Prime Costs and Conversion Costs

Question 1

What are the components of direct costs?

Answer 1

Direct Material, Overhead, Labor

Direct costs are expenses that can be directly attributed to a specific project or product.

Question 2

What is considered a direct material?

Answer 2

Materials that are directly used in the production of a product

Direct materials are raw materials that can be directly traced to the finished product.

Question 3

What does overhead refer to in cost accounting?

Answer 3

Indirect costs associated with production

Overhead includes costs that are not directly tied to a specific product, such as utilities and rent.

Question 4

What is included in labor costs?

Answer 4

Wages paid to workers directly involved in production

Labor costs can include salaries, wages, and benefits for employees.

Question 5

What are prime costs?

Answer 5

Direct Material and Direct Labor costs

Prime costs are the total of direct materials and direct labor used in the manufacturing of products.

Question 6

What are conversion costs?

Answer 6

Direct Labor and Overhead costs

Conversion costs are the costs incurred to convert raw materials into finished goods.