A manufacturer of machinery currently produces equipment for a single client.The client supplies all required raw material on a no-cost basis.The manufacturer contracts to complete the desired units from this raw material.The total production costs incurred by the manufacturer are correctly identified as:
A)Prime costs.
B)Conversion costs.
C)Variable production costs.
D)Factory overhead.

Question

Quizplus · Accepted Answer

Since the manufacturer only has to complete the units using the raw material supplied by the client, there are no direct materials costs involved in production. Therefore, the total production costs incurred by the manufacturer would be classified as conversion costs, which include direct labor and manufacturing overhead costs. Choices A, C, and D do not adequately represent the nature of the costs involved.

A Manufacturer of Machinery Currently Produces Equipment for a Single