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Cost Accounting

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Output Costing Components

The total cost is analysed into prime cost, factory cost, office cost or total cost of production. Prime cost consists of cost of raw materials consumed, direct labour and directly chargeable expenses. Cost of raw materials consumed is ascertained after making adjustment for the opening and closing stock of materials.

Wastage in materials is also accounted for and ordinarily, normal loss is adjusted by inflating the issue price of materials. For abnormal wastage, a careful investigation is made and efforts are made to check its occurrence.

The second component of prime cost is the labour employed or engaged in production. Labour, direct and indirect, should be identified separately and wages paid to labourers engaged in manufacturing operations should be dealt with distinctly. Directly chargeable expenses also should be separately found out as they shall form part of the prime cost.

Overheads are classifieds into three broad categories – factory, office and administration, selling and distribution. For computation of factory cost, cost of production and total cost, the above overheads are added to the prime cost, factory cost and cost of production respectively. The overheads actually incurred can be taken into account, or if necessary, an estimate may be made of the likely overheads during the specific period.

The above analysis can be presented either through a Cost Sheet or a Production Account.