Chapter 2: Chapter 2

Problem 11

Distinguish between inventoriable costs and period costs.

Short Answer

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Inventoriable costs are costs associated with acquiring or producing goods held in inventory, capitalized as assets on the balance sheet, and later transferred to the income statement as COGS. Examples include raw materials, direct labor, and manufacturing overhead. Period costs are expenses not directly related to inventory, expensed in the period incurred and recorded as operating expenses on the income statement. Examples include rent, advertising, and salaries for non-production personnel. Major differences between them involve allocation, financial statement representation, and types of costs.

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TABLE OF CONTENTS :

TABLE OF CONTENTS

Step 1: Define Inventoriable Costs

Inventoriable costs are the costs associated with acquiring or producing goods that a company holds in inventory. These costs are capitalized, which means they are considered assets and recorded on the balance sheet. When the inventory is sold, these costs are transferred to the cost of goods sold (COGS) on the income statement. Examples of inventoriable costs include raw materials, direct labor, and manufacturing overhead.

Step 2: Define Period Costs

Period costs are the expenses that are not directly associated with acquiring or producing goods held in inventory. They are expensed in the period in which they are incurred, and thus, recorded on the income statement as operating expenses. Examples of period costs include Selling, General, and Administrative expenses (SG&A), such as rent, utilities, advertising expenses, and salaries of personnel not involved in production.

Step 3: Major Differences

Here are the major differences between inventoriable costs and period costs: 1. Allocation: Inventoriable costs are allocated to the inventory, while period costs are expensed in the period in which they are incurred. 2. Financial Statement Representation: Inventoriable costs are recorded on the balance sheet as assets until sold, then transferred to the income statement as COGS. Period costs are recorded on the income statement as operating expenses. 3. Types of Costs: Inventoriable costs pertain to costs associated with acquiring or producing inventory, such as raw materials, direct labor, and manufacturing overhead. Period costs are expenses not directly associated with inventory, such as SG&A expenses (rent, advertising, and salaries for non-production personnel).

Step 4: Examples

To further distinguish between the two types of costs, let's look at some examples: Inventoriable Costs: - Raw materials, such as wood, metal, or plastic - Direct labor costs, i.e., wages for workers directly involved in producing goods - Manufacturing overhead, e.g., factory rent, equipment depreciation, and indirect labor Period Costs: - Rent for office or retail space - Advertising and marketing expenses - Salaries for non-production personnel, such as managers, salespeople, and administrative staff

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Chapter 2: Chapter 2

Distinguish between inventoriable costs and period costs.

Short Answer

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Step 1: Define Inventoriable Costs

Step 2: Define Period Costs

Step 3: Major Differences

Step 4: Examples

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Chapter 3

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Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

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Chapter 15

Chapter 16

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