Q.Classify each of the following cost items under the appropriate element-based head (Direct Material / Indirect Material / Direct Labour / Indirect Labour / Direct Expenses / Indirect Expenses), and state whether each forms part of Prime Cost or Overhead:

Each item is classified by asking one question: can this cost be conveniently and specifically traced to one identifiable chair, or does it merely support production in general?

1. Timber becomes part of the chair and is traceable to it → Direct Material → Prime Cost.
2. The carpenter's effort is identified with the specific chair being made → Direct Labour → Prime Cost.
3. Factory rent benefits the whole shop floor, not one chair → Indirect Expenses → Overhead.
4. Glue/fittings are consumed in negligible, impractical-to-trace quantities per chair → Indirect Material → Overhead.
5. Supervision benefits the whole department, not one chair → Indirect Labour → Overhead.
6. A royalty charged per unit produced is directly proportional to, and traceable to, each chair → Direct Expenses → Prime Cost (a common point students get wrong — royalty per unit is Direct, not Overhead).
   ✓Final answer

   (a) Direct Material — Prime Cost; (b) Direct Labour — Prime Cost; (c) Indirect Expenses — Overhead; (d) Indirect Material — Overhead; (e) Indirect Labour — Overhead; (f) Direct Expenses — Prime Cost.

Each item is tested against the same rule: can the cost be conveniently, economically, and specifically traced to ONE identifiable unit (a particular chair), or does it merely support production/the business in general, in which case it is Indirect and forms part of Overhead.

1. Cost of timber: timber physically becomes part of the finished chair and its quantity per chair can be measured → Direct Material → part of Prime Cost.
2. Wages of the carpenter: the carpenter's labour is specifically and personally applied to making each identified chair → Direct Labour → part of Prime Cost.
3. Factory rent: the factory building houses production of every chair together — rent cannot be traced to one chair → Indirect Expenses → part of Overhead (specifically, Factory Overhead).
4. Glue and small fittings: although they become part of the chair, the quantity used per chair is so small that measuring and tracing it to each individual chair is impractical → Indirect Material → part of Overhead.
5. Salary of the factory supervisor: supervision is a general oversight function covering the entire shop floor, not any one chair → Indirect Labour → part of Overhead.
6. Royalty paid per chair produced: because it is charged at a fixed rate for EACH unit produced, it is exactly as traceable to a specific chair as direct material or direct labour would be → Direct Expenses → part of Prime Cost. This is a frequently-missed classification: students often assume all "expenses" other than material and labour must be Overhead, but a royalty or hire-charge tied to per-unit output is Direct.
   ✓Final answer

   (a) Direct Material — Prime Cost; (b) Direct Labour — Prime Cost; (c) Indirect Expenses — Overhead; (d) Indirect Material — Overhead; (e) Indirect Labour — Overhead; (f) Direct Expenses — Prime Cost.

Students often assume every 'expense' item other than material and labour must automatically be Overhead. A royalty or hire-charge paid per unit of output produced is Direct, because it is exactly as traceable to a specific unit as direct material would be. Another common error is treating small-value consumables as Direct Material simply because they physically end up in the product — traceability AND practicality of measurement both matter, not physical presence alone.