Question

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?

Answer 1

The answer is b) Standard cost

Step-by-step explanation:

The standard cost that is based on normal efficiency levels, based on budgeted direct and indirect costs. It is a measure of how much it should cost to produce a unit of product. It is made up of the costs of the components required to make said product. For example, the standard cost to produce a leather shoe includes:

-Cost of direct materials (leather, laces, etc.).

-Cost direct labor (refers to the time required to cut the design, sew it, etc., multiplied by the production rate of employees who are in the process)

-Indirect or manufacturing costs related to the product (depreciation of the skin-cutting machine, electricity, etc.)

Standard costs serve as a benchmark that allows comparison with current costs.