Management Accounting Essay

5361 words - 21 pages



Identify and classify different types of cost incurred in the SUD08 Company.

According to the scenario, SUD08 Company specializes in the production of customized t-shirt. The company gets the orders from company, family, group events and even some local government agencies. The business was established in Danang city in 2005 by Miss Hoi An (the manager) and her sister Hue. Thus, the company needs to understand different types of cost clearly in order to manage the finance and make the financial report effectively. The following is the analysis about the different cost in SUD08 Company.

Cost class for stock evaluation and profit measurement

The purpose of cost class for stock evaluation and profit measurement is to calculate the cost of one unit. The total cost of a cost unit is made up of the following three elements of cost: materials, labor and other expenses which can be classified as direct and indirect cost.


Material costs are the cost of first things which are used to produce the products. Thus, materials play important role in the process of manufacturing and ensuring the quality of products. Besides, in order to have high quality material raw, the company also needs to focus on finding the suitable suppliers. There are two kinds of material: direct material and indirect material.

Direct material costs are the costs of materials to be used in order to make and sell the products such as raw material costs. In SUD08 Company, the direct materials are cloth, thread, buttons, paper bags and boxes. These materials are very necessary for producing and packing t-shirts. Thus, the company needs to pay the costs for these materials.

Indirect materials cost is a cost of materials which cannot be traced to complete the products directly. For example, in SUD08 Company, the indirect materials are often pens, notebooks, pencils and other essentials. These materials do not have the roles in producing the products, but they help the manager and officers to record the customers' orders and other necessary information as well as make the work in office more effectively.

Labor costs: are the costs which the company often uses to pay for the employees per week. The labor costs have two main kinds of costs: direct labor and indirect labor costs.

Direct labor costs are the costs which measure the time taken for a job or the time taken in "direct production work". Normally, the direct labor associated with the work to produce the product. For example, if your company produces a widget and a production manager is hired to oversee production of that widget, then the production manager's salary is a direct cost. If you own a carpet cleaning business, which is a service organization, and you hire workers just to clean carpets, their wages are direct costs. In this case, SUD08 Company is a production company, so direct labor costs are the wages for...

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