Example of a retailer.
Example of Production
The cost of oranges at a fruit juice manufacturer.
Not an element of Toyota's value chain.
Cost of vehicle engine
For Toyota, this is a direct cost with respect to the Prius.
Parts of Manufacturing Overhead
Insurance/depreciation on plant and its equipment; plant property taxes; plant utilities; plant repairs.
Inventoriable Product Costs
Includes three components: DM, DL, and MOH; includes "Production or Purchases" from the value chain.
Cost of Goods Manufactured
This is the manufacturer's counterpart to the merchandiser's purchases when computing COGS.
Irrelevant to business decisions.
Relevant to Business Decisions
Differential, Variable, and Qualitative Costs.
Total variable costs increase as production volume increases.
Sell intangible services such as health care or insurance.
Resell tangible products they buy from suppliers.
Sell products to consumers like me; example: Wal-Mart.
AKA "middlemen"; buy products in bulk from manufacturers and sell those products to retailers
Use labor, plant, and equipment to convert raw materials into new finished products.
Adds value to company's products and services.
Include Research & Development, Design, Marketing, Distribution, and Customer Service from the value chain.
Anything for which managers want a separate measurement of cost.
Can be traced to the cost object; very precise.
Relates to a cost object but cannot be traced to it; "allocate"; less precise. Example: utilities, property taxes, and depreciation.
Costs of all resources used throughout the value chain.
Primary raw materials that become a physical part of the finished product.
Cost of compensating employees who physically convert raw materials into company's products.
All indirect manufacturing costs
Used in the plant and are not easily traced.
Includes costs of all employees in the plant.
Indirect Manufacturing Costs
Same as Manufacturing Overhead.
DM + DL
DL + MOH
Beg. Inv. + Purchases - End Inv.