Question

Total cost includes

• A. Prime cost
• B. Works cost
• C. Production cost
• D. All of these

Hint:

Visualize the cost sheet as a ladder. You climb from Prime Cost, to Works Cost, to Cost of Production, and finally reach the Total Cost. Each step includes all the previous ones.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks about the components that make up the total cost of a product, as per cost accounting principles.
Step 2: Key Concept:
A cost sheet is prepared to ascertain the total cost, which is built up in stages. Each stage represents a different classification of cost.
Step 3: Detailed Explanation:
The build-up of total cost is as follows:

Prime Cost: This is the sum of all direct costs.
\[ \text{Prime Cost} = \text{Direct Materials} + \text{Direct Labour} + \text{Direct Expenses} \]
Works Cost (or Factory Cost): This is the Prime Cost plus factory-related overheads.
\[ \text{Works Cost} = \text{Prime Cost} + \text{Factory Overheads} \]
Production Cost (or Cost of Production): This is the Works Cost plus administrative overheads.
\[ \text{Cost of Production} = \text{Works Cost} + \text{Administrative Overheads} \]
Total Cost (or Cost of Sales): This is the final cost, which includes all expenses.
\[ \text{Total Cost} = \text{Cost of Production} + \text{Selling & Distribution Overheads} \]
As seen from the structure, Prime Cost is a part of Works Cost, which is a part of Production Cost, which is in turn a part of the final Total Cost. Therefore, all these terms are integral components or stages in arriving at the total cost.
Step 4: Final Answer:
Since Prime Cost, Works Cost, and Production Cost are all components or sub-totals within the calculation of Total Cost, the correct answer is (D) All of these.