6-Types of Cost-23-08-2021 (23-Aug-2021) Material - I - 23-Aug-2021 - MEE1014 - Elements - of - Cost - New

MEE1014
INDUSTRIAL ENGINEERING AND MANAGEMENT
Dr T SAMPATH KUMAR
Associate Professor
School of Mechanical Engineering
VIT University
sampath.thepperumal@vit.ac.in
9443964297
Module II
Elements of cost:
Determination of Material cost - Labour cost – Expenses - Types of cost –
Cost of production – Over-head expenses– break even analysis - Problems.
8/25/2021 2
Dr T Sampath Kumar, Associate Professor, SMEC-VIT
Introduction
The cost of any product or service is the sum of various segments of the cost. Such
segments are treated as elements of cost
Example :
The cost of a chair prepared out of a piece of wood involves following cost
elements:
• Cost of raw materials (piece of wood)
• Labor cost (wages paid to operator)
• Overhead cost (Building and other services required for manufacturing chairs)
8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 3

Introduction
It is basics in cost accounting. If elements of cost is known, one can find the cost
of product.
Element of cost provides the complete structure in which we can identify our total
cost.

Classification of Costs
According to
• Nature
• Function
• Behaviour
• Identifiably
• Association with products
• Controllability
• Normality
• Time
• Relevance and
• Other costs
According to nature of elements
One of the main functions of cost accounting is to classify the costs. Costs may be
classified according to its elements. We can distinguish three basic elements in the
manufacturing cost of any product or services.
The three main elements of costs are
▪ Material
▪ Labour
▪ Expense

Elements of Costs

Material
Material indicates principal substances used in production.
Examples are: cotton, jute, iron-ore, and silicon.
The cost of material is further divided in to direct and indirect materials

Direct Material
Direct materials refer to the cost of materials which become a major part of the
finished product. They are raw materials that become an integral part of the
finished product and are conveniently and economically traceable to specific units
of output.
Some examples of direct materials are: raw cotton in textiles, crude oil to make
diesel, steel to make automobile bodies.

Indirect Material
These are materials which are used ancillary to manufacture and cannot be traced
in to the finished product. These form a part of manufacturing overhead.
Examples are glue, thread, nails, consumable stores, printing and stationary
material

Labour
Labour is the physical or mental effort expended on the production of an item. It is

the active factor of production as against material which is a passive factor. The
cost of labour further divided into direct and indirect labour.

Direct Labour
Direct labour is defined as the labour associated with workers who are engaged in
the production process. It the labour costs for specific work performed on a
product that is conveniently and economically traceable to end products. Direct
labour is expended directly upon the materials comprising the finished product.
Examples are the labour of machine operators and assemblers

Indirect Labour
This includes wages paid for all labour which is not directly engaged in changing
the shape or composition of raw materials. It cannot be traced directly to the
product. Lick indirect materials, indirect labour forms part of the manufacturing
overheads.
Examples of indirect labour cost are wages paid to foremen, supervisors,

storekeepers, time-keepers, salaries of office executives and the commission
payable to sales representatives.

Expenses
• This is the cost of services provided to the organisation and the notional cost
of assets owned.

Direct Expenses
Direct expenses include any expenditure other than direct material and direct
labour directly incurred on a specific cost unit (product or job). Such special
necessary expenses can be identified with cost units and are charged directly to the
product as part of the prime cost.
Some examples of direct expenses are:
(a) Cost of special layout, designing or drawings;
(b) Hire of tools or equipment for a particular production or product;
(c) Maintenance costs of such equipments.

Indirect Expenses
Indirect expenses are those incurred for the business as a whole rather than for a
particular order, job or product.
Examples of such expenses are rent, lighting, insurance charges.

Overhead Expenses
Overheads may be defined as the aggregate of indirect material, indirect labour and
indirect expenses. Thus, all indirect costs are overheads. These cannot be
associated directly with specific products. Hence, the amount of overhead has to be
allocated and apportioned to products and services on some reasonable basis. The
synonymous term is “burden”.
Overheads may be subdivided in to following groups:
a) Factory overheads.
b) Administrative overheads.
c) Selling and distribution overheads.

Factory Overhead Expenses
Factory overhead also called manufacturing expenses or factory burden may be

defined as the cost of indirect materials, indirect labour and indirect expenses.
Examples of such items are lubricants, cotton waste, hand tools, works stationery.

Selling overhead expenses
Selling overhead is also known as marketing or selling overhead.

Distribution overhead expenses
Distribution expenses usually begin when the factory costs end.
Such expenses are generally incurred when the product is in saleable condition.
It covers the cost of making sales and delivering/dispatching products.
These costs include advertising, salesmen salaries and commissions, packing,

storage, transportation, and sales administrative costs.

