Name
Tutor
Course
Date
Memo
To: John Deere
From:
Date:
Subject: Manufacturing costs of the Combine
Mr. Deere,
This memorandum has analyzed the types of costs the factory management needs to consider in determining the expenses of production of the combined harvester. Essential information about the pricing of this equipment will also be highlighted. This machine helps in reaping, threshing, and willowing of harvested crops. The company will incur manufacturing expenditure, which will comprise of all resources used in the process. Effective cost determination leads to manufacturing excellence for the factory, which is achieved through research and development. The harvester produced should be reliable, maintainable, and easy to operate. There are three categories of these charges, and they include direct materials, direct labor, and manufacturing overheads.
Direct Material Costs
The components that are used in the manufacture of a combined harvester include the cutting section, thresher, straw separating equipment, a cleaner, and a system of collecting grains. Expenses incurred in the purchase of these components are referred to as direct materials costs. The cutting section contains straw lifters, which aid in the lifting of stuck crops, cutter bar for removing the straw from the ground, and a reel for placing it on the conveyor. This reel is significant for the transport of the harvest to the thresher and other processing plants. The thresher has several threshing tools such as cylinders and a concave for different purposes in the harvesting process. This unit is conventional, as it is constructed depending on its use during the manufacturing process. In rice combines, for example, it contains the axial-flow threshing and straw separation units. These are beneficial in the management of wet produce; the separation units are for handling the yield instead of straw walkers. These components enable tender treatment of seeds that are easily cracked, for example, Basmati. The breakage of these seeds would reduce the equipment’s production efficiency, as the amount of processed grain would be less.
The straw chopper should be of high quality and must possess a powered spreader, which powers the chaff to it. This will cause even reach across the width of the cutting harvester during harvesting. This component should also contain sets of straw walkers, which separate grains from the straw, which facilitates ease of passage for the crops in the concave part that is vital for quick threshing. The cleaner separates chaff, immature, and straw grains from the clean yields. This system consists of components, such as a blower and many oscillating sieves. The grain tank serves the purpose of collecting the product of the whole process. The management should consider, therefore, that all components are significant in the manufacture of this machinery. The costs incurred should be for the purchase of the right and efficient raw materials. Purchasing components that are sub-standard may be cheap in the short run, but expensive in the long term, as they would require INSERTment and repair frequently.
Cost of direct materials used in the production = cost of opening direct materials inventory + cost of direct materials purchased – cost of closing inventory.
Direct Labor Costs
These are costs associated with the manufacture of a product, which involves payment of salaries and wages to workers for the provision of services. They are part of manufacturing costs incurred by a production entity. The firm should determine the value of its employees using the formula:
Value of employees = Work time * Wage earned
The job time of an employee is determined and measured by learning of time taken to perform a task and sampling of the work done. The manufacture of the combined harvester requires massive human resources for efficient and fast operations in the production. In labor-intensive processes, there is a high probability that some employees are redundant, but this element is not noticeable because of their numbers. However, a periodic labor audit would help identify such redundancies in the production process.
Overhead Costs
These costs consist of manufacturing overheads incurred to produce a product, and do not include expenses such as direct materials, direct labor, administration, or marketing. Overhead costs include those incurred in warehouse construction, utilities purchases, factory repairs, and maintenance. Indirect costs include wages to employees who provide security and upkeep of the warehouse. These workers are not involved in the direct production and assembling of the product. Non-manufacturing overheads comprise of expenses, such as sales and administrative wages, taxes, and other legal costs. Rent from other property, office supplies, and advertising costs is essential for the continuity of production.
Flow of Product Costs
The work-in-progress inventory account is comprised of direct materials and labor costs inclusive of the manufacturing overheads. The finished goods account is created when the production process is complete, and production costs are transferred to it. When goods are sold, the expenses are accounted for as cost of sales. The overheads are recorded in their manufacturing account and are aIDed to the work-in-process. The expenses at the end of the period are aIDed to the cost of sales, while the overused is subtracted from it.