cost

[Former Member]

hi,

i need to seek clarification on the below. hope can get advice by point form.

1) direct cost = variable cost and indirect cost = fixed cost?

2) indirect cost not necessarily must be same as fixed cost?

3) product cost = manufacturing overhead + direct labour/material.

may i know manufacturing overhead is considered fixed cost or indirect cost?

thanks

[Former Member · Accepted solution]

Hi,

1. Direct Cost u2013 Which is directly related to the production and which can be linked to a particular product or service eg wages

Indirect Cost u2013 Which is not directly related to production and which is hard to assign to a particular product. Eg cost of screws etc.

2. Indirect cost can be Fixed or variable

3. Product cost = Material cost + conversion cost + overheads.

Conversion cost includes all the cost of activity types and routing that in involved in converting a raw material into finished product. Overheads can be material overhead, labor overhead, production overhead or any other kind of overhead.

- Mahak

[Former Member]

Hi Eliana,

Mahak was rightly said about some of the concepts.

1. Direct cost under normal circumstances would be variable in nature

2. Indirect cost not necessarily be fixed. you are right. it can be variable. only this that it cannot be directly linked to the specific product.

3. Manufacturing overheads can be fixed or variable. example1, freight cost on material couldbe 2% of the cost.

in this case the freight cost is variable in nature. example 2 - storage cost can be fixed irrespective space occupied in the storage location

Hope this clarified your question

Best Regards

Surya

[venkatsatish_lolla]

Hi Eliana ,

Looks like you come from a Manufacturing background and work in Production Planning . Well your question surrounds on some basic principles in Cost Accounting . You can get some basic information as you require , in layman terms from the below given link -

http://basiccollegeaccounting.com/category/cost-accounting/cost-concepts-classifications/

Regards,

Venkat.

[Former Member]

hi,

appreciate if can have clarification on my point.

thanks