ICANManagement InformationCost Classification and Behaviour2021

Sunrise Textile Mills Limited operates three production departments. The following data relate to Department B for the month of October 2024: direct materials ₦8,500,000; direct labour ₦4,200,000; variable production overhead ₦1,300,000; fixed production overhead absorbed ₦2,000,000; selling and distribution overhead ₦750,000. What is the PRIME COST for Department B?

A₦12,700,000CORRECT
B₦14,000,000
C₦14,750,000
D₦16,750,000
AI
Toaster Teacher
Why the answer is A, and why the others tempt you.
Prime cost comprises only direct materials and direct labour: ₦8,500,000 + ₦4,200,000 = ₦12,700,000. Variable production overhead, fixed production overhead, and selling and distribution overhead are all excluded from prime cost, as they are indirect costs added at later stages of cost accumulation.
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