Product cost is an accounting term that refers to the total costs involved in making a product and getting it ready

for sale.

In manufacturing, product costs are expenditures that include the cost of raw materials, labor and manufacturing overhead.

Product Costs (Inventoriable)

- are those directly related to the production of a product or service intended for sale.
- a manufacturer, for example, would have product costs that include: direct labor, raw materials, manufacturing supplies, overhead that is directly tied to
the production facility such as electricity.
- for a retailer, the product costs would include the supplies purchased from a supplier and any other costs involved in bringing their goods to market.
31. The following information summarizes total production costs and number of units of product produced by Company B over the last 6 months:

Month Total Cost Units Produced

1 P24,000 30,000

2 30,000 42,000

3 28,000 40,000

Month Total Cost Units Produced

4 P27,000 34,000

5 25,000 32,000

6 23,000 31,000

Using the high-low method, the estimated cost function for this product is

a. Y = P9,000 + P0.500 x number of units produced.

b. Y = P7,500 + P0.585 x number of units produced.
c. Y = P3,285 + P0.636 x number of units produced.
d. Y = P 493 + P0.726 x number of units produced.

*Solution:

Highest activity cost – lowest activity cost

Highest activity units – lowest activity units

(P30,000 – P24,000) / (42,000 units – 30,000 units) = P6,000 / 12,000 units = P0.50 for the highest and lowest values of the cost driver

Y = total cost a = fixed cost

b = variable cost per unit x = activity level

Formula: Y = a + bx

P30,000 = a + P0.50(42,000 uniits)

a = P21,000 – P30,000

a = (P9,000)
Period costs are costs that cannot be capitalized on a company's balance sheet.

In other words, they are expensed in the period incurred and appear on the income statement.

Period Costs (Non-inventoriable)

- are all other indirect costs that are incurred in production.

- are not assigned to one particular product or the cost of inventory like product costs.
- overhead and sales and marketing expenses are common examples of period costs.
28. Maritime Company manufactures and sells Widget Q. For the year 2012, the cost of goods sold of Maritime Company was P350,000. During the year, the
work-in process inventory increased by P42,000 and the finished goods inventory decreased by P95,000. The total manufacturing costs incurred by Maritime
Company in 2012 were

a. P213,000
b. P297,000
c. P350,000
d. P403,000

*Solution:

297,000 - Total Manufacturing Costs

(+) 0 – Beg. Work in Process Inventory

297,000 - Total Cost of Work in Process

(-) 42,000 - End. Work in Process Inventory

255,000 - Cost of Goods Manufactured

(+) 95,000 - Beg. Finished Goods Inventory

350,000 - Total Goods Available for Sale

(-) 0 - End. Finished Goods Inventory

350,000 - Cost of Goods Sold