A company's prime costs total $3,000,000 and its conversion costs total $7,000,000. If direct materials are $1,000,000 and factory overhead is $5,000,000, then direct labor is:
A) $4,000,000.
B) $14,000,000.
C) $2,000,000.
D) $1,000,000.
E) $3,000,000.

Question

Quizplus · Accepted Answer

Prime costs include direct materials and direct labor. Thus, direct labor can be calculated as:

Direct labor = Prime costs - Direct materials
Direct labor = $3,000,000 - $1,000,000
Direct labor = $2,000,000

Conversion costs include direct labor and factory overhead. Therefore, we cannot use the conversion costs to directly calculate the direct labor cost.

A Company's Prime Costs Total $3,000,000 and Its Conversion Costs