CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)
In a cost sheet prepared on the usual format, which of the following is added to prime cost to arrive at factory (works) cost?
Factory overheads are added to prime cost to get factory or works cost. Prime cost covers only direct materials, direct labour and direct expenses. Administration and selling overheads come in at later stages, and profit is added only after total cost of sales is found.
- AAdministration overheads
- BFactory overheadsCorrect
- CSelling and distribution overheads
- DProfit margin
Explanation
Prime cost consists of direct materials, 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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