Total Production Cost equals Prime cost plus Production overheads (total direct costs + indirect production overheads)

• A. Prime cost plus production overheads
• B. Direct costs plus indirect costs
• C. Prime cost minus overheads
• D. Total costs minus non-production costs

Answer: (A)

Total production cost is built from two parts: prime cost and production overheads. Prime cost covers the direct amounts that can be traced to making the product—direct materials and direct labour. Production overheads are the indirect costs tied to the production process, such as factory depreciation, indirect materials, and indirect labour. By adding these together you capture all costs incurred to manufacture the goods during the period. Non-production costs like selling or administrative expenses don’t enter this figure, and subtracting overheads would understate the production effort. For example, if direct materials and direct labour total 160, and production overheads are 40, the total production cost is 200.