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Dear Sir,
On one hand, prime cost is defined as the total of all direct costs. Accordingly, I can understand that prime cost includes both direct production costs and direct non-production costs (e.g. commission paid to salesperson based on her sales volume).Meanwhile, inventories are valued based on product costs, including prime costs plus production overheads… From this, I should understand that prime cost includes only direct production costs.
Can you please help me to clarify this? Thank you so much!
Kind regards,
PhuongPrime cost is direct production costs, and is therefore usually just direct materials and direct labour. It does not include non-production costs.
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