Administrative overhead expenses
Administrative overhead includes costs of planning and controlling the general

policies and operations of business enterprises.

Fixed Cost
Fixed cost is the cost which does not change in total for a given time period despite
wide fluctuations in output or volume of activity.
Example: Rent, Property taxes, Supervising salaries, depreciation on office

facilities, advertising, insurance etc..
Fixed cost can be further classified into three types:
▪ Committed cost
▪ Managed cost
▪ Discretionary cost

Variable Cost
Variable costs are those costs that vary directly and proportionately with the
output.
There is a constant ratio between the change in the cost and change in the level of
output.
Direct materials cost and direct labour cost are the costs which are generally
variable costs.

Mixed Cost
Mixed costs are made up of fixed and variable elements. They are combination of
semi-variable costs and fixed costs.

Prime Cost
𝑷𝒓𝒊𝒎𝒆 𝑪𝒐𝒔𝒕
= 𝐷𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 + 𝐷𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡
+ 𝐷𝑖𝑟𝑒𝑐𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 (𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒)

Factory Cost
𝑭𝒂𝒄𝒕𝒐𝒓𝒚 𝑪𝒐𝒔𝒕 = Prime cost + factory overhead
𝑭𝒂𝒄𝒕𝒐𝒓𝒚 𝑪𝒐𝒔𝒕
= Direct material cost + Direct labour cost + Direct expenses(variable)+
Factory overhead

Total Cost
Total cost = Factory cost

+ Selling overhead
+ Distribution overhead
+ Administrative overhead
Selling Price = Total cost + Profit or Loss

Problem 1:
From the following data, find
a) Material cost
b) Prime cost
c) Direct cost
d) Factory cost
e) Administrative overheads
f) Cost of production
g) Selling and distribution overheads
h) Total cost or cost of sales
i) Selling price
Assume a net profit of Rs. 10,000.
Rs.
1 Material in hand (April 1, 2015) 60,000
2 Material purchased 2,50,000
3 Director’s fees 3,500
4 Advertising, etc. 12,000
5 Depreciation on sales department car 1,200
6 Printing and stationary charges 300
7 Plant depreciation 5,000
8 Wages of direct workers 70,000
9 Wages of indirect (factory) workers 10,000
10 Rent of factory building 5,000
11 Postage, telephone and telegraph 200
12 Water and electricity for factory 1,000
13 Office salaries 2,000
14 Rent of the office 500
15 Rent of the show room 1,500
16 Commission of salesman 2,500
17 Sales department car expenses 1,500
18 Material in hand (March 31, 2016) 50,000
19 Variable direct expenses 750
20 Plant repair and maintenance 3,000
21 Heating, lighting and water for office use 2,500
22 Cost of distributing goods
8/25/2021
2,000 38
Sl. Rs. Type of cost
1 Material in hand (April 1, 2015) 60,000 Direct cost
2 New material purchased 2,50,000 Direct cost
3 Director’s fees 3,500 Administrative overhead
4 Advertising, etc. 12,000 Selling & Distribution overhead
5 Depreciation on sales department car 1,200 Selling & Distribution overhead
6 Printing and stationary charges 300 Administrative overhead
7 Plant depreciation 5,000 Factory or Production overhead
8 Wages of direct workers 70,000 Direct cost
9 Wages of indirect (factory) workers 10,000 Factory or Production overhead
10 Rent of factory building 5,000 Factory or Production overhead
11 Postage, telephone and telegraph 200 Administrative overhead
12 Water and electricity for factory 1,000 Factory or Production overhead
13 Office salaries 2,000 Administrative overhead
14 Rent of the office 500 Administrative overhead
15 Rent of the show room 1,500 Selling & Distribution overhead
16 Commission of salesman 2,500 Selling & Distribution overhead
17 Sales department car expenses 1,500 Selling & Distribution overhead
18 Material in hand (March 31, 2016) 50,000 Direct cost (-)
19 Variable direct expenses 750 Direct cost
20 Plant repair and maintenance 3,000 Factory or Production overhead
21 Heating, lighting and water for office use 2,500 Administrative overhead
22 8/25/2021
Cost of distributing goods 2,000 Selling & Distribution overhead 39
Solution :
(a)Material cost
= Cost of material in hand on April 1, 2015
- Cost of material in hand on March 31, 2016
+ Cost of new material purchased
= 60,000 – 50,000 + 2,50,000 = Rs. 2,60,000
(b) Prime Cost

