Concept:Prime cost includes all direct expenses directly linked to production.
Explanation:Royalty is a payment made to the owner of a resource or patent for the right to use it.
When royalty is paid based on the quantity produced, it is a direct expense.
Direct expenses form part of prime cost because they vary with production output.
In contrast, salary, commission, and discounts allowed are indirect expenses or selling expenses.
They are not included in prime cost but are shown in the profit and loss account.
Therefore, royalty paid on production is correctly treated as prime cost.
Answer:A. royalty