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Difficulty: EasyPurpose and Key Terminologies in Manufacturing Accounts

In the operations of a commercial bakery, raw flour and sugar are directly converted into finished loaves of bread. Which of the following expenditure items constitutes a direct cost that forms part of prime cost?

  1. Cost of raw flour and baking ingredients consumedAnswer
  2. B
    Salary paid to the factory supervisor
  3. C
    Electricity charges for factory lighting
  4. D
    Depreciation of flour delivery vans

Answer

Cost of raw flour and baking ingredients consumed
Prime cost is the sum of direct materials, direct labor, and direct expenses. The cost of raw flour and baking ingredients represents direct raw materials directly traceable to the manufactured loaves of bread.

Step-by-Step Solution

1
Identify the total direct costs involved in the production process.
Prime cost consists of Direct Materials + Direct Labor + Direct Expenses.
Prime cost represents all expenses directly traceable to the physical creation of the finished unit.
2
Classify raw flour and baking ingredients.
Raw flour forms the basic direct material input of bread.
It forms a direct part of the manufactured product and is therefore classified under direct material cost.

Key Concept

Prime Cost and Direct Cost Classification in Manufacturing Accounts
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Purpose and Key Terminologies in Manufacturing Accounts

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