In estimation, the term prime cost refers to
- AThe cost of overheads and profit
- BThe estimated cost of a government project
- CThe cost of direct materials and direct labourCorrect
- DThe cost of taxes and contingencies
Solution
Concept
Prime cost
Formula
Prime cost = direct materials + direct labour (+ direct expenses)
Step-by-step solution
1. Prime cost is the total of direct costs. 2. It includes direct materials and direct labour.
Explanation
Prime cost is the direct cost of production, i.e. the material and labour that can be traced directly to the work. Overheads and profit are added to prime cost to get the total cost.
Shortcut
Prime cost = direct material + direct labour.
Common mistake
Including overheads.
Correct answer: C) The cost of direct materials and direct labour