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    Cost Flows, Prime Cost and Conversion Costs

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    Custom Fiberglass Products had the following inventory balances at the beginning and ending of August 2007:

    August 1 August 31

    Raw materials inventory $16,900 $21,700
    Work-in-Process inventory 32,100 29,600
    Finished goods inventory 25,800 22,600

    During August, the company purchased $90,000 of raw materials. All, raw materials are considered direct materials. Total labor payroll for the month was $78,000. Direct labor employees were paid $9 per hour and worked 6,800 hours in August. Total factory overhead charges for the period were $109,300.

    1. Determine the prime cost added to production during August.
    2. Determine the conversion cost added to production during August.
    3. Determine the cost of goods manufactured in August.
    4. Determine the cost of goods sold in August.

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    Solution Preview

    1. Determine the prime cost added to production during August.

    Prime Cost = Direct Material + Direct Labor
    Material used = Opening inventory + purchases - ending inventory
    Material used = 16,900+90,000-21,700=85,200
    Direct Labor = 6,800X 9 = 61,200
    Prime Cost = ...

    Solution Summary

    The solution explains how to calculate the prime cost, conversion cost, cost of goods manufactured and cost of goods sold.