Transport charges on material purchased are added 2 Returns of material

Transport charges on material purchased are added 2

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NB: 1. Transport charges on material purchased are added.2. Returns of material purchased are deducted.Direct wages– are remuneration paid to factory workers for converting the raw materials intofinished goods. They also include remuneration of construction workers, machine operation etc.Direct expenses– Include any expenditure other than direct materials and direct wages incurred onthe production of some specific product. E.g. hire charges of equipment for the production of aspecific product, costs of designs or drawings etc.Prime cost= Direct material cost + direct labour costs + direct expenses (if any)Over heads– These are costs which cannot be identified to the production of any specific product.They are also called indirect expenses and include:-1.Production or factory overheads.2.Administration overheads.3.Selling and distribution overheads.Production overheads (factory or works overheads)These are factory expenses other than direct costsThey include:-Indirect materials – that cannot be charged directly to the production of a specific product.It’snormally requiredfor operating andmaintaining theplant andequipment e.g.lubricating oil, spare parts for machinery etc. This is also called consumable materials.Indirect wages – These are wages which are paid to those workers who are required tocomplete some process in respect of all the products e.g. factory supervision, wages ofmaintenance of staff like cleaners and repairers, store men’s wages etc.Rent, rates, insurance, water, power and electricity charges for the factory.Depreciation of factory plant and machinery, depreciation of factory buildings, maintenanceand repairs of factory plant and buildings.Sundry expenses like canteen, entertainment and medical facilities provided to the workers.Administration overheads.These are expenses incurred in providing control, direction and management of the enterprise. Theyinclude expenses related to secretarial, accounting and legal services. Others include:-Rent, rates, insurance, water and electricity for the office.Salaries of office staff e.g. accountants, clerks etc.Depreciation of office furniture, office equipment and office buildings.Office stationery and maintenance cost of office equipment.Legal expenses e.g. fees of advocates.Financial expenses e.g. interest on loans bank charges etc.
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