The following cost items were extracted from the accounting records of Calabar Craftworks for the financial year ended 31 December 2025:
| Cost Item | Amount (₦) |
|---|---|
| Direct materials consumed | |
| Direct wages | |
| Royalties on production | |
| Factory power and lighting |
What is the Prime Cost of the firm for the year?
Answer: 315000 ₦
Answer
The Prime Cost of Calabar Craftworks for the year is ₦315,000.
Prime Cost consists strictly of direct costs: direct materials consumed (₦180,000), direct wages (₦120,000), and direct expenses such as royalties (₦15,000). Adding these three components together gives ₦315,000. Factory power and lighting is an indirect expense and is therefore excluded.
Step-by-Step Solution
Key Concept
Prime Cost is the sum of all direct costs incurred in manufacturing, consisting of direct materials consumed, direct wages/labour, and direct expenses (such as royalties). Indirect factory costs are excluded.