= Direct material cost
+ Direct labor cost
+ direct expenses
= 2,60,000 + 70,000 + 750 = Rs. 3,30,750
(c) Direct Cost

It is same as Prime Cost
(d) Factory Cost

=Prime cost + Production overhead (Sl.no. 7,9,10,12,20)
= 3,30,750 + 5,000 + 10,000 + 5,000 + 1,000 + 3,000
= Rs. 3,54,750
8/25/2021 40
(e) Administrative Overheads (Sl.no. 3,6,11, 13, 14, 21)
= 3,500 + 300 + 200 + 2,000 + 500 + 2,500
= Rs. 9,000
(f) Cost of Production = Factory Cost + Administrative overhead

= 3,54,750 + 9,000
= Rs. 3,63,750
(g) Selling & Distribution Overhead (Sl.no. 4, 5, 15, 16, 17, 22)
= 12,000 + 1,200 + 1,500 + 2,500 + 1,500 + 2,000
= Rs. 20,700
(h) Total Cost or Cost of Sales

= Cost of production + Selling & Distribution overhead
= 3,63,750 + 20,700
= Rs. 3,84,450
(i) Selling Price = Total Cost or Cost of sales + Profit

= 3,84,450 + 10,000
= Rs. 3,94,450
8/25/2021 41
Problem 2
A factory producing 150 electric bulbs a day, involves direct material cost of Rs.250, direct labour
cost of Rs.200 and factory overheads of Rs.225. Assuming a profit of 10% of the selling price and
selling on cost (overhead) 30% of the factory cost, calculate the selling price of one electric bulb.
Solution:
Factory cost = Direct material cost + Direct labour cost + Factory overheads
= Rs.250 + 200 + 225 = Rs. 675
Total cost = Factory cost + Selling overhead (i.e., on cost)
= Rs.675 + Rs. 675 X 30 / 100
= Rs. 877.50 …………………… (i)
8/25/2021 42
Also, Total cost = Selling price – Profit
= S.P. -- S.P. X 10/100 …..(ii)
Equating (i) and (ii) above
S.P. – S.P. X 10/100 = Rs. 877.50
Therefore,
Selling price = Rs. 975
Hence the selling price of one electric bulb
= Rs. 975 / 150
= Rs. 6.50
8/25/2021 43
Problem 3
Calculate the selling price of one fountain pen from data given below.
No. of fountain pens = 135
Labour cost = Rs.200
Material cost = Rs.160
Factory overheads = 35% of Prime cost
Administration & selling overheads = 20% of factory cost
Profit = 10% of total cost

(a) Prime Cost = Direct material cost + Direct labor cost + direct expenses
= 160 + 200
= Rs.360
(b) Factory Cost = Prime cost + Production overhead or Factory overhead
= 360 + 0.35 (360)

= Rs.486
(c) Cost of Production = Factory Cost + Administrative overhead

= 486 + 0.2 (486)
= Rs.583.20
(d) Total Cost or Cost of Sales = Cost of production + Selling overhead
= 583.20 + 0.2 (486)
= Rs.680.40
(e) Selling Price = Total Cost or Cost of sales + Profit
= 680.40 + 0.1 (680.40)
= Rs.748.44
Problem 4
A drill press costs Rs.6,000. A discount of 25% of this price is given to the distributor. If
labour cost, Material cost and factory overheads are as 4:1:2; and administrative & selling
expenses are 25% of the factory cost, calculate the profit of the factory for one drill press.
Assume factory overheads of Rs.800.
Drill press price = Rs. 6000
Distributor discount = 25% discount = 0.25x6000 =Rs.1500
Selling Drill press = 6000-1500 = Rs.4500
Factory overhead = Rs. 800
Labour cost, material cost and factory overhead = 4:1:2
Therefore, 1600:400:800

(a) Prime Cost = Direct material cost + Direct labor cost + direct expenses
= 400 + 1600
= Rs. 2000
(b) Factory Cost = Prime cost + Production overhead or Factory overhead
= 2000 + 800
= Rs. 2800
(c) Cost of Production = Factory Cost + Administrative overhead

= 2800 + 0.25 (2800)
= Rs. 3500
(d) Total Cost or Cost of Sales = Cost of production + Selling overhead
= 3500+ 0.25 (2800)
= Rs. 4200
(e) Selling Price = Total Cost or Cost of sales + Profit
4500= 4200 + Profit
Profit for one drill press = Rs. 300
Break-Even Analysis
Break-even Analysis (BEA) is a graphical representation of the cost-volume

relationship.
Break-even Point (BEP) represents the level of output at which there is no profit
and no loss.
Profit is the difference between total revenue and total production cost
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 × 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 × 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

