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Job Prime Cost - Case Study Example

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This paper "Job Prime Cost" discusses job costing that is undertaken when special ordered products are involved, or the products that are not routinely manufactured. Naturally, their material, labor, and overhead costs differ from other products being manufactured. …
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Job Prime Cost
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Download file to see previous pages The limitation with fixed costs is that these are uncontrollable as these are normally ‘policy costs’. Fixed cost help in marginal costing in the sense that these costs enable us to identify break-even point, that the contribution needs to cover to reach at ‘no profit no loss’ level.

Variable costs are those costs that change within the same ratio in which the output or production changes. For example, in our study the direct Material cost and direct labour costs are variable cost. We have first calculated the these costs on per cabinet basis and then found total direct material or direct labour cost by multiplying per cabinet cost with total production of400 cabinets. This cost is called ‘Direct Costs’ because this is directly related to a number of units to be produced.

As against fixed costs, variable costs are controllable costs. Variable costing plays a major role in the determination of contribution in marginal costing, and according helps in identifying break-even point.

“Prime cost is the portion of the cost of commodity that varies directly with the amount of it produced, principally comprising material and labour. Prime costs can include direct labour, material, bought outs and subcontracts. Prime costs estimates are included in a contract. An example of prime cost would be tiles. The builder may quote $60 a square meter for tiles. However, the owner may choose $70 tiles. This would represent a variation in prime cost, but not a variation in contract.” (Job- Prime Costs)

In other words the cost that matter the most in a project or job is the prime cost. For example a contract assigns or transfers the contract to a subcontractor. The subcontract charges for execution of main contract would be the prime cost for main contractor.

In or study of cabinet manufacturing Material and labour cost can be said to be examples of prime costs, even though those are variable cost. That a prime cost may be a direct cost or an indirect cost. It is relevant because it is the most important and relevant cost of business. ...Download file to see next pagesRead More
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