Question

Product costs are manufacturing costs (all costs required to produce something). Depending on the state of production, product costs are recorded in one of three asses accounts (Raw Materials, Work in Process, Finished Goods). Questions:

1) If they are "costs" why are they recorded in asset accounts and not expense accounts?

2) Do these product costs ever become an expense to the company?

Answer 1

Answer =1)

For producing the any product we need Raw material and raw material is used as production and in production we cannot used all material in production so tehre is always some material is in work in process and all material produced cannot be sold immediately

So raw material purchased is the our assets untill we not used the same in production and finished goods are not sold.

All inventory type like Raw material , WIP and finieshed goods are in our hand these are not consumed for production. So if inventory are in our hand and we want some money than we can easily sold the same in market and convert the inventory in cash. So the Inventory, WIP and finished goods in hand are easily convertible in cash so these are classified in as current assets.

Answer = 2)

As the finished goods are sold than all the amount incurred in product cost is transferred to Cost of Goods sold of the company