Question

3.Identify the different types of product (manufacturing) and non-production costs. In addition, describe the changes in composition of total manufacturing costs during the last century.

Answer 1

Cost can be manufacturing and non-manufacturing or can say non-production cost.
Manufacturing cost includes:-
1).Direct Material : - Includes raw material purchased for the manufacturing of product.
2). Direct Labour :- Includes wages paid to labour used in the process of conversion of raw material into finished product.
3). Manufacturing Overhead :- Usually includes indirect material, indirect labour, lighting, insurance of factory etc.

Non Manufacturing cost includes :-
1). Marketing and Selling costs:- Includes cost of adveritising the product and sales person salaries.
2). Administrative Costs :- Includes salaries of accounts executive, general administration costs, etc.

Changes in composition of total manufacturing costs during the last century.

A). Many formal cost systems were first implemented in the early 1900’s: –
    1). Direct labor represented a large proportion, sometimes 50% or more, of the total manufacturing costs.
    2). Direct material costs were also substantial.
    3). Capacity-related (fixed) costs generally represented a small fraction of total manufacturing costs.

B). Today, direct labor is only a small portion of manufacturing costs. The cost of direct materials remains important, representing 40% to 60% of the costs. The big change has been the vastly increased share of total costs from capacity-related costs.

C). The increase in fixed costs results from :-
    1). The shift toward greater automation, which requires more production engineering, scheduling, and machine setup activities.
    2). The emphasis on better customer service.
    3). The increase in support activities required by a proliferation of multiple products

D). Further, both variable and fixed costs associated with design, product development, distribution, selling, marketing, and administrative activities have increased.