Prime Cost
Costs which can be directly identified with a product or service.This amount of cost would be certainly incurred if we are to produce another unit of the product. Generally prime cost would be the addition of direct
material, direct labour & direct expenses.
Production Overheads
These are identified as indirect costs of material, labour & expenses which can not be directly attributable to the product. These costs should be shared out over the cost objects using an opportunity basis.
- Indirect Material
Production materials that do not become a part of the finished product.
- Indirect Labour
Labour expenses which are not spent directly on cost objects but helps in an indirect way to produce a cost object.
Eg: supervisor salary
- Indirect Expenses
All costs incurred on running the factory, rent, heat & lighting and electricity are indirect expenses.
Non-production Overheads
These are costs incurred on activities other than production & can not be directly attributable to the product or service.
Selling & Distribution Overheads
Sales post salaries, commission & cost of delivery vehicles are some of the selling & distribution overheads
Administration Overheads
Rent paid on administration of building, salaries of directors are categorized as administration overheads.
Full Cost
This is the fair-share of all costs incurred on behalf of the cost object.
Marginal or Incremental Cost
If we are to produce an additional unit of the above product, additional cost that we should incur would be the marginal cost of that product. This may not always be the full cost of the unit due to the "fixed " nature of the production & non-production overheads. We use marginal when referring to one additional cost of producing a set of additional products.
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