ECONOMICS

COST ACCOUNTING

VARIABLE COSTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Prime cost can be defined as:
A
The total costs of manufacturing a product
B
The total direct costs of manufacturing a product
C
The cost of the first stage of the manufacture of a product
D
The total costs of operating the production department where the product is made
Explanation: 

Detailed explanation-1: -A prime cost is the total direct costs of production, including raw materials and labor. Indirect costs, such as utilities, manager salaries, and delivery costs, are not included in prime costs. Businesses need to calculate the prime cost of each product manufactured to ensure they are generating a profit.

Detailed explanation-2: -Explanation: Prime Cost: It consists of the costs of direct materials that go into the product, the costs of direct labor and direct expenses. It is also known as direct cost or first cost.

Detailed explanation-3: -Prime costs are the combination of the two direct product costs: direct materials costs and direct labor costs. Conversion costs include the manufacturing costs that are needed to convert direct materials into final products: direct labor costs and manufacturing overhead costs.

Detailed explanation-4: -Prime cost is the total of direct labor plus direct materials. Conversion cost is the sum of direct labor plus manufacturing overhead costs. These are the costs required to turn (convert) a raw material into a finished product.

Detailed explanation-5: -Prime costs can be calculated using the following formula: Prime cost = direct materials cost + direct labor cost.

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