Course Learning Objectives (CLO 2)

Show correctly costing principles and cost

behaviours in manufacturing and servicing environment

(material, labour and overheads)

THE ELEMENTS OF COST

DIRECT MATERIAL WAGE &

LABOUR

OVERHEAD

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Learning Objective 1

Understand the elements of cost in accounting

We separate manufacturing costs into three categories: Manufacturing costs relate to making a product. 

Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T reasurer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.

Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.

MIXED COST GRAPH

Mixed costs contain components of both variable and fixed cost behavior patterns. Mixed costs are sometimes called semivariable or semifixed costs.

FOR MORE INFORMATION ABOUT INTRODUCTION TO

COST ELEMENT

CLICK HEREBACK

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Learning Objective 2

Identify raw material and store organisation

DIRECT MATERIAL

The manufacture of products or goods required material as the first basic

element. These materials generally fall in to categories. These categories are direct

materials and indirect materials. The materials used in the course of

manufacture which enters into and becomes part of the product. Metals in the

manufacture of fans, boilers,

automobiles, aeroplans; wood in manufacture of furniture, silk, ribbon and

leather band used in making a hat, cloth in tailoring garments, Clay in the

manufacturing of bricks, leather in the manufacture of shoes, wheat used in milling flour are called direct material.

Direct material forms an integral part of the finished product and can be directly

identified or included in computing the cost of such product. In other words, it is the material which can be directly measured and charged to the cost of the order or product being manufactured without requiring excessive and uneconomical

details for such measurements and identification.

Examples Direct Materials

Publishing company

Paper, ink, book covers

Automobile manufacturer

Tires, automobile metal parts

Computer manufacturer

Hard drives, monitors

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Learning Objective

Identify labour and wage analysis

is the cost of wages to be paid to individuals who work on specific products or in other words, the cost of wages of employees who are directly involved in converting raw materials into finished goods.

Direct labor

Almost any production plant or factory requires employees to operate equipment, move raw materials from the warehouse to equipment, and so on. These employees are directly involved in the production process and the cost of their remuneration and benefits represents direct labor:

Direct labor

Usually direct labor is a variable cost. In most situations the amount of direct labor required is directly correlated with the amount of finished goods produced. For example, wages and related benefits of employees who operate machinery to produce valves represent direct labor costs for Friends Company.

Direct labor

The more valves are to be produced, the more employees will be required to operate machinery, paint, assemble, etc.

Direct labor

Idle time represents the labour cost of direct labour employees who are unable to perform their assigned duties due to machine breakdowns, material shortages, power failures, etc.The labour costs for idle time hours are charged to Mfg. Overhead at normal wage rates. regardless of when the hours were worked. Note: DL represents productive hours worked at regular pay rateIdle time represents non-productive hours at regular pay rates 

Idle Time

Any premium paid for labour time in excess of normal work times for direct labour employees is treated as part of MO. We are dealing only with the premium. The regular wage even for excess hours over and above normal work times is still charged to Direct Labour.

Overtime Premium

Halsey Scheme

Halsey Weir

Scheme

Rowan Scheme

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Learning Objective 3

Identify Overhead Categories

MORE NOTES ON THIS CLICKADDITIONAL 1ADDITIONAL 2ADDITIONAL 3

FORMULA

36

GO TO OVERHEAD

NOTES