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Thursday, March 25, 2010

Components of Total Cost

1.      Prime Cost
Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.
2.      Factory Cost
Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.
3.      Office Cost
Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.
4.      Total Cost
Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.
Various components of total cost can be depicted with the help of the table below:
Components of total cost
Direct material
Direct labor
Direct expenses
Prime cost or direct cost or first cost
Prime cost plus works overheads
Works or factory cost or production cost or manufacturing cost
Works cost plus office and administration overheads
Office cost or total cost of production
Office cost plus selling and distribution overheads
Cost of sales or total cost

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