1. Define Product Costs.
Product cost includes all costs that are required to make a product. Product costs are Direct Material, Direct Labor, Manufacturing Overhead costs. Its included as part of inventory and shown on the balance sheet until the product is sold. Product costs are often called “inventoriable costs” or “manufacturing costs”.
2. Define Period Costs.
Period cost includes Selling and Administrative costs. These costs are reported on the income statement as they are incurred. Not part of manufacturing overhead, not related to making the product.
3. Give few examples of period cost
Any cost at corporate headquaters, anything related to selling the product, shipping costs, administrative salaries, executive salaries, administrative office expenses, sales commissions, advertising, research and development, etc. Warehouse costs and people who move inventory are period costs
4. Define Selling Costs
All cost associated with marketing the finished products and getting the product to the customer
5. Define Administrative Costs
Costs incurred for the general administration of the organization
6. Define Direct Materials
Raw materials that become a part of the finished product
7. Explain Manufacturing Overhead
All costs of manufacturing the product except direct materials and direct labor. Costs associated with operating the factory that makes the product. If the cost has the word “factory”, “plant”, “manufacturing”, as a descriptive word, the cost will be part of manufacturing overhead.
8. Give few examples of manufacturing overhead costs
Utilities at the plant such as electricity, water, phone. Support personnel at the plant such as an accountant, human resources or computer support. Training, maintenance and repairs, rent, insurance, taxes, etc.
Hint – it has to happen at the manufacturing facility.
Indirect labor and indirect material are part of manufacturing overhead.
9. Define Indirect labor
Labor involved in making the product at the plant but do not touch the product to make it. example: salaries of the plant managers, supervisors, and quality inspectors
10. Define Indirect Materials
Low cost materials that end up in the product or are used to make the product. Examples are glue, tape, screw, marking pens, etc. It is not easy to track exactly how much is used to make one product.If the cost of a particular material cannot be easily traced to one product, it is an indirect material and is part of manufacturing overhead. Examples of indirect materials are cheap screws, tape, glue.
