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8 November, 00:34

A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations. In this decision, the wage costs of the additional drivers that will have to be hired for the long haul operations can best be described as a (n) :

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  1. 8 November, 02:22
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    This question is incomplete, it misses the multiple choice options. The following are the options:

    a. opportunity cost.

    b. conversion cost.

    c. sunk cost.

    d. differential (incremental) cost

    And the correct answer is the option B: conversion cost.

    Explanation:

    To begin with, a ''conversion cost'' is the name given in cost accounting to refer to the type of cost that includes the combination of direct labor costs and manufacturing overhead costs that are necessary in order to finish the final product whose goal is to be delivered to the client. That is why the wage costs of the additional drivers that will have to be hired for the long haul operations can be best described as a conversion cost due to the fact that the new direct labor costs will need to be included with the other manufacturing overhead costs in order to establish the new price of the product.
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