Product costs are manufacturing costs (all costs required toproduce something). Depending on the state of production, productcosts are recorded in one of three asses accounts (Raw Materials,Work in Process, Finished Goods). Questions:
1) If they are "costs" why are they recorded in asset accountsand not expense accounts?
2) Do these product costs ever become an expense to thecompany?
Product costs are manufacturing costs (all costs required toproduce something). Depending on the state of production, productcosts are recorded in one of three asses accounts (Raw Materials,Work in Process, Finished Goods). Questions:
1) If they are "costs" why are they recorded in asset accountsand not expense accounts?
2) Do these product costs ever become an expense to thecompany?
Related questions
1.) When products held in inventory are sold:
A.)Cost of Goods Sold is credited.
B.)Work in Process Inventory is credited.
C.)Finished Goods Inventory is credited.
D.)Finished Goods Inventory is debited.
2.)Since manufacturing costs (direct materials, direct labor,and overhead) are incurred in the process of manufacturing units ofproduct, these costs are credited t
| A.) | The Direct Materials Inventory, Direct Labor, and ManufacturingOverhead accounts respectively. |
| B.) | Liability accounts. |
| C.) | The Work in Process Inventory account. |
| D.) | The Cost of Goods Sold account. |
3.)Management accounting systems are designed to assistorganizations in the performance of all of the following functionsexcept:
| A.) | The assignment of decision-making authority over companyassets. |
| B.) | Planning and decision-making. |
| C.) | Monitoring, evaluating, and rewarding performance. |
| D.) | The preparation of income tax returns. |
4.)In a schedule of cost of finished goods manufactured, thefigure for total manufacturing costs:
| A.) May be less than the cost of direct materials used. | |
| B.) May be less than the direct labor costs assigned toproduction. | |
| C.) May be less than the manufacturing overhead applied toproduction. | |
| D.) May be less than the cost of finished goodsmanufactured. |
5.) When a manufacturing company purchases raw materials orcomponent parts to be used in manufacturing finished goods, thesecosts are initially debited to:
| A.) Expense accounts. | |
| B.) Raw Materials Inventory. | |
| C.) Finished Goods Inventory. | |
| D.) Manufacturing Overhead. |
6.) The wages paid to employees working directly on a company'sproducts would be shown as a:
| A.) Credit to Direct Labor. | |
| B.) Debit to Direct Labor. | |
| C.) Credit to Work in Process. | |
| D.) Debit to Manufacturing Overhead. |
7.) Amounts credited to the Work in Process inventory accountmay best be described as:
| A.) The cost of finished goods manufactured. | |
| B.) Total manufacturing costs charged to production. | |
| C.) The cost of goods sold. | |
| D.) Direct materials purchased, direct labor costs paid, andpayments for items classified as manufacturing overhead. |
Christopherâs Custom Cabinet Company uses a job order costsystem with overhead applied as a percentage of direct labor costs.Inventory balances at the beginning of 2013 follow: |
| Raw materialsinventory | $ | 16,000 |
| Work in processinventory | 6,300 | |
| Finished goodsinventory | 20,700 | |
| The following transactionsoccurred during January: |
| (a) | Purchased materials on accountfor $27,200. |
| (b) | Issued materials to production totaling $20,900, 90 percent ofwhich was traced to specific jobs and the remainder of which wastreated as indirect materials. |
| (c) | Payroll costs totaling $16,900were recorded as follows: |
| $11,500for assembly workers | |
| 1,100 for factorysupervision | |
| 1,800 for administrativepersonnel | |
| 2,500for sales commissions | |
| (d) | Recorded depreciation: $5,600for machines, $500 for the copier used in the administrativeoffice. |
| (e) | Recorded $1,400 of expired insurance. Forty percent wasinsurance on the manufacturing facility, with the remainderclassified as an administrative expense. |
| (f) | Paid $4,600 in other factorycosts in cash. |
| (g) | Applied manufacturing overheadat a rate of 200 percent of direct labor cost. |
| (h) | Completed all jobs but one; the job cost sheet for this jobshows $2,500 for direct materials, $2,300 for direct labor, and$4,600 for applied overhead. |
| (i) | Sold jobs costing $51,000. The revenue earned on these jobs was$66,300. |
| Required: | |
| 1. | Set up T-accounts, record the beginning balances, post theJanuary transactions, and compute the final balance for thefollowing accounts: |
| a. | Raw Materials Inventory. |
| b. | Work in Process Inventory. |
| c. | Finished Goods Inventory. |
| d. | Cost of Goods Sold. |
| e. | Manufacturing Overhead. |
| f. | Selling, General, andAdministrative Expenses. |
| g. | Sales Revenue. |
| h. | Other accounts (Cash, Payables,etc.). |
