Accounting-Product vs. Period Costs

direct materials:

- raw materials that become part of a finished product.

direct labor:

- workers that touch the product to make the product - also includes workers who operate the machine if the product is made by machine

period costs:

-Selling and Administrative costs. These costs are reported on the income statement as they are incurred. Not part of manufacturing overhead, not related to making the product. -Examples: Anything at corporate headquaters, anything related to selling the product, shipping costs, administrative salaries, executive salaries, administrative office expenses, sales commissions, advertising, research and development, etc. -Warehouse costs and people who move inventory are period costs -Selling Costs - all cost associated with marketing the finished products and getting the product to the customer -Administrative Costs - costs incurred for the general administration of the organization

indirect labor:

Involved in making the product at the plant but do not touch the product to make it. example: salaries of the plant managers, supervisors, and quality inspectors

costs related to executive management are:

administrative costs

direct costs:

costs that can be easily and conveniently traced to one product. Direct costs are direct materials and direct labor.

indirect costs:

costs that can not be easily and conveniently traced to a product. Manufacturing overhead and most period costs are indirect costs.

conversion costs:

direct labor + manufacturing overhead (costs to take direct materials and covert them to a finished product).

wages paid to those working on the production line is:

direct labor.

prime costs:

direct materials and direct labor

Product costs include any materials that become part of the product, the cost of workers who touch the product to make it and all the costs of the facility and management required to make the product. The three major categories of product costs are:

direct materials, direct labor and manufacturing overhead.

anything that occurs at the plant that is not direct materials or direct labor is:

manufacturing overhead.

manufacturing machine deprecation is:

manufacturing overhead.

salories for inspectors of the finished product:

manufacturing overhead.

a property tax at the corporate headquarters is:

period and administrative

advertising expenses:

period and selling

cost of tracking inventory in the warehouse:

period and warehouse

wages of those who handle inventory:

period and warehouse

the cost to ship a product is:

period cost and selling because they are costs incurred to make a sale and get the product to the customer. * selling costs are ALWAYS period costs.

warehouse and inventory movement are:

period costs.

anything related to corporate is a:

period, administrative cost.

manufacturing overhead:

-all costs of manufacturing the product except direct materials and direct labor *Costs associated with operating the factory that makes the product. If the cost has the word "factory", "plant", "manufacturing", as a descriptive word, the cost will be part of manufacturing overhead -Examples of manufacturing overhead costs are: - utilities at the plant such as electricity, water, phone. Support personnel at the plant such as an accountant, human resources or computer support. Training, maintenance and repairs, rent, insurance, taxes, etc. KEY - it has to happen at the manufacturing facility. Indirect labor and indirect material are part of manufacturing overhead.

equipment maintenance at the factory:

product and MOH.

wages for those who pack individual products:

product and direct labor

selling:

related to selling the product.

direct materials, direct labor, and manufacturing labor are all:

product costs

the cost of windows to a homebuilder would be:

product, direct materials.

administrative is:

related to the organizations activities

product costs:

-include all costs that are required to make a product -Product costs are: Direct Material, Direct Labor, Manufacturing Overhead -Are included as part of inventory and shown on the balance sheet until the product is sold. Product costs are often called "inventoriable costs" or "manufacturing costs".

product costs are also called:

inventoriable costs

the cost of utilities and telephone are classified as:

it DEPENDS on which part of the company the costs are related to. the costs can be related to the cooperate office and administrative operations.

indirect material:

low cost materials that end up in the product or are used to make the product. Examples are glue, tape, screw, marking pens, etc. It is not easy to track exactly how much is used to make one product.

selling and administrative costs are:

reported on the income statement as they are incurred.