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Manufacturing Costs BreakdownBREAKDOWN

Manufacturing Cost Analysis 3

Importance Your company wants to make money!

Profit and price (and ultimately your salary) depend on how you manage manufacturing costs.

You will have to address costs and economics in presentations about your work

Manufacturing Cost Analysis 3

Overview

Non-Manufacturing Costs

Manufacturing Costs

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Direct Materials Definition: Any material that is a part of the finished product that significantly adds to the weight or volume of the item

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Direct Materials Definition: Any material that is a part of the finished product that significantly adds to the weight or volume of the item Examples:

◦ Wood used to make furniture

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Direct Materials Definition: Any material that is a part of the finished product that significantly adds to the weight or volume of the item Examples:

◦ Wood used to make furniture◦ Plastic used to make a Frisbee

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Direct Materials Definition: Any material that is a part of the finished product that significantly adds to the weight or volume of the item Examples:

◦ Wood used to make furniture◦ Plastic used to make a Frisbee◦ Material used to make the soles of shoes

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product.

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product. Examples:

◦ Glue

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product. Examples:

◦ Glue◦ Screws

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product. Examples:

◦ Glue◦ Screws◦ Cleaning materials

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product. Examples:

◦ Glue◦ Screws◦ Cleaning materials◦ Lubricants

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Indirect Materials Definition: Material that does not significantly add weight or volume to the product, or that is used for something indirectly related to the product.

Examples:◦ Glue◦ Screws◦ Cleaning materials◦ Lubricants◦ Shelves used to store paint, tools, or other items

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Direct Labor Definition: Any labor done directly on the product that affects the physical properties of the item

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Direct Labor Definition: Any labor done directly on the product that affects the physical properties of the item Examples:

◦ Putting together furniture

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Direct Labor Definition: Any labor done directly on the product that affects the physical properties of the item Examples:

◦ Putting together furniture ◦ Cutting chocolate bars into special shapes

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Direct Labor Definition: Any labor done directly on the product that affects the physical properties of the item Examples:

◦ Putting together furniture ◦ Cutting chocolate bars into special shapes◦ Painting bicycle frames

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Direct Labor Definition: Any labor done directly on the product that affects the physical properties of the item Examples:

◦ Putting together furniture ◦ Cutting chocolate bars into special shapes◦ Painting bicycle frames◦ Injection molding plastic smartphone cases

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced.

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced. Examples:

◦ Materials purchasing

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced. Examples:

◦ Materials purchasing◦ Quality control

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced. Examples:

◦ Materials purchasing◦ Quality control◦ Janitorial labor

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced. Examples:

◦ Materials purchasing◦ Quality control◦ Janitorial labor◦ Production management

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Indirect Labor Definition: Labor important to production that is not performed directly on the item being produced. Examples:

◦ Materials purchasing◦ Quality control◦ Janitorial labor◦ Production management◦ Tech support

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Manufacturing Overhead Definition: Total of all indirect costs that are required in order to manufacture a product.

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Manufacturing Overhead Definition: Total of all indirect costs that are required in order to manufacture a product. Examples of included costs:

◦ Indirect Materials

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Manufacturing Overhead Definition: Total of all indirect costs that are required in order to manufacture a product. Examples of included costs:

◦ Indirect Materials◦ Indirect Labor

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Manufacturing Overhead Definition: Total of all indirect costs that are required in order to manufacture a product. Examples of included costs:

◦ Indirect Materials◦ Indirect Labor◦ Depreciation of machinery and property values

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Manufacturing Overhead Definition: Total of all indirect costs that are required in order to manufacture a product. Examples of included costs:

◦ Indirect Materials◦ Indirect Labor◦ Depreciation of machinery and property values◦ Manufacturing plant property taxes

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Review

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Homework Problem (MC 3) Give a definition for each cost classification below. Also give 2 examples for each.◦ A) Direct Labor◦ B) Direct Materials◦ C) Indirect Labor◦ D) Indirect Materials◦ E) Manufacturing Overhead

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Sources: Direct / Indirect Materials

◦ http://www.microbuspub.com/pdfs/chapter4.pdf◦ http://en.wikipedia.org/wiki/Direct_materials_cost◦ http://www.accountingtools.com/questions-and-answers/what-are-indirect-materials.html

Direct / Indirect Labor◦ http://www.microbuspub.com/pdfs/chapter4.pdf◦ http://www.accountingtools.com/definition-direct-labor◦ http://www.accountingtools.com/definition-indirect-labor

Manufacturing Overhead◦ http://www.microbuspub.com/pdfs/chapter4.pdf◦ http://www.accountingcoach.com/manufacturing-overhead/explanation◦ http://www.accountingtools.com/questions-and-answers/what-is-manufacturing-overhead.html

Images◦ http://www.freeimages.com

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