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CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)

In a cost sheet prepared for a manufacturing firm, which of the following is correctly classified as part of 'prime cost'?

Prime cost consists of direct materials consumed, direct wages and direct expenses. Overheads such as factory rent, office salaries and selling and distribution costs are indirect and are added later in the cost sheet, so they are not part of prime cost.

  1. AFactory rent
  2. BDirect materials consumed, direct wages and direct expensesCorrect
  3. COffice salaries
  4. DSelling and distribution overheads

Explanation

Prime cost comprises all direct costs: direct materials, direct labour and direct expenses. Factory rent is a factory overhead, office salaries are administration overhead, and selling and distribution costs are added after factory and office cost, so none of those belong in prime cost.

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