CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)
In a cost sheet, which of the following is the correct expression for Prime Cost?
Prime cost equals direct materials plus direct labour plus direct expenses. It includes only costs directly traceable to the product. Factory overheads are indirect and are added later to arrive at factory or works cost, so they are not part of prime cost.
- ADirect materials + direct labour + direct expensesCorrect
- BDirect materials + direct labour + factory overheads
- CWorks cost + administration overheads
- DDirect materials + all indirect expenses
Explanation
Prime cost comprises all direct costs: direct materials, direct labour and direct expenses. Factory overheads are indirect and are added to prime cost to reach factory (works) cost, so option B is wrong.
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