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Local Steel Material
1,00,000
Imports of sheet materials 5,00,000 Excise duty 1,00,000
50,000
Administrative office expenses
Direct labour in works 5,00,000 Salary of the managing director 30,000
Indirect labour in works 1,00,000 Salary of the joint managing 20,000
director
Storage of raw materials 25,000 Fees of Consultant 10,000 Unit 5: Basic Cost Concepts
and spares
Fuel 75,000 Expenses of Promotion 80,000
Tools consumed 10,000 Selling expenses 90,000
Notes
Depreciation on plant 50,000 Sales depots 60,000
Salaries of works 50,000 Packaging and distribution 60,000
personnel

But the local business environment conditions are as follows:
Cost of the materials expected to increase by 5%
Cost of the direct labour soared up to 20% due to greater demand for skilled labour in the
market.
Fuel cost expected to raise by 2.5% due to Gulf War crisis.
The government has announced 20% decrease in the volume of excise duty on the import
of sheet materials.
The profit margin of 10% on sales is to be charged on the job work.
In addition to the early information, the government has announced the amount of subsidy
for single unit 40.
Question
You are required to find out the price of the steel almirah for the domestic market and
exports to the country Indonesia.

5.6 Summary

Cost denominates the use of resources only in terms of monetary terms.
In brief, cost is nothing but total of all expenses incurred for manufacturing a product or
attributable to given thing.
Service centre is the centre or division which normally incurs direct or indirect costs but
does not work directly on products.
Normally, maintenance dept. and general factory office are very good examples of the
service centre.
Costs which cannot be controlled are known as uncontrollable costs.

All fixed costs are very difficult to control or bring down; they rigid or fixed irrespective
to the level of production.
A budget is detailed plan of operation for some specific future period. It is an estimate
prepared in advance of the period to which it applies.
It acts as a business barometer as it is complete programme of activities of the business for
the period covered.
Under costing, the role of unit costing is inevitable tool for the industries not only to
identify the volume of costs incurred at every level but also to determine the rational
price on the commodities in order to withstand among the competitors.
Direct labour is the cost of the labour which is directly involved in the production of either
a product or service.
Indirect expenses are the expenses other than that of the direct expenses in the production
of a product.
The expenses which are not directly part of the production process of a product or service
known as indirect expenses.

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