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Cost Accounting – I
Notes The next stage in the process of the unit costing is to find out the cost of the production. The cost
of production is the combination of both the factory cost and administrative overheads.
Cost production = Factory Cost + Administrative Overheads
Administrative overheads is the indirect expenses incurred during the office administration for
the smooth flow production of finished goods.
Example:
In the example discussed to measure factory cost, if the following data is added
`
Office Rent 6,000
Office Lighting 1,250
Office Depreciation 3,500
Director’s Fees 2,500
Manager’s Salary 10,000
Office Stationery 1,000
Telephone Charges 500
postage and Telegrams Calculate production Cost. 250
Solution:
production Cost = Factory Cost + Administrative Cost
Factory Cost = ` 5,58,000 (from the previous example)
Administrative Cost = Office Rent + Office Lighting + Office Depreciation + Director’s Fees +
Manager’s Salary + Office Stationery + Telephone Charges + Postage
and Telegrams
= 6,000 + 1,250 + 3,500 + 2,500 + 10,000 + 1,000 + 500 + 250
= ` 25,000
Hence, production Cost = 5,58,000 + 25,000
= ` 5,83,000
Figure 2.6
Cost of production
Administrative Overheads Factory Overheads
Office Rent
Repairs-office
Office lighting
Depreciation-office
Manager salary
Telephone charges
postage and telegram
Stationery
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