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BU227 (25)

Chapter 8 Reporting and Interpreting Cost of Sales and Inventory

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James Moore

CHAPTER 8 Reporting and Interpreting Cost of Sales and Inventory Inventory is tangible property that is1 held for sale in the normal course of business OR 2 used to produce goods or services for salecurrent asset on statement of FPconverted within one year or next operating cycle longermerchandisers Companies that do not manufacture the products they sell but simply purchase those products then sell them to customersRaw materials inventory Items acquired by purchase growth food or extraction natural resources for processing into finished goods Included in raw materials inventory until used at which point they become part of workinprocess inventoryWorkinprocess inventory Being manufactured but not yet complete Finished goods inventory Manufactured goods that are complete and available for sale Cost principle the sum of applicable expenditures and charges directlyindirectly incurred in bringing an article to a usable or saleable condition and location NOT CURRENT VALUEInclude the invoice price and indirect expenditures related to the purchase such as import duties freight charges inspection and preparation costs NOT A LOT sometimes just recorded as expenseCompany should cease accumulating purchase costs when the raw materials are either ready for use or when the merchandise inventory is ready for shipment Costs related to selling the merchandise inventory to customersselling and marketing expenses of the period of sale since they are incurred after the inventory is ready for sale direct labour and factory overhead are also added to the workinprocess inventory when incurredFACTORY OVERHEAD comprises manufacturing costs that are not raw material or direct labour costssalary of the factory supervisor and the cost of utilities security and material handlingDirect labour cost earnings of employees who work directly on the products being manufacturedWhen finished goods are sold cost of sales increases costs in the finished goods inventory fallsThe portion of the COG available for sale that is sold becomes cost of sales on the income statement
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