Manufacturing Cost
Terms
MATCH TERM & DEFINITIONS
Cost
Opportunity
Cost
The return that could not be
realized from the best forgone
alternative use of a resource
A cost charged against revenue
Expense
Costs not directly related to a
cost object
Cost Object
Any item for which a manager
wants to measure a cost
Direct Cost
Costs directly related to a cost
object
Indirect Cost
A sacrifice of resources
THE DEFERENCE of COST and EXPENSE
Cost (Harga Pokok)  Semua biaya yang
telah dikeluarkan dan dianggap masih akan
memberi manfaat (benefit) di masa yang
akan datang  dicatat dalam neraca
Expense (Biaya)  Semua biaya yang telah
dikeluarkan untuk menghasilkan prestasi
dan dianggap tidak akan memberikan
manfaat (benefit) di masa yang akan
datang  dicatat dalam perkiraan rugi laba
EXPENDITURES, COSTS & EXPENSES
• Expenditure – company purchases raw
materials for $100
• Cost – company reports $100 of raw
materials on balance sheet
• Expense – company records $100 expense
on income statement when it sells the
product that uses the raw material
COST
EXPENSE
ASSET
EXPENSE
Quick Check 
Which of the following transactions would
immediately result in an expense? (There may be
more than one correct answer.)
A. Work in process is completed.
B. Finished goods are sold.
C. Raw materials are placed into production.
D. Administrative salaries are accrued and paid.
KARAKTERISTIK OPERASI PERUSAHAAN MANUFAKTUR
Gudang Barang
Pembelian
Gudang
bahan baku
Statemen laba-rugi
Barang jadi
Penjualan
Kos barang terjual
Biaya penjualan
Bagian Penjualan
Biaya administratif
Laporan kos produksi
Pabrik
Bagian
Administratif/Umum
Kos barang
manufakturan
MANUFACTURING COSTS
Manufacturing consists of activities to convert
raw materials into finished goods.
In contrast, a merchandising firm sells goods in
the form in which they were bought.
Categories of manufacturing costs include:
Konsep
kos
sebagai
bahan
olah
akuntansi
Aliran fisik
Penyimbolan elemen
Kas
Mesin
Bahan baku
Utang
Tenaga
kerja
Produk
Pengukuran elemen
untuk data dasar
kos
kos
kos
kos
kos
kos
Sistem informasi
Rp1.500.000
Rp750.000 Rp3.500.000
Rp2.500.000 Rp1.750.000
Rp7.500.000
KLASIFIKASI UMUM BIAYA
BIAYA PRODUKSI:
BB (langsung-tidaklangsung)
BTK (langsung-tidaklangsung)
BOP
BIAYA NON PRODUKSI:
Biaya pemasaran atau penjualan
Biaya administrasi
KOMPONEN KOS PRODUK
Overhead
Material (bahan baku) Tenaga kerja langsung
Direct
Materials
Direct
Labor
The Product
Manufacturing
Overhead
DIRECT MATERIALS
Those materials that become an integral
part of the product and that can be
conveniently traced directly to it.
Example: A radio installed in an automobile
DIRECT LABOR
Those labor costs that can be easily traced to
individual units of product.
Example: Wages paid to automobile assembly workers
MANUFACTURING OVERHEAD
Manufacturing costs that cannot be traced
directly to specific units produced.
Examples: Indirect labor and indirect materials
Wages paid to employees
who are not directly
involved in production
work.
Examples: maintenance
workers, janitors and
security guards.
Materials used to support
the production process.
Examples: lubricants and
cleaning supplies used in the
automobile assembly plant.
Direct
Materials
Product
Costs
Direct
Labor
Factory
Overhead
The cost of materials
that are an integral
part of the product.
The cost of labor directly
involved in converting
material into the product.
Manufacturing costs
other than direct
materials and direct
labor.
MATERIALS
RAW MATERIALS
Basic materials used in manufacturing
DIRECT MATERIALS
Raw materials that can be physically
and directly associated with the
finished product
MATERIALS
INDIRECT MATERIALS
Raw materials that cannot be easily
associated with the finished product
Not physically part of the finished product
or they are an insignificant part of finished
product in terms of cost
Considered part of manufacturing
overhead
LABOR
DIRECT LABOR
Work of factory employees that can be
physically and directly associated with
converting raw materials into finished goods
INDIRECT LABOR
Work of factory employees that has no
physical association with the finished product
or for which it is impractical to trace to the
goods produced
MANUFACTURING OVERHEAD
Costs that are indirectly associated with
manufacturing the product
Includes all manufacturing costs except
direct materials and direct labor
MANUFACTURING COSTS are often
classified as follows:
Direct
Material
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
PRIME COSTS
Direct
Materials
+
Direct
Labor
=
Prime
Costs
PRIME COSTS
What are the prime costs for Bicycles
by the Sea?
