Production , Marketing and Administrative costs Manufacturing companies convert materials into finished goods . There are two type of costs involved here: Prime costs: direct material and direct labor costs Conversion costs: direct labor and overhead costs
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Production, Marketing and Administrative costs Manufacturing companies convert materials into finished goods. There are two type of costs involved here:
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Production , Marketing and Administrative costsManufacturing companies convert
materials into finished goods . There are two type of costs involved here:
Prime costs: direct material and direct labor costs
Conversion costs: direct labor and overhead costs
Production, Marketing and Administrative CostProduction costs: include direct
materials, direct labor and factory overhead.
Direct materials are any raw materials that become an identifiable part of the finished good. eg. fabric in clothes, flour in cookies etc
Direct labor are the wages earned by workers who transform the material from its raw form to the finished good form.
Factory overhead are any production costs other than direct material or direct labor. E.g. indirect material and labor, depreciation on manufacturing facilities, light and heat.
statement of cost of goods sold
Where are production costs portrayed?They appear in the statement of cost of goods sold. This statement has the following format
Company Name
Cost of Goods Sold Statement
Date
Direct materials Inventory1.1
+Purchases - Purchase discount -Purchase returns
=Total material available for use - Material 31.12
Materials used = + Direct labor cost
=Direct cost of manufacturing + Overhead cost
Add work in process 1.1 Less work in process 31.12
Cost of completed goods= Add finished goods inventory 1.1
Goods available for sale= Less finished goods inventory 31.12
=Cost of goods sold
CGS
Marketing costs: result from selling, delivering and costs for promoting sales retaining costumers as well as transportation, warehousing and other
distribution costs .Administrative costs: result from directing and controlling the company. They include rental fees,
telephone costs and salaries .
Where are marketing and administrative costs portrayed?
Company nameIncome statementDateRevenueLess CGSGross income
Less Marketing costs
Administrative costs
Profit before tax
Less tax
Net income
Bottom line
Production costs are treated as product costs and they are included in the work in process or finished goods
inventory .
Marketing and administrative costs are treated as period costs and they are charged to revenues.
• Jerry Manufacturing Company purchased $ 310000 of materials and had the following account balances for the year 2006
• Account Balance
• Direct labor 90000
• Plant supervision 5000
• Indirect labor 3000
• Buildings 52000
• Equipments 22000• Land 45000• Factory insurance 900• Manufacturing supplies 1500• Repairs and maintenance 1500• Advertising expenses 3000