Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 10 - No. 40)
What is the relationship between prime cost and conversion cost?
Prime cost includes direct materials and direct labor; conversion cost includes direct labor and factory overhead.
Prime cost includes direct materials and factory overhead; conversion cost includes direct labor only.
Prime cost includes direct labor and factory overhead; conversion cost includes direct materials and direct labor.
Prime cost and conversion cost are unrelated concepts.
Explanation
Prime cost is direct materials + direct labor, while conversion cost is direct labor + factory overhead.
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