Direct Costs, Indirect Costs, & Manufacturing Overhead
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CPA Auditing and Attestation (AUD) › Direct Costs, Indirect Costs, & Manufacturing Overhead
If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?
Direct materials
Prime costs
Direct labor
Conversion costs
Explanation
Conversion costs include both direct labor and overhead. Increases in crude oil prices are likely to impact the costs of generating electricity which is significant in manufacturing costs.
Which of the following costs includes all the product costs?
Direct material and conversion costs
Direct labor and prime costs
Manufacturing overhead and conversion costs
Direct labor and conversion costs
Explanation
Product costs consist of direct materials, direct labor, and factory overhead. Materials and labor together are prime costs, while labor and overhead are conversion costs. Direct materials and conversion costs together are product costs.
Which of the following best describes direct labor?
Both a product cost and a prime cost
A prime cost
Both a period cost and a prime cost
A product cost
Explanation
Direct labor is a prime cost, a conversion costs, and a product cost.
Which of the following is assigned to goods that were either purchased or manufactured for resale?
Relevant cost
Opportunity cost
Period cost
Product cost
Explanation
Product cost is assigned to goods that were either purchased or manufactured for resale.
Conversion costs do not include:
Indirect labor
Indirect materials
Direct labor
Direct materials
Explanation
Conversion costs consist of direct labor and overhead. Thus, conversion costs include all product costs except direct materials.
Of the following, which would be not included as period expenses?
Sales and marketing expenses
Normal spoilage
Abnormal spoilage
G&A expenses
Explanation
Normal spoilage is an inventory cost rather than a period cost.