CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)
In a cost sheet, which of the following is classified as part of prime cost?
Direct wages of machine operators form part of prime cost because prime cost includes direct materials, direct labour and direct expenses. Factory rent, the works manager's salary and depreciation of factory machinery are indirect factory overheads and are added only after prime cost to arrive at factory cost.
- AFactory rent
- BDirect wages of machine operatorsCorrect
- CSalary of the works manager
- DDepreciation of factory machinery
Explanation
Prime cost consists of direct materials, direct labour and direct expenses. Wages of machine operators who work directly on the product are direct labour. Factory rent, works manager's salary and machinery depreciation are factory overheads, so they are not part of prime cost.
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