The correct answer is D. Factory cost.
Factory cost is the total cost of production of a product, including direct materials, direct labor, and factory overhead. Administration and management overheads are a type of factory overhead, so they are included in factory cost.
Direct materials are the materials that are used to make a product and that can be directly traced to the product. Direct labor is the labor that is directly involved in making a product. Factory overhead is all of the other costs of production, such as indirect materials, indirect labor, and factory administration and management costs.
Factory overhead is often a significant portion of the total cost of production. It is important to track factory overhead costs so that they can be controlled. Factory overhead costs can be controlled by using cost-effective production methods, by using efficient production equipment, and by using skilled workers.
Here is a brief explanation of each option:
- Direct material: The materials that are used to make a product and that can be directly traced to the product. For example, the wood used to make a table is a direct material.
- Direct labor: The labor that is directly involved in making a product. For example, the labor of the carpenter who builds the table is a direct labor cost.
- Prime cost: The sum of direct materials and direct labor costs.
- Factory cost: The total cost of production of a product, including direct materials, direct labor, and factory overhead.