VCE Accounting Unit 4

1. 18.5
DETERMINING
PRODUCT COST

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
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

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
Other Expenses
Product Cost
Period Cost
Advertising $200
Customs $300
Packaging $5
Cartage in $3
Price $20
Packaging
$50 (for 10 units)
Purchase price
per unit $20
Business A
Other Expenses
Product Cost
Period Cost
Advertising $200
Packaging $50
Customs $300
Cartage in $3
Price $20
Packaging
$50 (for 100 units)
Purchase price
per unit $20
Business B
Packaging $5
Cartage in $3
Price $20
Cartage in $3
Price $20
Packaging $50
Packaging $50
Packaging $5
Packaging $5
Price $20
Lesson
• Only allocate Product Costs that are material and relevant to
decision-making

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
Other Expenses
Product Cost
Period Cost
Advertising $200
Customs $300
Packaging $5
Cartage in $3
Price $20
Packaging
$50 (for 10 units)
Purchase price
per unit $20
Business A
Other Expenses
Product Cost
Period Cost
Advertising $200
Packaging $50
Customs $300
Cartage in $3
Price $20
Packaging
$50 (for 10 units)
Purchase price
per unit $2000
Business B
Packaging $5
Cartage in $3
Price $20
Cartage in $3
Price $2000
Packaging $50
Packaging $50
Packaging $5
Packaging $5
Price $20
Lesson
• What’s material/relevant to one business may not be for another
business
• There is no set dollar amount that is material for every business

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
Other Expenses
Product Cost
Period Cost
Advertising $200
Customs $300
Packaging $5
Price $20
Advertising
$200 (for 10 units)
Purchase price
per unit $20
Business A
Other Expenses
Product Cost
Period Cost
Advertising $200
Packaging $50
Customs $300
Price $20
Advertising
$200 per month
Purchase price
per unit $20
Business B
Packaging $5
Price $20 Price $20
Packaging $50
Advertising $200
Packaging $5
Advertising $200
Lesson
• A cost is only allocated as a Period Cost if it is required to get stock in a
condition and location ready for sale

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
Other Expenses
Product Cost
Period Cost
Advertising $200
Customs $300
Packaging $5
Cartage in $3
Price $20
Cartage inwards
$100 (for 10 units)
Purchase price
per unit $20
Business A
Other Expenses
Product Cost
Period Cost
Advertising $200
Packaging $50
Customs $300
Cartage in $3
Price $20
Cartage inwards
$100 per month
Purchase price
per unit $20
Business B
Packaging $5
Cartage in $3
Price $20
Cartage in $3
Price $20
Packaging $50
Packaging $100
Packaging $5
Packaging $10
Price $20
Lesson
• A Product Cost for one business may be a Period Cost for another
• It all depends whether the cost can be logically allocated per unit

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
 Business A and Business B both buy toasters at $20 each.
 Both businesses pay cartage inwards of $30
30 toasters
Product Cost
Packaging $5
Price $20
Period Cost
Customs $300
Business A
Business B
$30
Product Cost
Packaging $5
Price $20
Period Cost
Customs $300 $30
10 toasters
10 blenders
10 fans
$20
Packaging $5
Price $20
Packaging $5
Price $20
Cartage in $1
Price $20
Cartage in $30

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.5 DETERMINING PRODUCT COST
Business A Business B
30 toasters
$30 $30
10 toasters
10 blenders
10 fans
Product Cost Period Cost
Customs $300
Product Cost Period Cost
Packaging $5
Price $20
Cartage in $3
Price $20 Cartage in $30
Easy to logically allocate per unit. How could these be logically allocated?
• By weight?
• By height?
• By area?
Cartage in $1
Price $20 Cartage in $30
Lesson
• A Product Cost can only be logically allocated per unit
• If there is no logical basis to allocate a cost, it’s a Period Cost

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex18.1 X
Ex18.2 X