Direct materials used
+ Direct labor
=
$200,000
105,500
$305,000
CONVERSION COSTS
Direct
Labor
+
Manufacturing
Overhead
Indirect
Labor
Indirect
Materials
=
Other
Conversion
Costs
CONVERSION COSTS
What are the conversion costs for
Bicycles by the Sea?
Direct labor
+ Indirect manufacturing costs
=
$105,500
194,500
$300,000
NONMANUFACTURING COSTS
Marketing and selling costs . . .
–Costs necessary to get the order and
deliver the product.
Administrative costs . . .
–All executive, organizational, and clerical
costs.
Quick Check 
Which of the following costs would be considered
manufacturing overhead at Boeing? (More than one
answer may be correct.)
A. Depreciation on factory forklift trucks.
B. Sales commissions.
C. The cost of a flight recorder in a Boeing 767.
D. The wages of a production shift supervisor.
PRODUCT COSTS Versus PERIOD COSTS
Product costs include
direct materials,
direct labor, and
manufacturing
overhead.
Cost of Good Sold
Inventory
Period costs are not
included in product
costs. They are
expensed on the
income statement.
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
PRODUCT COSTS
• What are product costs?
–They are the costs to produce (or
purchase) tangible products intended
for sale.
PRODUCT COSTS
• There are two types of product costs:
Full
product
costs
Inventoriable
product
costs
External Reporting
Inventoriable
product
costs
Period
costs
INVENTORIABLE PRODUCT COSTS
• For external reporting, merchandisers’
inventoriable product costs include only
costs that are incurred in the purchase of
goods.
• Inventoriable costs are an asset.
• Period costs flow as expenses directly to
the income statement.
INVENTORIABLE PRODUCT COSTS
• For external reporting, manufacturers’
inventoriable product costs include raw
materials plus all other costs incurred in the
manufacturing process.
• Inventoriable product costs are incurred
only in the third element of the value
chain.
• Costs incurred in other elements of the
value chain are period costs.
INVENTORIABLE PRODUCT COSTS
Direct
Materials
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Manufacturing Overhead
INVENTORIABLE PRODUCT COSTS
Direct
Materials
Direct
Labor
Prime Costs = Direct Materials + Direct Labor
INVENTORIABLE PRODUCT COSTS
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Conversion Costs = Direct Labor + Manufacturing
Overhead
The costs of converting the materials
into finished products consists of direct
labor and factory overhead. These
two costs combined are often
referred to as conversion costs
PERIOD COSTS
Matched with revenue of a specific time
period and charged to expense as incurred
Non-manufacturing costs
Deducted from revenues in period incurred
to determine net income
Includes all selling and administrative
expenses
EXAMPLES OF PERIOD COSTS
SELLING EXPENSES
 Advertising expenses
 Sales salaries expenses
 Commission expenses
EXAMPLES OF PERIOD COSTS
ADMINISTATIVE EXPENSES
 Office salaries expenses
 Office supplies expenses
 Depreciation expense—
office buildings and
office equipment
LO 4 Distinguish between product costs and period costs.
Quick Check 
Which of the following costs would be considered a
period rather than a product cost in a manufacturing
company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production facility.
Review Question
Direct Materials are a:
Product
Cost
Manufacturing
Overhead
Period
Cost
a. Yes
Yes
No
b. Yes
No
No
c. Yes
Yes
Yes
d. No
No
No
Indicate whether each of the following costs
of an automobile manufacturer would be
classified as direct materials, direct labor, or
manufacturing overhead.
______
DM
______
DM
______
DL
______
MO
______
MO
______
DM
______
DM
______
MO
a.
b.
c.
d.
e.
f.
g.
h.
Windshield
Engine
Wages of assembly line worker
Depreciation of factory machinery
Factory machinery lubricants
Tires
Steering wheel
Salary of painting supervisor
Identify whether each of the following costs
should be classified as product costs or
period costs.
____________
Product
____________
Period
____________
Period
____________
Period
____________
Product
____________
Product
a.
b.
c.
d.
e.
f.
Manufacturing overhead
Selling expenses
Administrative expenses
Advertising expense
Direct labor
Direct material
COST OBJECTS
• Cost objects are anything for which a
separate measurement of costs is desired.
• Cost drivers are any factors that affect
cost.
COST OBJECTS
• What are examples of cost objects?
