UNIT-

1
1. Prime cost
2.factory or works cost
3. Manufacturing or production cost
4. Total or ultimate cost
5. Selling price
2
1. Prime cost = Direct material cost + Direct
labour cost + Direct expenses (if any)
2. Factory cost = Prime cost + Factory overheads
3. Cost of production = Factory cost +
Administrative overheads + Miscellaneous
overheads (if any)
4. Total cost = Cost of production + Selling and
distribution overheads
5. selling price =Total cost + profit
3
1 Material consumed 46000
2 Indirect factory wages 7000
3 Direct fees 2500
4 Advertising 8000
5 Net profit 11750
6 Depreciation on sales departments car 900
7 Printing and stationary 350
8 Depreciation on plant 4200
9 Direct wages 59000
10 Factory rent 5750
11 Telephone and postal charges 250
12 Gas and electricity 400
13 Office salaries 2000
14 Office rent 600
15 Showroom rent 1200
16 Salesmans commission 1850
17 Sales department car expenses 1200
4
S.No Particulars Amount in rupees
1 Direct or prime cost
(a) Direct material cost
(b) Direct labour cost
(c) Direct expenses
Prime cost

46000
59000
-
105000




105000
2 Factory Expenses
(a) Indirect factory wages
(b) Depreciation on plant
(c) Factory rent
(d) Gas and electricity
Total factory expenses

7000
4200
5750
400
17350





17350
3 Administrative Expenses
(a) Directors fees
(b) Printing and stationary
(c) Telephone and postal charges
(d) Office salaries
(e) Office rent
Total administrative expenses

2500
350
250
2000
600
5700






5700
5
4 Selling and distribution expenses
(a) Advertising
(b) Depreciation on sales
departments car
(c) Show room rent
(d) Salesmans commission
(e) Sales department car expenses
Total selling and distribution
expenses

8000
900
1200
1850
1200
13150






13150
5 Net profit 11750 11750
6
(a) Prime cost = Direct material cost + Direct labour
cost + Direct expenses (if any) = Rs.10500
(b) Factory cost = Prime cost + Factory overheads =
10500 + 17350 = Rs.122350
(c) Cost of production = Factory cost +
Administrative overheads + Miscellaneous
overheads (if any) =122350+5700=Rs.128050
(d)(Cost of sales) Total cost = Cost of production +
Selling and distribution overheads
=128050+13150=Rs.141200
(e) selling price =Total cost +Profit
=141200 +11750 =Rs.152950
7
The overhead charges cannot be directly
charged to a specific job or item produced in
the factory. So after knowing the total
overhead expenses the next step is to
distribute these expenses over the
production.
8
1.By percentage (allocation by cost proportion)
(a) Percentage on prime cost
(b) Percentage on direct labour cost
(c) Percentage on direct material cost
2. By hourly rate (allocation by hourly rate)
(a) Man hour rate
(b) Machine hour rate
(c) Combination of man-hour and machine hour
rate
3. By unit rate(allocation by unit rate)
(a) Unit rate method

9
Allocation by percentage on prime cost

Total overhead cost
Percentage of overheads= x100
Total prime cost
Allocation by percentage on direct labour cost
Total overhead cost
Percentage of overheads= 100
Total direct labour cost

10
Allocation by percentage on Direct material cost
Total overhead cost
Percentage of overheads= x100
Total direct material cost

Allocation by Man-hour rate:
Total overhead cost
Man-hour rate
Total production man-hours spent


11
Allocation By Machine hour Rate:

Total overhead cost
Machine hour rate =
Total productive machine hours
Allocation By Unit Rate:
total overhead cost
Overhead cost per unit
Number of units produced

12
Product-A Product-B
Direct material cost Rs.900 Rs.1000
Direct labour cost Rs.700 Rs.600
Direct other expenses Rs.300 Rs.250
Given:
Total overheads =Rs.1,20,000
Total prime cost=Rs.2.5lacs
To find:
Share of overheads to be allocated to product A and B
Solution:
Allocation by proportional to prime cost method
Total overhead cost
Percentage of overheads= x 100
Total prime cost
1,20,000
= x 100 = 48%
2,50,000



13
Product A:
Prime cost = 900 + 700 + 300 =Rs . 1900
48
Overheads = 1900 x = Rs.912
100
Product B:
Prime cost =1000 + 600 + 250 =Rs . 1850
48
Overheads = 1850 x = Rs.888
100

14
Given:
Total overheads =Rs.7,75,750
Total direct labour wages= Rs.4,50,000
To find:
Overhead costs to be allowed to the item
Solution:
Allocation by proportional to direct labour cost method
Total overhead cost
Percentage of overheads= x100
Total direct labour cost
7,75,750
= X 100 = 172%
4,50,000
Let P = the overhead costs to be allowed to the item with direct labour cost
of Rs.950.
172
P = 950 x = Rs. 1937.69
100


15
.
16
Solution;
W.K .T total on-costs
Machine hour rate =
Total machine hour
Given , lathes occupy 30m
2
area and shapers occupy 15m
2
area.
Therefore total area = 45m
2
Machine hour rate for lathes:
Building rent and depreciation for lathes =Rs.5000 x 30m
2

45m
2
= Rs.3,333.33
Indirect labour and material expenses for lathes=Rs.15000 x 30m
2

45m
2
= Rs.10,000
Insurance expenses for lathes = Rs.2000 x 30m
2

45m
2

= Rs.1,333.33
17
Depreciation charges for lathes =Rs.5000
Power consumption for lathes = Rs.2000

Total on-cost for lathes = 3333.33 + 10,000
+1333.33 + 5000 + 2000
= Rs.21,666.66
Total working hours of lathe =25,000 hours
Machine hour rate =Rs.21,666.66
25,000 hours
= Rs.0.866 per hour

18
Machine hour rate for shapers:
Building rent and depreciation for shapers =Rs.5000 x 15m
2

45m
2
= Rs.1,666.66
Indirect labour and material expenses for shapers=Rs.15000 x 15m
2

45m
2
= Rs.5,000
Insurance expenses for shapers = Rs.2000 x 15m
2

45m
2
= Rs.666.66

Depreciation charges for shapers =Rs.3000
Power consumption for shapers = Rs.1000

Total on-cost for shapers = 1666.66 +5000 +666.66 +3000 +1000
= Rs.11,333.32
Total working hours of shapers =8000 hours
Machine hour rate = Rs.11,333.32
8,000 hours
= Rs.1.416 per hour

19
Forging is defined as the process in which the
desired shape and size of an object is
obtained through plastic deformation of the
metal.
It is performed by hammering or pressing the
work piece that is to be brought into a
specific shape and size.
Types
Hot forging
Cold forging
20
Total forging cost = labour cost + Material cost
+ Overhead cost
(i) Calculation of material cost:
Step-1: Net weight of forging
Net weight = Volume of forging x Density of mat.
Step-2: Gross weight
Gross weight = Net weight + Material loss in the
process
Step-3: Material cost
Material cost = Gross weight x price of raw
material per kg
21