Chapter 1, Problem 1Q

What are the three major types of product costs in a manufacturing company?

To determine

Introduction:

Determination of types of product cost in a manufacturing company describes the elements of costs which are covered in the product cost. This is essential to determine the total product cost for the purpose of inventory valuation.

The types of product cost involved in the production of the product in a manufacturing concern are to be determined.

Answer to Problem 1Q

Solution:

The three major product cost are:

1. Direct material cost.
2. Direct labor cost.
3. Manufacturing overheads.

Explanation of Solution

The product cost is the sum total of all the costs incurred to get the finished product into existence. The Product cost comprises of following cost:

• Direct Material cost: are the purchased raw materials that go directly into producing the products. These costs are variable in nature.
• Direct Labor cost: are the wages paid to laborers who are directly involved in the processing of raw material for its conversion in to finished goods. These costs are also variable in nature.
• Manufacturing Overheads: The Manufacturing overheads are termed as all indirect costs which are incurred in the factory or the works place as necessary cost for the processing. These include indirect material, stores consumed, indirect labour, depreciation of machines, repairs of machines, other indirect cost related to factory, etc. The manufacturing overheads may be fixed in nature or variable in nature.

Product cost is the sum of all the above cost incurred in producing a product.