In the preparation of manufacturing accounts, prime cost plus factory overheads equal to cost of

In the preparation of manufacturing accounts, prime cost plus factory overheads equal to cost of

Answer Details

In the preparation of manufacturing accounts, prime cost plus factory overheads equal to the cost of production. Prime cost includes the cost of raw materials and direct labor while factory overheads include all other indirect manufacturing costs such as rent, utilities, and factory supplies. When we add these two costs, we get the total cost of production. This total cost of production is an important figure in the calculation of cost of goods sold, which is used in determining the gross profit or loss of a manufacturing business.