5

Cost - Basic ConcePts andthe Job Order Cost CYcle

Direct Labor
in converting
The employees who woik directly with the raw materials that makes
rhem ro finished. ;;"d--;n;; ruit d.irnrt labor. In
a factory
who cut and sand lumber and
chairs, for example, the salaries of workers
are considered di-
of those who assemble the parts into finished chairs
the earnings of cutters-
rect labor costs. In the manufacturing of clothing,
The statement of
and sewing machine operators are_ i.rect labor costs.
cost of good,s ,rrrrrr.fr*i"red for JenJen Printers'
Inc'' shows a total direct
labor cost of 66,500 for June 2018'

Manufacturing Overhead
direct materi-
All costs incurred in the factory that cannot be considered (sometimes
il;;d;;1 i;;"" are ctassifred as manufacturing ouerheod
called factory ,uriioi,, manufacturing expenses, or factory burden)'
three categories: in-
Manufacturing overh".d, i, usually subdivided into
manufacturing overhea{,Jhe
direct materials, i.ral""ct labor, .rrd. oth"tprinters,
Inc., for June 2Q18 to'
manufactu.irrg or;"h"ad items of JenJen
talingPSs,200areshowninthestatementofcostofgoodsmanufactured
on page 24.

Indirect Moterials
manufacturing process
Materials that are used in small amounts in the are called indirect
or that cannot u"*itv t" traced. to specific productsand the thread used
m,aterials.Tfr" gf,re ,rsed in manufacturing armchairs
only small amounts
in sewing a suit are ind.irect materials. This is because become part of the
clearly
of glue ar,d th""aJr* ,rrua, even though they
frnished.goods.n".o*a.mustbekepttoshowtheexactamountofmate.
rials used in each ,p".ifi. job or group- of products' Keeping
"o*p-t"ti"g
detailed records il;;;";arcrials, ho*"rrer, *ould require a great deal
justify. It_is more practical to
of time and costs ihan the results would. to specifrc prod-
group all such materials together without charging them
ucts.
supplies.or
Another type of indirect material, sometimes called factory
the manufacturing
,piritiis"iuppliis, consist of items that are used"in
goods. Examples of these
process but d.o ,,oi'U".o*e a part o{ the frnished
are cleanins *"ppli", ;;;dil the factory, gil
rlsedjor lubricating the fac-
Inc" shows a
tory machinery,Irra *i,,or repair parts-' JenJ^en Printers'
iolh of 5,800 ior ind'irect materials for June 2018'