Chapter 18, Problem 10E

To determine

Introduction:

Prime costs and Conversion Costs

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Prime costs are direct costs of manufacture of goods and include Cost of Direct materials and Cost of Direct labor.

• Conversion Costs are the manufacturing costs incurred in conversion of raw materials to finished goods and include the cost of Direct labor and Manufacturing overhead.

  $\begin{array}{l}\text{Prime Costs = Direct Material + Direct Labor}\hfill \\ \hfill \\ \text{Conversion Costs = Direct Labor + Manufacturing Overhead}\hfill \end{array}$

To Calculate:

Prime costs and conversion costs for each company.