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Difficulty: MediumDirect Costs and Calculation of Prime Cost

WoodenCraft Nigeria Ltd produced custom office furniture during a financial period and compiled the following cost figures:

Cost ComponentAmount (₦)
Raw timber consumed450,000
Wages of workshop carpenters280,000
Carriage inwards on raw timber35,000
Direct hire of specialized carving machinery45,000
Factory supervisor's salary90,000
Factory power and electricity60,000
Carriage outwards on finished furniture25,000

What is the total Prime Cost for the production period?

  1. A
    ₦730,000
  2. ₦810,000Answer
  3. C
    ₦835,000
  4. D
    ₦960,000

Answer

The Prime Cost is ₦810,000.
Prime Cost represents the sum of all direct production costs: Direct Materials Consumed (including carriage inwards on raw materials), Direct Wages/Labor, and Direct Expenses (such as royalties or direct hire of plant). Here, Prime Cost=₦450,000+₦35,000+₦280,000+₦45,000=₦810,000\text{Prime Cost} = \text{₦}450,000 + \text{₦}35,000 + \text{₦}280,000 + \text{₦}45,000 = \text{₦}810,000.

Step-by-Step Solution

1
Identify all direct cost elements
Direct Materials = Raw timber (₦450,000) + Carriage inwards on timber (₦35,000) = ₦485,000; Direct Labour = Wages of carpenters (₦280,000); Direct Expenses = Direct hire of specialized machinery (₦45,000).
Prime Cost comprises all costs directly traceable to production: direct materials, direct labor, and direct expenses.
2
Calculate total Prime Cost
Prime Cost=₦485,000+₦280,000+₦45,000=₦810,000\text{Prime Cost} = \text{₦}485,000 + \text{₦}280,000 + \text{₦}45,000 = \text{₦}810,000.
Adding these direct costs gives the complete Prime Cost prior to incorporating factory overheads.

Key Concept

Calculation of Prime Cost in Manufacturing Accounts
Estimated Time:1m 30s
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Topics

Direct Costs and Calculation of Prime Cost

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