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Manufacturing costs are further subdivided into direct labor, direct material, variable overhead and fixed overhead. For further discussion of these classifications, refer to the page on traceability.

Manufacturing costs are charged to work in process inventory as production occurs. When production is completed, the value of the goods completed is transferred to finished goods inventory. The value of completed production remains in finished goods inventory until the units are sold, at which time the value of the goods sold is transferred from finished goods inventory to cost of goods sold. The value of goods sold is thus expensed (i.e., written off on the income statement) in the period of the sale.

Non-manufacturing costs are never inventoried. All non-manufacturing costs are written off in the period incurred as deductions from cost of goods sold.

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Copyright 2004 Gerald M. Myers. All rights reserved. This site has been developed as aid to instructors and students in managerial accounting. The scenarios contained herein are not intended to reflect effective or ineffective handling of managerial situations. Any resemblance to existing organizations is purely coincidental.
Last modified: August 03, 2005