According to the provisions of the manufacturing cost method, what are the components of product cost?

According to the manufacturing cost method, product cost includes all production costs, including direct materials, direct labor and manufacturing expenses, while period cost only includes all non-production costs.

Manufacturing cost method:

Also known as manufacturing cost calculation, it is a traditional cost calculation system. It is the product of the development of capitalist companies in the early 20th century. At that time, materials and labor costs were the main components of product costs, while indirect costs and maintenance costs were not important, so it was difficult to measure and directly included in product costs. After the establishment of the company's standard cost system, materials and labor costs are directly collected in products, and indirect costs use some distribution standards originally used for other purposes. After long-term practice, under today's modern economic conditions, there is serious information distortion in the manufacturing cost system, which is mainly caused by indirect cost allocation.

Manufacturing cost method focuses on providing external data, while variable cost method focuses on providing internal information. There are many differences between them, as follows:

1, the preconditions for application are different.

When applying variable cost method, it is required to analyze the cost behavior first, and divide the total cost into variable cost and fixed cost, especially the manufacturing cost of mixed cost is decomposed into variable manufacturing cost and fixed manufacturing cost according to the output; The application of manufacturing cost method requires that all costs be divided into production costs and non-production costs according to their fields or economic uses.

2. The composition of product cost and period cost is different.

Under the variable cost method, the product cost consists of all variable production costs, including direct materials, direct labor and variable manufacturing costs, and the period cost consists of the sum of all fixed costs and all variable non-production costs; Under the manufacturing cost method, the product cost includes all production costs, including direct materials, direct labor and manufacturing expenses, while the period cost only includes all non-production costs.

3. The cost of goods sold and the cost of inventory are different.

Under the variable cost method, the fixed manufacturing cost is directly included in the current profit and loss as the period cost, so it cannot be converted into the cost of goods sold or the cost of inventory; Under the manufacturing cost method, the fixed manufacturing cost is included in the product cost. When the ending inventory is not zero, the fixed manufacturing expenses incurred in the current period need to be allocated between the current sales and the ending inventory, the fixed manufacturing expenses absorbed by the sales are included in the current profit and loss, and the fixed manufacturing expenses absorbed by the ending inventory are deferred to the next period.

4. The information provided has different purposes.

This is the most essential difference between variable cost method and manufacturing cost method. Variable cost method mainly meets the needs of internal management, and there is a certain regular relationship between profit and sales volume; Manufacturing cost method mainly meets the needs of providing external reports, and the relationship between profit and sales volume lacks regularity.