BUS 254 chapter 2 notes

BUS 254 chapter 2 notes - Manufacturing Costs Direct...

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Manufacturing Costs Direct Material Raw materials = Any material that go into the final product A finished good can become the raw material of another product Direct Material = materials that become an integral part of the finished product Can be physically and conveniently traced to it The ones that we can’t traced back (like glue or solder) are considered indirect material Direct Labour Factory labour costs that can be traced easily to individual units of product Indirect labour = cannot be traced easily to individuals Include cost of janitors, supervisors, security guards, etc. Essential for production but not part of it Benefits (pensions) for direct labour are added in the direct labour costs Manufacturing Overhead All costs associated with manufacturing except direct materials and labour Indirect labour and material, maintenance and repairs, heat and light, property tax, depreciation, and insurance HAS TO BE ASSOCIATED WITH PRODUCTION (operating the factory) Conversion Cost = Manufacturing overhead + direct labour cost Prime Cost = Direct labour + Direct material cost ** Idle time could be part of direct labour or manufacturing overhead depending on how manager allocates it ** ** Same with overtime premiums (usually half of pay X time) ** Non-Manufacturing Costs Marketing or Selling Costs = all costs necessary to secure customer orders and get finished product or service to customers Eg: Advertising, sales travel, salaries, commission, shipping, warehouse costs Administrative Costs = all executive, organizational, and clerical costs (general management) Eg: Executive compensation, general accounting, administration of company Matching Principle = Cost incurred to generate revenue should be expensed in same period as revenue generated Costs that are used to prepare external financial statments : Product Cost (inventoriable cost)
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BUS 254 chapter 2 notes - Manufacturing Costs Direct...

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