Relevant knowledge
Learn together to determine incomplete manufacturing costs, expenses, and selling data.

Total cost = Direct cost + Indirect cost (Overhead)

Total cost= Materials + Labour + Expenses

Materials= Direct materials + Indirect materials

Labour= Direct labour + Indirect labour

Expenses= Direct expenses + Indirect expenses

Direct costs are those that are used to directly create the product.

Indirect costs (or overheads) are costs that are incurred during the production of a product, but which cannot be traced directly and in full to the product.

Fundamentals:

Direct materials are all materials used to form a part of a product.

Direct labour costs are wages paid to workers who perform the work directly on the product itself.

Manufacturing overheads: This is an indirect cost that is necessary for production. It covers the costs of indirect materials in addition to indirect labor as well as indirect costs. These expenses include depreciation of machines or foreman’s salary, electric costs of the factory are included in the category of manufacturing overhead.

Manufacturing cost: are all costs incurred in the production process to create products (inventories) that are included in the cost of production.

Work-in-progress inventory (WIP inventory): The process of manufacturing has been taken place on the raw material, but it hasn’t been finished. It is comprised of an amount for direct materials as well as direct labor and costs incurred during the creation of this inventory till yet.

Sales: It is the main source of revenue for the company. Different expenses, fixed expenses and adjustments to inventory can be calculated from sales revenue. The calculation is done by multiplying the number of units sold and the selling cost per unit.

Finished goods inventory: The inventory that is finished in production is available to purchase.

The finished goods cost= prime cost+ manufacturing overheads+ administration overheads.

Gross profit = Sales – cost of inventory sold.

Operating expenses: The costs and expenses that are needed to operate the business and earn revenues.

Net income: It is the money that is that is earned by subtracting all operating and non-operating expenditures from sales revenue. Additionally, non-operating expenses can be subtracted from gross profit in order to determine net profit.