Lekki Craftwork Industries extracted the following financial data from its operational books for the accounting year ended 31 December 2025:
| Account Details | Amount (₦) |
|---|---|
| Opening inventory of raw materials | 45,000 |
| Purchases of raw materials | 180,000 |
| Returns outward of raw materials | 15,000 |
| Carriage inwards on raw materials | 12,000 |
| Closing inventory of raw materials | 32,000 |
| Direct wages paid | 110,000 |
| Direct wages accrued at year-end | 10,000 |
| Hire of special production equipment | 25,000 |
| Royalties paid on technical designs | 18,000 |
| Carriage outwards | 8,000 |
| Factory supervisor's salary | 35,000 |
| Depreciation of factory machinery | 20,000 |
What is the prime cost for the year?
- A₦408,000
- B₦351,000
- ₦353,000Answer
- D₦388,000
Answer
The prime cost for the year is ₦353,000.
Prime cost is determined by combining all direct manufacturing costs:
1. Raw Materials Consumed:
2. Direct Labour:
3. Direct Expenses:
Factory supervisor salary and depreciation are factory overheads, while carriage outwards is an operational selling expense.
1. Raw Materials Consumed:
2. Direct Labour:
3. Direct Expenses:
Factory supervisor salary and depreciation are factory overheads, while carriage outwards is an operational selling expense.
Step-by-Step Solution
Key Concept
Prime cost is the sum of all direct costs of production: direct materials consumed, direct labor, and direct expenses. Indirect costs (factory overheads) and distribution expenses (carriage outwards) are strictly excluded.