Inventory balances for the Beemer Enterprises in April 2014 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 2014 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 include direct materials and direct labor. In this case, purchases of direct materials were $36,000 and direct labor costs were $60,000. Therefore, prime costs for April were $36,000 + $60,000 = $96,000. However, the question also states that factory overhead costs were $84,000. Factory overhead costs are not included in prime costs, so we need to add this amount to the direct labor costs to get total manufacturing costs.

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

Therefore, prime costs for April were $36,000 + $60,000 = $96,000, but total manufacturing costs were $180,000. The difference between these two amounts is the factory overhead cost of $84,000.

Inventory Balances for the Beemer Enterprises in April 2014 Are