Question 10

Direct materials and direct labor are considered prime costs.

Prime costs are defined as the direct costs attributable to the production of goods, specifically including direct materials and direct labor.

A) Direct labor and indirect labor

This option is incorrect because while direct labor is a prime cost, indirect labor does not fall under this category. Indirect labor refers to costs associated with workers who do not directly contribute to the production of a product, thus not qualifying as a prime cost.

B) Indirect materials and indirect labor

This option is also incorrect. Both indirect materials and indirect labor are considered overhead costs rather than prime costs. Prime costs specifically relate to direct expenses incurred in the manufacturing process.

C) Direct materials and direct labor

This option is correct as it accurately identifies the two main components of prime costs. Direct materials are the raw materials used in production, and direct labor refers to the labor costs of workers directly involved in the manufacturing process, making both essential to the calculation of prime costs.

D) Direct materials and indirect materials

This option is incorrect because while direct materials are a prime cost, indirect materials are not. Indirect materials are typically part of manufacturing overhead and do not directly contribute to the creation of the product.

Conclusion

Direct materials and direct labor are the foundational components of prime costs, making option C the correct answer. The other options fail to accurately represent the definition of prime costs, as they include indirect costs that do not contribute directly to the production of goods.