Boat prices are affected by multiple factors, such as manufacturing expenses and fees. But what are expense types, and which of the following is a direct cost of manufacturing a sport boat: labor fees, materials, or fuel used for production?
The answer is all of them since the direct cost is any expense tied to manufacturing the boat. However, expense types can be confusing, so let’s take a closer look to understand better.
What is the Direct Cost of Manufacturing a Sport Boat
To put it simply, direct cost is the amount of money directly linked to an item’s production. The simplest way to determine if a certain expense is direct is if it can be attributed to a specific item or service, such as direct labor and material.
The direct cost of manufacturing a boat includes fees charged because of production that would not be incurred otherwise. Calculating it uses direct materials and components.
To make a boat, a manufacturer needs to procure materials for its different parts. All these expenses add up, such as the cost of boat engine, hull, and deck, along with everything else.
Shipping components and delivery of items are also the direct product cost. Even expenses for utilities and machinery needed for production are also a part of direct costs.
Compensation for the workers directly involved in the production of the boat is another instance of direct cost. This affects their wages, overtime pay, and benefits. Note that this only applies to employees who work on the boat parts, not the overseeing supervisors.
What Affect the Cost of Manufacturing a Sport Boat
Boats are expensive and specialized types, such as luxury models or sports boats, are even more so. But what influences these prices in the first place? Other than the direct cost, there’s also the indirect cost to take into consideration.
In short, indirect costs cover anything that is not a product cost. These are mainly expenses incurred for the continued operation of a business but not any sort of production. A few examples would be operating and maintenance fees for an office.
In addition to direct and indirect costs, we also need to calculate profit to come up with a boat’s sale price. But we’ll leave that discussion for another day.
The next time you come across the question, “which of the following is a direct cost of manufacturing a sport boat?”, you should have a better idea after having read through this. It’s also handy to know to better follow current events and the like.
Did you learn anything surprising? Tell us your thoughts in the comments section below.
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