Free Product Manufacturing Costs Essay Example

Every enterprise incurs manufacturing costs in the course of its business activities. In general, all the incurred manufacturing costs are divided into three categories such as direct materials, direct labor costs and manufacturing overheads.
In order to produce any good the enterprise should have necessary raw materials in place that are used for manufacturing such goods. Costs incurred by the enterprise to acquire raw materials are considered to be the direct materials in terms of the manufacturing costs. The main feature of the direct materials is that they are totally consumed in the production process and become an integral part of the manufactured goods.
Another type of the manufacturing costs, that constitutes prime cost of the manufactured products along with the direct materials, is the direct labor costs. It is important to notice that not all of the labor costs incurred by the enterprise qualify for the direct labor costs in terms of the manufacturing costs as only a portion of such labor costs is directly related to the manufacturing process. The direct labor costs may consist of salaries for personnel engaged in product assembling, packaging or labeling processes.
In addition, the remainder of the manufacturing costs incurred by the enterprise falls into the category of the manufacturing overheads. These costs may include, inter alia, rent and utility payments, depreciation, maintenance costs, etc. Indeed, the composition of the manufacturing overheads significantly depends on the enterprise’s core activities. For instance, specific manufacturing overheads of First Solar, a solar panel producer, include freight, recycling and warranty charges (Trefis Team, Contributor, 2014).
As a general rule, the direct materials and direct labor costs are allocated to the manufactured product by means of different costing methods in contrast to the manufacturing overheads, that are subsequently deducted in the accounting records, as their amount does not directly depend on the amount of the produced goods.

References

1. Trefis Team, Contributor (2014, February 24). First solar preview: manufacturing costs, project order book in the spotlight. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/02/24/first-solar-preview-manufacturing-costs-project-order-book-in-the-spotlight/