Question

1. The sum of direct materials and direct labor costs are can be referred to as:

A. conversion costs

B. manufacturing overhead

C. prime costs

D. all of the above

Answer 1

The correct answer is C. prime costs
Prime cost = Direct material cost + Direct Labor cost

To manufacture a product materials and labor are the most important components used in the production process. The direct materials are also known as raw materials which is input to the production process. Direct labor are those labor force which are directly engaged in the production process. The wages paid to the direct labor is the direct labor cost. The sum of direct materials and direct labor costs can be referred to as Prime cost.