Types of Production Costs

Types of Production Costs

1.    Direct Material Cost

Material which is directly used in a product is regarded as material cost. Material cost can be classified as direct cost (tractability classification) and variable cost (cost behavior classification).

2.    Labour Costs

Labour which is directly associated or linked with the production of product is known as labour costs. This can also be classified as direct cost and variable cost.

3.    Production overhead

All cost other than direct material and direct labour are combined known as production overhead or factory overheads. Example of production overheads are factory rent, supervision cost etc.

4.    Prime Costs

Direct material cost and direct labour cost are collectively known as prime cost. In other words you can calculate prime cost by adding these costs.

5.    Factory Costs

Direct material, direct labour, and factory overhead are collectively known as factory cost. In simple words by adding direct material cost, direct labour cost and production overhead cost, we can get factory cost.

6.    Cost of Goods Manufactured

Cost of goods manufactured can be obtained by adding work in progress of last year and deducting work in progress in current year.

7.    Cost of Goods sold

Cost of goods sold can be calculated by adding finished goods for last year and deducting finished goods for this year. When you will add finished good for last year with manufactured goods of this year , it will give you goods available for sale, and when closing stock of finished goods is deducted , it will give you cost of good sold.