1. A manufacturing company makes the products that it sells. Briefly identify an

Question

1. A manufacturing company makes the products that it sells. Briefly identify and define the cost elements that are incurred in making a product. After product cost elements are identified, how is the cost of goods manufactured for a period determined?

2. A job order cost accounting system is fully integrated into the general ledger of a company. Identify the major general ledger accounts used in a job order cost system. Explain how manufacturing costs flow through these accounts so that inventories may be cost and income determined when goods are sold.

Explanation / Answer

The costs that go into making a product are referred to as product costs. Product costs for manufactured goods include direct materials, direct labor, and manufacturing overhead. Direct materials are materials costs that are an integral part of a finished product and can be directly traced to the product. Direct labor costs are factory labor costs that can be easily traced to product. Manufacturing overhead includes costs that are indirectly part of the product cost - they cannot be directly traced to the product. Manufacturing overhead includes things such as indirect materials, indirect labor, utilities, etc. Cost of goods manufactured is determined by the following formula: Beginning WIP Inventory Plus: Direct Materials Plus: Direct labor Plus: Manufacturing Overhead Less: Ending WIP Inventory

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