The following extract of financial information was taken from the books of Kemi Manufacturing Enterprises for the financial year ended 31st December 2025:
| Item | Amount (₦) |
|---|---|
| Opening inventory of raw materials | 45,000 |
| Purchases of raw materials | 220,000 |
| Carriage inwards on raw materials | 15,000 |
| Return outwards of raw materials | 10,000 |
| Direct manufacturing wages | 130,000 |
| Factory supervisor's salary | 40,000 |
| Royalties paid per production unit | 25,000 |
| Carriage outwards on finished goods | 18,000 |
| Depreciation of factory plant & machinery | 22,000 |
| Closing inventory of raw materials | 50,000 |
Based on the figures provided, what is the total Prime Cost of production?
- ₦375,000Answer
- B₦415,000
- C₦393,000
- D₦437,000
Answer
The total Prime Cost of production is ₦375,000.
The correct figure of ₦375,000 is arrived at by determining the Cost of Raw Materials Consumed (Opening Stock ₦45,000 + Purchases ₦220,000 + Carriage Inwards ₦15,000 - Returns Outwards ₦10,000 - Closing Stock ₦50,000 = ₦220,000) and adding Direct Manufacturing Wages (₦130,000) and Direct Expenses/Royalties (₦25,000).
Step-by-Step Solution
Key Concept
Prime Cost represents the total sum of direct costs incurred in production: Direct Raw Materials Consumed + Direct Labor Wages + Direct Expenses (such as Royalties). Indirect costs (factory overheads) and administrative/distribution costs must be excluded.
Estimated Time:2m 0s