Examkin

Question

Difficulty: MediumDirect Costs and Calculation of Prime Cost

Kano Footwear Manufacturers compiled the following financial data for the month of March 2026:

Cost ElementAmount (₦)
Opening inventory of raw leather90,000
Purchases of raw leather620,000
Carriage inwards on raw leather35,000
Closing inventory of raw leather60,000
Direct factory labor wages410,000
Royalties paid per shoe produced55,000
Factory supervisor salary120,000
Depreciation of production machinery80,000

What is the Prime Cost for Kano Footwear Manufacturers for March 2026?

  1. A
    ₦1,115,000
  2. ₦1,150,000Answer
  3. C
    ₦1,270,000
  4. D
    ₦1,350,000

Answer

The Prime Cost for March 2026 is ₦1,150,000.
Prime cost consists of all direct costs incurred in manufacturing, which are Direct Materials Consumed, Direct Labor, and Direct Expenses. Calculating Raw Materials Consumed: Opening Stock (₦90,000) + Purchases (₦620,000) + Carriage Inwards (₦35,000) - Closing Stock (₦60,000) = ₦685,000. Adding Direct Labor (₦410,000) and Royalties as direct expenses (₦55,000) yields ₦1,150,000. Factory supervisor salary and machinery depreciation are indirect factory overheads and are excluded.

Step-by-Step Solution

1
Calculate Cost of Raw Materials Consumed
₦90,000 + ₦620,000 + ₦35,000 - ₦60,000 = ₦685,000
Opening inventory of raw materials plus purchases and carriage inwards minus closing inventory gives the net cost of raw materials used in production.
2
Identify Direct Labor and Direct Expenses
Direct Labor = ₦410,000; Direct Expenses (Royalties) = ₦55,000
Direct labor and royalties directly relate to the production units and form part of direct cost components.
3
Calculate Prime Cost
₦685,000 + ₦410,000 + ₦55,000 = ₦1,150,000
Prime Cost is the total sum of Direct Materials Consumed, Direct Labor, and Direct Expenses.

Key Concept

Calculation of Prime Cost and Classification of Direct Costs
Rate this question

Topics

Direct Costs and Calculation of Prime Cost

More questions from this topic