ECONOMICS

Detailed explanation-1: -A prime cost is the total direct costs of production, including raw materials and labor. Indirect costs, such as utilities, manager salaries, and delivery costs, are not included in prime costs. Businesses need to calculate the prime cost of each product manufactured to ensure they are generating a profit.

Detailed explanation-2: -Usually these are the expenses incurred for such items, services, activities or anything which were used in production of a particular product or provision of services e.g. construction plan of one house, royalties etc.

Detailed explanation-3: -Royalty, based on the production or output, will strictly go to the Manufacturing or Production account. In case, where the Royalty is payable on sale basis, it will be part of the selling expenses.

Detailed explanation-4: -A percentage royalty paid on product sold is an example of a variable cost. The more product sold, the greater the royalty payment.

Detailed explanation-5: -Royalty on production is a direct expenses and to be debited to the manufacturing/trading account.