Chapter 2 Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Manufacturing, Merchandising and Service Organizations Manufacturing: Take raw materials and produce new products from them. Merchandising: Retail and wholesale merchandising companies sell products that someone else has manufactured. Service: Provide a service such as airlines, hospitals, repair shops, law firms, CPA firms.

Product Costs in a Manufacturing Company Manufacturing Costs: Costs incurred in the factory or plant

Product Costs in a Manufacturing Company Direct Labor Direct Materials Manufacturing Overhead

Nonmanufacturing Costs Costs that are incurred outside the plant or factory and typically categorized as selling and administrative costs.

Life-Cycle Costs and the Value Chain Production Direct Materials Direct Labor Manufacturing Overhead Research & Development Experiment materials Staff Product Development Design Specs Staff

Life-Cycle Costs and the Value Chain Marketing Advertising and promotions Staff Distribution Vendors Trucks Drivers Customer Service Call Center personnel Phone and computer equipment

Cost Flows in a Manufacturing Company When the product is sold, the product costs become: Cost of Goods Sold.

Cost Flows in a Manufacturing Company Work in Process In Out Raw Materials In Out Beginning Inventory Beginning Inventory Raw Materials Used Raw Materials Used Purchases Cost of Goods Manufactured Ending Inventory Direct Labor Manufacturing Overhead Ending Inventory

Cost Flows in a Manufacturing Company Work in Process In Out Finished Goods In Out Cost of Goods Sold In Out Beginning Inventory Cost of Goods Sold Cost of Goods Sold Cost of Goods Manufactured CGM Ending Inventory

Cost Flows in a Manufacturing Company, JIT Environment Direct material, direct labor and overhead costs can essentially be accumulated directly in a cost of goods sold account.

The Path to the Income Statement As products are produced As products are sold Direct Materials Balance Sheet Inventories Income Statement Direct Labor Factory Overhead Every period Period Costs

Can you follow the flow of costs? End of Chapter 2 Can you follow the flow of costs?