Question

The costs of direct materials are classified as: Conversion cost Manufacturing cost Prime cost A) Yes Yes Yes B) No No No C) Yes Yes No D) No Yes Yes Multiple Choice Choice A Choice B Choice C Choice D

Answer 1

Answer:

Option A Yes Yes Yes

Explanation:

The reason is that the conversion costs are all those costs incurred by the organization to convert the raw material into finished goods and this includes direct labor, manufacturing costs, etc.

Manufacturing costs are those costs that the company incurs to manufacture the product only and are attributable to production department. So this means that the labor cost is manufacturing costs.

Furthermore, all the direct costs of the organization incurred are prime costs and:

Prime Cost = Direct Labor Cost + Direct Material Cost + Direct Overhead Cost