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Output Costing | Prime Cost | Factory Cost | Cost of Production | Total Cost

Arjun EP

Published on: April 14, 2021

Prime Cost in Output Costing

Prime cost is the aggregate of direct costs, which may vary in proportion to the volume of output.

In other words, it is the total of direct materials, direct labour and direct or chargeable expense.

Prime cost is prepared to find out the weighted direct cost.

The direct cost covers the major part of all the components.

Cost Sheet

Particulars		Amount	Amount
Opening stock of raw materials			xxxx
Add:	Purchase		xxxx
	Carriage on purchase (carriage inward, purchase expenses)		xxxx
	Import or custom duty		xxxx
Less:	Closing stock of raw materials		xxxxx
	Raw materials consumed or used		xxxx
Add:	Direct materials		xxxx
	Direct or productive labour (wages)		xxxx
	Direct expenses		xxxx
Prime cost		–	xxxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

The following information of AB Manufacturing Company is provided to you:

Stock of raw materials (1 Jan)	150,000	Carriage inward	50,000
Raw materials purchased	900,000	Custom duty	20,000
Stock of materials on (31 Dec)	120,000	Direct wages	800,000
Chargeable expenses	75,000

Required: value of materials consumed and prime cost

[Answer: Materials consumed = Rs 21,42,000;

Prime cost = Rs 32,67,000]

Solution:

Cost Sheet

Particulars		Amount	Amount
Stock of raw materials (1 Jan)			1,50,000
Add:	Raw materials purchased		9,00,000
Add:	Carriage inward		50,000
Add:	Custom duty		20,000
Less:	Stock of materials (31 Dec)		(120,000)
	Value of material consumed		10,00,000
Add:	Direct wages	800,000
	Chargeable expenses	+ 75,000	8,75,000
Prime cost			18,75,000

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Factory Cost in Output Costing

Factory cost is also known as factory expenses, work cost, manufacturing expenses, production expenses.

Factory or work cost is the sum of prime cost and factory expenses.

Factory expenses include all the indirect expenses incurred in production departments.

It is prepared to find out factory cost.

Formula of work cost

Prime cost + Factory overhead = Work cost

. Cost Sheet

Particulars		Amount	Amount
Prime cost			xxxx
Add:	Factory overheads:
	Indirect/Unproductive wage	xxxx
	Indirect materials	xxxx
	Consumed store	xxxx
	All factories expenses:
	Estimating expenses, drawing	xxxx
	Rent, rates, phone/mobile/internet expenses	xxxx
	Heating and power	xxxx
	Coal, gas, steam, water	xxxx
	Salary to general staff	xxxx
	Works manager’s salary	xxxx
	Depreciation on factory machine, furniture and building	xxxx
	Repairs and maintenance	xxxx
	Factory stationery	xxxx
Add:	Opening work-in-progress	xxxx
Less:	Closing work-in-progress	(xxx)	xxxx
Factory or Work Cost		–	xxxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1B

The following information of BC Manufacturing Company for six months is provided to you ($/₹/Rs):

Prime cost	18,75,000	Factory heating and lighting	7,500
Indirect materials	15,000	Indirect labour	12,000
Power and fuel	15,000	Depreciation of plant	27,000
Factory rent and insurance	20,000	Coal, gas and water	12,000
Repairs plant and machinery	5,000	Work’s manager salary	15,500

Required: Work cost

[Answer: Works cost = Rs 13,29,000]

Solution:

Cost Sheet

Particulars		Amount	Amount
Prime cost			18,75,000
Add:	Work overheads:
	Indirect materials	15,000
	Indirect labour	12,000
	Power and fuel	15,000
	Depreciation of plant	27,000
	Factory rent and insurance	20,000
	Coal, gas and water	12,000
	Repairs plant and machinery	5,000
	Work’s manager salary	15,500
	Factory heating and lighting	7,500	1,29,000
Work cost			20,04,000

Cost of Production in Output Costing

Cost of production is the aggregate of work cost and office overheads.

Office overhead is also known administrative overheads.

It involves all the expenses required in office operation and administrative works.

