costing

Examples of costing in the following topics:

• Average Cost Method

  • Under the Average Cost Method, It is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period.
  • There are two commonly used average cost methods: Simple Weighted Average Cost method and Moving-Average Cost method.
  • Moving-Average (Unit) Cost is a method of calculating Ending Inventory cost.
  • Each time, purchase costs are added to Beginning Inventory Cost to get Cost of Current Inventory.
  • The Weighted-Average Method of inventory costing is a means of costing ending inventory using a weighted-average unit cost.

• Cost of Goods Sold and Gross Profit

  • Cost of goods sold refers to the inventory costs of the goods a business has sold during a particular period.
  • Costs are associated with particular goods by using one of several formulas, including specific identification, first-in-first-out (FIFO), or average cost.
  • Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
  • The costs of those goods not yet sold are deferred as costs of inventory until the inventory is sold or written down in value.
  • Explain the difference between cost of goods sold and gross profit

• Cost of Interest During Construction

  • The amount of interest cost incurred and/or paid during an asset's construction phase is part of an asset's cost on the balance sheet.
  • The cost of interest incurred and/or paid is included as part of the historical cost of the asset under construction.
  • This interest cost is recorded as interest expense and reported as a period cost on the income statement rather than the balance sheet.
  • Most of the interest paid during construction is part of an asset's cost.
  • Interest paid during delays in construction is excluded from the asset's cost.

• Cost of Buildings

  • The cost of a building is its original purchase price or historical cost and includes any other related initial costs.
  • The cost of a building is its original purchase price or historical cost and includes any other related initial costs spent to put it into use.
  • The cost of a building can include construction costs and other costs incurred to put the building into use.
  • Delays in construction can effect the total cost of a building.
  • Summarize how a company would calculate the cost of a building

• Components of Inventory Cost

  • The cost of goods produced in the business should include all costs of production: parts, labor, and overhead.
  • The cost of goods produced in the business should include all costs of production.
  • Costs of payroll taxes and fringe benefits are generally included in labor costs, but may be treated as overhead costs.
  • Activity based costing attempts to allocate costs based on those factors that drive the business to incur the costs.
  • If she uses FIFO, her costs are:

• Cost of Equipment

  • The cost of equipment is the item's purchase price, or historical cost, plus other initial costs related to acquisition and asset use.
  • The equipment's cost is calculated by adding the item's purchase price, or historical cost, to the other costs related to acquiring the asset.
  • These additional costs can include import duties and deductible trade discounts and rebates.
  • The cost of equipment includes all costs paid to put the asset into use.
  • Describe how a company calculates the cost of a piece of equipment

• Costing Methods Overview

  • Cost accounting information is designed for managers.
  • The specific identification method of inventory costing attaches the actual cost to an identifiable unit of product.
  • The FIFO (first-in, first-out) method of inventory costing assumes that the costs of the first goods purchased are those charged to cost of goods sold when the company actually sells goods.
  • The LIFO (last-in, first-out) method of inventory costing assumes that the costs of the most recent purchases are the first costs charged to cost of goods sold when the company actually sells the goods.
  • The weighted-average method of inventory costing is a means of costing ending inventory using a weighted-average unit cost.

• Cost Flow Assumptions

  • Inventory cost flow assumptions (e.g., FIFO) are necessary to determine the cost of goods sold and ending inventory.
  • FIFO assigns first costs incurred to COGS (cost of goods sold) on the income statement.
  • Inventory cost flow assumptions are necessary to determine the cost of goods sold and ending inventory.
  • The only requirement, regardless of method is that: The total cost of goods sold plus the cost of the goods remaining in the ending inventory for financial and tax purposes is equal to the actual cost of goods available.
  • Assigns first costs incurred to COGS (cost of goods sold) on the income statement

• Cost of Land

  • Land is recognized at its historical cost or purchase price, and can include any other related initial costs spent to put the land into use.
  • Land is recognized at its historical cost, or the cost paid to purchase the land, along with any other related initial costs spent to put the land into use.
  • If the land's market value increases over time, its value on the balance sheet remains at historical cost.
  • If the sale results in a loss and the business receives less than the land's historical cost, the loss will reduce net income for the period.
  • All costs associated with acquiring land and putting it to use are included in the cost of land.

• Lower of Cost or Market

  • In lower of cost or market (LCM), inventory items are written down to market value when the market value is less than the cost of the items.
  • Ending inventory is normally stated at historical cost (what was paid to obtain it), but there are times when the original cost of the ending inventory is greater than the cost of replacement.
  • The company then values each class at lower its cost or market amount.
  • Cost is primarily determined by either the average cost or the first-in, first-out method.
  • Explain how a would use the Lower of Cost or Market to value inventory