Manufacturing Costs

Question 1

Variability is defined in terms of what?

Answer 1

Volume, activity, or output

Question 2

How do average fixed cost and average variable cost behave?

Answer 2

Average fixed cost decreases as volume increases, while average variable cost increases as volume increases (subject to the relevant range)

Question 3

How do average fixed cost and average variable cost behave?

Answer 3

Average fixed cost decreases as volume increases, while average variable cost increases as volume increases (subject to the relevant range)

Question 4

Define “prime costs”.

Answer 4

Product costs that can be associated with specific units of production; comprised of direct material and direct labor costs; also known as direct costs

Question 5

Define “product costs”.

Answer 5

Cost that can be associated with making or acquiring goods for sale; product costs are held in inventory until the products are sold; also known as inventorial costs.

Question 6

Define “conversion costs”.

Answer 6

Costs necessary to convert raw materials into a finished product: comprised of direct labor costs plus factory overhead costs

Question 7

What is marginal cost or revenue?

Answer 7

Additional cost or revenue resulting from one more unit of ouput

Question 8

List the three factors of production.

Answer 8

1. Direct Material
2. Direct Labor
3. Factory Overhead