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| Topic: |
History
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| Number of pages / Number of words: |
4 / 975 |
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Initial expenditures on raw materials, direct labor, and overhead are CAPITALIZED (recorded as assets) in Work in process and finished goods inventory.
2. They are transferred to expense accounts when the finished goods are sold (they go to cost of goods sold).
3. Generally the cost of goods manufactured, (the costs incurred in manufacturing the product) will not equal the cost of goods sold...
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They are transferred to expense accounts when the finished goods are sold (they go to cost of goods sold).
3. Generally the cost of goods manufactured, (the costs incurred in manufacturing the product) will not equal the cost of goods sold.
-This means that in any year some of the costs associated with manufacturing the product will not flow through the income statement as an expense, they will remain in the inventory accounts as assets!
Absorption Costing
Consider the following example:
A company is formed to manufacture computers...
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