prime cost
works cost
cost of production
cost of sales
Answer is Right!
Answer is Wrong!
The correct answer is: D. cost of sales.
- Prime cost is the sum of direct materials and direct labor costs.
- Works cost is the sum of prime cost and factory overhead costs.
- Cost of production is the sum of works cost and other costs incurred in bringing the product to the point of sale, such as selling and administrative expenses.
- Cost of sales is the net amount of revenue received from the sale of goods or services, less the cost of those goods or services sold.
Sale of defectives is reduced from cost of sales because the defective products are not sold and therefore do not generate revenue. The cost of the defective products is included in cost of goods sold, which is then deducted from revenue to arrive at gross profit.