4

Chopterl Cost

The cost of making a product or providing a service is one of the

most Dir
critical factors in a firm's ability to meet thl competition. With cost infor-
mation to support the decisions, management can issue directives, per- Thr
form follow-up activities, and obtain tf,e operating results that;;.; the
prosperity and growth for the enterprise. cha
oft
MANUFACTURING COSTS CLASSIFIED rec
an(
Manufacturing is the process of converting materials into fi.nished goods cos
by using labor and,incurring other costs, generally called *""if""t7"riii lab
ouerhead. overhead costs include utilities, suppliei, taxes, in.r"arr"e,
anf, Ma
depreciation. one of the functions of a cost accounting system is
to clas-
sify and record all. costs according to category. The three major manufac- Au
turing cost classifi.eations * direct materials-, d,irect labor, *iiii"- als
"ia
turing ouerhead - are the basis for all cost accounting procedures. (s"" cal
the chart of typical costs on page 14.) Ma
dirr
Direct Materials ma
Direct materials, also called raw materials, are those materials used in tali
the manufacturing process that become a signifr""r,t pari on
goods. For example, the metal frame and the lumber "i;h; fi"t.h;;
used in manufactur_
ing a chair and the cloth and buttons used in manufacturing clothing Inc
are
direct materials. Ma
or
It is important to note that what is raw material to one manufacturer is lna
considered fi.nished goods by the supplier of those materials. ro" ins
to the loundry that makes metal chair frames, these frames are"*"*plq
finished oft
goods. They are raw materials, however, to the manufactu""*
*rro f""- fini
chases the frames to make the chairs. rial
det
The statement of cost of goods manufactured for JenJen printers,
Inc.,
oft
gro
thown on page 24 had an inventory of raw materials on hand or sb,ooo.
Dy+ng the month, purchases of raw materials amounted to g6,g00. The uct
addition of the purchases amount to the beginning i""""tory-;;";;;
makes the total of materials available 186,900. on Ju-ne 80, 201g, Anr
the raw
materials inventory was 46,b00. This amount is deducted from the ope
amount
of total materials available to get the cost of raw materials used. pro
There-
fore, the cost of raw materials after deducting indirect ;;;;;h are
Lr illoo
is 84,600. toq
totr