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PRODUCT costing

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ash_dhs:
in the stock card it had an cred. purchase saying : IN
                                                           20 x 20 =4400
                                                           20 x 25 =500
the 500 was delivery costs
Q: explain effect on acc. equation if the delivery is treated as product cost.
A: overstates Assets by $500 (Stock control)
     overstated Liabilities by $500 ( creditors control)     
     No effect on O/E

i was confused with how the liabilities would become overstated..
also, when the stock was purchased on credit, how would we record it using product and period costing ..ie what would we debit and credit, and also by how much each
another little thing, a period cost is associated with getting stock into a revenue earning capacity but isnt material or cannot be distinguished per unit of stock, so does that mean all period costs will be listed under COGS??
tnx

ben4386:

--- Quote ---i was confused with how the liabilities would become overstated..
--- End quote ---

provided it was the same company that delivered the stock it would mean you owe creditors 4400 + the 500 delivery,

if you paid for the delivery to another delivery customer via cash bank would be understated because you have paid $500 more as a period cost rather than a product cost.


--- Quote --- when the stock was purchased on credit, how would we record it using product and period costing ..ie what would we debit and credit, and also by how much each
--- End quote ---

product cost, full amount (4900) in the purchases journal

um period cost i know the 4400 would be in the purchases journal im not sure about the 500 its separate (i dont think you  i wouldnt imagine you would ever pay for delivery on credit in VCE i think its beyond the scope of the course (someone else may clarify). Usually any period costs are paid for on cash anyway.



--- Quote --- period cost is associated with getting stock into a revenue earning capacity but isnt material or cannot be distinguished per unit of stock, so does that mean all period costs will be listed under COGS??
--- End quote ---


firstly i wouldnt say revenue earning capacity id say condition and location ready for use, you have forgotten the most fundamental thing and that is it cant logically be allocated to a particular line of stock. Yes immaterial costs are period costs and yes all period costs are separate under COGS

Hope this helps

ben

ash_dhs:
 

you have forgotten the most fundamental thing and that is it cant logically be allocated to a particular line of stock.

[/quote]
doesnt that just mean that it cannot be traced to each individual item of inventory, eg we bought 3 stock lines at once, therefore the delivery fee can be worked out per unit of stock

so your saying that if we treated it as a period cost then we would only owe the creditor $4400, rather than $4900 for when its treated as a product cost??

ben4386:

--- Quote --- so your saying that if we treated it as a period cost then we would only owe the creditor $4400, rather than $4900 for when its treated as a product cost??
--- End quote ---

yeh provided the creditor isnt the one who delivers the stock items, I dont know how you would do it if you did because somehow in the purchases journal or somewhere you have to recognise that its a separate period cost and it would be hard to do that in the purchases journal, i dont know how you do that in the general journal but i think its beyond the course.

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