What does the term 'prime cost' refer to in a cost sheet?

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Question: What does the term \'prime cost\' refer to in a cost sheet?

Options:

Correct Answer: Direct materials and direct labor costs

Solution:

Prime cost refers to the sum of direct materials and direct labor costs incurred in production.

What does the term 'prime cost' refer to in a cost sheet?

What does the term 'prime cost' refer to in a cost sheet?

Step 1: Understand that 'prime cost' is a term used in accounting and finance.
Step 2: Know that prime cost includes two main components: direct materials and direct labor.
Step 3: Direct materials are the raw materials used to create a product.
Step 4: Direct labor refers to the wages paid to workers who are directly involved in making the product.
Step 5: To find the prime cost, you add the total cost of direct materials to the total cost of direct labor.

Prime Cost – The total of direct materials and direct labor costs associated with the production of goods.