Manufacturing Costs
• The process of manufacture involves transforming materials into finished goods by applying labour and capital employed in a plant and equipment
• Manufacturing cost comprises three elements:
– Direct Materials
• Includes the cost of all materials that become part of finished product
– Eg: Iron ore to make steel; wood to make furniture etc.
• Cost inclues the purchase price of materials plus other costs such as frieght, insurance, taxes etc
– Direct Labour
• Represents the cost of workers directly involved in producing the product
– Eg: Carpenter who make furniture; worker who assemble cars
• Includes wages, fringe benefits, payroll taxes,bonus etc
Manufacturing Costs
– Direct Manufacturing overhead
• Comprises of all other manufacturing costs besides direct material and labour cost
• Important components are:
– Indirect Materials (Glues, Screw, and tape etc)
– Indirect Labour (Supervisory, Maintenance and support personne)
– Depreciation of plant, equipment and other assets
– Utilities like electricity, gas, water, telephone and internet
– Allocated costs of service dept. like purchasing, material handling and quality control
• The sum of the above three cost is referred to as PRIME COST
Non-Manufacturing Costs
• It consists of:
– Selling & Distribution Cost
• &nb ...