Break-Even Analysis
Total cost consists of VC and FC
VC varies with the volume of production but, FC remains fixed.
VC changes in response to changes in volume of production
VCs and Volume of production is proportional.
Examples include the cost of direct labour, raw materials and sales commissions.
FCs do not change in response to changes in volume or activity.
Examples include the costs of depreciation, supervisory salaries and maintenance

expenses.
Break-Even Analysis
Assumptions
BEA or Cost –Volume-profit (CVP) analysis has the following assumptions:
1. The changes in the level of revenues and costs arise due to the changes in the
number of products/or services units produced and sold. A cost driver is any factor
that affects, a revenue driver is any factor that affects revenue.
2. Total costs can be divided into a fixed component and a component that is variable
with respect to the level of output.
❑ VCs includes (a) Direct materials (b) Direct labour (c) Direct chargeable expenses
❑ Variable overheads includes (a) Variable part of factory overheads (b) Administration overheads
(c) Selling and distribution overheads.
Break-Even Analysis
Assumptions
3. There is a linear relationship between revenue and cost. When put in a graph, the
behaviour of total revenue and total cost is linear, that is y = mx+c holds good,
which is the equation of a straight line, where y is revenue and x is the cost, m is the
coefficient of cost representing profit, c is a constant.
4. The unit SP, units VCs and FCs are constant.
5. The theory of CVP is based upon the production of a single product. However, of
late, management accounts are functioning to give a theoretical and a practical
approach to multi-product CVP analysis.

Break-Even Analysis
Assumptions
6. The CVP analysis either covers a single product or assumes that the sales mix of
multiple products will remain constant as the level of total units sold changes.
7. All revenues and costs can be added and compared without taking into account the
value of money.
8. The theory of CVP is based on the technology that remains constant.
9. The theory of price elasticity is not taken into consideration.

Break-Even Analysis
Margin of Safety, contribution margin (CM) and profit volume ratio are the important
terms and help in the decision-making process.
Margin of Safety: The margin of safety is the difference between the expected level of
sales and a break-even sales. It may be expressed in units or rupees of sales.
Contribution margin: it is the difference between the SP and the VC per unit. It
measures the amount each unit sold contributes to cover FCs(first) and increase profit
(once FCs are covered). The relationship is as SP – VC.

Break-Even Analysis
Contribution margin ratio: This ratio expresses the contribution of every sales rupee in
covering FCs (first) and operating profit (second). It is calculated using the formula:
𝑺𝑷 − 𝑽𝑪
𝑺𝑷
Angle of incidence, ø : It is the angle at which the total revenue line intersects the total
cost line.
Profit-volume ratio: It is the ratio of contribution and sales.

Break Even Analysis
Break-Even Analysis
Break-Even Analysis
Sales Revenue
Profit at full capacity
Total Costs
Costs and revenue
Angle of incidence, ø If margin of safety is

positive, production is
above break even.
BE
Profit
Variable Costs If margin of safety is
Safety margin
Loss
negative, production is
below break even.
Fixed Costs
0 Output
Current
Break-even point Full Capacity
Output

Break-Even Analysis
Calculation of BEP
The BEP can be calculated in terms of physical units and in terms of sales turnover.
BEP in terms of physical units: The number of units required to be sold to achieve the
BEP can be calculated using the formula:
𝐹𝐶
𝐵𝐸𝑃 =
𝑆𝑃 − 𝑉𝐶
Where FC is the fixed cost, VC is the variable cost, SP is the selling price, C is the
contribution per unit (C =SP – VC). On the x-axis , BEP is presented in terms of physical
units.

Break-Even Analysis
Calculation of BEP
BEP in terms of sales volume: BEP in terms of sales volume can be calculated using the
formula:
𝐹𝐶
𝐵𝐸𝑃 = × 𝑆𝑃
Where FC is the fixed cost, VC is the variable cost, SP is the selling price, C is the
contribution per unit. On the y-axis , BEP is presented in terms of sales volume.

