Which of the following expenses constitutes prime cost?
I. Direct labour cost II. Factory overheads III. Hiring of machine for production IV. Warehouse rent
-
A.
I and II only -
B.
I and III only -
C.
I, II and III only -
D.
I,II and IV only
Correct Answer: Option B
Explanation
Prime costs consist of direct materials and direct labor. Direct materials include all tangible components of a product. For example, direct materials include raw materials, supplies, and any other component that becomes part of the finished product.