Skip to content

CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Ravi Foods Ltd. produces 10,000 packs. Costs are: direct materials ₹3,00,000, direct wages ₹1,20,000, direct expenses ₹30,000, factory overheads ₹90,000, and administration overheads ₹60,000. Ravi wants to know the prime cost per pack. Which figure is correct?

Prime cost is the total of direct materials, direct wages and direct expenses, which is ₹4,50,000. Dividing by 10,000 packs gives ₹45 per pack. Overheads are excluded, so factory or administration costs do not belong in prime cost.

  1. A₹45Correct
  2. B₹54
  3. C₹42
  4. D₹60

Explanation

Prime cost = direct materials + direct wages + direct expenses = 3,00,000 + 1,20,000 + 30,000 = ₹4,50,000. Per pack = 4,50,000/10,000 = ₹45. Including factory overheads would give ₹54, which is factory cost, not prime cost.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Cost and Management Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Cost and Management AccountingFree diagnostic mock

More Introduction to Cost and Management Accounting questions