Direct Cost Analysis

Traditional costing methods is the process of determining a unit cost by lumping indirect costs of manufacturing together and then parceling out by volume, number of units, machine hours or direct labor hours. Indirect costs

Direct labor assembly costs are, by their nature, directly traceable to individual products. Therefore the relevant cost driver for this cost is the number of Direct Assembly Labor Hours. The other 21 cost categories are indirect costs.

Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.

Traditional Cost method is defined as “The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured. The traditional method (also known as the conventional method) assigns or allocates the factory 's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours. We will use machine hours in our discussion. By using only machine hours to allocate the manufacturing overhead to products, it is implying that the machine hours are the underlying cause of the factory overhead. Traditionally, that may have been reasonable or at least sufficient for the company 's external financial statements. However, in recent decades the manufacturing overhead has been driven or caused by many other factors. For example, some customers are likely to demand additional manufacturing operations for their diverse products. Other customers simply want great quantities of uniform products. If a manufacturer wants to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate.” AccountingCoach. (n.d.).

According to Investopedia, “Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services.” Full costing is also called "full costs" or "absorption costing."

Direct labor costs ended at $221k or 41.8% of sales compared with $221K and 34.8% of sales for the same period a year ago. Direct labor headcount

I agree with your post. The three types of manufacturing cost terms of direct materials cost, direct labor costs, and overhead cost are key to pretty much any business. All the more, I like the example you have given in regards to making little ladies hair bows. I can fully relate to the direct materials costs that goes into making hair bows. I enjoy making hair bows, headbands, and tutus. Sometimes, I know for me personally, I never really factored in the cost of direct materials, direct labor costs or overhead when making these items as in most cases the direct materials for hair bows is not that expensive. This chapter has shed so much light on looking at things differently and drawing a clearer understanding of manufacturing costs. Furthermore, I never really took into account how much actually goes into making items especially when you enjoy making them and when they appear so easy to do. Up until now, I never thought much about

A comparison of the direct and indirect cost that is associated with the navigation system within VectorCal and my company.

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the following budgets for 2014:

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

A direct cost can be traced to a product or service which includes: Direct labor- which is the cost of the labor that’s directly connected to a product or services. Direct labor is sometimes called touch labor, since direct labor workers typically touch the product while it is being made.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p 39-40) An example of direct labor is an assembly line worker. Labor cost that cannot be physically traced to the creation of products, or that can be traced only at great cost and inconvenience, are considered to be indirect labot.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p 40) Direct material are those materials that become an integral part of the finished product and whose cost can be traced to the finished product.( Ray H. Garrison, Eric W. Noreen and Peter C. Brewer p39-40) Manufacturing overhead is the third element so manufacturing cost, it includes all costs of manufacturing except direct materials and direct labor. Manufacturing overhead includes items such as indirect materials; indirect labor; maintenance and repairs on production equipment; and heat and light, property taxes, depreciation, and insurance on manufacturing facilities. Only cost associated with operating the factory are consider to be manufacturing overhead cost. A company also incurs other costs associated with its selling administive functions, but these costs are not included as part of manufacturing overhead. Only those

Direct costs are costs directly related to producing the products and services of a project. On the other hand, indirect costs are costs not directly related to a project’s products or services, but are indirectly related to performing the project.

Process costing is consisting of three ingredients which are direct materials, direct labor and manufacturing overhead. Direct material is the raw material which needs to produce a product, for example rubber for shoes, plastics for straws and etc. direct labor is a person who work and complete the product before it is completely produce. And manufacturing over head is about the indirect materials, indirect labor, and some indirect related to the factory.

During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.