Referring to the question E2-26A in the textbook named Managerial Accounting by Pearson- 5th edition.
The expenses named “ insurance on plant, depreciation-plant building and equipment and repairs and maintenance-plant “, how can we identify they are not a kind of indirect costs of manufacturing? For instance, insurance on plant is obvious an expenses because of manufacturing the product.
Plus, What is the purpose of the question mention- Assume that the RM inventory contains only direct materials?
Please instruct. Appreciated
Expenses: Expenses are costs incurred for the operations of a business. The costs incurred for generating revenues are rent expense, depreciation expense, general and administrative expenses, selling expenses, and utilities expense.
Direct cost: Direct cost is the cost which is directly related to the business activities.
Indirect cost: Indirect cost is the cost which is not directly related to business activities but it is occurred to maintain the business. Indirect cost will calculated after the direct cost.
Insurance on plant, depreciation on plant, building and equipment and, repair and maintenance of plant are the expenses occurred due to the manufacturing of the product and the cost is fixed. Therefore, they are classified as the direct cost of manufacturing.
Calculate the direct materials used.
Calculation of direct materials used
Raw materials beginning inventory
Plus: Purchase of direct material
Materials available for use
Less: Raw materials ending inventory
Direct materials used
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