Page 98 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 5: Basic Cost Concepts

Solution: Notes
Factory Cost = Prime Cost + Factory Overheads
Prime Cost = Cost of Direct Materials + Direct Wages + Direct Expenses
= 2,00,000 + 50,000 + 10,000

= 2,60,000
Factory Overheads = Wages of Foreman + Electric Power + Lighting of the Factory +
Storekeeper’s Wages + Oil and Water + Rent of the Factory +
Depreciation in Plant + Consumable Store + Repairs and Renewal
Plant

= 2,00,000 + 50,000 + 10,000 + 5,000 + 2,000 + 4,000 + 2,500 + 1,000 +
10,500 + 1,000 + 5,000 + 7,000
= 2,98,000

Hence, Factory Cost = 2,60,000 + 2,98,000
= 5,58,000

Figure 5.2

Factory Cost
Factory Overheads Prime Cost

Wages for foreman
Electronic 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

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 Contd...
Manager's Salary 10,000
Office Stationery 1,000
LOVELY PROFESSIONAL UNIVERSITY 93
Telephone Charges 500
Postage and Telegrams 250