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Chapter 5

Chapter 5

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Ryerson University
ACC 410
Maurizio Di Maio

Chapter 5: Job Costing Product Costs and Cost Flows Product costs: are costs involved in either making or purchasing a product, and they are called manufacturing or inventoriable costs Costs are accumulated on balance sheet as inventory until sale occurs Example: Direct materials, direct labour Period costs: are the operating costs that are not part of making or purchasing a product, such as sales and administrative expenses costs are expensed as incurred Service companies provide services or intangible products and thus do not incur product costs and do not have inventory Merchandising companies purchase merchandise for resale as a part of their business operations. They incur merchandise costs, and they may have leftover inventory (if all the merchandise purchased during the period was not sold by the end of the accounting period Manufacturing companies purchase raw materials and components and process them and make them into finished goods. Therefore, manufacturing companies have left over inventory in the raw materials account, the work-in-process (partially finished products) account, and the finished goods account at the end of the accounting period What goes into making a product consists of three main components 1) Direct materials that become part of a product (cost object) 2) Direct labour that includes the wages paid to the operator or assembly workers 3) Manufacturing overhead, which includes all indirect expenses that go into making the product such as utilities, machine amortization, plant insurance, maintenance and repair, indirect materials, indirect labour etc Prime cost: Direct materials and direct labour combined Conversion cost: Direct labour and manufacturing overhead combined EXHIBIT 5.1 Cost of Goods Sold Calculation for Merchandise Companies (Retail Stores) Beginning merchandise inventory + Purchases Ending merchandise inventory = Cost of goods sold www.notesolution.com
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