The following cost details were extracted from the financial records of Kaduna Industrial Fabrics Ltd for the accounting year ended 31 December 2025:
| Cost Item | Amount (₦) |
|---|---|
| Opening inventory of raw materials | 85,000 |
| Purchases of raw materials | 420,000 |
| Carriage inwards on raw materials | 18,000 |
| Returns of raw materials to suppliers | 15,000 |
| Closing inventory of raw materials | 92,000 |
| Direct factory wages | 310,000 |
| Royalty paid on production design | 45,000 |
| Factory supervisor's salary | 60,000 |
| Factory building rent | 70,000 |
| Depreciation of factory machinery | 25,000 |
What is the Prime Cost of production for the year?
Answer: 771000 ₦
Answer
The Prime Cost of production for the year is ₦771,000.
Prime Cost consists strictly of direct material costs, direct labour costs, and direct expenses. The raw materials consumed calculate as ₦85,000 + ₦420,000 + ₦18,000 - ₦15,000 - ₦92,000 = ₦416,000. Adding direct wages of ₦310,000 and direct royalty expenses of ₦45,000 gives ₦771,000. Factory overheads such as supervisor's salary, factory rent, and plant depreciation are indirect costs and must be excluded.
Step-by-Step Solution
Key Concept
Calculation of Prime Cost from Direct Costs