Page 31 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Figure 2.2

Factory cost

Factory overheads Prime cost
Wages for foreman

Electric power

Storekeeper’s wages

Oil and water

Factory rent

Repairs and Renewals

Depreciation

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

Cost Production = Factory Cost + Administrative Overheads

Administrative overheads is the indirect expenses incurred during the office administration for

the smooth flow production of fi nished goods.
Example: In the previous example discussed to measure factory cost, if the following
data is added
`
Offi ce Rent 6,000
Offi ce Lighting 1,250
Offi ce Depreciation 3,500
Director’s Fees 2,500
Manager’s Salary 10,000
Offi ce Stationery 1,000

Telephone Charges 500
Postage and Telegrams 250
Calculate Production Cost.
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
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