Costs are unique and may be customizable to the organization or industry such as described above. Managerial accounting is concerned with providing information to managers within the organization about costs. Managers expect to know what is included in direct materials, direct labor, and manufacturing overhead. They also expect to know what constitutes product costs and variable costs. The costs of production are substantial and it is incumbent on managers to understand what constitutes their costs.

Choose a manufacturer of a product (Electric cars company). Research the companys costs policies and practices to identify what constitutes a direct material costs, product costs, and a variable costs, fixed costs, manufacturing costs, non-manufacturing costs, etc. You may have to research multiple sites to find this information even the companys full annual report. Tell the cost story of your company with use of graphics or other visualizations. Provide sufficient narrative to explain the story of costs at your company. Include graphics or visualizations to support explanation of cost terms (if available).

Please adhere to conventional definitions as found on pages 28-29 of your Garrison book for each type of cost. If there are major deviations from standard definitions, please rationalize the reason for departure from standard terms.

28 Chapter 1 Direct Cost A direct cost is a cost that can be easily and conveniently traced to a specified cost object. For example, if Adidas is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office. If a printing company made 10,000 brochures for a specific customer, then the cost of the paper used to make the brochures would be a direct cost of that customer. Indirect Cost An indirect cost is a cost that cannot be easily and conveniently traced to a specified cost object. For example, a Campbell Soup factory may produce dozens of varieties of canned soups. The factory manager's salary would be an indirect cost of a particular variety, such as chicken noodle soup. The reason is that the factory manager's salary is incurred as a consequence of running the entire factoryit is not incurred to produce any one soup variety. To be traced to a cost object such as a particular product, the cost must be caused by the cost object. The factory manager's salary is called a common cost of producing the various products of the factory. A common cost is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost. A particular cost may be direct or indirect, depending on the cost object. While the Campbell Soup factory manager's salary is indirect cost of manufacturing chicken noodle soup, it is a direct cost of the manufacturing department. In the first case, the cost object is chicken noodle soup. In the second case, the cost object is the entire manufactur- ing department Cost Classifications for Manufacturing Companies Manufacturing companies such as Samtec, Mack Trucks, and 3M separate their costs LO1-2 Identify and give examples into two broad categoriesmanufacturing and nonmanufacturing costs. of each of the three basic manufacturing cost categories. Manufacturing Costs Most manufacturing companies further separate their manufacturing costs into two direct cost categories, direct materials and direct labor, and one indirect cost category, manufacturing overhead. A discussion of these three categories follows. Direct Materials The materials that go into the final product are called raw materials. This term is somewhat misleading because it seems to imply unprocessed natural resources like wood pulp or iron ore. Actually, raw materials refer to any materials that are used in the final product; and the finished product of one company can become the raw materials of another company. For example, the plasti oduced by DuPont are a raw material used by HP in its personal computers. Direct materials refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. This would include, for example, the seats that Airbus purchases from subcontractors to install in its commercial aircraft, the electronic components that Samsung uses in its cell phones, and the doors that Whirlpool installs on its refrigerators. Managerial Accounting and Cost Concepts 29 IN BUSINESS CHEAP PART COSTS GENERAL MOTORS A FORTUNE A direct material component part, called a detent plunger, is used by General Motors (GM) in the manufacture of its automobile ignition switches. The part, which can be installed by direct laborers in a matter of minutes, costs GM between $2.00 and $5.00 per unit to manufacture. However, when this seemingly trivial component part caused ignition system failures that killed 12 people, its legal and financial impacts on GM became front page news. GM's troubles include a federal criminal probe that is investigating why the company did not act sooner to redesign, recall, and replace the flawed detent plunger. It appears as though GM learned of ignition switch failures in its Chevy Cobalt in 2004, but it did not redesign the detent plunger to eliminate the problem until 2007. Furthermore, the company did not issue a recall for cars that contained the faulty ignition switches until 2014. Beyond its legal matters, GM had to spend $8 million replacing the ignition switches of 1.6 million recalled vehicles. Source: Jeff Bennett, "For GM, Cheap Part Now a Pricey Fix." The Wall Street Joumal, March 13, 2014, pp. B1-B2. Ulrich Baumgarten/Getty Images Direct Labor Direct labor consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor because direct labor workers typically touch the product while it is being made. Examples of direct labor include assembly-line workers at Toyota, carpenters at the home builder KB Home, and electricians who install equipment on aircraft at Bombardier Learjet. Managers occasionally refer to their two direct manufacturing cost categories as prime costs. Prime cost is the sum of direct materials cost and direct labor cost. Manufacturing Overhead Manufacturing overhead, the third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. From a product costing standpoint, manufacturing overhead costs are indirect costs because they cannot be readily traced to specific products. For example, manufactur- ing overhead includes a portion of raw materials known as indirect materials as well as indirect labor. Indirect materials are raw materials, such as the solder used to make electrical connections in a Toshiba HDTV and the glue used to assemble an Ethan Allen chair, whose costs cannot be easily or conveniently traced to finished products. Indirect labor refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility; however, the cost of compensating these people can- not be easily or conveniently traced to specific units of product. Since indirect materi- als and indirect labor are difficult to trace to specific products, their costs are included in manufacturing overhead. Manufacturing overhead also includes other indirect costs that cannot be readily traced to finished products such as depreciation of manufacturing equipment and the utility costs, property taxes, and insurance premiums incurred to operate a manufacturing facility. Although companies also incur depreciation, utility costs, property taxes, and insurance premiums to sustain their nonmanufacturing operations, these costs are not included as part of manufacturing overhead. Only those indirect costs associated with operating the factory are included in manufacturing overhead. 