CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)
In a standard cost sheet, which of the following is obtained by adding direct materials consumed, direct wages and direct expenses?
Prime cost is the correct answer. It is the sum of direct materials consumed, direct wages and direct expenses. Factory overheads, administration overheads and stock adjustments come after this stage, so factory cost, cost of production and cost of goods sold are all larger totals.
- APrime costCorrect
- BFactory cost
- CCost of production
- DCost of goods sold
Explanation
Prime cost is the total of all direct costs: direct materials, direct labour and direct expenses. Factory cost is higher because factory overheads are added to prime cost. Cost of production and cost of goods sold include still more items.
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