Running head: WEEK 6 1
Week 6
There are several cost concepts used in manufacturing accounting. They include direct materials, direct labor and manufacturing overhead. The three can be further divided into two. The direct materials and direct labor are basic product cost components. The manufacturing overhead is an additional component.
Direct materials comprises of the main components that a product cannot exist without. For example, the manufacture of paving blocks for a driveway requires direct materials such as gravel, ballast, sand, cement, water, mixer, vibrator, fuel and design molds (Myrelid & Olhager, 2015). The product cannot exist if one of these components is missing. Indirect costs include minute components such as spades, buckets and other negligible components.
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Direct labor is made up of the pay of all the people responsible for the existence of the product. Using the paving blocks as an example again, the labor includes the muscle men loading the mixer, those operating the machinery, the person checking the ratios of materials, the people responsible for procuring all the materials, the supervisors and all the people involved in the actual manufacturing process (Myrelid & Olhager, 2015). indirect labor can be assigned to objects such as repair of equipment, repairing molds and cleaning up equipment and other objects being used.
Manufacturing overhead is the sum total of all the indirect labor and indirect materials. They include repairs as mentioned above, maintenance of equipment and other basic utilities like costs of toiletries for staff, insurance in case of injuries and theft, replacing parts due to depreciation and any other expenses like operational taxes and licenses (Myrelid & Olhager, 2015). As mentioned earlier, direct labor and direct materials are the basic product cost components. They can also be described as prime costs. When the manufacturing overhead is combined with direct labor then this becomes the conversion costs.
References
Myrelid, A., & Olhager, J. (2015). Applying modern accounting techniques in complex manufacturing. Industrial Management & Data Systems, 115(3), 402-418.
