Manufacturing costs are directly associated with production; they include direct materials, direct labor, variable overhead, and fixed overhead. A manufacturer will use this information to determine the cost of their product.
In the following practice questions, you are asked to weed out the non-manufacturing costs and then calculate the total manufacturing costs for two different companies.
Practice questions
Red Cow Sleeping Drinks has the following costs:
Direct materials: $3,507,000
Direct labor: $1,200,000
Variable overhead: $700,000
Fixed overhead: $250,000
Selling expenses: $890,000
General expenses: $400,500
Administrative expenses: $500,000
Calculate the total manufacturing costs.
Herb's Herbs packages high-quality dried herbs for home use. The following costs are taken from Herb's accounting records:
Fresh herbs: $137,000
Depreciation on the drying machine: $8,100
Glass jars for packaging the herbs: $5,000
Electricity to run the drying machines: $15,000
Gasoline for delivery trucks: $24,000
Internet advertising: $3,000
Depreciation on the computer used to do the accounting for the company: $1,000
Calculate the total manufacturing costs.
Answers and explanations
$5,657,000
The manufacturing costs are the costs directly associated with production: direct materials, direct labor, variable overhead, and fixed overhead.
$165,100
The manufacturing costs are the costs directly associated with production—in this case, direct materials, variable overhead, and fixed overhead. The herbs and the glass jars are direct materials. The electricity to run the drying machines is a variable overhead cost. Depreciation on the drying machine is a fixed overhead cost.
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