7.

6 Quality Management

7.7 Operation Cost and Product Cost

Operation Cost:
Operating costs are expenses associated with the maintenance and
administration of a business on a day-to-day basis. The operating cost is a component
of operating income and is usually reflected on a company’s income statement. While
operating costs generally do not include capital outlays, they can include many
components of operating a business including:
i. Accounting and legal fees
ii. Bank charges = Bank Loans.
iii. Sales and marketing costs
iv. Travel expenses
v. Entertainment costs
vi. Non-capitalized research and development expenses
vii. Office supply costs
viii. Rent= Office and Equipment.
ix. Repair and maintenance costs = Equipment and Office.
x. Utility expenses = Equipment and Others materials.
xi. Salary and wage expenses = Labours salary and products.
Operating Cost, OC = Cost of Goods Sold + Operating Expenses
By example:
Cost of Goods Sold = RM 10
Operating Expenses = RM 20
So, OC = RM 10 + RM 20 = RM 30

Product Cost
It refer to the costs incurred by a business when manufacturing a good or
providing a service. Production costs include a variety of expenses, such as labor, raw
materials, consumable manufacturing supplies, and general overhead. Additionally,
taxes levied by the government or royalties owed by natural resource extracting
companies are also considered production costs. Recall that product costs include
direct material, direct labor, and manufacturing overhead. The three are detailed
below:
i. Direct material: The cost of bouquet of flowers and goods.
 ii. Direct labor: The cost of wages and benefits for the labours. For example
rider and flowering design labour.
iii. Manufacturing overhead (indirect material): The cost of materials use to
make bouquet and present.
iv. Manufacturing overhead (indirect labor): The cost of wages and benefits
for the security guards to overlook the manufacturing facility
v. Manufacturing overhead (other): The cost of factory rent and cost of factory
utilities.

Example: 10 Order for package A (Flowers and Chocolate).

To produce the packages, incurred costs of:
Flowers= Rm 5
Wages labours= Rm 7/hours/person (x 10 labours)
Others materials= Rm 8
Total Product Cost= Rm 5 + Rm 70 + Rm 8
= Rm 83 (10 order)
= Rm 83/10
= Rm 8.30 (1 order)