Question

Choose a business and/or manufacturing process, and share the variables that will determine how to allocate costs. Label them as direct or indirect. Which ones can be classified as the opposite of what they exist as and under what circumstances? (I am looking for an example of manufacturing process of producing any product in any company and determination of direct or indirect costs from that example manufacturing process, I don't want any definition) 250 words minimum

Answer 1

Suppose COMPANY A LTD is a manufacturer of tables. Its product costs can include:

• Direct material: The cost of wood used to create the tables.
• Direct labor: The cost of wages and benefits for the carpenters to create the tables.
• Manufacturing overhead (indirect material): The cost of nails used to hold the tables together.
• Manufacturing overhead (indirect labor): The cost of wages and benefits for the security guards to overlook the manufacturing facility
• Manufacturing overhead (other):The cost of factory rent and cost of factory utilities.

To produce 1,000 tables, the company incurred costs of:

• $12,000 on wood
• $2,000 on wages for the carpenters and $500 on wages for the security guards to overlook the manufacturing facility
• $100 for a bag of nails to hold the tables together
• $500 for factory rent and utilities

• Total product costs: $12,000 (direct material) + $2,000 (direct labor) + $100 (indirect material) + $500 (indirect labor) + $500 (other costs) = $15,100 total product cost.

  Therefore, Company A incurred total product costs of $15,100 to produce 1,000 tables, or a unit product cost of $15,100 / 1,000 = $15.10.