Prime cost consist of direct material and ……………… cost

Explanation

Prime cost consists of direct material and direct cost (which includes direct labour and direct expenses). Prime cost represents all the costs that can be directly traced to the production of a specific product.

The formula is: Prime Cost = Direct Materials + Direct Labour + Direct Expenses. Direct materials are raw materials used in making the product. Direct labour is wages paid to workers who directly work on the product. Direct expenses are other costs directly linked to production.

Prime cost is also called basic cost or first cost because it forms the foundation of total production cost. It excludes all indirect costs like factory rent, supervisor salaries, and machine depreciation.

Factory overhead, indirect costs, and overhead costs are all terms for costs that cannot be directly traced to a specific product. These are added to prime cost to calculate total factory cost or production cost.