Discuss cost concepts used in manufacturing accounting. Be sure to address the basic product cost components—what are they? Which, in your opinion, is most important today? In 1980?

A manufacturing company will use cost concepts such as direct cost and overhead cost. They will account for components like factory overhead and the price of materials. What’s important now or in 1980 will depend on the specific manufacturer and what they’re most concerned about.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

A manufacturing company will use different accounting concepts than a company that is not engaged in creating material goods. For example, an air conditioning company will use different concepts than, say, a social media company that isn’t in the business of producing physical items. An air conditioning company will have basic cost components like factory overhead, direct labor, and direct materials. They must also account for the cost of their inventory.

To account for the cost of inventory, a manufacturer should use direct cost assignment to figure out the price of their goods.

As for the general cost of running and maintaining a professional factory—that will be recorded under overhead cost assignment.

Another crucial part of accounting in the manufacturing fields involves an inventory system. Most manufacturers should adopt a perpetual inventory system to ensure that they have an accurate account of the goods they have, the goods they’ve sold, the good that are traveling from one location to another, and the goods that have been discarded.

Someone might argue that an effective perpetual inventory system is the most important concept because without accurate information manufacturers will likely find it hard to make wises choices regarding their stock.

If a manufacturer were to travel back in time to 1980, they could find themselves in a recession and cutting costs. If a manufacturer wanted to cut costs when it came to the condition of the factory, their most important concept might be overhead cost assignment. Another manufacturer might be more concerned with inventory and focus on direct cost assignment.

Last Updated by eNotes Editorial on January 15, 2021
Soaring plane image

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial