Prime cost
Prime cost basically consists of direct cost of product i.e.
direct material, direct labor and direct expenses. Prime cost directly varies with the level of
activity and it is very important in decision making process.
As prime cost directly traceable to product it is therefore
allocated to the product instead of apportionment.
Factory cost
Factory cost is calculated by adding the factory overhead to
the prime cost. Factory cost is important for the purposes of stock valuation
and setting price. Factory cost takes into account all cost related to
production.
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