Factory Direct
Can you give me an example of Factory direct expense in manufacturing account?
Like see when we are doing the manufacturing account first of all we add and subtract lots of stuff to get cost of raw materials consumed. Then we add the factory wages(if its there) and the factory direct expense ( if its there). But what is this factory direct expense? in my book they say that royalties is an example of this thing. But i have no idea what royalties are.
Direct expenses are those which are incurred in the process of engaging in the prime function of the business. Direct expenses are those expenses which can be assigned directly to the unit cost of the item being produced or the service being provided by the business. Most of these direct expenses will vary depending upon the quantity being produced. In an assembly plant, the more items are to be produced there will be a need to increase the amount of labour in the plant.
I f you needed fifteen workers to produce say five hundred items per day in that assembly area, you may only need seventeen workers ( not twenty) to produce one thousand items per day. This is because there could be economies of scale which come into play.
On the other hand, indirect expenses are those expenses which can not be assigned to the direct cost of production. The wages of storemen, factory cleaners and the costs of floor cleaning materials are indirect expenses.
Royalties, are the payments made originally to the licensing Crown or Head of State for a concession of commercial value (e.g. mining rights) or to the owner of a copyright, patent, trademark or know-how for its use.
All-Time Quarterback – Factory Direct
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