Prime cost consist of _____?

i. Direct materials
ii.Direct labour
iii.Direct expenses
iv. Factory expenses

A. i, ii and iii
B. i, ii and iv
C. i, iii and iv
D. ii, iii and iv

Correct Answer:

Option A – i, ii and iii

Explanation

Prime cost is the direct cost of a commodity in terms of the materials and labour involved in its production, excluding fixed costs. Direct material and direct labor costs are prime cost because they are the main incremental costs of a product.