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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Prime and conversion costs

Identify the following costs as a prime cost (P), conversion cost (C), or both (B) for an automobile manufacturer:

  1. a. Wages of employees that operate painting equipment
  2. b. Wages of the plant manager
  3. c. Steel
  4. d. Oil used for assembly line machinery

To determine

Prime cost:

Prime cost refers to a cost which is directly involved in the process of manufacturing an item. Prime cost includes direct materials, direct labor and other direct overheads.

Conversion cost:

A conversion cost refers to the cost of converting the raw materials into a finished product. Conversion cost includes direct labor as well as the manufacturing overhead costs.

To identify: The prime cost and the conversion cost of the given items of an automobile manufacturer.

Explanation

The prime cost and the conversion cost of each items of an automobile manufacturer are identified as follows:

Sl. No Particulars Prime cost (P) / Conversion cost (C) / Both (B)
a Wages of employees that operate painting equipment. Both (b)
b Wages of the plant manager. Conversion cost (C)
c Steel Prime cost (P)
d Oil used for  assembly line machinery Conversion co...

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