Cost of production is calculated from work cost and office overheads.

Formula of cost of production

Prime cost + Factory expenses + Office expenses = Cost of production

Cost Sheet

Particulars		Amount	Amount
Factory or Work Cost			xxxxx
Add:	office or administrative overheads:
	Establishment charge Manager or director salary	xxxx xxxx
	All office expenses:	xxxx
	Salary to office staff	xxxx
	Rent, rates and tax	xxxx
	Stationery and postage	xxxx
	Phone/mobile/internet expenses	xxxx
	Bank charge, audit fee, Insurance	xxxx
	Depreciation on office equipment	xxxx
	Depreciation on office furniture	xxxx
	Depreciation on office building	xxxx	xxxx
Cost of Production			xxxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1C

CK Manufacturing Company has following office expenses information related to particulars product:

Factory cost	20,04,000	Printing and stationary	7,500
Telephone and fax	4,000	Establishment expenses	3,000
Staff salary	75,000	Internet and Email	3,300
Rent and rates	50,000	Depreciation of furniture	5,000
Postage and telegraph	1,200	Audit fee	8,000
Legal fees	5,000

Required: Cost of production

[Answer: COP = Rs 21,66,000]

Solution:

Cost Sheet

Particulars		Amount	Amount
Factory cost			20,04,000
Add:	Office or administrative overheads:
	Telephone and fax	4,000
	Staff salary	75,000
	Rent and rates	50,000
	Postage and telegraph	1,200
	Legal fees	5,000
	Printing and stationary	7,500
	Establishment expenses	3,000
	Internet and Email	3,300
	Depreciation of furniture	5,000
	Audit fee	8,000	1,62,000
Cost of production			21,66,000

Total Cost or Cost of Sales in in Output Costing

The total cost is the aggregate of cost of production and selling and distribution overheads.

Selling and distribution overheads involve all the expenses required in sales promotion and distribution of finished goods to customers.

It is needed to determine the total cost of product.

It helps the manager to fix selling price of the product.

Selling price is found out by adding certain profit in total cost.

Formula of total cost

Prime cost + Factory expenses + Office expenses + S&D expenses = Total cost

Cost Sheet

Particulars		Amount	Amount
Cost of Goods Sold			xxxxx
Add:	Selling and distribution overheads:
	Carriage outward (on sales)	xxxx
	Packaging (secondary)	xxxx
	Advertisement or free sample	xxxx
	Salary and commission to sales agent or boy	xxxx
	Rent to warehouse or godown	xxxx
	Stationery, postage (godown)	xxxx
	Phone/mobile/internet expenses (godown)	xxxx
	Insurance of warehouse	xxxx
	Depreciation on warehouse	xxxx
	Depreciation on delivery van	xxxx
	Repairs and maintenance	xxxx
	Cost of Sales or Total Cost		xxxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1D

The following information of DP Manufacturing Company is provided to you:

Cost of production	21,66,000	Packaging (secondary)	2,500
Advertisement	30,000	Free samples	5,000
Carriage outward	25,000	Discount allowed	4,500
Rent of warehouse	15,000	Repairs of delivery van	5,000
Commission to agent	7,500	Salary of salesmen	35,000
TA/DA of salesmen	3,500	Depreciation of deliver van	4,000

Required: Total cost

[Answer: Total cost = Rs 23,03,000]

Solution:

Cost Sheet

Particulars		Amount	Amount
Cost of Production			21,66,000
Add:	Selling and distribution overheads:
	Advertisement	30,000
	Carriage outward	25,000
	Rent of warehouse	15,000
	Commission to agent	7,500
	TA/DA of salesmen	3,500
	Packaging (secondary)	2,500
	Free samples	5,000
	Discount allowed	4,500
	Repairs of delivery van	5,000
	Salary of salesmen	35,000
	Depreciation of deliver van	4,000	137,000
	Total cost		23,03,000

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PROBLEMS AND ANSWERS OF COST SHEET

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1A

The following information of AB Manufacturing Company is provided to you ($/₹/Rs):

