Suppose Country A, a Labor-Abundant Country, Produces Only Wheat and Cloth

question 11

Multiple Choice

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
If the initial prices of wheat and cloth are $3 per unit, the labor cost per unit of cloth output is _____ and the rental cost per unit of cloth output is _____.

• A)$3; $1
• B)$1; $2
• C)$2; $1
• D)$1; $3

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overheads that are incurred to convert raw materials into finished goods.

Cost Per Equivalent Unit

A measure in process costing that calculates the cost assigned to a unit, considering the stage of completion.

Processing Department

A division within a manufacturing facility where a specific type of process or a stage of production is carried out.

Work In Process Inventory

Goods that are in the production process but are not yet completed.