In a certain factory, three products are made from different materials by similar processes. For a typical period, production costs are as under.
|
In Rupees |
||
Particulars |
Product A |
Product B |
Product C |
Materials used |
1,600 |
2,000 |
800 |
Direct labor cost |
1,200 |
1,000 |
400 |
Overheads (Actual) |
800 |
650 |
350 |
Overheads are charged to the cost of each product @ 25% on Prime Cost. Do you see anything wrong in principle in this method of charging overheads? If so, suggest a preferable method.