GEO 509 Chapter Notes - Chapter 2: Opportunity Cost, A Question Of Balance, Income Statement
28 Feb 2018
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Cost classifications for this chapter will focus on manufacturing companies since their basic activities include most of the activities found in other types of business organizations. Most manufacturing companies divide manufacturing costs into three broad categories; direct materials, direct labour and manufacturing overhead. The materials that go into the final product are called raw materials; any materials that are used in the final product, and the finished product of one company can become the raw material of another company. Indirect materials: included as part of the manufacturing overhead. Indirect labour: the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced directly to particular products. Only those costs associated with operating the production facility (factory) are included. Therefore, costs associated with selling and administrative functions (heat, light) are not included. Conversion cost: manufacturing overhead combined with direct labour. Direct labor costs and overhead costs are incurred to convert materials into finished products.
