Analysis of Direct Costs - Assignment Example

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It is comprised of direct labor cost and indirect material costs. Materials, labor, equipment and all related expenses to the production are considered and…
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Analysis of Direct Costs
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"Analysis of Direct Costs"

Download file to see previous pages Direct Labor: is the labor or employees who convert materials into the company’s products. The cost of direct labor can be traced directly to the finished products.” (Horngren, Harrison, & Oliver, 2009). All other costs charged under the categories Overhead Costs and General and Administrative Costs are indirect costs. These include indirect labor, repair, maintenance, utilities, rent, insurance, property taxes and depreciations.
Direct material cost is the cost of significant materials that are used in the manufacturing of a product or that are used up in providing a service. Direct material costs are specifically identifiable to the contract. FAR regulations also provide provision for trade discounts, refunds, credits for scrap, salvage, and returns to vendor, to be adjusted to the direct material costs. Priced Bill of Sales, has detailed list of all materials needed to produce the required product or service is used for estimating the direct cost. To analyze estimated costs of materials, the factors in review focus are: Are the items quantities and costs of materials correct? Are making or buying decisions are appropriate? Is the material purchased efficiently and competitively? (Murphy, 2009).
Direct labor cost is cost of labor specifically identified with a particular contract that a company is doing. Following are three types of direct labor: Labor directly associated with the work being produced, labor readily identified with a particular objective such as a contract, and labor important enough to warrant identifying and measuring so we can keep up with its cost. In general approach to analyze direct labor cost is to examine each element of proposed cost. The contracting officer should usually request analysis of cost or pricing proposals by asking requirements logistics, or other appropriate personnel to review and assess the need for the number and kinds of ...Download file to see next pagesRead More
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