CMA Intermediate · Cost Accounting · Introduction to Cost Accounting
In a cost sheet prepared for a manufacturing firm, which of the following is added to prime cost to arrive at factory cost (works cost)?
Factory overheads are added to prime cost to get factory or works cost. Administration overheads come next to give cost of production, while selling and distribution overheads are added last to arrive at cost of sales, so they do not belong at this stage.
- AFactory overheadsCorrect
- BAdministration overheads
- CSelling overheads
- DDistribution overheads
Explanation
Prime cost consists of direct material, direct labour and direct expenses. Adding factory (works) overheads gives factory cost. Administration overheads are added later to reach cost of production, and selling and distribution overheads are added to reach cost of sales.
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