The prime costs are direct materials and direct labor. We are told that the direct labor was $300,000 but will need to calculate the cost of direct materials used for January. The beginning direct materials was $134,000. During the period, they purchased $189,000 of direct materials and also incurred $3,000 in transportation in costs. However, they also returned $1,000 of direct materials during the period. Adding these together we can calculate the total direct materials that they had available during January as $325,000 ($134,000 + $189,000 + $3,000 ? $1,000). Since there was an ending inventory of $124,000, they must have used $201,000 of direct materials during the period ($325,000 ? $124,000). Added to the direct labor, the total prime costs were $501,000.
This is simply the direct materials, but it is calculated without taking into account transportation in and returns.
This is only the direct materials used and does not include direct labor, which is also a prime cost.
This is direct labor plus direct materials purchased. The prime costs are direct materials used and direct labor.
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Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year, December 31. Alex Company's prime cost for January was