In accounting, the term cost refers to the expenditure or sacrifice made to acquire something of value. Manufacturing cost is an important cost element in establishing the selling price of a product. To other cost components that must be considered in reaching the final cost of a product are preparing the product for shipping and shipping it to a distribution point.
The term manufacturing costs usually refers to material used, direct labor incurred, and overhead incurred in a manufacturing business.
Manufacturing cost is different from production cost because production cost reflect all of the expenses associated with a company conducting it business.
In a manufacturing business, the accountant will debit work in process for materials used, direct labor incurred, and manufacturing overhead. These are direct cost.
After some costs have been classified as manufacturing, they are normally further classified as direct and indirect. Materials used in the manufacturing process are either used directly or indirectly. Direct material is material that becomes part of the finished product and, therefore, significantly adds to the weight or size of the product.
An indirect cost not be identified with any particular product. Examples are rent on the factory building, cost of utilities, or wages of the shop floor supervisors.
Manufacturing cost
