What is the sum of cost of direct materials?
Learning Outcomes
Show A cost object, or cost driver, is anything you would like cost data on. This can include products, customers, job or subunits of the company. The costs are assigned to these cost objects for multiple purposes, including pricing, spending control and profitability studies. Take a look at this video for a review of cost drivers and costs: You can download the transcript for the video “What are Cost Drivers? (Cost Accounting Tutorial #2)” here. When we assign these costs to a cost object, we need to differentiate between direct and indirect costs. Direct costs can be easily traced to a specific cost object, such as a product or service. An example would be the person who runs the cutting machine in a print shop, or the paper for brochures that are printed. Indirect costs cannot be easily traced to a specific cost object. An example here might be the oil for a piece of equipment or custodial wages for cleaning the manufacturing plant. Costs can be direct or indirect, depending on the cost object. Let’s look at the wages paid to the plant manager who oversees the entire manufacturing process at a print shop. The manager’s wages are a direct expense of manufacturing, if we are using manufacturing as our cost object. If we are using a customer order of 1000 flyers as our cost object, then the manager’s wages are an indirect expense of that cost object. The product costs includes:
There are two final types of manufacturing costs that may be used in discussion.
Let’s look at an example to better clarify the differences between the different manufacturing costs. SunRize, an organic sports drink company has incurred the following costs:
We can categorize these costs in many ways including the following: Product Cost[latex]\begin{array}{lr}\text{Product cost}&=&\text{direct materials}&+&\text{direct labor}&+&\text{manufacturing overhead}&&\\&=& \$60,000&+&\$30,000&+&\$15,000&=&\$105,000\end{array}[/latex] Period Cost[latex]\begin{array}{llr}\text{Period cost}&=&\text{Selling expenses}&+&\text{Administrative expenses}&&\\&=&\$22,000&+&\$45,000&=&\$67,000\end{array}[/latex] Conversion Costs[latex]\begin{array}{llr}\text{Conversion costs}&=&\text{Direct labor}&+&\text{Manufacturing overhead}&&\\&=&\$30,000&+&\$15,000&=&\$45,000\end{array}[/latex] Prime Costs[latex]\begin{array}{llr}\text{Prime costs}&=&\text{Direct material}&+&\text{Direct labor}&&\\&=&\$60,000&+&\$30,000&=&\$90,000\end{array}[/latex] These are the basic classifications of costs in businesses. Each serves a purpose in helping to make decisions as a manager. Knowing how these costs interact and respond with changing levels of activity is an important management task. Practice QuestionsContribute!Did you have an idea for improving this content? We’d love your input. Improve this pageLearn More How do you find the total cost of direct materials?Direct materials. Add the total cost of materials purchases in the period to the cost of beginning inventory, and subtract the cost of ending inventory. The result is the cost of direct materials incurred during the period.
What is the total direct materials cost?Direct Material Cost is the total cost incurred by the company in purchasing the raw material along with the cost of other components, including packaging, freight and storage costs, taxes, etc., that are related directly to the manufacturing and production of various products of the company.
What is the sum of direct materials and direct labor?Product Costs: The sum of direct labor, direct materials and overhead. Synonymous with inventoriable costs, manufacturing costs and production costs.
Is the sum of direct materials cost and direct labor cost?Prime cost is the total of direct labor plus direct materials.
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