EB2.

LO 4.2Choco’s Chocolates incurs the following costs for the month:

What is the prime cost?

What is the conversion cost?

The question is incomplete; the complete question is given below:

$

Direct materials 15,000.00

Direct labor 25,000.00

Factory depreciation expense 45,000.00

Factory utilities expense 2,000.00

Payroll staff's salary 15,000.00

Prime cost = $40,000, Conversion cost = $72,000

Explanation:

Prime cost: It is the summation of all direct costs. Direct costs are costs that are incurred directly for a particular product, and therefore can be traced to it.

Examples of direct costs include; direct material costs, direct labour cost and direct expense

Direct materials cost: the costs of all materials used directly to manufacture a product. For example, cocoa powder, vanilla used in making chocolate. Every other materials costs are indirect material costs

Direct labor cost: the cost of the labor hours of workers actively involved in the production of a product. For example, the cost of the total hours paid to workers for packing the chocolates into cartons. Every other labor costs are indirect labor costs

Prime cost = Direct material cost + Direct labour cost + Direct expense

Prime cost = $15,000 + $25,000 = $40,000

Conversion cost = The sum of direct labour costs and manufacturing overheads

Conversion cost = $25,000 + $45,000 + $2000 = $72,000

Note that payroll staff cost was excluded because payroll function is an administrative activitiy not manufacturing.