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.