The following operational financial records were extracted from the books of Kano Garment Manufacturing Enterprise for the accounting year ended 31 December 2025:
| Cost Item | Amount (₦) |
|---|---|
| Inventory of raw materials (1 Jan 2025) | 45,000 |
| Purchases of raw materials | 185,000 |
| Carriage inwards on raw materials | 12,000 |
| Returns outwards of raw materials | 8,000 |
| Direct factory labour wages | 115,000 |
| Royalties paid on garment production | 25,000 |
| Factory supervisor's salary | 40,000 |
| Depreciation of factory machinery | 18,000 |
| Factory general insurance | 22,000 |
| Carriage outwards on finished garments | 15,000 |
| Inventory of raw materials (31 Dec 2025) | 34,000 |
What is the Prime Cost for Kano Garment Manufacturing Enterprise for the year ended 31 December 2025?
- A₦332,000
- ₦340,000Answer
- C₦355,000
- D₦420,000
Answer
The Prime Cost of Kano Garment Manufacturing Enterprise for the year ended 31 December 2025 is ₦340,000.
Prime cost represents the total sum of all direct costs associated with production. It is calculated as: Prime Cost = Cost of Raw Materials Consumed + Direct Labour + Direct Expenses. Here, Cost of Raw Materials Consumed = Opening Stock (₦45,000) + Purchases (₦185,000) + Carriage Inwards (₦12,000) - Returns Outwards (₦8,000) - Closing Stock (₦34,000) = ₦200,000. Adding Direct Factory Labour (₦115,000) and Direct Royalties (₦25,000) gives a Prime Cost of ₦340,000.
Step-by-Step Solution
Key Concept
Calculation of Prime Cost in a Manufacturing Account
Estimated Time:2m 0s