Asked by Brandon Cannon on Jul 04, 2024
Verified
A company's prime costs total $3,000,000 and its conversion costs total $7,000,000.If direct materials are $1,000,000 and factory overhead is $5,000,000,then direct labor is:
A) $4,000,000.
B) $14,000,000.
C) $2,000,000.
D) $1,000,000.
E) $3,000,000.
Prime Costs
Refers to the direct costs of manufacturing a product, including direct materials and direct labor.
Conversion Costs
Expenses incurred when transforming raw materials into finished goods, typically including labor and overhead costs.
Direct Materials
Costs of raw materials that are directly involved in the manufacturing of a product and can be easily traced to it.
- Familiarize yourself with the components and the method of calculating prime costs.
- Recognize and compute the expenses associated with conversion.
Verified Answer
JB
Jennifer BarringtonJul 07, 2024
Final Answer :
C
Explanation :
Prime costs = Direct materials + Direct labor
$3,000,000 = $1,000,000 + Direct labor
Direct labor = $2,000,000
Conversion costs = Direct labor + Factory overhead
$7,000,000 = $2,000,000 + $5,000,000
Therefore, direct labor is $2,000,000.
$3,000,000 = $1,000,000 + Direct labor
Direct labor = $2,000,000
Conversion costs = Direct labor + Factory overhead
$7,000,000 = $2,000,000 + $5,000,000
Therefore, direct labor is $2,000,000.
Learning Objectives
- Familiarize yourself with the components and the method of calculating prime costs.
- Recognize and compute the expenses associated with conversion.