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Hello sir,
Hope you are doing good.
Sir I was just wondering if costs related to running a machine, that is used entirely for production are allocated in any form under Prime cost? As “Other direct costs”, or instead of Direct Labour? Because technically it should, as its replacing labour, which is categorised under Prime cost.My professor seems to be telling me that the only place where machining related costs, regardless of whether they are direct or not, will go is- under Production Overheads.
Thanks.
In my above question am alluding to a machine which is majorly responsible for production in a manufacturing unit. So am talking of all costs related to machinery, including running it and producing units through it.
Direct costs are those costs that can be measured directly on a per unit basis. Materials can certainly be measured per unit. Production labour can usually be measured per unit (and in the exam we always assume that to be the case).
However we might calculate the overheads per unit (by dividing the total by the number of units) we cannot actually measure the amount in each unit (for example, you cannot measure how much factory rent or machine electricity is being used in one individual unit).
For that reason, your professor is correct.
I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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