Basic Manufacturing Cost Categories Essay

The term train labor is uncommunicative for those labor comprise that can be essentially traced to individual units of products. select labor is nightime called impress labor, since designate labor workers typically touch the product while it is being made. Manufacturing Overhead greetManufacturing overhead, the third grammatical constituent of manufacturing cost, includes all cost of manufacturing except necessitate material and direct labor. number and define the different classifications of costs On the understructure of Nature or Elements One of the important classification cost is on the basis of temper or elements. Based on elements, it is classified into somatic Cost, Labour Cost and other Expenses. They can be further subdivided into Direct and Indirect Material Cost, Direct and Indirect Labour Cost and Direct and Indirect Other Expenses. 2) On the basis of Function The classification of costs on the basis of the various functions of a concern is known as functi on-wise classification. Here, there argon four important functional divisions in the business organization. Viz. (a) labor Cost (b) Administration Cost (c) Selling Cost and (d) Distribution Cost.3) On the basis of Variability On the basis of variability with the batch of business cost is classified into Fixed Cost, shifting Cost and Semi Variable Cost. Fixed Costs atomic number 18 those costs which remain uninterrupted with the volume of end product. Rent and rates of office and factory building are some example of inflexible cost. Variable costs are those costs incurred promptly with the volume of output. For example, cost of materials and wages to workers are the expenses chargeable with direct parity to the volume of return.Semi-Variable Costs are those costs incurred partially fixed and partly variable, with the volume of production. Accordingly, it has both fixed and variable features. For example, depreciations and maintenance cost of institute and machinery.4) On the basis of rulerity Costs are classified into general costs and abnormal costs on the basis of normality features. Normal costs are those incurred normally within the target output or fixed plan.5) On the basis of Controllability and Decision Making Based on the managerial decision making and controllability the classifications are as follows (a) manageable Cost, (b) boisterous Cost, (c) Sunk Cost, (d) probability Cost, (e) Replacement Cost, (f) Conversion Cost.a) Controllable Costs Controllable Costs are the costs which can be influenced by the doing of a specified number of an undertaking. Controllable Costs incurred in a particular responsibility centre which is influenced by the litigate of the executive heading. For example, direct materials and indirect materials.b) Uncontrollable Costs Uncontrollable Costs are those costs which cannot be influenced by the action of a specified number of an undertaking. In fact, no cost is controllable it is only in relation to a part icular individual that may specify a particular cost to either controllable or non-controllable. For example, rent and rates.c) Sunk cost These are historical costs which were incurred in the past and are not pertinent to the particular decision making problem being considered. While considering the backup man of a plant, the depreciated book-value of the gray-headed asset is irrelevant as the amount is a sunk cost which is to be written-off at the time of replacement. Unlike additive or decremental costs, sunk costs are not affected by increase or decrease of volume. Examples of sunk cost include apply fixed assets, development cost already incurred.d) Opportunity Cost Opportunity cost means the cost of forgoing or giving up an opportunity. It is the notional value of going without the next best use of time, parkway and money. These indicate the income or potential benefits sacrificed because a legitimate course of action has been taken. An example of opportunity costs is th e market value forgone or sacrificed when an old machine is being used.e) Replacement Cost Such expenses may be incurred due to factors like qualify in method of production, an addition or alteration in the factory building, change in flow of production etc. All such expenses are treated as production overheads when amount of such expenses is large, it may be spread over a period of time.f) Conversion Cost Conversion costs are those costs which are incurred while converting materials into semi-finished or finished goods. It is the aggregate of direct wages, direct expenses and overhead costs of converting raw materials into finished products. Differentiate variable and fixed costFixed costs are costs which remain constant within a certain direct of output or sales. This certain limit where fixed costs remain constant regardless of the level of activity is called relevant range. Variable costs are costs which change with a change in the level of activity. Examples include direct ma terials, direct labor, etc.