To determine the prime cost of production, we need to understand what prime cost includes. Prime cost is the total of all direct costs associated with the production of goods. This typically includes:
- Direct Materials Used: The cost of raw materials that are directly used in the production of goods.
- Direct Labour: The cost of wages for workers who are directly involved in the manufacturing process.
Step-by-Step Calculation
- Identify Direct Materials Used:
-
From the information provided, the direct materials used amount to N64,000.
-
Identify Direct Labour:
-
The direct labour cost is given as N30,000.
-
Calculate Prime Cost:
- The formula for calculating prime cost is:
[
\text{Prime Cost} = \text{Direct Materials Used} + \text{Direct Labour}
]
- Plugging in the values:
[
\text{Prime Cost} = N64,000 + N30,000 = N94,000
]
Conclusion
The prime cost of production is
N94,000. Therefore, the correct option is
B.
Explanation of Other Options
-
Option A (N64,000): This option only considers the direct materials used and ignores the direct labour costs. Therefore, it is incomplete and incorrect.
-
Option C (N111,000): This option seems to be a miscalculation. It may arise from incorrectly adding other costs or misinterpreting the components of prime cost. It does not accurately reflect the sum of direct materials and direct labour.
-
Option D (N116,000): Similar to option C, this figure does not correspond to any logical addition of the provided costs. It may include additional costs that are not part of the prime cost calculation.
Common Pitfalls
- Confusing Prime Cost with Total Production Cost: Remember that prime cost only includes direct materials and direct labour. It does not include overheads or work-in-progress.
- Misreading the Question: Ensure you are clear on what is being asked. The question specifically asks for prime cost, not total cost or any other metric.
Revision Summary
- Prime cost includes only direct materials and direct labour.
- The formula for prime cost is: Prime Cost = Direct Materials + Direct Labour.
- The correct calculation for the given data results in a prime cost of N94,000.
- Always double-check the definitions and components of costs to avoid miscalculations.