What Inventory Costing Methods Are Permissible Under GAAP? Explain the Impact

question 148

Essay

What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.

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Definitions:

Direct Labour-Hours

The total man-hours expended by workers directly involved in the manufacturing process.

Manufacturing Overhead

All indirect costs associated with manufacturing, such as indirect materials, indirect labor, and other factory-related expenses.

Job-Order Costing

A costing method used to determine the costs associated with manufacturing products individually or in batches, tracking the direct materials, direct labor, and manufacturing overhead per job.

Process Costing

It's an accounting methodology utilized in manufacturing where costs are assigned to products based on the processes they go through, often used for homogeneous items.