Question

Take a look at the picture above and respond to the following three items. Then use this discussion to make sure you know the three main ingredients that go into the product costs of a manufacturer.

1. Compile a list of costs to make/produce a dress for a clothing manufacturer.
2. Break down your list into categories and provide what you believe are the three main ingredients that go into the product costs of any manufacturer.
3. Why do manufacturers and retailers need to know the cost of the products they sell?

Accounting for the product costs of a manufacturer is more complicated than tracking product costs for a retailer. As you think about the product costs of a retailer (a dress shop, perhaps), do you know why? In this class we will focus on the product costs and accounting cycle of retailers and leave manufacturers to a managerial accounting course.

Answer 1

Manufacturer - A person who manufactures the product. The process of trade starts from manufacturer.

Retailer - He is an intermediary between manufactures and customers.

Customer - The process of trade ends with customer. All the cost of product will be finally bared by customer.

Three main ingredients that go into the product cost of manufacturer

1. Material
2. Machinery
3. Labour

List of cost to produce a dress for a clothing manufacturer

Variable cost -

• Material
• Packing cost

Fixed cost

• Power
• Rent
• Machinery
• Salaries

Manufacturer and retailer need to know the cost because when they sell the product they need to decide the sales price above the cost to gain the profit.

Accounting for the product cost of a manufacturer is more complicated than tracking product cost for a retailer because there may be few cost for manufacturer like buttons thread etc.which cannot be allocated directly and it will become difficult to identify the actual cost.