ACCA Applied Knowledge · Management Accounting · Cost classification
Karlov Co manufactures 2,000 units. Costs for the period: direct materials $24,000; direct labour $18,000; direct expenses $2,000; factory indirect materials $3,000; factory indirect labour $5,000; factory rent $4,000; office salaries $7,000; sales commission $6,000. What is the prime cost per unit and the total production cost?
Prime cost is $44,000, or $22 per unit, made up of direct materials, labour and expenses. Total production cost is $56,000 after adding factory overheads of $12,000. Office salaries and sales commission are non-production costs and are excluded.
- APrime cost $22 per unit; production cost $56,000Correct
- BPrime cost $22 per unit; production cost $63,000
- CPrime cost $20 per unit; production cost $56,000
- DPrime cost $22 per unit; production cost $49,000
Explanation
Prime cost = 24,000 + 18,000 + 2,000 = $44,000, which is $22 per unit over 2,000 units. Production cost = 44,000 + 3,000 + 5,000 + 4,000 = $56,000. Office salaries and sales commission are non-production costs; including office salaries gives $63,000.
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