Figure: Two Farms Refer to the Figure

question 52

Multiple Choice

Figure: Two Farms Refer to the figure. If a farmer owns two farms, Farm 1 and Farm 2, and is under contract to produce 400 bushels of corn for a food processor, should the farmer produce 200 bushels of corn from each farm as shown in this diagram?

• A) Yes, splitting production evenly between farms, or factories, is the method to minimize the costs of production.
• B) No, he should produce all 400 bushels from Farm 2, the low-cost farm.
• C) No, he should produce more corn from Farm 1 and less corn from Farm 2 so that the marginal cost of the last bushel of corn is equal across both farms.
• D) No, he should produce less corn from Farm 1 and more corn from Farm 2 so that the marginal cost of the last bushel of corn is equal across both farms.

---

Definitions:

Conversion Costs

Costs required to convert raw materials into finished products, including direct labor and manufacturing overhead.

Equivalent Units

A metric used in cost accounting to express the amount of work completed by manufacturers in terms of fully finished units.

Process Costing

A costing method used in manufacturing where costs are allocated to batches of products, suitable for homogeneous products.

Conversion Costs

The total expenses of direct labor plus manufacturing overhead costs, spent in the process of transforming raw materials into completed goods.