In cost accounting, which of the following items would not be classified as a prime cost?

Introduction / Context:
In cost accounting, costs are often classified into direct and indirect categories. Prime cost is a key concept that combines direct material and direct labour costs associated with manufacturing a product. Knowing which costs are prime costs and which are overheads is essential for product costing, pricing and profitability analysis. This question asks you to identify which item is not a prime cost.

Given Data / Assumptions:

• Prime cost consists of direct materials plus direct labour.
• Direct labour can be traced directly to specific units of output.
• Supervisory wages are usually treated as indirect labour and part of factory overhead.
• Assembly line workers and machine operators perform direct production tasks.

Concept / Approach:
Prime cost is defined as the sum of direct material cost and direct labour cost. Direct labour refers to wages paid to workers who are directly involved in converting raw materials into finished products and whose work can be easily and physically traced to specific units or batches. Examples include assembly line workers and machine operators. Supervisory staff, on the other hand, oversee multiple processes and do not work directly on individual units. Their wages are considered indirect labour and form part of factory overhead or production overhead, not prime cost. Therefore, the wages of production supervisors are not classified as prime cost, while the other listed wages are.

Step-by-Step Solution:
Step 1: Recall that prime cost equals direct materials plus direct labour.Step 2: Identify which of the listed wage items qualify as direct labour, meaning they can be directly traced to units of output.Step 3: Recognise that assembly line workers and machine operators are directly engaged in manufacturing and thus their wages are direct labour.Step 4: Note that production supervisors oversee operations and their efforts cannot be traced to specific units, so their wages are indirect labour included in overhead, not in prime cost.

Verification / Alternative check:
You can verify this classification by considering how each role contributes to a product like a car. The workers who physically install parts on the assembly line and the machine operators who operate welding or painting machines are clearly adding value to specific cars and their wages can be assigned to those units. Supervisors, however, coordinate and monitor the work of many employees, ensure quality and manage schedules. Their work supports the production process as a whole rather than any one car. Because of this, their wages are pooled as overhead costs and spread across products using a suitable allocation base rather than being treated as direct labour.

Why Other Options Are Wrong:
Option B, assembly line wages, represents direct labour because workers on the line directly work on units of output. Option C, wages of machine operators, is also direct labour because these workers operate production machinery and their effort can be traced to the goods produced. Option D, direct labour wages, by definition falls into the prime cost category. Only option A, wages of production supervisors, is an indirect cost and therefore not a prime cost.

Common Pitfalls:
Students sometimes assume that because supervisors work in the factory, their wages must be prime costs. This confusion arises from mixing the distinction between manufacturing and non manufacturing costs with the distinction between direct and indirect costs. While all these wages are manufacturing costs, only those that can be traced directly to units of output are prime costs. To avoid errors, always ask whether a cost can be easily identified with a specific product. If the answer is no, it is likely to be part of overhead rather than a prime cost.

Final Answer:
The wages of production supervisors are not classified as a prime cost, because they are indirect labour and part of factory overhead.