If the prime cost totals $50000 and direct manufacturing labor is $10000, the direct material cost is ____________?
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Answer: A. $40,000
Explanation
Prime cost represents the sum of direct materials and direct manufacturing labor. Subtracting direct labor of $10,000 from the total prime cost of $50,000 leaves $40,000 for direct material cost. This fundamental cost classification ensures accurate tracking of direct manufacturing inputs. Manufacturing costs are categorized into prime costs and conversion costs. Prime costs consist of direct materials and direct labor directly traceable to the product. Conversion costs combine direct labor and manufacturing overhead.
Cost accountants calculate prime costs to monitor the primary direct inputs required for production. Controlling direct material costs is vital for maintaining healthy profit margins. This simple subtraction is a standard exercise in cost accounting exam problems. $60,000 adds direct labor to prime cost instead of subtracting it. $52,000 and $20,000 represent incorrect mathematical calculations unrelated to the prime cost formula.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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