Exam 2
Product costs
(manufacturing costs) these costs include direct materials, direct labor, and manufacturing overhead. Initially recorded as part of the inventory on the balance sheet. Expensed on the income statement when the inventory is sold
Period Costs
(non-manufacturing costs) These costs include all selling and administrative costs. Never recorded as part of the inventory because they have nothing to do with the production of a good. Expensed as soon as they are incurred.
Conversion Costs
Direct Labor + Manufacturing Overhead
Prime Costs
Direct Materials + Direct Labor
Indirect materials
Materials used to support the production process. Raw materials that do not become an integral part of the product or the cost is not easily traceable to the product. (lubricants, cleaning supplies, glue)
Indirect Labor
Wages paid to employees who work in the factory, but not directly on the product. (maintenance workers, janitors)
Finished goods
completed goods awaiting sale
Non-manufacturing costs
costs incurred outside of the manufacturing process. The reason that they are incurred is not tied to the manufacturing of a product. Commonly referred to as S&A costs. (advertising, sales commission)
Direct (raw) materials
inventory on hand and available for use. Used to produce good.
Work in process
partially completed goods.
Direct Materials
raw materials that become in integral part of the finished product and can be easily and efficiently traced to the product.
Manufacturing Overhead
represent all manufacturing costs other than direct materials and direct labor.(rent on factory buildings, utilities on factory buildings, depreciation on equipment, indirect materials, indirect labor)
Direct Labor
represents the payroll cost of those employees who work directly on the product being manufactured. The employees hands actually touch the physical product
Manufacturing Costs
the costs incurred in the production (manufacturing) of a product. 3 parts: Direct materials, Direct Labor, Manufacturing overhead.
