Answer :
Prime cost and conversion cost are important concepts in managerial accounting that help businesses track and manage production expenses. Let's break down each term and calculate them for Benton Engineering Services Company.
Prime Cost
Prime cost is the total of all direct manufacturing expenses. It includes:
- Direct Materials: The raw materials directly used in production (not provided in the question, so we'll assume only direct labor since materials cost is unspecified).
- Direct Labor: The labor costs directly tied to the production of goods. In this case, it's given as $117,500.
Since only the direct labor cost is provided, prime cost is calculated as:
[tex]\text{Prime Cost} = \text{Direct Labor} = \$117,500[/tex]
Conversion Cost
Conversion cost is the total cost incurred to convert raw materials into finished goods. It includes:
- Direct Labor: Already given as $117,500.
- Manufacturing Overhead: These are indirect costs that support the production process, given as $157,500.
To find the conversion cost, we add direct labor and manufacturing overhead:
[tex]\text{Conversion Cost} = \text{Direct Labor} + \text{Overhead} = \$117,500 + \$157,500 = \$275,000[/tex]
Summary of Results:
- Prime Cost for Benton Engineering Services Company is $117,500.
- Conversion Cost is $275,000.
Understanding these costs helps the business identify how resources are utilized in production and assists in setting pricing strategies and cost control measures.
