Product Costing - Impact of Work-in-Progress Inventories

The video tutorial explains the concept of work in progress (WIP) inventory, its calculation, and its impact on product costing. WIP inventory refers to the total cost of unfinished goods, including direct materials, direct labor, and sometimes overhead. The tutorial covers how to calculate WIP costs by adding manufacturing costs and subtracting the cost of goods manufactured. It also discusses how WIP inventory is recorded on the balance sheet and its effect on the income statement when expensed as cost of goods sold.

What is the primary focus when considering work in progress inventory?

• The selling price of finished goods

• The total cost of unfinished goods

• The total cost of finished goods

• The profit margin of finished goods

Which costs are typically added to the work in progress value?

• Only overhead costs

• Only direct labor

• Direct materials, direct labor, and sometimes overhead

• Only direct materials

How does absorption costing differ from variable costing in terms of overhead?

• Both methods treat overhead the same way

• Absorption costing excludes overhead

• Variable costing includes overhead in product costs

• Absorption costing includes overhead in product costs

Where are work in progress inventory assets initially recorded?

• On the income statement

• In a liability account

• In the cash flow statement

• On the balance sheet as an asset

What happens to the cost of goods when a finished product is sold?

• It is added to the cash flow statement

• It is expensed on the income statement

• It remains on the balance sheet

• It is recorded as a liability