Sample Term Paper
- Product costs – All costs needed to acquire or develop inventory that is ready for sale. For a manufacturing enterprise, these costs would include raw material costs, direct labor costs etc. For a merchandising enterprise, product cost is the cost of inventory purchased for sale. A service enterprise would however have no product cost as it does not maintain inventories for sale or resale.
- Period costs – All costs incurred over a specific time period that are not directly related to the acquisition or development of a saleable product. For example, sales commission.
Costs on Basis of Cost Objective
- Direct costs – All costs that can be traced to a specific cost objective . For example in a manufacturing enterprise, finished goods can be a cost objective. The costs of raw materials used in the production of a finished good are direct costs.
- Indirect costs – A cost that is incurred for multiple cost objectives. For example, the rent on a building that houses several departments. Indirect costs are then allocated on some allocation base.
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