Detailed notes on Prime Cost

Prime Cost comprises a sum of Direct Material, Direct Wages or Labour and Direct Expenses
Let us understand each:
DIRECT MATERIAL
Materisl that can be conveniently identified with ad can e directly allocated to a particular job or process to calculate cost of one unit of product
Some examples are:
Timber in furniture
Cloth in Garments
Milk and Cream in Ice Cream
Can for food and drink
Bottle for different types of liquid products

LABOUR
It is a human resource and cannot be acquired. It only can be hired and yet participates in the production process
Direct Labour is the labour which can be readily identified with a specific job, contract or work order. It includes
- all labour directly engaged in converting raw material or WIP into finished products or in altering the construction, composition or condition of the product
- any other form of labour which is incurred  wholly or specifically for any particular job, process or work order
Examples
Weaver in weaving unit
Carpenter in Furniture unit
Baker in bakery
Halwai in Sweet shop
Wages paid to direct labour are termed as direct labour cost and form part of Prime Cost


DIRECT  EXPENSES
All expenses other than Direct Material Cost and Direct Labour Expenses are Direct Expenses

INDIRECT MATERIAL
Those material that cannot be conveniently identified with and cannot  be directly allocated  to a particular product, job or process
Examples
Lubricating oil or grease for machine
Boiler of machinery
Nails used in making furniture
Cost Of Consumables
Cost of printing. Postage used in Production

INDIRECT LABOUR
Labour that cannot be readily identified with a particular job, contract or work order
Examples
Labour Employed in Personnel Deptt, Rand D, IT, Time Keeping or Pay Roll
Salary of supervisor , factory manager and other superintendents and supervisors
Contribution of Employees State Insurance (ESI)


INDIRECT EXPENSES
All indirect costs other than indirect material and indirect labour  and indirect expenses

Examples
Rent, Rates and Taxes of Building
Repairs Insurance and Depreciation of Plant, Land and Building
Telephone Expenses
Lighting , Heating and Cleaning Expenses

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