Slide 1 ___________________________________ 2.1 Ge ne r al Cost - - PDF document

SLIDE 1

Slide 1

2.1 Ge ne r al Cost Classific ations

• Costs are an unavoidable busine ss

tr uth

• How c osts are c lassified de pe nds on

the type of organization

• Manufac tur

ing

• Me r

c handising

• Se r

vic e

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 2

Manufac tur ing Costs

• Dir

e c t Mate r ials (DM)

• aka R

aw Mate r ials

• Mate r

ials use d in the final pr

• duc t
• Dir

e c t L abor (DL )

• aka touc h labor
• L

abor that dir e c tly handle s the asse mbly of the pr

• duc t
• Manufac tur

ing Ove r he ad (MOH)

• Aka fac tor

y ove rhe ad, fac tor y burde n

• All c osts of pr
• duc tion E

XCE PT dir e c t mate r ials and dir ec t labor

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 3

Pr ime and Conve r sion Costs

Dir e c t Mate r ials Dir e c t L abor

Prime Costs

Manufac tur ing Ove r head

Conve rsion Costs

Dir e c t L abor is both a pr ime c ost and a c onve r sion c ost

E xhibit T 2M1~1 Prime and Conversion c osts

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

SLIDE 2

Slide 4

Non-Manufac tur ing Costs

• AKA Se lling, Ge ne r

al & Administr ative (SG&A) c osts

• Classified into two c ate gor

ies

• Mar

ke ting or se lling c osts

• R

e lated c ost to se lling the pr

• duc t to

c ustome r fr

• m or

de r to de live r y

• Administr

ative c osts

• All c osts assoc iate d with the day to day

management of the or

• ganization. T

hose c osts inc lude exec utive, c le r ic al and

• r

ganizational c osts.

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 5

Manufac turing c osts Pr

• ble m
• L

e athe r use d to make a le athe r c oat

• L

ubr ic ation for the fac tor y e quipme nt

• Asse mble r

at a motor c yc le manufac tur ing plant

• Pr
• pe r

ty taxe s on the fac tor y building

• Sec r

e tar y to the fac tor y manage r

• F

ibe r glass use d in the manufac tur ing

• f a spor

ts c ar

• He althc are c osts for

fac tor y labor

De ter mine whe the r the c osts below ar e dir e c t mate rials, dire c t labor , or manufac tur ing ove r he ad

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 6

Manufac tur ing c osts Answe r

• L

e athe r use d to make a leather c oat DM

• L

ubr ic ation for the fac tor y e quipme nt MOH

• Asse mble r

at a motor c yc le manufac tur ing plant DL

• Pr
• pe r

ty taxes on the fac tor y building MOH

• Sec r

etar y to the fac tor y manager MOH

• F

ibe r glass use d in the manufac tur ing of a spor ts c ar DM

• He althc ar

e c osts for fac tor y labor DL De ter mine whe the r the c osts below ar e dir e c t mate rials, dire c t labor , or manufac tur ing ove r he ad

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

SLIDE 3

Slide 7

Mor e c osts proble m

• Denim for

manufac tur ing jeans

• F

ac tor y seamstr ess wages

• F

ac tor y janitor wage s

• F

ac tor y liability insur anc e

• Ve lc r
• on te nnis

shoe s

• E

lec tr ic ity for lighting fac tor y

• F

ac tor y supe r visor who has only administr ative dutie s

De ter mine whe the r the c osts below ar e pr ime c osts, or c onve r sion c osts

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 8

More c osts answe r

• Denim for

manufac tur ing jeans pr ime (DM)

• F

ac tor y seamstr ess wages prime and c onver sion (DL )

• F

ac tor y janitor wage s c onver sion (MOH)

• F

ac tor y liability insur anc e c onver sion (MOH)

• Velc r
• on te nnis

shoe s prime (DM)

• E

le c tr ic ity for lighting fac tor y c onver sion (MOH)

• F

ac tor y supe r visor who has only administr ative dutie s c onve r sion (MOH) De ter mine whe the r the c osts below ar e pr ime c osts, or c onve r sion c osts

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 9

And mor e c osts pr

• ble m
• Sale sman

c ommissions

• Wood use d in

fur nitur e manufac tur ing

• Adver

tising on the loc al r adio

• Ove r

time for asse mbly line wor ke r s

• E

lec tr ic ity for lighting in the administr ative suite

• Mor

tgage e xpe nse alloc ated to pr

• duc t

showr

• om spac e
• De mos sent to sale sman

around the r e gion

• CE

O’s salary Dete r mine whethe r the c osts be low ar e manufac tur ing (M) or non-manufac tur ing (NM) c osts. F ur the r br eak down non-manufac tur ing into selling and mar ke ting (SM) or ge ner al and administr ative c osts (GA)

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________

SLIDE 4

Slide 10

And mor e c osts pr

• ble m
• Sale sman

c ommissions NM & SM

• Wood use d in fur

nitur e manufac tur ing M

• Advertising on the

loc al r adio NM & SM

• Ove r

time for asse mbly line wor ke r s

M

• E

le c tr ic ity for lighting in the administr ative suite

NM & GA

• Mortgage e xpense

alloc ate d to pr

• duc t

showr

• om spac e NM &

SM

• Demos se nt to sale sman

ar

• und the r

e gion NM &

SM

• CE

O’s salar y NM & GA Dete r mine whethe r the c osts be low ar e manufac tur ing (M) or non-manufac tur ing (NM) c osts. F ur the r br eak down non-manufac tur ing into selling and mar ke ting (SM) or ge ner al and administr ative c osts (GA)

2005 K D Ha the wa y-Dia l

___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________