Question

$5 $14 Use the following information for Questions 13 - 14. Bryant Auto produces electric cars. For 2018, Bryant reported the following costs (in millions). Salaries at corporate headquarters $20 Property taxes at factory Sales commissions Factory manager salary $2 Steel, glass, and tires $220 Advertising Electric batteries $24 $70 Direct labor $18 13. How much were prime costs? 14. How much were fixed product costs?

Answer 1

NOTE: 13) Prime costs are those costs that are to be incurred for producing outputs compulsorily in the mfg. process. In other words, products cannot be manufactured without these costs. Prime costs include direct materials and direct labor costs and they are purely variable costs. Therefore, Steel, glass and tires Electric batteries Direct labor Prime costs $220 [Direct materials] $24 (Direct materials] $70 $314 ($220 + $24 + $70] Salaries at corporate headquarters, sales commissions and advertising are not related to production process as they are operating expenses and so shall not be considered in the product cost calculation. As a result, they are neither prime costs nor fixed product costs. 14) Product costs are those costs which are incurred at the factory level during production process which may be direct or indirect costs. Of which, variable product costs will change when production volume increases or decreases whereas fixed product costs do not change, unless there are some conditions that have the capability to decrease or cause to increase the same. Product cost is nothing but the manufacturing cost which include direct materials, direct labor, variable & fixed mfg. overheads. Fixed product costs are those costs which would remain the same in total irrespective of level of production. It is a committed cost to be incurred by the firm whether it carries out production or not. Property taxes at factory Factory manager salary Fixed product costs $5 [Will remain constant irrespective of volume of production] $2 [Will remain constant irrespective of volume of production] $7 ($5 + $2]