Int. Acc. MA LECT 1: Cost terms and purposes part 3 (Distinguishing…
Int. Acc. MA LECT 1: Cost terms and purposes part 3
Distinguishing between service-sector, merchandising-sector and manufacturing-sector companies
purchase and then sell tangible products without changing their basic form.
materials and components and
them into finished goods.
A manufacturing company must also develop, design, market and distribute its products.
Service companies provide
services or intangible products
to their customers -->
of tangible product at the end of the accounting period.
is the most significant cost category, usually 70% of total costs.
Differences in cost calculation for service, manufacturing and merchandising companies
Service companies don’t incur
stock-related costs/ inventoriable costs
Stock-related costs/ inventoriable costs:
Costs associated with the purchase of goods for resale
Costs associated with the acquisition and conversion of materials and all other manufacturing inputs into goods for sale
Classicfication of manufacturing costs
Direct manufacturing labour costs
Indirect manufacturing costs
Direct materials costs
Classicfication of manufacturing costs (I):
1.Direct materials costs:
Acquisition costs of all materials that eventually become
part of the cost object.
Acquisition costs include inward delivery charges, sales taxes and other customs duties.
Can be traced economically.
Classicfication of manufacturing costs (II) : 2.Direct manufacturing labour costs:
Compensation of all manufacturing labour that can be traced to the cost object in an economically feasible way.
Wages and fringe benefits paid to:
Classicfication of manufacturing costs (III).: 3 Indirect manufacturing costs
Manufacturing costs that are considered to be part of the cost object, but that cannot be traced to that cost object in an economically feasible way.
Other terms for this cost category include manufacturing overhead costs and factory overhead costs.
Indirect materials: Glue, tape, cleaning supplies etc.
Salaries of plant managers