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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What are the cost components of each of the three inventory accounts of a manufacturing company?

To determine

Identify and explain the cost components of each of the three inventory accounts for a manufacturing company.

Explanation

Merchandise Inventory: Merchandise is the stock of goods bought by a wholesaler, or a retailer, or a trader, to be sold within a year. Merchandise Inventory is a current asset account which includes all the costs incurred to acquire merchandise, and process it further for sale.

The three inventory accounts and the cost components of each inventory are as follows:

  • Raw materials inventory: Raw material inventories are the primary materials which are used in the production process to get the finished product. It includes the cost of raw materials only that are purchased for the direct use in the production process.
  • Work in process inventory:  Work in process inventory is the partially completed goods for which the production activities have been started but not yet completed...

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