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Course name: Summer ACCT2218

Assignment name: Ch 19 ** BluePrint** (12pts) Cost-Volume-Profit

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Blueprint Problem: Cost Behavior and CVP Analysis Product and period costs

Cost Classification

Whether a company produces a product or service, managers need to know the company's cost for each product

or service that it offers. For the purpose of determining the cost of each unit, costs are classified as either

product costs or period costs.

Period costs include commissions on sales, the CEO's salary, and the depreciation on computers used

in the Accounting department. Product costs include the salary of the plant supervisor and the supplies

Question: wrfm11h/1Blueprint Problem: Cost Behavior and CVP Analysis - Product and period costsBlueprint Problem: CostBehavior and CVP Analysis - Product and period costs

1. 1.50

2. 1.50

3. 1.50

4. 1.50

5. 1.50

6. 1.50

7. 1.50

8. 1.50

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used to clean the production facilities. Product costs are further classified as direct material costs, direct

labor costs, and overhead costs.

Design it Yourself Co. produces custom jeans. A partial list of costs follows. Identify each product cost as either

direct materials, direct labor, or overhead. Identify the period costs as a selling expense or an administrative

expense.

Product Costs Period Costs

1. Denim material for the jeansDirect Materials None of these

2. Dye for fabricOverhead None of these

3. Labor cost for sewing machine operatorsDirect Labor None of these

4. Factory supervisor's salaryOverhead None of these

5. Cost of safe disposal of wastewater used in the material-dyeing processOverhead None of these

6. Marketing manager's salaryNone of these Selling Expense

7. Depreciation on automobiles used by salespersonsNone of these Selling Expense

8. Labor cost for the Human Resources departmentNone of these Admin Expense

9. CEO's salaryNone of these Admin Expense

10. Cost of liability insuranceNone of these Admin Expense

Correct

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With your mouse, roll over the underlined terms to clarify the categorizations of product vs. period costs

and their components.

Cost Flows

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The cost of goods manufactured is the total of the product costs incurred for the units completed during the

current period. It is not an expense, like the cost of goods sold. The cost of goods manufactured is stored in

Finished Goods , which is an asset account. As units are sold, the cost of the units is then

recorded as Cost of Goods Sold. The flow of the product costs is demonstrated in the linked example and

summary below.

A cost of goods manufactured schedule is an internal schedule that is used to calculate the cost of producing the

completed units during the period. It uses models very similar to the cost of goods sold model and summarizes

the flows of the product costs. A separate cost of goods sold schedule (which presents the cost of goods sold

model) for the period may also be prepared or incorporated directly into the income statement.

Example: This example illustrates how costs flow through the inventory accounts.

1. The inventory accounts have a debit balance at the beginning of the period. (It is possible that the

beginning balance is zero.)

2. Purchases are made during the period which increases Direct Materials.

3. Materials used in production causes Direct Materials to decrease and Work in Process to increase.

4. Direct labor is used in the production process which increases Work in Process.

5. Overhead is increased as actual overhead costs are incurred.

6. Overhead is applied, which decreases Overhead and increases Work in Process.

7. As units are completed, the costs for the units are transferred from Work in Process to Finished Goods.

8. As units are sold, Finished Goods decreases and Cost of Goods Sold increases.

9. The ending balances in Direct Materials, Work in Process, and Finished Goods can be determined.

Other than Cost of Goods Sold, the accounts used to record the flow of product costs are all inventory accounts.

The previous example illustrates how the costs are simply transferred from one inventory account to the next.

The costs become an expense, Cost of Goods Sold, when completed units are sold to customers.

Correct


Review each of the linked schedules as well as the animated example.

APPLY THE CONCEPTS: Calculate the cost of goods manufactured and prepare the schedule

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The following T accounts illustrate the product cost flows for Design it Yourself Co. Use the T accounts to answer

the following questions (beginning balances are indicated with "Bal").

Direct Materials

Bal 11,500

46,000 52,900

4,600

Overhead

97,832 97,750

82

Work in Process

Bal 17,250

52,900

74,750

97,750 219,650

23,000

Finished Goods

Bal 9,200

219,650

228,850

Purchases of direct materials are recorded with a debit to Direct Materials.

Direct materials used in production are recorded with a debit to Work in Process and a



credit to Direct Materials.

Direct labor is recorded with a debit to Work in Process.

Applied overhead is recorded with a debit to Work in Process and a credit to Overhead.

Costs for the units that have completed the production process are recorded with a credit to Work in

Process and a debit to Finished Goods.

What is the cost of units that were completed during the period?

$ 219650

Correct


Review the animated cost flow Example and follow each step through the T accounts above.

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Using the data from the T accounts, complete the cost of goods manufactured schedule.

Design it Yourself Co.

Schedule of Cost of Goods Manufactured

For the Year Ended December 31, 20X1

Beginning direct materials 11500

Add: direct materials purchases 46000

Direct materials available 57500

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Deduct: ending direct materials 4600

Direct materials used in production 52900

Add: direct labor 74750

Add: overhead applied 97750

Total manufacturing costs 225400

Add: beginning work in process 17250

242650

Deduct: ending work in process 23000

Cost of goods manufactured 219650

Correct


Review the cost of goods manufactured schedule and track each item from the T accounts shown in the

section above. You will also have to compute some subtotals.

APPLY THE CONCEPTS: Calculate the cost of goods sold and prepare the schedule

The following T accounts illustrate the product cost flows for Design it Yourself Co. Use the T accounts to answer

the following questions (beginning balances are indicated with "Bal").

Finished Goods

Bal 9,200

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219,650 221,950

6,900

Cost of Goods Sold

221,950

Costs for the units that have been sold are recorded with a credit to Finished Goods and a

debit to Cost of Goods Sold.

What is the amount to be reported on the income statement as the company's expense for the items sold to

its customers?

$ 221950

Correct


Review the cost of goods sold schedule and track the appropriate entries from the T accounts.

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Using the data from the T accounts, complete the cost of goods manufactured for See Clearly Co. schedule.

Design it Yourself Co.

Schedule of Cost of Goods Sold

For the Year Ended December 31, 20X1

Beginning finished goods inventory $ 9200

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Add: cost of goods manufactured 219650

Cost of goods available for sale $ 228850

Deduct: ending finished goods inventory 6900

Cost of goods sold $ 221950

Correct


Review the cost of goods sold schedule and track the appropriate entries down from the T accounts in

the section above. You will also have to compute some subtotals.

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wrfm11h/1Blueprint Problem: Cost Behavior and CVP Analysis - Product and period costsBlueprint Problem: CostBehavior and CVP Analysis - Product and period costs

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