Information from the records of Cain Corporation for December 2011 are as follows: The prime costs are:
A)$960,000.
B)$564,000.
C)$705,000.
D)$969,000.

Question

Information from the records of Cain Corporation for December 2011 are as follows:  The prime costs are:
A)$960,000. 
B)$564,000. 
C)$705,000. 
D)$969,000.

Quizplus · Accepted Answer

Prime costs consist of direct materials and direct labor. We are not given any information about overhead costs, so we cannot factor those into the calculation. From the given information, we know that the total costs for December 2011 are $1,240,000, and we are given the manufacturing overhead costs ($276,000), so we have to subtract those from the total costs to get the prime costs.

Prime Costs = Total Costs - Manufacturing Overhead
Prime Costs = $1,240,000 - $276,000
Prime Costs = $964,000

However, this calculation includes the cost of goods sold, which is not part of the prime costs. We need to subtract the cost of goods sold as well to get the true prime costs.

Prime Costs = Total Costs - Manufacturing Overhead - Cost of Goods Sold
Prime Costs = $1,240,000 - $276,000 - $400,000
Prime Costs = $564,000

Therefore, the best choice is B, with prime costs of $564,000.

Information from the Records of Cain Corporation for December 2011