Basic Manufacturing Cost Categories
3 Basic manufacturing cost categories:
Direct Materials Cost:
The materials that go into final product are called raw materials.
Direct Labor Cost:
The term direct labor is reserved for those labor costs that can be essentially traced to individual units of products. Direct labor is sometime called touch labor, since direct labor workers typically touch the product while it is being made.
Manufacturing Overhead Cost:
Manufacturing overhead, the third element of manufacturing cost, includes all costs of manufacturing except direct material and direct labor.
Enumerate and define the different classifications of costs
On the basis of Nature or Elements: One of the important classification cost is on the basis of nature or elements. Based on elements, it is classified into Material Cost, Labour Cost and Other Expenses. They can be further subdivided into Direct and Indirect Material Cost, Direct and Indirect Labour Cost and Direct and Indirect Other Expenses.
2) On the basis of Function: The classification of costs on the basis of the various functions of a concern is known as function-wise classification. Here, there are four important functional divisions in the business organization. Viz. (a) Production Cost (b) Administration Cost (c) Selling Cost and (d) Distribution Cost.
3) On the basis of Variability: On the basis of variability with the volume of production cost is classified into Fixed Cost, Variable Cost and Semi Variable Cost. Fixed Costs are those costs which remain constant with the volume of production. Rent and rates of office and factory building are some example of fixed cost. Variable costs are those costs incurred directly with the volume of output. For example, cost of materials and wages to workers are the expenses chargeable with direct proportion to the volume of production.
Semi-Variable Costs are those costs incurred partly fixed and partly variable, with the volume of production. Accordingly, it has both fixed and variable
Direct Materials Cost:
The materials that go into final product are called raw materials.
Direct Labor Cost:
The term direct labor is reserved for those labor costs that can be essentially traced to individual units of products. Direct labor is sometime called touch labor, since direct labor workers typically touch the product while it is being made.
Manufacturing Overhead Cost:
Manufacturing overhead, the third element of manufacturing cost, includes all costs of manufacturing except direct material and direct labor.
Enumerate and define the different classifications of costs
On the basis of Nature or Elements: One of the important classification cost is on the basis of nature or elements. Based on elements, it is classified into Material Cost, Labour Cost and Other Expenses. They can be further subdivided into Direct and Indirect Material Cost, Direct and Indirect Labour Cost and Direct and Indirect Other Expenses.
2) On the basis of Function: The classification of costs on the basis of the various functions of a concern is known as function-wise classification. Here, there are four important functional divisions in the business organization. Viz. (a) Production Cost (b) Administration Cost (c) Selling Cost and (d) Distribution Cost.
3) On the basis of Variability: On the basis of variability with the volume of production cost is classified into Fixed Cost, Variable Cost and Semi Variable Cost. Fixed Costs are those costs which remain constant with the volume of production. Rent and rates of office and factory building are some example of fixed cost. Variable costs are those costs incurred directly with the volume of output. For example, cost of materials and wages to workers are the expenses chargeable with direct proportion to the volume of production.
Semi-Variable Costs are those costs incurred partly fixed and partly variable, with the volume of production. Accordingly, it has both fixed and variable