THE FACTORY COST OF PRODUCING GOODS IS MADE UP OF
- A. prime cost and factory overhead ✓
- B. prime cost and office overhead
- C. raw materials consumed and fixed cost
- D. Raw materials and administrative overhead
The answer to the question is: A. prime cost and factory overhead
The factory cost of producing goods is made up of prime cost and factory overhead.
Prime cost refers to the direct costs of production, including the cost of raw materials and direct labor. Factory overhead, on the other hand, encompasses all the indirect costs incurred in the manufacturing process, such as utilities, depreciation of factory equipment, and indirect labor. These two components together constitute the total cost of manufacturing a product within a factory setting.
Prime cost is a crucial element in determining the overall cost of production as it directly relates to the expenses incurred in creating a product. It includes the cost of raw materials used in production and the direct labor costs associated with manufacturing. Raw materials are the basic components used in the production process, while direct labor refers to the wages and benefits paid to workers directly involved in manufacturing activities.
Factory overhead, also known as manufacturing overhead, comprises all indirect costs associated with production that cannot be directly attributed to specific units of output. This includes expenses such as rent for factory space, utilities, maintenance of machinery, and indirect labor costs for employees not directly engaged in production activities.
In summary, the factory cost of producing goods is composed of prime cost (direct costs like raw materials and direct labor) and factory overhead (indirect manufacturing costs).
