The diagram shows the structure of a manufacturing account. Where in this account would depreciation of factory machinery be shown?
Question 1 Report
The diagram shows the structure of a manufacturing account.
Where in this account would depreciation of factory machinery be shown?
Answer Details
The correct answer is Factory overheads.
Depreciation of factory machinery is an indirect production cost. It cannot be traced directly to a specific unit of output, so it is not a direct expense, direct material, or part of prime cost. Instead, it is classified as a factory overhead (also called indirect manufacturing cost) and added to prime cost to calculate total factory cost before adjusting for work in progress.
Direct expenses are costs that can be identified with specific production jobs, such as royalties per unit. Direct materials are raw materials physically incorporated into the product. Prime cost is the total of direct materials, direct labour, and direct expenses, and does not include any indirect costs.
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