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Difficulty: MediumPurpose and Key Terminologies in Manufacturing Accounts

A commercial ceramics craft firm in Abeokuta extracted the following financial figures for the year ended 31st December 2025:

Account DetailsAmount (₦)
Purchases of raw clay and glazes450,000
Carriage inwards on raw clay30,000
Wages of potters and kiln operators320,000
Royalties paid per ceramic unit design80,000
Salary of factory supervisor150,000
Factory power and maintenance200,000

What is the total Prime Cost for the year?

Answer: 880000 ₦

Answer

The total Prime Cost for the year is ₦880,000.
Prime Cost represents the aggregate of all direct costs incurred in manufacturing. It includes direct raw materials (purchases of ₦450,000₦450,000 plus carriage inwards of ₦30,000=₦480,000₦30,000 = ₦480,000), direct wages (₦320,000₦320,000), and direct expenses (₦80,000₦80,000 for royalties). Summing these direct components yields ₦480,000+₦320,000+₦80,000=₦880,000₦480,000 + ₦320,000 + ₦80,000 = ₦880,000. Factory supervisor salaries (₦150,000₦150,000) and factory power/maintenance (₦200,000₦200,000) are indirect expenses (factory overheads) and are excluded from Prime Cost.

Step-by-Step Solution

1
Calculate Direct Materials Consumed
₦480,000
Carriage inwards on raw materials is a direct cost incurred to bring raw clay into the factory and must be added to raw material purchases.
2
Identify Direct Labour and Direct Expenses
Direct Labour = ₦320,000; Direct Expenses = ₦80,000
Wages of potters directly creating products are direct labour, and royalties on designs are direct expenses.
3
Compute Prime Cost
₦880,000
Prime Cost is the sum of all direct production costs: Direct Materials (₦480,000) + Direct Labour (₦320,000) + Direct Expenses (₦80,000).

Key Concept

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

Purpose and Key Terminologies in Manufacturing Accounts

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