Process Costing Research Paper

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The cost of goods manufactured amount is transferred to the finished goods inventory account during the period and is used in calculating cost of goods sold on the income statement. In calculating cost of goods sold, only the finished goods inventory account is used, as shown.– Expenses on an income statement are considered product or period costs.In a manufacturing company, these costs are often referred to as non-manufacturing costs. There are three categories of manufacturing costs: direct materials, direct labor, and overhead. Period costs are those costs recorded as an expense in the period they are incurred. Established since 2007, hosts more than 1300 articles (still growing), and has helped millions accounting student, teacher, junior accountants and small business owners, worldwide.Selling expenses such as sales salaries, sales commissions, and delivery expense, and general and administrative expenses such as office salaries, and depreciation on office equipment, are all considered period costs. Together, the direct materials, direct labor, and manufacturing overhead are referred to as manufacturing costs. Finished Goods Inventory (Beginning) = 14,500 [Credit]. The costs of selling the product are operating expenses (period cost) and not part of manufacturing overhead costs because they are not incurred to make a product. For example, using the periodic inventory method, on account is recorded as an increase (debit) to raw materials purchases and an increase (credit) to accounts payable. A special account called “” is used to close all the accounts whose amounts are used to calculate cost of goods manufactured. Raw Materials Inventory (Beginning) = 6,200 [Credit]. The manufacturing summary account is closed to income summary. Work-in-Process Inventory (Beginning) = 10,200 [Credit].

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