Exam 3 CH.16 Flashcards
direct materials cost definition
Manufactured products begin with raw materials that are converted into
finished products
− An integral part of the finished product
− A significant portion of the total cost of the product
− The cost of the wood used in producing a guitar
direct material
− The cost of electronic components for a television
direct material
− Silicon wafers for microcomputer chips
direct material
− Tires for an automobile
direct material
direct labor cost definition
The cost of employee wages that is an integral part of the finished product
− An integral part of the finished product
− A significant portion of the total cost of the product
− The wages of employees who cut guitars out of raw lumber and assemble them
direct labor
− Mechanics’ wages for repairing an automobile
direct labor
− Machine operators’ wages for manufacturing tools
direct labor
− Assemblers’ wages for assembling a laptop computer
direct labor
factory overhead cost definition
Costs other than direct materials cost and direct labor that are incurred in the
manufacturing process are combined
All factory overhead costs are indirect costs of the product
− Heating and lighting the factory
factory overhead
− Repairing and maintaining factory equipment
factory overhead
− Property taxes on factory buildings and land
factory overhead
− Insurance on factory buildings
factory overhead
− Depreciation on factory plant and equipment
factory overhead
product cost definition
Product costs consist of manufacturing costs:
direct materials
direct labor
and factory
overhead
period cost definition
Period costs consist of selling and administrative expenses.
Selling expenses are incurred in
marketing the product and delivering the product to customers. Administrative expenses are
incurred in managing the company and are not directly related to manufacturing or selling
functions.
Salary of vice president of marketing
period (selling expense)
Cost of advertising in a national magazine
period (selling expense)
Attorney fees for drafting a new lease for headquarters office
period (administrative expense)
Telephone charges for company controller’s office
period (administrative expense)
Commissions paid to sales representatives, based on the number of lawn mowers sold
period (selling expense)
