The following extract was taken from the manufacturing records of Enugu Textile Mills Ltd for the operational year ended 31 December 2025:
| Item | Amount (₦) |
|---|---|
| Opening stock of raw materials | 150,000 |
| Closing stock of raw materials | 90,000 |
| Purchases of raw materials | 420,000 |
| Carriage inwards on raw materials | 30,000 |
| Direct factory wages | 280,000 |
| Production royalties paid | 45,000 |
| Factory supervisor salary | 65,000 |
| Factory rent and rates | 80,000 |
| Depreciation of factory plant | 40,000 |
What is the prime cost of production for Enugu Textile Mills Ltd for the year?
- A₦805,000
- ₦835,000Answer
- C₦900,000
- D₦1,020,000
Answer
The prime cost of production is ₦835,000.
Prime cost is the total of all direct production costs. First, calculate the cost of raw materials consumed: Opening Stock (₦150,000) + Purchases (₦420,000) + Carriage Inwards (₦30,000) - Closing Stock (₦90,000) = ₦510,000. Next, add all other direct costs, which are Direct Factory Wages (₦280,000) and Production Royalties (₦45,000). ₦510,000 + ₦280,000 + ₦45,000 gives ₦835,000. Indirect costs such as factory supervisor salary, factory rent, and plant depreciation are factory overheads and are excluded from prime cost.
Step-by-Step Solution
Key Concept
Prime cost comprises all direct costs of production: direct raw materials consumed, direct wages/labor, and direct expenses (such as royalties or carriage inwards on raw materials). Factory overheads are excluded.