Unlike service companies, manufacturing companies have three inventory accounts: raw materials, work-in-process, and finished goods. Manufacturing costs can be classified into three categories: direct material, labor, and overhead. Another method to classify costs is as product and period costs. Product costs, like raw material, can be traced directly to the product. Period costs are non-manufacturing costs, such as administrative and insurance costs.
For this discussion, do the following:
Explain manufacturing costs, prime and conversion costs, and product and period costs.
Explain the steps to calculate cost of goods manufactured and cost of goods sold.
Develop an example of a schedule of cost of goods manufactured and a manufacturing income statement.