Stock of raw materials (1 Jan)	50,000	Carriage inward	30,000
Raw materials purchased	500,000	Custom duty	20,000
Stock of materials on (31 Dec)	100,000	Direct wages	200,000
Chargeable (direct) expenses	75,000

Required: Value of materials consumed and prime cost

[Answer: Materials consumed = Rs 500,000; Prime cost = Rs 775,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1B

The following information of AB Manufacturing Company is provided to you ($/₹/Rs):

Stock of raw materials (1 Jan)	60,000	Carriage on purchase	20,000
Raw materials purchased	450,000	Import duty	25,000
Stock of materials on (31 Dec)	90,000	Direct labour	100,000
Direct expenses	75,000	Direct materials	50,000
Indirect expenses	36,000

Required: Value of materials consumed and prime cost

[Answer: Materials consumed = Rs 465,000; Prime cost = Rs 690,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1C

The following information of BC Manufacturing Company for six months is provided to you($/₹/Rs):

Prime cost	775,000	Repairs plant and machinery	5,000
Indirect materials	15,000	Work’s manager salary	15,500
Indirect labour	12,000	Factory heating and lighting	7,500
Power and fuel	15,000	Scrap sold	2,000
Depreciation on plant	23,000	Work-in-progress (beginning)	50,000
Factory rent and insurance	20,000	Work-in-progress (ending)	30,000
Coal, gas and water	12,000

Required: Work cost for six months

[Answer: Works cost = Rs 918,000]*Scrap sold is income

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1D

The following information of BC Manufacturing Company for six months is provided to you ($/₹/Rs):

Prime cost	690,000	Coal, gas and water	19,000
Indirect materials	24,000	Repairs plant and machinery	5,000
Indirect labour	20,000	Scrap sold	3,000
Power and fuel	14,000	Work-in-progress (beginning)	80,000
Depreciation on plant	25,000	Work-in-progress (ending)	50,000
Factory insurance	30,000	Depreciation on office furniture	15,000

Manager’s salary Rs 36,000 is allocated into 3: 2 for factory and office respectively.

Required: Work cost for six months

[Answer: Works cost = Rs 875,600] *Manager’s salary = Rs 21,600]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1E

CK Manufacturing Company has the following office expenses information related to particulars product ($/₹/Rs):

Factory cost	900,000	Tax paid	15,000
Telephone and fax	4,000	Printing and stationary	7,500
Staff salary	75,000	Establishment expenses	3,000
Rent and rates	50,000	Internet and email	3,300
Postage and courier	1,200	Depreciation on furniture	5,000
Legal fees	5,000	Audit fee	8,000
Opening finished goods	68,000	Closing finished goods	30,000
Profit on sales of old computer	5,000

Required: Cost of production and cost of goods sold

[Answer: COP = Rs 10,62,000; GOGS = Rs 11,00,000]

*No entry for profit on computer and tax

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1F

The following information of EP Manufacturing Industry provides to you:

Particulars	Amount	Particulars	Amount
Opening stock of materials	1,50,000	Carriage inward	50,000
Raw materials purchased	20,50,000	Custom duty	12,000
Closing stock of materials	1,20,000	Direct wages	10,50,000
Indirect materials	15,000	Indirect labour	12,000
Power and fuel	15,000	Depreciation of plant	27,000
Factory rent and insurance	20,000	Coal, gas and water	12,000
Repair plant and machinery	5,000	Work’s manager salary	15,500
Telephone and fax	2,500	Printing and stationary	7,500
Staff salary	15,000	Establishment expenses	3,000
Rent and rates	10,000	Internet expense	1,500
Postage and telegraph	1,200	Depreciation of furniture	1,500
Legal fees	2,500	Audit fee	5,000
Chargeable expenses	75,000	Advertisement	10,000
Carriage outward	12,000	Discount allowed	4,500
Rent of warehouse	12,500	Repairs of delivery van	1,500
Commission to agent	7,500	Salary of salesmen	16,000
TA/DA of salesmen	3,500	Depreciation of deliver van	4,000
Packaging (secondary)	2,500	Sales	40,00,000