Non-manufacturing costs

Meaning

Costs outside the factory, i.e. selling, distribution, and administration. These are period costs and are not included in the cost of inventory.

Typical examples:

Selling and distribution costs

1. Sales commission for sales staff.
2. Advertising and promotion expenses.
3. Delivery/transportation of finished goods to customers.

Administrative costs

1. Office staff salaries (e.g. HR, accounts, admin).
2. Office rent, office utilities, telephone, stationery at head office.

Manufacturing overhead costs

Meaning

All indirect costs related to the factory/production that are not direct materials or direct labour. Still part of product cost, but cannot be traced easily per unit.

Typical examples:

Indirect factory costs

1. Factory rent or factory building depreciation.
2. Factory electricity, water, and utilities.

Indirect labour and materials in the factory

1. Salary of factory supervisor or maintenance staff.
2. Indirect materials like lubricants, cleaning supplies, screws, glue, etc. used in production but not worth tracing per unit.

Prime costs

Meaning

Prime cost = Direct Materials + Direct Labour

These are costs that can be directly traced to each unit of product.

Typical examples for a manufacturer:

Direct materials – e.g. main raw materials used in production

Example: Wood, steel, fabric, or main components used to make the product.

Direct labour – wages of workers who physically convert materials into finished goods

Example: Wages of machine operators, assembly line workers who work directly on the product.

Differences between management accounting and financial accounting

Aspect	Management Accounting	Financial Accounting
Report frequency / timing	Prepared as often as needed (daily, weekly, monthly, by project, ad hoc). Often uses future-oriented and real-time information for planning and control.	Prepared periodically according to reporting cycles (usually quarterly and annually). Mainly historical information based on past transactions.
User orientation	Aimed at internal users: managers at all levels, department heads, project leaders, budget committees, etc. Focus is on helping decision making, planning, controlling, and performance evaluation inside the organisation.	Aimed at external users: shareholders, investors, lenders, regulators, tax authorities, and sometimes the public. Focus is on providing a true and fair view of financial position and performance of the whole entity.