Classiflying Manufacturing Costs The PC works assembles custom computers from components supplied by various manufactures. The company is very small and it assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listen below are some of the cost that the incurred at the company.
Below are some of the costs incurred by the PC works company:
1. Direct Materials Cost: This includes the cost of all the components and materials that are used in the assembly of custom computers. To determine this cost, you will need to identify the specific components used and their respective costs, including the cost of purchasing them from various manufacturers.
2. Direct Labor Cost: This refers to the cost of labor directly involved in the assembly process. To calculate this cost, you need to determine the number of direct labor hours spent on assembling the computers and multiply it by the labor rate or wage rate per hour.
3. Overhead Costs: Overhead costs are indirect costs that are not directly traceable to the production of a specific product. They include expenses such as rent, utilities, insurance, property taxes, depreciation of machinery, and other miscellaneous expenses. To allocate overhead costs to each computer, you can use a predetermined overhead rate based on the estimated indirect costs and a suitable allocation base (e.g., direct labor hours, machine hours, or units produced).
4. Selling and Administrative Expenses: These are expenses related to the selling and administrative functions of the company. They include salaries of salespersons, advertising costs, office supplies, and other administrative expenses.
5. Cost of Goods Sold: This is the total cost incurred to produce the computers that were sold during a specific period. It includes the direct materials cost, direct labor cost, and manufacturing overhead costs.
To classify manufacturing costs accurately, it is important to have a proper cost accounting system in place. This system should track and record all the relevant costs incurred throughout the manufacturing process and assign them to the appropriate cost categories. This will enable the company to accurately calculate the cost of goods sold, determine the profitability of each product, and make informed pricing decisions.