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Direct (prime) costs

Direct costs are costs directly and clearly identifiable with cost object (usually product or service). That means the costs DIRECTLY associated with the production process of specific product. Together with indirect costs (overheads) they form total costs of the entity.  They are sometimes cal

Direct material costs

Direct material costs are together with direct labor costs and possibly direct expenses part of direct (prime) costs. As being their part, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associated with the production p

Production indirect costs (Production overheads)

Although production indirect costs (also known as production overheads) are costs associated with the production they are indirect which means they are NOT directly and clearly identifiable with cost object (usually product or service). Together with non-production overheads they form total indirect

Indirect production expenses

Indirect production expenses are costs that are part of indirect production costs (production overheads) and are included neither in material or labor production overheads.  As being part of overheads, they are NOT directly and clearly identifiable with cost object (usually product or service).

Selling indirect costs (Selling overheads)

Selling indirect costs (selling overheads) are costs that are incurred in order to attract and retain customers. Together with administrative and distribution overheads they form non-production indirect costs (non-production overheads). Selling overheads can include for example: rent, depreciati

Conversion costs

Conversion costs are costs necessary for the conversion of raw materials into the finished goods. They are the sum of: direct labor costs direct expenses production indirect costs (production overheads)   Direct material costs are thus excluded.

Direct labor costs

Direct labor costs are together with direct material costs and possibly direct expenses part of direct (prime) costs. As being their part, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associated with the production p

Direct expenses

Direct expenses are costs that form part direct (prime) costs but are covered neither in direct material costs or direct labor costs. As being part of direct costs, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associ

Indirect material costs (Material overheads)

Indirect material costs (material overheads) are together with indirect labor costs and possibly indirect expenses part of indirect (overhead) production costs. As being their part, they are NOT directly and clearly identifiable with cost object (usually product or service). Example of indirect ma

Non-production indirect costs (Non-production overheads)

Non-production indirect costs (also known as non-production overheads) are indirect costs not incurred during manufacturing.  Examples of non-production overheads: rent, depreciation, power or insurance of administrative and shop buildings, salaries of administrative staff and sales represent

Administrative indirect costs (Administrative overheads)

Administrative indirect costs (administrative overheads) are costs that are incurred during management, planning and controlling of the entity´s operations.  Together with selling and distribution overheads they form non-production indirect costs (non-production overheads). Administrativ

Classification of costs by function

By function can costs be divided into PRODUCTION and NON-PRODUCTION.   Production costs are incurred during product production. They are opposite to non-production costs which include: Administrative costs Selling costs Distribution costs Research and development costs Finance costs

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