Prime Cost MCQs - Finance Study Pool

What Is Prime Cost

Prime cost refers to the total direct costs incurred in the production process of goods or services. It includes the cost of direct materials, which are the materials directly used in the production, and the cost of direct labor, which represents the wages or salaries paid to the workers directly involved in the production. Prime Cost excludes indirect costs such as factory overheads or other indirect expenses. It serves as a fundamental component in calculating the cost of goods sold and evaluating the efficiency of direct labor in the production process.

Prime Cost MCQs - Finance Study Pool

What is the definition of Prime Cost?

• The total cost of direct materials and direct labor
• The total cost of manufacturing overheads
• The total cost of indirect materials and indirect labor
• The total cost of selling and administrative expenses{alertSuccess}

Which of the following costs is not included in the Prime Cost?

• Direct materials cost
• Direct labor cost
• Factory rent expense
• Direct expenses{alertSuccess}

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Prime cost is also known as:

• Conversion cost
• Manufacturing cost
• Period cost
• Variable cost{alertSuccess}

Which of the following is an example of a direct material cost?

• Factory supervisor's salary
• Packaging materials
• Factory depreciation
• Indirect labor cost{alertSuccess}

What is the formula to calculate prime cost?

• Direct materials cost + direct labor cost
• Direct materials cost + Factory overhead cost
• Direct labor cost + Factory overhead cost
• Direct materials cost + Direct labour cost + Factory overhead cost{alertSuccess}

Which of the following costs is included in prime cost?

• Sales commission
• Advertising expenses
• Packaging materials
• Indirect labour cost{alertSuccess}

Prime cost is most relevant in which type of industry?

• Service industry
• Retail industry
• Manufacturing industry
• Finance industry{alertSuccess}

What is the significance of prime cost for a manufacturing company?

• It helps in determining the selling price of the product
• It helps in calculating the company's total revenue
• It helps in evaluating the company's profitability
• It helps in assessing the company's liquidity position{alertSuccess}

Which of the following is an example of a direct labour cost?

• Factory rent expense
• Production supervisor's salary
• Factory utilities cost
• Factory machine maintenance cost{alertSuccess}

Prime cost is a part of which broader cost category?

• Fixed cost
• Variable cost
• Total cost
• Period cost
• B) Marketing research expenses
• C) Direct materials used in production
• Interest expense on long-term debt{alertSuccess}

What does prime cost represent in the production process?

• The cost of direct materials and indirect materials
• The cost of direct labour and factory overheads
• The cost of direct labour and indirect labour
• The cost of direct materials and direct labour{alertSuccess}

Which of the following costs is not included in prime cost?

• Direct labour cost
• Factory rent expense
• Factory utilities cost
• Direct materials cost{alertSuccess}

Prime cost is an essential component in calculating which of the following?

• Gross profit
• Net profit
• Operating profit
• Earnings before interest and taxes (EBIT){alertSuccess}

What is the main purpose of calculating prime cost?

• To allocate costs to different departments
• To assess the efficiency of direct labour
• To determine the profitability of the company
• To track the depreciation of manufacturing equipment{alertSuccess}

Which of the following is a characteristic of prime cost?

• It includes all costs incurred by a company
• It remains constant throughout the production process
• It excludes indirect costs
• It is calculated at the end of the accounting period{alertSuccess}