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Managers need cost information toperform each of these functions.
Using Cost Information for External Purposes
( Period Cost)
(scatter graph method)
2 A B
Cost of product 1 unit consist of
1 Unit = Direct material+Direct Labor+Manufacturing
Those materials that become an integral part of the product and that can be conveniently traced directly to it.
Example:A radio installed in an automobile
(Direct Material) (Variable Cost)
Those labor costs that can be easily traced to individual units of product.
Example:Wages paid to automobile assembly workers
(Direct labor) (Variable Cost)
Manufacturing costs that cannot be traced directly to specific units produced.
Manufacturing Overhead costs consist of :
indirect materials + Indirect labor + Others