salaries of Kmart’s marketing personnel planning local newspaper advertising campaigns
g. Mineral water purchased by Google for consumption by its software engineers
h. Salaries of Google’s marketing personnel selling banner advertising
i. Depreciation on vehicles used to transport Westinghouse products to retail stores
- Classify each of the cost items (a–i) as an inventoriable cost or a period cost. Explain your answers.
a. Cost of electronic items purchased by Kmart for resale to its customers Inventoriable cost of a retail company. It becomes part of cost of goods sold when the items are sold.
b. Electricity used at Westinghouse assembly plant Inventoriable cost of a manufacturing company. It is part of the manufacturing overhead that is included in the manufacturing cost of a finished good.
c. Depreciation on Google’s computer equipment Period cost of a service company. Google has no inventory of goods for sale and, hence, no inventoriable cost.
d. Electricity for Kmart’s store aisles Period cost of a retail company. It is a cost that benefits the current period and it is not traceable to goods purchased for resale.
e. Wages of personnel responsible for quality testing of components for Westinghouse refrigerators during the assembly process Inventoriable cost of a manufacturing company. It is part of the direct labour that is included in the manufacturing cost of a finished good.
f. Salaries of Kmart’s marketing personnel Period cost of a retail company. It is a cost that is not traceable to goods purchased for resale. It is presumed not to benefit future periods (or at least not to have sufficiently reliable evidence to estimate such future benefits).
g. Mineral water consumed by Google’s engineers Period cost of a service company. Google has no inventory of goods for sale and hence no inventoriable cost.
h. Salaries of Google’s marketing personnel Period cost of a service company. Google has no inventory of goods for sale and, hence, no inventoriable cost.
i. Depreciation on vehicles used to transport Westinghouse products to retail stores It is a period cost of a manufacturing company, as these are considered distribution costs benefiting the current period and are not traceable to the manufacture of the goods.
