TheNatureofCost(63页).pptVIP

Manufacturing Cost Concepts Manufacturing Costs Direct Materials Those materials that become an integral part of the product and that can be conveniently traced directly to it. Direct Labor Those labor costs that can be easily traced to individual units of product. Manufacturing Overhead Manufacturing costs that cannot be traced directly to specific units produced. Classifications of Costs Manufacturing costs are oftencombined as follows: Nonmanufacturing Costs Marketing and selling costs . . . Costs necessary to get the order and deliver the product. Administrative costs . . . All executive, organizational, and clerical costs. Product Costs Versus Period Costs Product costs include direct materials, direct labor, and manufacturing overhead. Period costs are not included in product costs. They are expensed on the income statement. Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of business activity. Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes. Total Variable Cost Your total long distance telephone bill is based on how many minutes you talk. Variable Cost Per Unit The cost per long distance minute talked is constant. For example, 10 cents per minute. Total Fixed Cost Your monthly basic telephone bill probably does not change when you make more local calls. Fixed Cost Per Unit The average cost per local call decreases as more local calls are made. Cost Classifications for Predicting Cost Behavior Cost Behavior Fixed costs are usually characterized by:  a. Unit costs that remain constant. b. Total costs that increase as activity decreases. c. Total costs that increase as activity increases. d. Total costs that remain constant. Cost Behavior Fixed costs are usually characterized by:  a. Unit costs that remain constant. b. Total costs that increase as activity decreases. c. Total costs that increase as activity increases.