CA Intermediate · Cost and Management Accounting · Cost Sheet
In a cost sheet, which of the following is treated as part of 'Cost of Production' but NOT part of 'Prime Cost'?
Factory overheads are included in cost of production but not in prime cost. Prime cost covers only direct materials, direct labour and direct expenses, while factory overheads are indirect and are added afterwards to reach factory cost and then cost of production.
- ADirect wages
- BFactory overheadsCorrect
- CDirect expenses such as royalty on production
- DDirect materials consumed
Explanation
Prime cost = direct materials + direct labour + direct expenses. Factory overheads are added to prime cost to arrive at factory cost, and so enter cost of production but not prime cost. Direct wages, direct materials and direct royalty on production all sit inside prime cost.
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