01 Cost Analysis
1-1
Learning Objective 1
Identify and give examples of each of the three basic manufacturing cost categories. 1-1
Classifications of Manufacturing
Costs
Direct
Materials
Direct
Labor
Manufacturing
Overhead
The Product
1-2
1-2
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
Example: A radio installed in an automobile
1-3
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers
1-4
1-3
Manufacturing Overhead
Manufacturing costs that cannot be easily traced directly to specific units produced.
Examples: Indirect materials and indirect labor
Materials used to support the production process.
Examples: lubricants and cleaning supplies used in the automobile assembly plant.
Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors, and security guards.
1-5
Nonmanufacturing Costs
Selling
Costs
Administrative
Costs
Costs necessary to secure the order and deliver the product.
All executive, organizational, and clerical costs.
1-6
1-4
Learning Objective 2
Distinguish between product costs and period costs and give examples of each.
1-7
Product Costs Versus Period Costs
Product costs include direct materials, direct labor, and manufacturing overhead.
Cost of Good Sold
Inventory
Period costs include all selling costs and administrative costs.
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
1-8
1-5
Quick Check
Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production facility. E. Sales commissions.
1-9
Quick Check
Which of the following costs would be considered a period rather than a product
Learning Objective 1
Identify and give examples of each of the three basic manufacturing cost categories. 1-1
Classifications of Manufacturing
Costs
Direct
Materials
Direct
Labor
Manufacturing
Overhead
The Product
1-2
1-2
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
Example: A radio installed in an automobile
1-3
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers
1-4
1-3
Manufacturing Overhead
Manufacturing costs that cannot be easily traced directly to specific units produced.
Examples: Indirect materials and indirect labor
Materials used to support the production process.
Examples: lubricants and cleaning supplies used in the automobile assembly plant.
Wages paid to employees who are not directly involved in production work. Examples: maintenance workers, janitors, and security guards.
1-5
Nonmanufacturing Costs
Selling
Costs
Administrative
Costs
Costs necessary to secure the order and deliver the product.
All executive, organizational, and clerical costs.
1-6
1-4
Learning Objective 2
Distinguish between product costs and period costs and give examples of each.
1-7
Product Costs Versus Period Costs
Product costs include direct materials, direct labor, and manufacturing overhead.
Cost of Good Sold
Inventory
Period costs include all selling costs and administrative costs.
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
1-8
1-5
Quick Check
Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production facility. E. Sales commissions.
1-9
Quick Check
Which of the following costs would be considered a period rather than a product