Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 39

Application of the Direct Cost Concept in the Fashion Industry Jane Wilson is the production manager for a company that produces high-fashion designer clothing for women. The product is made in small batches that are presold to high-end retailers, based on specific orders. The product is completed in batches, which consist of a single item of clothing being made for a single or small number of retail customers. In effect, Jane manages the flow of small batches of product through the company’s design/production shop in New York. The materials and labor for each batch are purchased and scheduled well in advance of the time of production. The materials are unique to the job, and the employees assigned to the job will work on it till the job is done. The company has found that dedicating specific employees to each batch improves employee satisfaction, and most important, product quality.

Required Apply what you have just learned about the direct cost concept and explain its specific application with regard to this unique firm.

Step 1 of 2

Direct costs are those costs which can be clearly related to certain good or activity. Indirect costs are those costs which cannot be clearly related to certain good or activity. Cost is expense of resource which happens when the resource is used.