Question

Discuss the differences between production and service department costs and direct and indirect department costs. Provide examples

Answer 1

Production Department cost are the cost which can be directly charged to the production of goods or serivces such as machining cost, assembley cost, packing cost whereas Serice Department cost are the cost which are not directly charged but service department provide or assist in Production department such as accounting, receiving , inspection, etc. For Example- In Making of Maggi, The Cost of Raw material along with electricity and machine cost are the Production cost as the same is charged to production whereas accounting dept or the receiving dept cost is service dept cost as it is needed for operation of Production.

Direct cost are the cost which can be Traced or attached to a Particular Product whereas in case of Indirect cost it cannot be Traced to a Particular Product. For Example- Nissan Produces Car, the cost of Steel and Parts used in making of a car being Direct cost can be easily traced to the car, whereas cost of running the Plant-say Electricity cannot be allocated to a single car becasuse it is for the whole factory manufacturing.