Various Cost In Manufacturing
Main objective of cost accounting in any manufacturing unit are a. Product costing ,b.
Planning performance evaluation and control ,c.Decision making
Cost Elements for Product
Material Cost
These are Principal raw material used in production for final product with help of direct
labor and factory overhead . Further classified into Direct and Indirect
Labor cost
The physical and mental effort to convert raw material into final finished product. Further
classified into Direct and Indirect labor cost .
Factory Over head
It covers all indirect material , indirect labour and all other indirect manufacturing
cost which cannot be specified directly for production of the finished product
In Relationship with Volume
Fixed Cost
Fixed cost are those cost which are associated with inputs which do not vary with changes
in volume of output or activity within specified range of activity for a given budget period .
For example
factory rents , insurance cost for factory , salaries for senior executives , lease payments
Variable Cost
Cost that tends to vary in total in direct proportion or in a one -to -one relationship to
change in production activity , sales activity or some other measures of volumes are
referred to as variable cost
for examples material cost , fuel cost direct labour cost
Ability to trace
Direct Cost
These are costs that are traceable conveniently and wholly by management to specific
items/area .For examples material cost and
direct labor cost
Indirect Cost
These are common to many items and cannot be traced to any one
item/area on the basis of allocation techniques .For example indirect manufacturing cost
are
allocated as part of factory overhead .
As Per Functional Area
Manufacturing Cost
Cost incurred while producing finished product which includes material, labor and factory
overhead cost
Marketing cost
Cost incurred in promoting /advertisement and other services related to sales
Administrative Cost
It includes cost incurred while directing , controlling and operating factory operations
salaries are included in admin cost
Financing Cost
These cost relates to fund required for running factory operations such as interest on
loans from bank and cost of credit to the customers.
Planning , Controlling and Decision Making
Standard and Budgeted Cost
Standard cost are those cost which should be incurred in a particular production process
under normal condition . Budget is a
quantitative expression of objectives and a means to monitor progress towards
achievement of those objectives . Standard costing is usually concerned with per unit
cost.Budgeted cost takes into forecasted activity on a total basis rather than on a unit
cost basis .
Opportunity cost
When a decision to pursue one alternative is made the benefit s of the other
options are foregone . Benefits lost for rejecting the next best alternative are the
opportunity cost of the chosen option . Although opportunity cost are not shown in
accounting records but are revel ant for decision making
Shut Down Cost
The cost of production lost due to shut down in production .For seasonal industry
management has to take decision whether to shut down operations or to run plants
in these seasons .
More on Manufacturing Costing
Product Costing
Material Cost
Labor Cost
Factory Overhead Cost
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Cost Concept In Manufacturing
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