Break-Even Analysis
• Total cost = fixed costs + variable costs (quantity):
TC = F + (VC )Q
• Revenue = selling price (quantity)

R = (SP )Q
• Break-even point is where total costs = revenue:
TC = R or F + (VC )Q = (SP )Q
F
or Q=
SP − VC
Problem 1
A Company XYZ sold an auto component of 1000 units of a product of with variable cost of Rs.10 per unit. Each unit
contributes 20 percent of its revenue to the company's FCs and profits. The company wants to reduce the products price
by 10 percent. Calculate how many more units the company is required to sell at the 10 percent reduction to earn the
same profit as before the price reduction.
Solution:
Let x be the selling price in rupees per unit of the product. Contribution to the FC and profit is 0.20x. Now
X = 0.20x+10
X=12.5
The selling price is reduced by 10 percent. Now selling price = 0.9 × 12.5 = Rs.11.25/unit.
We have,
𝐹𝐶 + 𝑃
𝑄=
𝐹𝐶 + 𝑃
𝑄𝑛𝑒𝑤 =
𝑆𝑃𝑛𝑒𝑤 − 𝑉𝐶
8/25/2021 61
𝑄 𝑆𝑃𝑛𝑒𝑤 − 𝑉𝐶
=
𝑄𝑛𝑒𝑤 𝑆𝑃 − 𝑉𝐶
11.25 −10
=
12.5 −10
= 0.555
𝑄
𝑄𝑛𝑒𝑤 =
0.555
1000
=
0.555
= 1800 units
8/25/2021 62
Problem 2
From the given information about information about a company, calculate the break-even point and the
turnover required to earn a profit of Rs.50000, Fixed overheads are Rs.250000; selling price is Rs.25;
and variable cost per unit is Rs.5. If the company earns a profit of Rs.50000, express the margin of safety
available to it.
Solution:
Contribution per unit (S-V) = Rs.(25-5) = Rs. 20 per unit
Fixed overheads = Rs. 250000
𝐹𝑖𝑥𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠
Break−even point =
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
250000
Break−even point =
20
Break−even point = 12500 𝑢𝑛𝑖𝑡𝑠 𝑜𝑟 𝑠𝑎𝑙𝑒𝑠 𝑜𝑓 𝑅𝑠. 312500
8/25/2021 63
Problem 2
Solution:
Turnover required to earn a profit of Rs. 50000
𝐹𝑖𝑥𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠 + 𝑃𝑟𝑜𝑓𝑖𝑡

𝑄=
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
𝑅𝑠. 250000 + 50000

𝑄=
20
𝑄 = 15000 𝑢𝑛𝑖𝑡𝑠 𝑜𝑟 𝑠𝑎𝑙𝑒𝑠 𝑜𝑓 𝑅𝑠. 375000
Margin of safety
Actual sales = 15000 units or Rs. 375000
Sales at Break-even point = 12500 units or Rs.312500
Margin of safety = Actual sales – Sales at BEP = 2500 units of Rs. 62500
8/25/2021 64
Break Even Quantity (BEQ)

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MEE1014

INDUSTRIAL ENGINEERING AND MANAGEMENT

• Cost of raw materials (piece of wood)

• Labor cost (wages paid to operator)

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 3

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 4

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 6

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 7

Material indicates principal substances used in production.

Examples are: cotton, jute, iron-ore, and silicon.

The cost of material is further divided in to direct and indirect materials

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 8

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 9

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 10

Labour is the physical or mental effort expended on the production of an item. It is

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 11

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 12

Examples of indirect labour cost are wages paid to foremen, supervisors,

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 13

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 14

Some examples of direct expenses are:

(a) Cost of special layout, designing or drawings;

(b) Hire of tools or equipment for a particular production or product;

(c) Maintenance costs of such equipments.

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 15

Examples of such expenses are rent, lighting, insurance charges.

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 16

Overheads may be subdivided in to following groups:

c) Selling and distribution overheads.

Factory overhead also called manufacturing expenses or factory burden may be

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 19

Selling overhead is also known as marketing or selling overhead.

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 21

Distribution expenses usually begin when the factory costs end.

It covers the cost of making sales and delivering/dispatching products.

These costs include advertising, salesmen salaries and commissions, packing,

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 22

Administrative overhead includes costs of planning and controlling the general

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 24

Example: Rent, Property taxes, Supervising salaries, depreciation on office

Fixed cost can be further classified into three types:

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 26

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 27

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 28

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 29

𝑭𝒂𝒄𝒕𝒐𝒓𝒚 𝑪𝒐𝒔𝒕 = Prime cost + factory overhead

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 30

Total cost = Factory cost

Selling Price = Total cost + Profit or Loss

8/25/2021 Dr T Sampath Kumar, Associate Professor, SMEC-VIT 31

(b) Prime Cost

(c) Direct Cost

(d) Factory Cost

(f) Cost of Production = Factory Cost + Administrative overhead

(h) Total Cost or Cost of Sales

(i) Selling Price = Total Cost or Cost of sales + Profit

= S.P. -- S.P. X 10/100 …..(ii)

Equating (i) and (ii) above

S.P. – S.P. X 10/100 = Rs. 877.50

Selling price = Rs. 975

Hence the selling price of one electric bulb

= Rs. 975 / 150

No. of fountain pens = 135