CIMA BA3 · Chapter 11 · Question 9 of 12
A manufacturer provides the following data for the year: opening raw materials $6,000; purchases of raw materials $48,000; closing raw materials $7,500; direct labour $36,000; direct expenses (royalties) $2,500; factory overheads $21,000. What is the prime cost?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $85,000
Explanation
Raw materials used = $6,000 + $48,000 - $7,500 = $46,500. Prime cost = direct materials + direct labour + direct expenses = $46,500 + $36,000 + $2,500 = $85,000. Factory overheads are added after prime cost.
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