2-5 The schedule of cost of goods manufac-
tured lists the manufacturing costs that have
great cost or inconvenience. Indirect materials
been incurred during the period. These costs are
are ordinarily classified as manufacturing over-
head.
organized under the three major categories of
direct materials, direct labor, and manufacturing
c. Direct labor includes those labor costs
overhead. The total costs incurred are adjusted
that can be easily traced to particular products.
for any change in the Work in Process inventory
Direct labor is also called “touch labor.”
to determine the cost of goods manufactured
d. Indirect labor includes the labor costs of
(i.e. finished) during the period.
janitors, supervisors, materials handlers, and
The schedule of cost of goods manufac-
other factory workers that cannot be conven-
tured ties into the income statement through
iently traced to particular products. These labor
the Cost of Goods Sold section. The cost of
costs are incurred to support production, but the
workers involved do not directly work on the
goods manufactured is added to the beginning
Finished Goods inventory to determine the
product.
e. Manufacturing overhead includes all
goods available for sale. In effect, the cost of
goods manufactured takes the place of the
manufacturing costs except direct materials and
“Purchases” account in a merchandising firm.
direct labor.
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