Which of the following expenses constitutes prime cost?

I. Direct labour cost

II. Factory overheads

III. Hiring of machine for production

IV. Warehouse rent

A. I and II only
B. I and III only
C. I, II and III only
D. I,II and IV only

Correct Answer: Option B

B. I and III only

Explanation

Prime costs consist of direct materials and direct labor. Direct materials include all tangible components of a product. For example, direct materials include raw materials, supplies, and any other component that becomes part of the finished product.