Which of the following costs would NOT be included while

Solution

Prime cost is the  sum of  Direct Material ,  Direct  Labour   and  Direct Expenses .      As GST is available as input tax credit, that can be claimed back, it is not  a real cost  to the business. As such, it will not form the part of Prime cost.     All the other costs are direct costs because:  

• Transportation to  factory   is   Carriage inward  which is d irectly attributable to material  and hence i ncluded in direct material cost  

• Primary packing  is n ecessary to make product saleable . It is therefore a d irect expense  to be included in prime cost  

• Overtime premium for specific job  is t raceable to  particular order  and should be included as d irect  labour  

• Royalty per unit  is a d irect expense  associated with the product and hence included in prime cost  

• Overtime for Specific or urgent job  - If overtime is due to urgent, specific customer orders, or directly traceable to a particular order, the entire cost (regular pay + premium) is directly charged to that job. In such case, it will be a direct cost and form part of prime cost  

• Overtime for general production  - If overtime arises from general production bottlenecks, seasonal demand, or inefficient scheduling,  or labour shortage,  it is often treated as indirect  labor  and charged to factory overhead, not prime cost.  

• Abnormal Reasons:  If overtime is caused by issues like machine breakdown, it is considered an abnormal cost and charged to the Costing Profit & Loss Account, excluded from both prime cost and overheads.