The following financial details were extracted from the accounting records of Ibadan Furniture Craft Enterprise for the accounting year ended 31 December 2025:
| Accounting Item | Amount (₦) |
|---|---|
| Inventory of raw materials (1 January 2025) | |
| Inventory of raw materials (31 December 2025) | |
| Purchases of raw materials | |
| Carriage inwards on raw materials | |
| Direct wages paid to factory workers | |
| Royalties paid on production volume | |
| Factory supervisor's salary | |
| Depreciation of factory machinery | |
| Factory power and lighting |
What is the Prime Cost of production for the period in Naira (₦)?
Answer: 885000 ₦
Answer
The Prime Cost of production for Ibadan Furniture Craft Enterprise for the period ended 31 December 2025 is ₦885,000.
Prime Cost comprises all direct costs involved in production: Direct Raw Materials Consumed + Direct Labor (Wages) + Direct Expenses (Royalties). Calculating raw materials consumed yields ₦120,000 + ₦480,000 + ₦25,000 - ₦95,000 = ₦530,000. Adding direct wages of ₦310,000 and direct expenses (royalties) of ₦45,000 gives ₦885,000. Indirect expenses like supervisor salary, factory power, and machinery depreciation are excluded as they represent factory overheads.
Step-by-Step Solution
Key Concept
Prime Cost consists strictly of direct material costs consumed, direct wages/labor, and direct production expenses.