Wednesday, May 30, 2012

Direct Materials are Conversion, Manufacturing, or prime cost?

In managerial accounting, is the cost of direct materials (DM) classified as a conversion, manufacturing or prime costs by an accountant?

Direct materials are part of prime cost and should be recorded appropriately by accountants.

Prime cost = Direct Materials (DM) + Direct Labor  (DL)
Conversion cost = Direct Labor + Manufacturing overhead

Manufacturing costs generally include a combination of all three : Direct materials, Direct labor, and manufacturing overhead.

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