Chpt 9: Manufacturing Operations

Three inventories of a manufacturing firm

Materials, work in process, and finished goods.

Product costs

Manufacturing costs that include direct materials, direct labor, and factory overhead.

Direct materials cost

Materials that are an integral part of the finished product and form a significant portion of its total cost.

Indirect materials cost

Materials that are not an integral part of the finished product, such as glue and sandpaper.

Direct labor cost

The cost of employee wages for those directly involved in converting materials into finished products.

Indirect labor cost

Labor costs of employees who do not directly manufacture the product, such as plant supervisors and maintenance staff.

Factory overhead costs

Manufacturing costs other than direct materials and direct labor, such as machine depreciation and factory insurance.

Period costs

Selling and administrative expenses used in generating revenue during the current period, not directly involved in manufacturing.

Job order cost system

A cost accounting system that records and summarizes product costs for each distinct quantity or batch of product (jobs).

Process cost system

A cost accounting system that records and summarizes product costs for each manufacturing department or process.

Predetermined factory overhead rate

The estimated rate at which factory overhead costs are normally allocated or applied to jobs.

Selling expenses

Period costs incurred in marketing the product and delivering it to customers.

Administrative expenses

Period costs incurred in managing the company that are unrelated to manufacturing or selling functions.

Activity-Based Costing (ABC)

An overhead allocation method where costs are initially accounted for in cost pools, each with its own activity rate.

Just-In-Time (JIT) manufacturing

A manufacturing approach focused on reducing time and cost and eliminating poor quality (also called Lean Manufacturing).