Question

What is the difference between the accounting treatment for a period cost and a product cost? What is the difference between "Cost of Goods Manufactured" and "Cost of Goods Sold"? What is the difference between actual factory overhead (ch. 18 - debit to WIP Inventory) and applied/allocated factory overhead (ch. 19 - debit to WIP Inventory).

Answer 1

What is the difference between the accounting treatment for a period cost and a product cost?

Accounting treatment of Period cost is considered as an expense. Examples of period cost are selling expense, administration expense, interest expense.

Product cost should be capitalized as assets (Inventory assets) until they goods not sold. After selling of inventory, Product cost should consider as an expense in the income statement. Direct material, Direct labor and manufacture overhead are examples of product cost.

What is the difference between "Cost of Goods Manufactured" and "Cost of Goods Sold"?

Cost of Goods manufacture means manufacture cost of final product whether finished goods sold or not while cost of goods sold Consider only if final goods sold. Let's I can share one format for understand above concept. (With some numbers). Main reason for difference in Cost of Goods sold and Cost of goods manufacture is timing of selling of final product (i mean finished goods.)
Direct material	500,000
Direct labor	300,000
Applied manufacture overhead	600,000
Total manufacture cost	1,400,000
Add: work in process inventory at beginning	85,000
Total cost to be accounted for	1,485,000
Less: work in process inventory at ending	135,000
Cost of goods manufactured	1,350,000
Add: Beginning finished goods inventory	250,000
Cost of goods available for sale	1,600,000
Less: Ending finished goods inventory	200,000
Cost of goods sold	1,400,000

What is the difference between actual factory overhead and applied/allocated factory overhead?

Under Job, Normally overhead should be applied based on predetermined rate basis such as Direct labor cost, Direct labor hours, Machine hours. But Actual overhead may be different from overhead applied. Actual overhead means manufacture overhead incurred during the period.
Let's try with example
Company applied overhead based on 50% of Direct labor cost. And actual direct labor cost incurred $500000.
Based on above details, company should allocated 500000*50%=250000
Indirect labor	60,000
Indirect supplied used	45,000
Utilities used in factory	120,000
Miscellaneous overhead	50,000
Actual overhead cost	275,000
Less: Applied overhead	250,000
Under applied overhead	25,000
In this case, Actual manufacture overhead is 275000 and overhead applied to job is 250000. Difference between both is considered as under applied overhead.