–individual products
–alternative marketing strategies
–geographic segments of the business
–departments
Flow of Manufacturing Costs
•Direct Labor
•Factory Overhead
MATERIALS STOREROOM
PRINTING PLANT
Job 73
Materials
Inventory
Work in Process
Inventory
Flow of Manufacturing Costs
WAREHOUSE
CAMPUS BOOKSTORE
Job 69
Job 70
Finished Goods
Inventory
Cost of Goods
Sold
Flow of Manufacturing Costs
Materials
Materials
Purchased
DM
Work in Process
Finished Goods
DM
Cost of Goods Sold
Wages Payable
Factory Overhead
Total
Wages
DM
Direct materials used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
DM
Work in Process
Finished Goods
DM
IM
Cost of Goods Sold
Wages Payable
Total
Wages
IM
Factory Overhead
IM
Indirect materials used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
DL
DL
Factory Overhead
IM
Direct labor used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
IL
Factory Overhead
DL
IM
IL
IL
Indirect labor used in production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
OFOH
OFOH
Other factory overhead costs incurred
during production
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
Finished Goods
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
OFOH
FOHA
FOHA
Based on
predetermined
overhead rate
Factory overhead applied to work in process
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
COGM
Finished Goods
COGM
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
COGM
Cost of goods manufactured and transferred
to finished goods
Flow of Manufacturing Costs
Materials
Materials
Purchased
Work in Process
DM
DM
IM
DL
COGM
Finished Goods
COGM
SOLD
FOHA
Cost of Goods Sold
Wages Payable
Total
Wages
Factory Overhead
DL
IM
IL
IL
FOHA
OFOH
SOLD
Finished goods sold
SOLD
FLOW of COSTS THROUGH a
MANUFACTURER’S ACCOUNTS
• Direct Materials
Inventory
• Beginning inventory
+ Purchases and freight-in
•
•
+
+
+
=
Work in Process Inventory
Beginning inventory
Direct materials used
Direct labor
Manufacturing overhead
Total manufacturing costs
to account for
= Direct materials available
– Ending inventory
for use
= Cost of goods
– Ending inventory
manufactured
= Direct materials used
FLOW of COSTS THROUGH a
MANUFACTURER’S ACCOUNTS
•
•
+
=
–
=
Finished Goods Inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale
Ending inventory
Cost of goods sold
DIFFERENTIAL COSTS and REVENUES
Costs and revenues that differ among
alternatives.
Example: You have a job paying $1,500 per month in
your hometown. You have a job offer in a neighboring
city that pays $2,000 per month. The commuting cost
to the city is $300 per month.
Differential revenue is:
$2,000 – $1,500 = $500
Differential cost is:
$300
Quick Check 
Suppose you are trying to decide whether to drive or
take the train to Portland to attend a concert. You
have ample cash to do either, but you don’t want to
waste money needlessly. Is the cost of the pizza you
ate last night relevant in this decision? In other
words, should the cost of the pizza affect the
decision of whether you drive or take the train to
Portland?
A. Yes, the cost of the pizza is relevant.
B. No, the cost of the pizza is not relevant.
Quick Check 
Suppose you are trying to decide whether to drive or
take the train to Portland to attend a concert. You
have ample cash to do either, but you don’t want to
waste money needlessly. Is the cost of the train
ticket relevant in this decision? In other words,
should the cost of the train ticket affect the decision
of whether you drive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
NOTE
• Every decision involves a choice from
among at least two alternatives.
• Only those costs and benefits that differ
between alternatives (i.e., Differential
costs and benefits) are relevant in a
decision. All other costs and benefits can
and should be ignored.
Quick Check 
Suppose you are trying to decide whether to drive or
take the train to Portland to attend a concert. You
have ample cash to do either, but you don’t want to
waste money needlessly. Is the annual cost of
licensing your car relevant in this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
Quick Check 
Suppose you are trying to decide whether to drive or
take the train to Portland to attend a concert. You
have ample cash to do either, but you don’t want to
waste money needlessly. Is the depreciation on your
car relevant in this decision?
A. Yes, the depreciation is relevant.
B. No, the depreciation is not relevant.
OPPORTUNITY COSTS
The potential benefit that is
given up when one alternative
is selected over another.
Example: If you were
not attending college,
you could be earning
$15,000 per year.
Your opportunity cost
of attending college for one
year is $15,000.
SUNK COSTS
Sunk costs cannot be changed by any decision.
They are not differential costs and should be
ignored when making decisions
Example: You bought an automobile that cost
$10,000 two years ago. The $10,000 cost is sunk
because whether you drive it, park it, trade it, or
sell it, you cannot change the $10,000 cost.
Quick Check 
Suppose that your car could be sold now for $5,000.
Is this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
The End