For a manufacturing concern the basic undertaking is the production of goods which are commonly referred to as finished goods.
Now in order to arrive at the cost of these goods produced it is important to classify the costs which are incurred in the process. Furthermore, if the cost calculated is accurate then it also assists management in determining the appropriate pricing policy.
There are three basic cost elements which are part of an organization's manufacturing process: Materials, Labour, and Factory Overheads.
Materials, as the terminology suggests refers to the cost of materials which are consumed in the production process. Similarly, Labour refers to the wages paid to workers during the production process. Finally, Factory Overheads (FOH) are the indirect expenses which were incurred during the production process.
Under these three heads the costs incurred on the product are classified and this ultimately becomes the part of the finished goods produced.
Now in order to arrive at the cost of these goods produced it is important to classify the costs which are incurred in the process. Furthermore, if the cost calculated is accurate then it also assists management in determining the appropriate pricing policy.
There are three basic cost elements which are part of an organization's manufacturing process: Materials, Labour, and Factory Overheads.
Materials, as the terminology suggests refers to the cost of materials which are consumed in the production process. Similarly, Labour refers to the wages paid to workers during the production process. Finally, Factory Overheads (FOH) are the indirect expenses which were incurred during the production process.
Under these three heads the costs incurred on the product are classified and this ultimately becomes the part of the finished goods produced.
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