The costs of selling the product are operating expenses (period cost) and not part of manufacturing overhead costs because they are not incurred to make a product. Together, the direct materials, direct labor, and manufacturing overhead are referred to as manufacturing costs. Depreciation on factory equipment, factory rent, factory insurance, factory property taxes, and factory utilities are all examples of manufacturing overhead costs. Manufacturing overhead costs include indirect materials, indirect labor, and all other manufacturing costs. The cost of supervisory personnel, management, and factory maintenance workers, although they are needed to operate the factory, are classified as indirect labor because these workers do not use the direct materials to build the product. Direct labor is the cost of the workers who make the product. Such materials are called indirect materials and are accounted for as manufacturing overhead. Some materials used in making a product have a minimal cost, such as screws, nails, and glue, or do not become part of the final product, such as lubricants for machines and tape used when painting. Direct materials are those materials (including purchased parts) that are used to make a product and can be directly associated with the product. There are three categories of manufacturing costs: direct materials, direct labor, and overhead. In a manufacturing company, these costs are often referred to as nonmanufacturing costs. Selling expenses such as sales salaries, sales commissions, and delivery expense, and general and administrative expenses such as office salaries, and depreciation on office equipment, are all considered period costs. Period costs are those costs recorded as an expense in the period they are incurred. In a service company, product costs are also accumulated as inventory (such as the cost of an audit or of a will). In a manufacturing company, product costs are also called manufacturing costs. The topic of this thesis addresses the allocation of selling, general and administrative (SG&A) expenses to cost objects regarding pricing and customer. Examples of manufacturing product costs are raw materials used, direct labor, factory supervisor's salary, and factory utilities. Product costs are those costs assigned to an inventory account that eventually become part of cost of goods sold. The Cost of Goods Manufactured ScheduleĮxpenses on an income statement are considered product or period costs.Managerial and Cost Accounting Concepts.Financial Statement Analysis Limitations.Preparing the Statement: Indirect Method.Balance Sheet: Classification, Valuation.The Balance Sheet: Stockholders' Equity.
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