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JAMB Accounts Principles of Accounts 2015 Paper

Question : 10

Total: 69

Prime cost is one of the following

expenses which can be identified with an allocated to cost centers
aggregate direct material cost, direct labour cost and variable direct expenses
the cost taken into account in the production process whether direct or indirect
the cost of commodities supply to an undertaking

Solution:

Concept:

Prime cost is the total of all direct costs incurred in producing a product.

Explanation:

Prime cost is the aggregate of direct materials, direct labour, and direct expenses.

This is expressed as:

\text{Prime cost} = \text{Direct material cost} + \text{Direct labour cost} + \text{Direct variable expenses}

These direct costs can be traced directly to a specific product unit.

Indirect costs, such as overheads, are not part of prime cost.

Option A describes the allocation of expenses to cost centres, not prime cost.

Option C includes indirect production costs, so it is incorrect.

Option D is too general and does not define prime cost precisely.

Therefore, the only correct definition is the one that combines direct materials, direct labour, and direct variable expenses.

Answer:

Option B: aggregate direct material cost, direct labour cost and variable direct expenses.

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