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BUS 254 (50)
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Chapter 2

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Business Administration
BUS 254

Manufacturing CostsDirect MaterialRaw materialsAny material that go into the final productoA finished good can become the raw material of another productDirect Materialmaterials that become an integral part of the finished product oCan be physically and conveniently traced to itoThe ones that we cant traced back like glue or solder are considered indirect materialDirect LabourFactory labour costs that can be traced easily to individual units of productoIndirect labourcannot be traced easily to individualsInclude cost of janitors supervisors security guards etcEssential for production but not part of itBenefits pensions for direct labour are added in the direct labour costsManufacturing OverheadAll costs associated with manufacturing except direct materials and labouroIndirect labour and material maintainence and repairs heat and light property tax depreciation and insuranceHAS TO BE ASSOCIATED WITH PRODUCTION operating the factoryConversion CostManufacturing overheaddirect labour costPrime CostDirect labourDirect material cost Idle time could be part of direct labour or manufacturing overhead depending on how manager allocates itSame with overtime premiums usually half of pay X time NonManufacturing CostsMarketing or Selling Costsall costs necessary to secure customer orders and get finished product or servive to customersoEg Advertising sales travel saleries commission shipping warehouse costsAdministrative Costsall executive organizational and clerical costs general management oEg Executive compensation general accounting adminstration of companyMatching PrincipleCost incurred to generate revenue should be expensed in same period as revenue generatedCosts that are used to prepare external financial statmentsProduct Cost inventoriable costall costs taht are involved in acquiring or making a product Direct material direct labour and overhead oThe products created stay in inventory along with their costs until they are soldoNOT TREATED AS EXPENSE UNTIL THEY ARE SOLDPeriod CostCosts that are directly taken to the income statement as expense Selling and administrative costs
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