(a) Explain with examples, the following components of cost in a Manufacturing Account: i. Direct material cost; ii. Direct labor cost iii. Factory overhead...

(a) Components of cost in a Manufacturing Account

1. Direct material cost: the cost of raw materials that physically enter and form part of the finished product, and which can be traced directly to it. Examples: timber used to make furniture, cloth used to make garments, flour used to bake bread.
2. Direct labour cost: the wages paid to workers who are directly engaged in converting raw materials into finished goods. Examples: wages of machine operators, carpenters making furniture, tailors sewing garments.
3. Factory overhead: indirect factory costs that cannot be traced directly to a single unit of product but are necessary for production. Examples: factory rent and rates, depreciation of factory machinery, factory power and fuel, salary of the factory supervisor, indirect materials such as lubricants.

(Direct material + direct labour + direct expenses = prime cost; prime cost + factory overhead = factory/production cost.)

(b) Three types of stock in a manufacturing concern

• Raw materials: materials bought and held awaiting use in production.
• Work-in-progress (partly finished goods): goods that have entered the production process but are not yet complete at the period end.
• Finished goods: completed products ready and available for sale.