Cost Accounting Trivia Questions

Conversion costs refer to the expenses incurred in transforming raw materials into finished goods. These costs include both direct labor, which refers to the wages and benefits paid to workers directly involved in the production process, and factory overhead, which includes other indirect expenses such as utilities, rent, and equipment depreciation. Therefore, the correct answer is direct labor and factory overhead, as these two components make up the conversion costs.

The contribution margin is the difference between the sales price and total variable costs. It represents the amount of revenue that is available to cover fixed costs and contribute towards profit. By subtracting variable costs from sales price, the contribution margin helps to determine the profitability of each unit sold. It is an important metric for businesses to analyze their cost structure and make informed decisions about pricing, cost control, and overall profitability.

Direct labor refers to the cost of labor directly involved in the production of goods or services. It includes the wages, benefits, and other expenses associated with the employees who work directly on the production line or provide direct services. Direct labor is considered both a product cost because it is directly attributable to the production of goods or services, and a prime cost because it is a fundamental component of the total cost of production.

Power is most likely not considered a component of fixed factory overhead because it is a variable cost that can fluctuate based on the level of production. Fixed factory overhead costs, on the other hand, remain constant regardless of the production level. Rent, property taxes, and depreciation are examples of fixed factory overhead costs as they do not change with the level of production.

The beginning balance of the materials inventory account in May was $27,500. The ending balance for May is $28,750. This means that $1,250 worth of materials were added to the inventory during the month. Additionally, $128,900 worth of materials were used during the month. To find the cost of materials purchased during the month, we need to subtract the materials used from the total increase in inventory. Therefore, the cost of materials purchased during the month is $130,150 ($1,250 + $128,900).

The cost of goods sold can be calculated by adding the beginning finished goods inventory to the cost of goods manufactured and subtracting the ending finished goods inventory. In this case, the beginning finished goods inventory was $500,000, the cost of goods manufactured was $860,000, and the ending finished goods inventory was $990,000. Therefore, the cost of goods sold for the year was $370,000.

When the unit costs increase and the sales price remains unchanged, the breakeven point in units will increase. This is because the higher costs per unit will require more units to be sold in order to cover the expenses and reach the breakeven point. If the sales price remains the same, each unit sold will generate the same revenue, but the higher costs will eat into the profits, resulting in a larger number of units needed to break even.

Inventoriable costs are costs that are regarded as assets before the products are sold. This means that these costs are capitalized and recorded as an asset on the balance sheet until the products are sold. Once the products are sold, the costs are then expensed as cost of goods sold. This is in contrast to period costs, which are expensed in the period they are incurred.

A favorable materials price variance suggests that the actual cost of materials purchased is lower than the standard cost. On the other hand, an unfavorable materials usage variance indicates that more materials were used than expected. Therefore, if both variances occur simultaneously, it suggests that lower quality materials were purchased and used, resulting in a lower cost but higher usage. Lower quality materials may require more quantity to achieve the desired output, leading to higher usage variance.

The actual direct labor cost for the period can be calculated by multiplying the actual hours worked (1,230 hours) by the standard rate ($6 per hour). This gives us a total of $7,380. However, since the labor rate variance was unfavorable by $246, the actual direct labor cost would be higher by that amount. Therefore, the correct answer is $7,626.