alleryStart learning →Prime cost is the sum of which two manufacturing costs?
ADirect materials plus direct labor
BDirect labor plus factory overhead
CDirect materials plus factory overhead
DFactory overhead plus period costs
Answer & Solution
Correct answer: A. Direct materials plus direct labor
1. A manufactured item carries three product costs: direct materials, direct labor and factory overhead.
2. Prime cost combines the two costs that can be traced straight to the product, direct labor and direct materials.
3. With direct materials of $700 and direct labor of $500, prime cost is $700 plus $500, or $1,200.
4. Direct labor plus factory overhead is conversion cost, not prime cost.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 1.2 Cost Terminology and Concepts_
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