Question

EB2.

Answer 1

Answer:

The question is incomplete; the complete question is given below:

                                                                  $

Direct materials             15,000.00

Direct labor                       25,000.00

Factory depreciation expense         45,000.00

Factory utilities expense          2,000.00

Payroll staff's salary    15,000.00

Prime cost= $40,000,  Conversion cost= $72,000

Explanation:

Prime cost: It is the summation of all direct costs. Direct costs are costs that are incurred directly for a particular product, and therefore can be traced to it.

Examples of direct costs include; direct material costs, direct labour cost and direct expense

Direct materials cost: the costs of all materials used directly to manufacture a product. For example, cocoa powder, vanilla used in making chocolate. Every other materials costs are indirect material costs

Direct labor cost: the cost of the labor hours of workers actively involved in the production of a product. For example, the cost of the total hours paid to workers for packing the chocolates into cartons. Every other labor costs are indirect labor costs

Prime cost = Direct material cost+ Direct labour cost  + Direct expense

Prime cost = $15,000 + $25,000= $40,000

Conversion cost = The sum of direct labour costs  and manufacturing overheads

Conversion cost= $25,000 + $45,000 + $2000= $72,000

Note that payroll staff cost was excluded because payroll function is an administrative activitiy not manufacturing.