Page 29 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Figure 2.1

Prime cost

Direct Material

Direct Labour

Direct Expenses

The next stage in the unit costing to find out the factory cost. The factory cost could be computed

by the combination of the indirect cost classifi cation.

Self Assessment

Choose the appropriate answer
3. Direct cost is

(a) Direct Materials
(b) Direct labour
(c) Direct Expenses

(d) Prime cost
4. Prime cost is the summation of
(a) Direct and indirect costs

(b) Product and administrative costs
(c) Cost of sales and profit margin

(d) Direct materials, direct labour and direct expenses

2.3 Indirect Cost Classifi cation

Among the classification of the overheads, the first and foremost is factory overheads. The factory

overheads and work overheads are synonymously used. The factory overheads are nothing but
the indirect costs incurred at the factory site. The total factory cost or works cost incurred in the
factory could be derived by adding the both direct cost and indirect cost incurred during the
factory process.

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