Assume you have just taken a position as controller for a new company that manuf

Question

Assume you have just taken a position as controller for a new company that manufactures and sells wrought iron wall hangings. Although the founder of the company, who is the president and CEO, is a great artisan, she has very limited knowledge of accounting. Instructions To help your new boss better understand accounting for a manufacturing organization, prepare a brief response to her in which you: (1) identify, (2) describe, and (3) provide examples of the three manufacturing costs and the three inventory accounts used in accounting for a manufacturing company. Also please give her suggestions on how she can increase profitability of a product considering the three types of manufacturing costs

Explanation / Answer

(1) Identification of three manufacturing costs:

Three Basic manufacturing costs for a manufacturing entity can be :

(2) Description of three manufacturing costs:

1. Direct Material: Direct Material is basic ingredient of the product. It is the cost that can be directly identify in the product.

2. Direct labor cost: Direct Labor cost is the cost of labor used in converting the material into finished product.

3. Manufacturing overheads: Manufacturing overheads are the cost incurred in the factory where production is being done. These cost are not directly traceable to the product.

(3) Example for these costs:

1. Direct Material: For production of wrought iron wall hangings, the Direct material shall be Iron sticks and other forms of iron.

2. Direct labor cost: For wrought iron wall hangings, direct labor cost shall be Wages paid to the blacksmith labor to make wrought iron wall hangings form iron.

3. Manufacturing overheads: For production of wrought iron wall hangings, manufacturing overhead shall be factory costs like depreciation , electricity for factory space being used in production.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.