Many companies, particularly those in the manufacturing industry mostly produce products following

Machine hours, direct labor hours, and direct labor costs can all be used to allocate manufacturing overhead.

The total cost of production of Sony’s new product is the addition of both fixed and variable costs. Fixed costs are assets within a business that are not used up or sold during the typical production course e.g. buildings and machinery. Variable costs are costs that fluctuate in time with the production output or sales revenue of a company such as Sony e.g. raw material and labour costs. Figure 1.1 shows how the total cost is composed of both fixed and variable costs.

Fixed costs are what it costs a company to run before they make any products irrespective of the level of activity e.g. rent & rates, insurance, salaries, utilities.

“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities

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.

As defined by the OMB (2004), “Indirect costs are those incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved” (p. 11). The costs in question include international conference, employee recreational activities and counseling services, investment counsel, lobbying, depreciation, and insurance. Despite seemingly

Direct material costs change due to the quantity, range, quality and price of materials required according to the specification for the order each time a unit of the product or service is produced. Direct labour costs are driven by the number of hours required and the rate per hour each product unit that has been set for each labour grade.

Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead.

The term cost can be defined as the amount to be paid for products or services or a required payment for purchasing products and services used as a constant during a period. Costs can have different definitions, based on what kind of use it is required. They can be considered fixed

A cost is fixed if, within a specified period of time, it does not change in response to changes in the level of activity. A variable cost is one that changes in response to changes in the level of activity, it changes in direct proportion to the volume of activity, that is, doubling the level of activity will double the total variable cost total cost over a period of time for the variable inputs. Any increase in the volume of production results in an increase in the variable cost and vice versa. For example, of variable costs is the cost of raw material.

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

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

Fixed costs are those expenses that are necessary to be paid by a company, independent of any business activity that is does. It is one of the two components of the total cost of a good or service, along with variable cost. Fixed costs are not fixed permanently; they change over time, but they are fixed in relation to the overall production quantity for the relevant period. For example, a company may be having unexpected expenses not related to production; and warehouse costs and costs like that are fixed only over the time period of the lease.

Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.

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.