A Brief Analysis On The Manufacturing Cost Of The Output Of A Business Company
A business company is involved in the production of its output from the basic raw materials available to them. A number of people as well as systems is constantly associated with the whole process and needs to be taken care of by the company. Further, there exist a number of cost categories that should be accounted for by the organization which includes
- The direct material and labor cost
- Direct and indirect expenses taken by the firm
The direct cost and expenses can be combined as the Prime cost because they are actually traceable to the real products being manufactured.
While considering the case of direct materials, these are cognized as the materials that are really used for the production process which can be detailed directions to the cost center. Read here the examples to this type
- The raw items bought for a specific purpose.
- The things that are being passed from one process to another for more finishing aspect.
- Items utilized for the final product formation that itself is a manufactured product of the same company.
- The initial wrapping materials being used.
- All the intermittent cost of insurance, transport facility, import charges, storage and other handling charges of the assets being consumed.
In fact, there are exclusive cases when the direct materials are employed in just small quantities and are not feasible to be accounted. For example, small nail types utilized for chair assembly, the gum used in the toy production are all specified for a definite period and are categorized as the indirect cost.
Direct labor consists of the identifiable wages charged onto the final product manufacturing. This involves the payments made to the workforce operating the different machines of the company.
The Direct expense is inclusive of all other extra expenses accounted for a product or its process. Example of this particular case includes the Excise duty expense.
In contrast to this,
The Indirect materials can be defined as those untraceable things used in the production. Example include the consumable items like lubricates, tools and so on.
Indirect labor, on the other hand, can be spelled as the cost that is difficult to be determined to the final product. This includes the salary presented to the storekeeper or so.
Indirect expenses account for the general expenses that cannot be charged directly on the product. This includes
- The rent and insurance rate of the company
- The power and lighting service charges, telephone expense and other stationary work expense.