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CA Intermediate · Cost and Management Accounting · Cost Sheet

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

Direct wages of workers who convert materials into the product form part of prime cost, because prime cost consists of direct materials, direct labour and direct expenses. Factory rent, works manager's salary and building depreciation are factory overheads, so they are excluded from prime cost.

  1. AFactory rent
  2. BDirect wages of workers who convert materials into the productCorrect
  3. CSalary of the works manager
  4. DDepreciation of factory building

Explanation

Prime cost comprises direct materials, direct labour and direct expenses. Direct wages of production workers are direct labour. Factory rent, works manager's salary and factory building depreciation are factory overheads, not prime cost.

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