28 Chapter 1 Direct Cost A direct cost is a cost that can be easily and conveniently traced to a specified cost object. For example, if Adidas is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office. If a printing company made 10,000 brochures for a specific customer, then the cost of the paper used to make the brochures would be a direct cost of that customer. Indirect Cost An indirect cost is a cost that cannot be easily and conveniently traced to a specified cost object. For example, a Campbell Soup factory may produce dozens of varieties of canned soups. The factory manager's salary would be an indirect cost of a particular variety, such as chicken noodle soup. The reason is that the factory manager's salary is incurred as a consequence of running the entire factoryit is not incurred to produce any one soup variety. To be traced to a cost object such as a particular product, the cost must be caused by the cost object. The factory manager's salary is called a common cost of producing the various products of the factory. A common cost is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost. A particular cost may be direct or indirect, depending on the cost object. While the Campbell Soup factory manager's salary is indirect cost of manufacturing chicken noodle soup, it is a direct cost of the manufacturing department. In the first case, the cost object is chicken noodle soup. In the second case, the cost object is the entire manufactur- ing department Cost Classifications for Manufacturing Companies Manufacturing companies such as Samtec, Mack Trucks, and 3M separate their costs LO1-2 Identify and give examples into two broad categoriesmanufacturing and nonmanufacturing costs. of each of the three basic manufacturing cost categories. Manufacturing Costs Most manufacturing companies further separate their manufacturing costs into two direct cost categories, direct materials and direct labor, and one indirect cost category, manufacturing overhead. A discussion of these three categories follows. Direct Materials The materials that go into the final product are called raw materials. This term is somewhat misleading because it seems to imply unprocessed natural resources like wood pulp or iron ore. Actually, raw materials refer to any materials that are used in the final product; and the finished product of one company can become the raw materials of another company. For example, the plasti oduced by DuPont are a raw material used by HP in its personal computers. Direct materials refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. This would include, for example, the seats that Airbus purchases from subcontractors to install in its commercial aircraft, the electronic components that Samsung uses in its cell phones, and the doors that Whirlpool installs on its refrigerators. Managerial Accounting and Cost Concepts 29 IN BUSINESS CHEAP PART COSTS GENERAL MOTORS A FORTUNE A direct material component part, called a detent plunger, is used by General Motors (GM) in the manufacture of its automobile ignition switches. The part, which can be installed by direct laborers in a matter of minutes, costs GM between $2.00 and $5.00 per unit to manufacture. However, when this seemingly trivial component part caused ignition system failures that killed 12 people, its legal and financial impacts on GM became front page news. GM's troubles include a federal criminal probe that is investigating why the company did not act sooner to redesign, recall, and replace the flawed detent plunger. It appears as though GM learned of ignition switch failures in its Chevy Cobalt in 2004, but it did not redesign the detent plunger to eliminate the problem until 2007. Furthermore, the company did not issue a recall for cars that contained the faulty ignition switches until 2014. Beyond its legal matters, GM had to spend $8 million replacing the ignition switches of 1.6 million recalled vehicles. Source: Jeff Bennett, "For GM, Cheap Part Now a Pricey Fix." The Wall Street Joumal, March 13, 2014, pp. B1-B2. Ulrich Baumgarten/Getty Images Direct Labor Direct labor consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor because direct labor workers typically touch the product while it is being made. Examples of direct labor include assembly-line workers at Toyota, carpenters at the home builder KB Home, and electricians who install equipment on aircraft at Bombardier Learjet. Managers occasionally refer to their two direct manufacturing cost categories as prime costs. Prime cost is the sum of direct materials cost and direct labor cost. Manufacturing Overhead Manufacturing overhead, the third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. From a product costing standpoint, manufacturing overhead costs are indirect costs because they cannot be readily traced to specific products. For example, manufactur- ing overhead includes a portion of raw materials known as indirect materials as well as indirect labor. Indirect materials are raw materials, such as the solder used to make electrical connections in a Toshiba HDTV and the glue used to assemble an Ethan Allen chair, whose costs cannot be easily or conveniently traced to finished products. Indirect labor refers to employees, such as janitors, supervisors, materials handlers, maintenance workers, and night security guards, that play an essential role in running a manufacturing facility; however, the cost of compensating these people can- not be easily or conveniently traced to specific units of product. Since indirect materi- als and indirect labor are difficult to trace to specific products, their costs are included in manufacturing overhead. Manufacturing overhead also includes other indirect costs that cannot be readily traced to finished products such as depreciation of manufacturing equipment and the utility costs, property taxes, and insurance premiums incurred to operate a manufacturing facility. Although companies also incur depreciation, utility costs, property taxes, and insurance premiums to sustain their nonmanufacturing operations, these costs are not included as part of manufacturing overhead. Only those indirect costs associated with operating the factory are included in manufacturing overhead