Prime cost cost dn 1 The costs of direct labor are clasified

Prime cost cost dn 1) The costs of direct labor are clasified as: omu/ Conversion cost Manufacturing No Yes B) c) D) Yes No silary paid to the president of a company would be classified on the income statemenr as a(n): A) administrative expense. B) direct labor cost. C) manufacturing overhead cost. D) selling expense. 13) The cost of direct materials is classified as a: Conversion cost A) B) C) D) Yes No Yes Prime cost No No Yes Yes 14) Factory overhead is typically a(n)s A) mixed cost. B) fixed cost. C) variable cost. D) irrelevant cost. 15) Abburi Company\'s manufacturing overhead is 60% of its total conversion costs. If direct labor is $52,000 and if direct materials are $28,000, the manufacturing overhead i s: A) $34,667 B) $78,000 C) $42,000 D) $120,000 16) A sunk cost is: A) a cost that is planned to be incurred in the near future B) irrelevant for decision making. C) a cost connected with drilling for oil in the ground. bo D) affected by changes in the level of activity. Which costs will change with an increase in activity within the relevant range? A) B) C) D) Unit fixed cost and total fixed cost Unit variable cost and total variable cost Unit fixed cost and total variable cost Unit fixed cost and unit variable cost

Solution

11. Answer is A.

Direct labor is reuired to convert raw material into saleabe goods.

Direct labor is part of manufacturing cost.

Direct material and Direct labor are classified as prime costs.

12. Answer is A.

The President of a company is concerned with the overal management of the company . Hence his salary is classified as administrative cost.

He is not direclty involved in either manufacturing or selling. Hence B,C and D does not apply.

13. Answer is C.

Conversion cost is a cost incurred to convert raw material into saleable goods.

   Direct material and Direct labor are classified as prime costs.

14. Answer is A.

Factory overhead includes various items of costs such as utilities, indirect labor, indirect material,factory rent etc.

Some of these costs are variable (indirect material) , some are fixed (such as rent) ans some others are mixed(utilities) . Hence the factory overheads as a whole can be classified as mixed costs.

15. Answer is B.

Direct labor and manufacturing overheads together are classified as conversion costs.

Conversion costs = Direct labor + manufacturing overheads

If manufacturing overhead is 60% of conversion costs, then direct labor will be 40% of conversion cost.

40% of conversion cost = $52,000

60% of conversion cost = (52,000 / 40) x 60 = $78,000.

Manufacturing overheads = $78,000.

16. Answer is B

A sunk cost is a cost which is already incurred and which does not have any impact on the decision to be made now.

17. Answer is C.

Since unit variable cost remains constant within a relevant range, total variable cost changes within the relevant range.

Similarly since the total fixed cost remains constant within a range of activity, unit fixed costs changes within the relevant range.