Page 97 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes
Figure 5.1

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 classification.

Notes Property tax on the plant is to included under the factory overheads. The tax is
paid by the firm on the plant which is engaging in the production process.

5.2.2 Indirect Cost Classification

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. To find out 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.
Factory Cost = Prime Cost + Factory Overheads

Prime costs include direct labour, materials, bought-outs and sub-contracts, while factory
overheads are nothing but the indirect expenses incurred during the individual process.

Example: Calculate the factory cost for the following data:

Cost of Direct Materials 2,00,000
Direct Wages 50,000
Direct Expenses 10,000
Wages of Foreman 5,000
Electric Power 2,000
Lighting of the Factory 4,000
Storekeeper's Wages 2,500
Oil and Water 1,000
Rent of the Factory 10,500
Depreciation in Plant 1,000
Consumable Store 5,000
Repairs and Renewal Plant 7,000

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