ACCA Applied Knowledge · Management Accounting · Cost classification
Orion Co's costs for a period were: direct materials $40,000, direct labour $30,000, factory indirect costs $20,000, administration costs $15,000, selling costs $10,000 and distribution costs $5,000. What is the total production cost?
Production cost is $90,000, made up of direct materials $40,000, direct labour $30,000 and factory indirect costs $20,000. Administration, selling and distribution costs are non-production costs. The $120,000 figure is total cost, which wrongly includes them.
- A$90,000Correct
- B$120,000
- C$100,000
- D$70,000
Explanation
Production cost = direct materials $40,000 + direct labour $30,000 + factory indirect costs $20,000 = $90,000. Adding administration would give $105,000 and adding all non-production costs gives $120,000, which is total cost, not production cost.
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