Mechanical Engineering - Industrial Engineering and Production Management - Discussion

The correct answer is factory expenses.

Direct expenses, also known as direct costs, are expenses that can be directly attributed to the production of a specific product or service. Factory expenses are a type of direct expense that includes:

- Direct labour costs
- Direct materials costs
- Factory overhead costs (such as utilities, maintenance, and equipment depreciation)

These expenses are directly related to the production process and can be easily traced to specific products or services.

The other options are not correct because:

- Selling expenses: These are indirect expenses related to marketing, sales, and distribution.
- Administrative expenses: These are indirect expenses related to general management, accounting, and other support functions.
- None of these: Factory expenses are indeed a type of direct expense.

=> Direct expenses are important in cost accounting and are used to calculate the cost of goods sold and gross profit.

Direct expenses means all expenses directly connected with the manufacture, purchase of goods, and bringing them to the point of sale. Direct expenses include carriage inwards, freight inwards, wages, factory lighting, coal, water and fuel, royalty on production, etc.

Prime cost = direct material cost + direct labour cost + direct expenses.

Agree with you @Jeevaa.

@Yudhisthir.

Is that prime cost is the direct expense?

Only the expenses which can be seen or felt directly in product are considered like raw materials, machining cost, power (used in development of product only). Not factory overheads and worker utilities are taken into account.