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Prime cost is the total of which three elements?
ADirect material, direct labour and direct expenses
BDirect material, factory rent and admin salary
CDirect labour, selling cost and distribution cost
DDirect expenses, packing cost and works overhead
Answer & Solution
Correct answer: A. Direct material, direct labour and direct expenses
1. Prime cost collects only the directly attributable elements of cost.
2. Those are direct material cost, direct employee (labour) cost and direct expenses.
3. The total of each element is worked out separately and then added.
4. Overheads of any kind sit outside prime cost, so factory rent and admin salary do not belong.
_Source: ICAI Cost and Management Accounting Ch6 'Cost Sheet', section 6.3.1_
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