Prime Costs are comprised of which two components?

Prime costs are essential in the field of accounting, particularly in manufacturing, as they represent the direct costs attributed to the production of goods. The two components that make up prime costs are direct materials and direct labor.

Direct materials refer to the raw materials that are directly used in the production of a product, while direct labor involves the labor costs that can be directly tied to the manufacturing of that product. This distinction is important because these costs can be traced directly to the production process, making them instrumental in calculating the total cost of manufacturing.

The focus on these two components highlights their role in determining the base costs of production before other expenses, such as manufacturing overhead, are considered. Recognizing direct materials and direct labor as prime costs helps clarify the relationship between production costs and pricing strategies, production efficiency, and profitability.

In contrast, the other options list combinations that include overhead costs or period costs, which do not pertain directly to the calculation of prime costs. Understanding the difference between these categorizations is crucial for accurate financial reporting and cost management in a manufacturing setting.