Calculate the prime cost from the following information: Direct material purchased: Rs. 1,00,000; Direct material consumed: Rs. 9…

Question

Calculate the prime cost from the following information: Direct material purchased: Rs. 1,00,000; Direct material consumed: Rs. 90,000; Direct labour: Rs. 60,000; Direct expenses: Rs. 20,000; Manufacturing overheads: Rs. 30,000

1. A. Rs. 1,80,000
2. B. Rs. 2,00,000
3. C. Rs. 1,70,000 (Correct answer)
4. D. Rs. 2,10,000

Correct Answer

Option C — Rs. 1,70,000

Detailed Solution & Explanation

The correct answer is Rs. 1,70,000.

Key Points

• Prime Cost = Direct Materials consumed + Direct Labour + Direct Expenses = 90,000 + 60,000 + 20,000 = Rs. 1,70,000.
• Manufacturing overheads are NOT part of prime cost.

Additional Information

• The cost build-up to memorise: Prime cost = direct materials + direct labour + direct expenses. Add factory overheads for works/factory cost, then administration overheads for cost of production, then selling and distribution overheads for cost of sales.
• Note the trap: materials consumed, not materials purchased, enters prime cost. Consumption = opening stock + purchases − closing stock.
• Prime cost is entirely direct cost; every overhead is indirect and therefore excluded by definition.
• Selling price is then cost of sales plus profit, which completes the cost sheet.