Manufacturing overhead is an indirect cost with respect to units of product.
Depreciation on office equipment would not be included in the cost of goods manufactured.
Rent on a factory building used in the production process would be classified as a period cost and as a fixed cost.
Period costs are found only in manufacturing companies, not in merchandising companies.
Depreciation on equipment a company uses in its selling and administrative activities would be classified as a product cost.
If the finished goods inventory increases between the beginning and the end of a period, then the cost of goods manufactured is smaller than the cost of goods sold.
The cost of goods manufactured is calculated by adding the amount of work in process at the end of the year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the year and then subtracting work in process at the beginning of the year.
A publisher that sells its books through agents who are paid a constant percentage commission on each book sold would classify the commissions as a fixed cost.
Variable costs per unit are affected by changes in activity.
A cost is either direct or indirect. The classification will not change if the cost object changes.
The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost.
Labor fringe benefits may be charged to direct labor or manufacturing overhead while overtime premiums paid usually are considered a part of manufacturing overhead.
The cost of idle time should be charged as direct labor of the job that is in process when the breakdown occurs.
Internal failure costs result from identification of defects during the appraisal process.
Such costs may include scrap, rejected products, rework, and downtime.
ISO 9000 certification is relatively easy to achieve because little documentation on quality control procedures is needed.