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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

Sharma Tools Ltd manufactured 4,000 units. Direct materials were ₹2,40,000, direct wages ₹1,20,000, direct expenses ₹40,000 and factory overheads ₹1,00,000. What is the prime cost per unit?

Prime cost is direct materials plus direct wages plus direct expenses, which is ₹4,00,000 for 4,000 units, giving ₹100 per unit. The figure of ₹125 wrongly adds factory overheads, which are not part of prime cost.

  1. A₹100Correct
  2. B₹90
  3. C₹115
  4. D₹125

Explanation

Prime cost = direct materials + direct wages + direct expenses = 2,40,000 + 1,20,000 + 40,000 = ₹4,00,000. Per unit = 4,00,000 / 4,000 = ₹100. Including factory overheads would give ₹5,00,000/4,000 = ₹125, which is factory cost, not prime cost.

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