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BMFP 3582 Chapter- 2 Manufacturing Account (L)

BMFP 3582 Chapter- 2 Manufacturing Account (L)

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Published by Haery Sihombing

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Published by: Haery Sihombing on Jul 11, 2008
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06/03/2013

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Manufacturing AccountsManufacturing Accounts
Classification of CostsClassification of Costs
2
Ir. Haery Sihombing(IP
).
PensyarahFakultiKejuruteraanPembuatan
UniversitiTeknologiMalaysia Melaka
 
MANUFACTURING ACCOUNTSMANUFACTURING ACCOUNTS
The following passage is:The following passage is:
a brief introduction to manufacturinga brief introduction to manufacturingaccounts andaccounts and
how manufacturing costs arehow manufacturing costs areclassified.classified.
Classification of CostsClassification of Costs
((11))
 A manufacturing account is prepared to A manufacturing account is prepared tofind out:find out:
thethe
cost of goods manufactured cost of goods manufactured 
..
Costs of manufacturing include:Costs of manufacturing include:
all resources used, directly or indirectly,all resources used, directly or indirectly,in the manufacture of goods.in the manufacture of goods.
The manufacturing costs can beThe manufacturing costs can beclassified intoclassified into
direct costs direct costs 
andand
indirect indirect costs costs 
Direct costs can be identified specificallyDirect costs can be identified specificallyand exclusively with a given costand exclusively with a given costobjective in an economically feasible way.objective in an economically feasible way.
What are direct costs?What are direct costs?
Classification of CostsClassification of Costs
((22))
 
Classification of CostsClassification of Costs
((22))
Direct costsDirect costs
are those costs directlyare those costs directlyinvolved in the manufacture of goods.involved in the manufacture of goods.Examples of Examples of 
direct costs direct costs 
are:are:
direct materials direct materials 
direct labor direct labor 
andand
direct expenses direct expenses 
..
 All the direct costs are collectively known All the direct costs are collectively knownasas
 prime cost  prime cost 
..
Indirect costs cannot be identifiedIndirect costs cannot be identifiedspecifically and exclusively with aspecifically and exclusively with agiven cost objective in an economicallygiven cost objective in an economicallyfeasible way.feasible way.
What are indirect costs?What are indirect costs?
Classification of CostsClassification of Costs
((33))
Classification of CostsClassification of Costs
((33))
Indirect costsIndirect costs
are not directlyare not directlyrelated to production.related to production.
They are all the remaining productionThey are all the remaining productionexpenses.expenses.
Examples of Examples of 
indirect costs indirect costs 
includeinclude
factory rent, factory power, depreciationfactory rent, factory power, depreciationof plant and machinery, etc.of plant and machinery, etc.
Indirect costs are also known asIndirect costs are also known as
factory factory overheads overheads 
..
 A A
manufacturing account manufacturing account 
is prepared to find out the is prepared to find out the cost of goods manufactured. Costs of manufacturing cost of goods manufactured. Costs of manufacturing include all resources used, directly or indirectly, in the include all resources used, directly or indirectly, in the manufacture of goods. The manufacturing costs can be manufacture of goods. The manufacturing costs can be classified into direct costs and indirect costs.classified into direct costs and indirect costs.
Direct costs Direct costs 
are those costs directly involved in the are those costs directly involved in the manufacture of goods. Examples of direct costs are direct manufacture of goods. Examples of direct costs are direct materials, direct labor and direct expenses. All the direct materials, direct labor and direct expenses. All the direct costs are collectively known as prime cost.costs are collectively known as prime cost.
Indirect costs Indirect costs 
are not directly related to production.are not directly related to production.They are all the remaining production expenses. Examples They are all the remaining production expenses. Examples of indirect costs include factory rent, factory power,of indirect costs include factory rent, factory power,depreciation of plant and machinery, etc. Indirect costs depreciation of plant and machinery, etc. Indirect costs are also known as factory overheads.are also known as factory overheads.
 
What DistinguishesWhat DistinguishesDirect and Indirect Costs?Direct and Indirect Costs?
Managers prefer to classify costs as directrather than indirect whenever it is“economically feasible”or “cost effective.”
Other factors also influence whether a cost isconsidered direct or indirect.
The key is the particular cost objective.
Categories of Categories of Manufacturing CostsManufacturing Costs
Any raw material, labor, or other inputAny raw material, labor, or other inputused by any organization could, in theory,used by any organization could, in theory,be identified as a direct or indirect costbe identified as a direct or indirect costdepending on the cost objective.depending on the cost objective.
Cost Classifications for Cost Classifications for Manufacturing FirmsManufacturing Firms
1.1.Direct MaterialDirect Material2.2.Direct LaborDirect Labor3.3.Manufacturing OverheadManufacturing Overhead//indirectindirectmanufacturingmanufacturing
Manufacturing CostsManufacturing Costs(product costs): all(product costs): allcosts associated with the production of costs associated with the production of goods.goods.
Direct Material Costs...Direct Material Costs...
 – –
include the acquisition costs of allinclude the acquisition costs of allmaterials that are physically identified asmaterials that are physically identified asa part of the manufactured goods and thata part of the manufactured goods and thatmay be traced to the manufactured goodsmay be traced to the manufactured goodsin an economically feasible way.in an economically feasible way.

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