Recap

• Total cost: Direct Cost vs. Indirect Cost

• Total cost: Inventoriable Product Cost vs. Period Cost

• Inventoriable product cost (manufacturing cost): DM, DL and MOH

 Summary of manufacturing companies’ costs
All Company Costs

Inventoriable Product Costs Period Costs

(only production costs) (“Operating Expenses”)

Manufacturing All Other Costs

Direct Material Direct Labor
Overhead Along Value Chain

Other Indirect
Indirect
Indirect Labor Manufacturing
Materials
Costs

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Inventoriable Product Cost vs. Period Cost

The inventory cost reported on balance sheet may include all of the
following EXCEPT:

A) Distribution cost for the product

B) Wages of the plant supervisor
C) Depreciation of the factory equipment
D) The cost of shipping raw materials to department 1 and department 2
Inventorial Product Cost vs. Period Cost

The inventory cost reported on balance sheet may include all of the
following EXCEPT:

A) Distribution cost for the product

B) Wages of the plant supervisor
C) Depreciation of the factory equipment
D) The cost of shipping raw materials to department 1 and department 2
Direct Cost vs. Indirect Cost
1. Indirect costs cannot be directly traced to the cost objects, so they
are allocated. (True or False?)

2. A factory janitor's wages would be classified as ________ when

determining the cost of a manufactured product.
A) an indirect cost
B) a direct cost
C) a period cost
D) none of the above
Direct Cost vs. Indirect Cost
1. Indirect costs cannot be traced to the cost objects, so they are
allocated. (True or False?)

2. A factory janitor's wages would be classified as ________ when

determining the cost of a manufactured product.
A) an indirect cost
B) a direct cost
C) a period cost
D) none of the above
Manufacturing Overhead (MOH)
Which of the following are classified as manufacturing overhead?

A) Indirect labor and indirect materials used in the manufacturing

process
B) Direct materials and direct labor
C) Indirect cost
D) Factory rent and direct labor
Manufacturing Overhead (MOH)
Which of the following are classified as manufacturing overhead?

A) Indirect labor and indirect materials used in the manufacturing

process
B) Direct materials and direct labor
C) CEO compensation
D) Factory rent and direct labor
Manufacturing Overhead (MOH)
Calculate total factory overhead cost from the following data –
Indirect materials $200; Factory foreman salary $2,000; Factory
insurance $500; Marketing office insurance $600; Factory building
depreciation $200; Marketing department building depreciation $300;
President salary $5,000; Factory utilities $ 200; Administration utilities
$100; Financial accounting clerk salary $2,500; Salesman salary
$3,000.
Manufacturing Overhead (MOH)
Calculate total factory overhead cost from the following data –
Indirect materials $200; Factory foreman salary $2,000; Factory
insurance $500; Marketing office insurance $600; Factory building
depreciation $200; Marketing department building depreciation $300;
President salary $5,000; Factory utilities $ 200; Administration
utilities $100; Financial accounting clerk salary $2,500; Salesman
salary $3,000.
200+2000+200+500+200=3100
Inventory Account for a Manufacturing Company:
Raw materials, WIP and finished goods
Which of the following items could be found in work in process
inventory at a candy bar manufacturer?
A) Candy bars made but not coated in chocolate
B) Cocoa products to make candy bars
C) Sugar products to make candy bars
D) Candy bars completed but not yet sold
Inventory Account for a Manufacturing Company:
Raw materials, WIP and finished goods
Which of the following items could be found in work in process
inventory at a candy bar manufacturer?
A) Candy bars made but not coated in chocolate
B) Cocoa products to make candy bars
C) Sugar products to make candy bars
D) Candy bars completed but not yet sold
Direct Materials
Which statement describes direct materials used in the manufacturing
process?

A) Direct materials are can be period costs for external reporting.

B) Direct materials do not become part of the finished product.
C) Direct materials cannot be separately and conveniently traced.
D) Direct materials are used to determine total inventoriable costs.
Direct Materials
Which statement describes direct materials used in the manufacturing
process?

A) Direct materials are can be period costs for external reporting.

B) Direct materials do not become part of the finished product.
C) Direct materials cannot be separately and conveniently traced.
D) Direct materials are used to determine total inventoriable costs.
Recap
• Income statement for three types of companies
• Cost of goods sold
Cost flow for products (manufacturer)

Direct Direct
Materials Labor

Manufacturing
Overhead

Cost of
Work in Finished
Goods
Process Goods
Sold
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 Raw Materials Inventory
Beginning inventory Materials used
Purchases & freight In work in
process
Ending inventory

Beginning raw materials inventory

+ Purchases of raw materials
+ Freight in
= Raw Materials available for use
- Ending raw materials inventory
= Direct materials used (DM Used)

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 Work in Process Inventory
Beginning inventory Cost of goods
Materials used Manufactured
from raw and sent to
materials finished goods
Direct labor
Manufacturing
overhead
Ending inventory

Beginning work in process (WIP) inventory

+ Direct materials used (DM used)
+ Direct labor (DL)
+ Manufacturing overhead (MOH)
= Total manufacturing costs (TMC)
- Ending work in process(WIP) inventory
= Cost of goods manufactured (COGM)
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 Finished Goods
Inventory
Beginning inventory Cost of goods Income Statement
Cost of goods sold
manufactured
Ending inventory

Beginning finished goods (FG) inventory

+ Cost of goods manufactured
= Cost of goods available for sale
- Ending finished goods inventory
= Cost of goods sold*

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