Prime Costs

- are expenditures directly related to creating finished products.

- include direct material and direct labor costs.

23. Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:

Direct materials P20

Direct manufacturing labor 3

Variable manufacturing overhead 6

Fixed manufacturing overhead 10

Total manufacturing costs P39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

a. P39,000
b. P78,000
c. P68,000
d. P62,000

*Solution:

DM (P20 x 2,000 units) + DL (P3 x 2,000 units) + VOH (P6 x 2,000 units) + FOH (P10 x 1,000 units) = P40,000 + P6,000 + P12,000 + P10,000 = P68,000