WAEC Accounting 2018 Theory — Question 2

Model answer

(a)(i) Direct Material Cost: this can be defined as all cost which can be traced to the unit of output produced, e.g. cost of cement used in a block industry. (ii) Direct Labour Cost: this can be referred to as all labour cost that can be traced to output such as wages paid for labour per unit of output. (iii) Factory Overhead: this can be defined as all indirect cost that cannot be traced to the unit of output produced but which are necessary for the sake of the output, such as the salary of a supervisor. (b) Raw materials: this is stock of input which are used for producing output. They are called direct materials because they link directly to the output produced. Work in progress: this is stock, production of which has started i.e. the raw materials have been processed to another form but are yet to reach the final/finished stage. Finished goods: this is stock of output that is ready to be sold to customers.