18.2 Product vs Period costs
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VCE Accounting Unit 4
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18.2 Product vs Period costs
- 2. © Michael Allison, Trinity Grammar School. Author’s permission required for external use From Unit 3… 18.2 PRODUCT VS PERIOD COSTS Supplier Business Customer All expenses incurred in acquiring stock and getting it ready for sale. Cost of Goods Sold All costs involved in getting stock from store to the customer Other Expenses • Cost of sales • Cartage in • Packaging • Buying expenses • Customs • Cartage out • Carry bags • Advertising • Vehicle expenses • Etc.
- 3. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 18.2 PRODUCT VS PERIOD COSTS Supplier Business Customer All expenses incurred in acquiring stock and getting it ready for sale. Cost of Goods Sold All costs involved in getting stock from store to the customer Other Expenses • Cartage out • Carry bags • Advertising • Vehicle expenses • Etc. Product Cost Period Cost CAN allocate to each unit of stock CAN’T allocate to each unit of stock
- 4. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 18.2 PRODUCT VS PERIOD COSTS Cost of Goods Sold Other Expenses Customs duty $3 Packaging $1 Cost of materials $200 Cartage inwards $1 Buying Expenses $2,000 Advertising $400 Rent $3,000 Product Cost Period Cost Cartage inwards $1/unit Materials $200/unit Rent $3,000/month Packaging $1/unit Advertising $400/month Buying expenses $2,000/month Customs duty $3/unit Customs duty $3 Packaging $1 Cost of materials $200 Cartage inwards $1 Customs duty $3 Packaging $1 Cost of materials $200 Cartage inwards $1 Advertising $400 Rent $3,000 Customs duty $3 Packaging $1 Cost of materials $200 Cartage inwards $1 Advertising $400 Rent $3,000Buying Expenses $2,000 Customs duty $3 Packaging $1 Cost of materials $200 Cartage inwards $1 CAN allocate to each unit of stock CAN’T allocate to each unit of stock $205/unit
- 5. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 18.2 PRODUCT VS PERIOD COSTS Other Expenses Product Cost Period Cost Advertising $400 Rent $3,000 Buying Expenses $2,000 CostofGoodsSold $205/unit Income Statement Revenue $ $ Sales (20 x $539) 10780 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 4680 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 3900 less Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 3900 less Other Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 3900 less Other Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 3900 less Other Expenses Rent 3000 Advertising 400 3400 Net Profit 1280 Income Statement Revenue $ $ Sales (20 x $500) 10000 less Cost of Goods Sold Cost of Sales (20 x $205) 4100 Buying expenses 2000 6100 Gross Profit 3900 less Other Expenses Rent 3000 Advertising 400 3400 Net Profit 500
- 6. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO 18.2 PRODUCT VS PERIOD COSTS Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO Cost is required to bring stock into a condition and location ready for sale Cost CAN be allocated to individual units of stock on a logical basis. Classified as… YES YES YES NO NO YES NO NO PRODUCT COST PERIOD COST OTHER EXPENSE OTHER EXPENSE
- 7. © Michael Allison, Trinity Grammar School. Author’s permission required for external use All costs can be divided into 3 categories: PRODUCT COSTS VS. PERIOD COSTS PRODUCT COST PERIOD COST • A cost incurred in order to bring stock into a condition and location ready for sale • CAN be allocated to individual units of stock on a logical basis. • A cost incurred in order to bring stock into a condition and location ready for sale • CAN’T be allocated to individual units of stock because there is no logical basis to do so. OTHER EXPENSE All other costs involved in • Running the business on a daily basis and • Getting stock from the business to the customer
- 8. © Michael Allison, Trinity Grammar School. Author’s permission required for external use TASK In-class Homework SQ2 X