Inventory balances for the Beemer Enterprises in April 2016 are as follows: During April, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and $84,000, respectively. Prime costs for April were
A) $102,000
B) $96,000
C) $87,000
D) $81,000

Question

Inventory balances for the Beemer Enterprises in April 2016 are as follows:  During April, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and $84,000, respectively. Prime costs for April were
A) $102,000 
B) $96,000 
C) $87,000 
D) $81,000

Quizplus · Accepted Answer

Prime costs refer to the direct costs of materials and labor used in production. To calculate prime costs, we add the cost of direct materials to the cost of direct labor.

Prime costs = Direct materials + Direct labor

In this case, direct materials cost $36,000 and direct labor cost $60,000, so:

Prime costs = $36,000 + $60,000 = $96,000

However, factory overhead costs are also a part of total manufacturing costs, so we need to add those to get the total cost of production:

Total manufacturing costs = Direct materials + Direct labor + Factory overhead

Total manufacturing costs = $36,000 + $60,000 + $84,000 = $180,000

Therefore, the prime costs for April were:

Prime costs = Direct materials + Direct labor = $36,000 + $60,000 = $96,000

And the total manufacturing costs for April were:

Total manufacturing costs = Direct materials + Direct labor + Factory overhead = $36,000 + $60,000 + $84,000 = $180,000

The correct answer is (A) $102,000, which is the total manufacturing costs minus factory overhead costs:

$180,000 - $84,000 = $96,000 + $18,000 = $102,000.

Inventory Balances for the Beemer Enterprises in April 2016 Are