CHAPTER 2 NOTES_10

CHAPTER 2 NOTES_10 - CHAPTER 2 NOTES Manufacturing Costs 1....

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CHAPTER 2 NOTES Manufacturing Costs 1. Manufacturing consists of activities and processes that convert raw materials into finished goods. 2. Manufacturing costs are typically classified as either (a) direct materials, (b) direct labour or (c) manufacturing overhead. 3. Direct materials are raw materials that can be physically and conveniently traced to the finished product during the manufacturing process. Indirect materials are materials that (a) do not physically become part of the finished product or (b) are not traced because their physical association with the finished product is too small to justify the cost of tracing. Indirect materials are accounted for as part of manufacturing overhead. 4. The work of factory employees that can be physically and conveniently traced to the product is considered direct labour . In contrast, the wages of maintenance people, timekeepers, and supervisors are usually classified as indirect labour because their efforts have no physical association with the finished product, or it is impractical to trace these costs to the goods produced. Indirect labour is classified as manufacturing overhead. 5. Manufacturing overhead consists of all manufacturing or factory costs that are indirectly associated with the manufacture of the finished product and that are not direct materials or direct labour. Manufacturing overhead includes indirect materials, indirect labour, amortization on factory buildings and machinery, insurance, taxes, and maintenance of factory facilities. Product versus Period Costs
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CHAPTER 2 NOTES_10 - CHAPTER 2 NOTES Manufacturing Costs 1....

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