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The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)

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par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003

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The activities performed in a manufacturing company generally encompass all the activities performed in all other forms of enterprises. In a manufacturing company, for products to come out of the production lines a number of processes must be completed. Each of these processes is performed in a particular department or segment of the company; these are generally described as functional departments controlled by specific specialists; this division of the company into functional departments creates the need to differentiate and classify costs according to the functional department in which they are incurred.

Such a classification is made to come out with the various departmental costs which will be used for stock valuation, control and decision making purposes.

Manufacturing costs

This is generic term used to describe all the cost items that enter into the production of a particular good. It usually consists of three elements, namely: direct materials, direct labour and manufacturing overheads.

Direct materials

Garrison and Noreen (2003) describe direct materials as those materials that become an integral part of the finished product and that can be physically and conveniently traced to it. The direct materials costs are an integral part of the direct costs previously discussed under the nature of costs. Direct materials refer to those costs that are incurred in the assembling area of the production process, it consists of all those items that are used to manufacture a product and that are specific to that product such as the sheets of paper used to print a newspaper.

Direct labour

This is another element of the direct costs. Drury (1992) defines it as the labour costs that can be specifically traced or identified with a particular product; it is sometimes called Touch labour since it generally requires direct labour workers to touch the product while it is being made.

Direct expenses

It is very difficult to find this item in the cost structure of many companies. Inman13(*) (2001) states that they refer to the services that can be clearly and directly associated with a specific output or service. Examples of this type of costs are copyright expenses, patent rights, royalties or the cost of hiring a machine.

Manufacturing overheads

We have already defined the direct items of the cost incurred to produce or make a particular product. There are also some costs that are quite of the same origin as the direct costs but which are used for the whole department or the company and cannot therefore be trace to specific units of output; such costs are known as manufacturing overheads. Synonyms for these cost items are factory overheads or factory burden. It generally includes the lighting and heating costs, property taxes, insurance or depreciation of the company assets. As it can be seen, it applies to the costs incurred by the company to enable the processing of all its activities not only a single one.

From these items of manufacturing costs, we can derive two important concepts: prime cost and conversion cost.

Prime cost refers to the combination of direct materials, direct labour and direct expenses required to produce a particular item. It is a very important concept when making the cost structure of an entity. It is the primary cost of a product, it constitute the basic requirement for its production.

Conversion cost is the combination of direct labour cost and manufacturing overheads; it is called conversion cost because it refers to the elements required to convert direct materials into finished goods. As we know, direct materials constitute the heart of the product; direct labour and manufacturing overheads just serve as facilities to ease the production of the required item.

The company, as stated above may be divided into multiple departments, the core one being the manufacturing department. Others could be termed as non-manufacturing departments and this terminology will help us in describing the costs incurred in these non-manufacturing departments.

* 13 Inman, M.L., Costing Basics for the 21st Century. Students' Newsletter, January 2001.

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