The following operational details were extracted from the accounts of Zaria Leathercrafts Enterprise for the financial year:
| Operational Item | Amount (₦) |
|---|---|
| Opening inventory of raw materials | 50,000 |
| Purchases of raw materials | 240,000 |
| Carriage inwards on raw materials | 18,000 |
| Closing inventory of raw materials | 38,000 |
| Direct factory wages | 160,000 |
| Royalties paid on production | 30,000 |
| Factory supervisor salary | 75,000 |
| Depreciation of factory machinery | 40,000 |
What is the prime cost of production for the period?
Answer: 460000 ₦
Answer
The prime cost of production for the period is ₦460,000.
Prime Cost is the sum of all direct manufacturing costs. It is calculated by adding the cost of raw materials consumed (₦50,000 + ₦240,000 + ₦18,000 - ₦38,000 = ₦270,000), direct factory wages (₦160,000), and direct expenses such as royalties (₦30,000), giving a total of ₦460,000. Indirect expenses like factory supervisor salary and depreciation of machinery are factory overheads and are excluded.
Step-by-Step Solution
Key Concept
Prime Cost Calculation in Manufacturing Accounts