Ch. 1

Indirect materials do not physically become part of the finished product. They cannot be traced because their physical association with the finished product is too small in terms of cost. Indirect materials are accounted for as part of

Manufacturing Overhead.

Like indirect materials, indirect labor is part of

Manufacturing Overhead.

Period costs

a) are matched with the revenue of a specific time period b) relate to nonmanufacturing costs c) include selling and administrative expenses.

raw materials

are the basic materials and parts that are to be used in the manufacturing process

Manufacturing Overhead

consists of costs that are indirectly associated with the manufacture of the finished product. These costs may also be manufacturing costs that cannot be classified as direct materials or direct labor.

Raw materials that can be physically and directly associated with the finished product during the manufacturing process are called

direct materials

Product costs

include each of the manufacturing cost elements (direct materials, direct labor, and manufacturing overhead). They are costs that are a necessary and integral part of producing the finished product. These costs are not expensed to cost of goods sold under the matching principle until the finished goods inventory is sold.

The wages of maintenance people, timekeepers, and supervisors are usually identified as (IL) Their efforts have no physical association with the finished product.

indirect labor

Manufacturing Overhead includes

indirect materials, indirect labor, depreciation on factory buildings and machines, insurance, taxes, and maintenance on factory facilities.

Direct labor

is the work of factory employees that can be physically and directly associated with converting raw materials into finished goods.

For a ________, cost of goods sold is computed by adding the beginning finished goods inventory to the cost of goods _______ and subtracting the ending finished goods inventory.

manufacturer, manufactured

For a _________, cost of goods sold is computed by adding the beginning merchandise inventory to the costs of goods________ and subtracting the ending merchandise inventory.

merchandiser, purchased

Merchandise balance sheet

shows just one inventory catagory

to find the cost of goods manufactured

total cost of work in process - ending work in process inventory = COGM

Period cost examples

wages for accounting department workers

Product cost examples

1. Wages for production workers 2. Wages for production supervisor

Total cost of work in process

Beginning work in process inventory + total manufacturing costs = total cost of work in process

Manufacturer balance sheet may have 3 inventory accounts

Finished goods inventory- shows the cost of completed goods on hand Work in process inventory- shows the cost applicable to units that have been started into production but are only partially completed Raw materials inventory- shows the cost of raw materials on hand.

some raw materials cannot be easily associated with the finished product. These are considered

Indirect Materials