Multiple Choice
Equivalent units of production refers to the number of units that could have been:
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following best describes the components of prime costs in a manufacturing company?
A
Direct materials, direct labor, and manufacturing overhead
B
Direct materials and direct labor
C
Direct labor and manufacturing overhead
D
Direct materials and manufacturing overhead
Verified step by step guidance1
Understand the concept of prime costs: Prime costs are the direct costs incurred in the production of goods. These costs are directly attributable to the manufacturing process and exclude indirect costs like manufacturing overhead.
Identify the components of prime costs: Prime costs consist of direct materials and direct labor. Direct materials are the raw materials used in production, and direct labor refers to the wages paid to workers directly involved in manufacturing.
Differentiate prime costs from other cost categories: Manufacturing overhead, which includes indirect costs like factory utilities and supervisor salaries, is not part of prime costs. It is categorized under conversion costs.
Review the options provided in the problem: Analyze each option to determine which one correctly identifies the components of prime costs. Eliminate options that include manufacturing overhead.
Select the correct answer: Based on the definition and components of prime costs, choose the option that lists direct materials and direct labor as the components of prime costs.
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Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory practice set
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