Chapter 18, Problem 10E

To determine

Concept Introduction-Prime costs-

Prime costs are the costs which are directly connected with the production of product. Prime costs are direct material cost and direct labor costs which are used in the production.

Requirement-1:

To Compute:

To compute prime costs.

Answer to Problem 10E

Prime Costs
Particulars	Garcon Company	Pepper Company
Direct material-
Beginning raw materials inventory	7,250	9,000
Add: Raw materials purchases	33,000	52,000
Raw material available for use	40,250	61,000
less: Ending raw materials inventory	5,300	7,200
Direct material Used	34,950	53,800
Direct labor	19,000	35,000
Total prime costs	53,950	88,800

Explanation of Solution

Garcon company-

Given,

• Beginning raw materials inventory = $7,250
• Raw materials purchases = $33,000
• Ending raw materials inventory = $5,300
• Direct labor = $19,000

  $\begin{array}{l}\begin{array}{l}DirectmaterialUsed=Beginningrawmaterialsinventory+Rawmaterialspurchases\\ -Endingrawmaterialsinventory\end{array}\hfill \\ DirectmaterialUsed=\$7,250+\$33,000-\$5,300\hfill \\ DirectmaterialUsed=34,950\hfill \end{array}$

Total prime costs is calculated as follows-

  $\begin{array}{l}Totalprimecosts=DirectmaterialUsed+Directlabor\hfill \\ Totalprimecosts=\$34,950+\$19,000\hfill \\ Totalprimecosts=\$53,950\hfill \end{array}$

Pepper company-

Given,

• Beginning raw materials inventory = $9,000
• Raw materials purchases = $52,000
• Ending raw materials inventory = $7,200
• Direct labor = $35,000

  $\begin{array}{l}\begin{array}{l}DirectmaterialUsed=Beginningrawmaterialsinventory+Rawmaterialspurchases\\ -Endingrawmaterialsinventory\end{array}\hfill \\ DirectmaterialUsed=\$9,000+\$52,000-\$7,200\hfill \\ DirectmaterialUsed=\$53,800\hfill \end{array}$

Total prime costs is calculated as follows-

  $\begin{array}{l}Totalprimecosts=DirectmaterialUsed+Directlabor\hfill \\ Totalprimecosts=\$53,800+\$35,000\hfill \\ Totalprimecosts=\$88,800\hfill \end{array}$

Conclusion:

Thus, the prime costs are computed.

To determine

Concept Introduction-Conversion costs-

Conversion costs are the cost which are required to convert raw materials into finished product. Conversion costs are the sum of direct labor cost and factory overhead costs.

Requirement-2:

To Compute:

To conversion costs.

Answer to Problem 10E

Conversion costs
Particulars	Garcon Company	Pepper Company
Direct labor	19,000	35,000
Factory overhead
Rental cost on factory equipment	27,000	22,750
Factory utilities	9,000	12,000
Factory supplies used	8,200	3,200
Indirect labor	1,250	7,660
Repairs-Factory equipment	4,780	1,500
Total factory overhead	50,230	47,110
Total conversion cost	69,230	82,110

Explanation of Solution

Garcon Company

Given,

• Direct labor = $19,000
• Rental cost on factory equipment=$27,000
• Factory utilities = $9,000
• Factory supplies used=$8,200
• Indirect labor=$1,250
• Repairs-Factory equipment=$4,780

  $\begin{array}{l}\begin{array}{l}Totalfactoryoverhead=Rentalcostonfactoryequipment+Factoryutilities+\\ Factorysuppliesused+Indirectlabor+Repairs-Factoryequipment\end{array}\hfill \\ Totalfactoryoverhead=\$27,000+\$9,000+\$8,200+\$1,250+\$4,780\hfill \\ Totalfactoryoverhead=\$50,230\hfill \end{array}$

Total conversion cost is calculated as follows-

  $\begin{array}{l}Totalconversioncost=Directlabor+Totalfactoryoverhead\hfill \\ Totalconversioncost=\$19,000+\$50,230\hfill \\ Totalconversioncost=\$69,230\hfill \end{array}$

Pepper Company

Given,

• Direct labor = $35,000
• Rental cost on factory equipment=$22,750
• Factory utilities = $12,000
• Factory supplies used=$3,200
• Indirect labor=$7,660
• Repairs-Factory equipment=$1,500

  $\begin{array}{l}\begin{array}{l}Totalfactoryoverhead=Rentalcostonfactoryequipment+Factoryutilities+\\ Factorysuppliesused+Indirectlabor+Repairs-Factoryequipment\end{array}\hfill \\ Totalfactoryoverhead=\$22,750+\$12,000+\$3,200+\$7,660+\$1,500\hfill \\ Totalfactoryoverhead=\$47,110\hfill \end{array}$

Total conversion cost is calculated as follows-

  $\begin{array}{l}Totalconversioncost=Directlabor+Totalfactoryoverhead\hfill \\ Totalconversioncost=\$35,000+\$47,110\hfill \\ Totalconversioncost=\$82,110\hfill \end{array}$

Conclusion:

Thus, conversion costs are computed.