Cost Concepts and

Classification

Elements of Product Costs

Raw
Factors of
MaterialProduction

Expenses on
Income Statement

Product Costs
Different types of costs are associated
with products in different ways
Direct Material
Cost

Direct Labor
Cost

Indirect Manufacturing
(Overhead) Cost

PRODUCTS
Disposable Camera

35-mm Camera

Professional Camera

Examples of Manufacturing Overhead

for Disposable Cameras

Examples of Selling, General and Administrative

Expenses (SGA) for Disposable Cameras

Mfg. Product Costs and Period Costs in

Financial Reporting: Its All in the Timing

When Product is Produced

Item

Product
cost
Period
cost

Action

Statement

When Product Sold

Action

Statement

Inventories and Physical Parts of

the Firm

Storeroom

Factory

Warehouse

Raw material
Inventory

Work in process
inventory

Finished goods
inventory

How Inventoried Costs Become

Income Statement Expenses

Warehouse
Finished goods
inventory

Income Statement Expense

COGS: Comparison between

Merchandisers and Manufacturers
Merchandising Firm:

Manufacturing Firm:

Merchandise Inventory

Finished Goods Inventory

Beg Balance

Beg Balance

+Merchandise
Purchases
End Balance

- COGS

+ COGM
End Balance

- COGS