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CA Intermediate · Cost and Management Accounting · Cost Sheet

Which of the following is treated as a part of prime cost in a cost sheet?

Royalty paid on a production basis is a direct expense, and prime cost consists of direct materials, direct labour and direct expenses. Factory rent, plant depreciation and the works manager's salary are factory overheads, not prime cost items.

  1. AFactory rent
  2. BRoyalty paid on production basisCorrect
  3. CDepreciation of factory plant
  4. DSalary of the works manager

Explanation

Prime cost comprises direct materials, direct labour and direct expenses. Royalty payable on the basis of production is a direct expense and so forms part of prime cost. Factory rent, plant depreciation and works manager's salary are factory overheads, so they are excluded from prime cost.

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