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

2. 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.

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

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

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

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

7. 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

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

9. 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

10. 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

11. 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.

12. 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

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