From the course: Accounting Foundations: Managerial Accounting
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Types of product costs
From the course: Accounting Foundations: Managerial Accounting
Types of product costs
- Now let's consider how you might measure and control product and period costs. When identifying product costs for control purposes, the most challenging organization to analyze is a manufacturing business. For example, does DuPont purchase inventory for resale? Actually, it does purchase some inventory, such as basic chemicals, but it doesn't simply turn around and resell these to customers. Significant processing has to take place before raw materials become a finished product ready for sale. DuPont must also employ laborers to work with these chemicals, build factory buildings, and purchase manufacturing equipment. DuPont must also employ managers and other support personnel, such as engineers and custodians, to support the line workers' efforts to convert basic chemicals into finished products. These are all product costs. Basically, any costs required to get a product manufactured and ready for sale is a…
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