A company's prime costs total $4,500,000 and its conversion costs total $5,500,000.If direct materials costs are $2,000,000,calculate the overhead costs:
A)$2,500,000.
B)$3,500,000.
C)$2,000,000.
D)$1,000,000.
E)$3,000,000.

Question

Quizplus · Accepted Answer

Prime costs = Direct materials cost + Direct labor cost 
Conversion costs = Direct labor cost + Manufacturing overhead cost

Therefore, we can calculate the direct labor cost as:

Direct labor cost = Conversion costs - Direct materials cost 
Direct labor cost = $5,500,000 - $2,000,000 
Direct labor cost = $3,500,000

Now, we can calculate the manufacturing overhead cost as:

Manufacturing overhead cost = Conversion costs - Direct labor cost 
Manufacturing overhead cost = $5,500,000 - $3,500,000 
Manufacturing overhead cost = $2,000,000

Therefore, the overhead costs are $2,000,000, which is option E.

A Company's Prime Costs Total $4,500,000 and Its Conversion Costs