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

Sundaram Textiles Ltd produces 4,000 units a month. Its monthly costs are: direct materials Rs 6,00,000; direct wages Rs 2,40,000; factory overheads Rs 1,60,000; office and administration overheads Rs 80,000; and selling overheads Rs 1,20,000. Prime cost per unit is:

Prime cost per unit is Rs 210. Prime cost includes only direct materials and direct wages, which total Rs 8,40,000 for the month. Dividing by 4,000 units gives Rs 210. Overheads of any kind are excluded from prime cost.

  1. ARs 210Correct
  2. BRs 150
  3. CRs 250
  4. DRs 60

Explanation

Prime cost = direct materials + direct wages = 6,00,000 + 2,40,000 = Rs 8,40,000. Per unit = 8,40,000 / 4,000 = Rs 210. Rs 250 would wrongly add factory overheads of Rs 40 per unit, and Rs 150 is direct materials alone.

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