Cost of Production
Expenses incurred making products: materials, direct labor, manufacturing overhead.
Formula
Cost of Production = Direct Materials + Direct Labour + Manufacturing Overhead
Real World
Nike's cost of production for a pair of trainers includes the rubber and foam (materials), the factory workers' wages (direct labour), and the cost of running the machinery and factory (overhead).
Exam Focus
Distinguish direct from indirect costs; exam mark schemes penalise students who confuse overhead with variable costs.
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