Deck 2: Cost Concepts and Behavior

Question 1

Revenue minus cost of goods sold equals contribution margin.

Answer 1

False

Question 2

The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs.

Answer 2

True

Question 3

An expense is a cost charged against revenue in an accounting period.

Answer 3

True

Question 4

Period costs are those costs assigned to units of production in the period in which they are incurred.

Question 5

The three categories of product costs are direct materials, direct labor, and manufacturing overhead.

Question 6

If a cost is recorded as an asset (for example, prepaid rent for an office building), it becomes an expense when the asset has been consumed.

Question 7

The primary goal of the cost accounting system is to provide managers with information to prepare their annual financial statements.

Question 8

Total work-in-process during the period is the sum of the beginning work-in-process inventory and the total manufacturing costs incurred during the period.

Question 9

Cost of goods sold plus the ending finished goods inventory minus the beginning finished goods inventory equals the cost of goods manufactured.

Question 10

The cost of an item is the sacrifice of resources made to acquire it.

Question 11

Variable marketing and administrative costs are included in determining full absorption costs.

Question 12

The first step in determining whether a cost is direct or indirect is to specify the cost allocation rule.

Question 13

Total variable costs change inversely with changes in the volume of activity.

Question 14

If the cost of goods manufactured during the period exceeds the cost of goods sold, the ending balance of Finished Goods Inventory account increased.

Question 15

The range within which fixed costs remain constant as volume of activity varies is known as the relevant range.

Question 16

Only direct costs can be classified as product costs; indirect costs are classified as period costs.

Question 17

Total cost of goods purchased minus beginning merchandise inventory plus ending merchandise inventory equals cost of goods sold.

Question 18

Fixed costs per unit change inversely with changes in the volume of activity.

Question 19

Cost of goods sold includes the actual costs of the goods sold and the costs required to sell them to the customer.

Question 20

Accounting systems typically record opportunity costs as assets and treat them as intangible items on the financial statements.

Question 21

The costs of direct materials are classified as:
$\begin{array} { ccc} & \text { Conversion cost } & \text { Manufacturing cost } & \text { Prime cost } \\\end{array}$
A. $\begin{array} { ccc} &&& \text { Yes } &&&&&& \text { Yes } &&&&&&& \text { Yes } \\\end{array}$
B. $\begin{array} { ccc} &&& \text { No } &&&&&&& \text { No } &&&&&&& \text { No } \\\end{array}$
C. $\begin{array} { ccc} &&& \text { Yes } &&&&&& \text { Yes } &&&&&&& \text { No } \\\end{array}$
D. $\begin{array} { ccc} &&& \text { No } &&&&&& \text { Yes } &&&&&&& \text { Yes } \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 22

Which of the following best distinguishes an opportunity cost from an outlay cost?

A) Opportunity costs are recorded, whereas outlay costs are not.
B) Outlay costs are speculative in nature, whereas opportunity costs are easily traceable to products.
C) Opportunity costs have very little utility in practical applications, whereas outlay costs are always relevant.
D) Opportunity costs are sacrifices from foregone alternative uses of resources, whereas outlay costs are cash outflows.

Question 23

An opportunity cost is

A) a cost that is charged against revenue in an accounting period.
B) the foregone benefit from the best alternative course of action.
C) the excess of operating revenues over operating costs.
D) the cost assigned to the products sold during the period.

Question 24

Which of the following accounts would be a period cost rather than a product cost?

A) Depreciation on manufacturing machinery.
B) Maintenance on factory machines.
C) Production manager's salary.
D) Freight out.

Question 25

Which of the following statements is (are) false?
(1) In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports.
(2) An opportunity cost is the benefit forgone by selecting one alternative over another.

A) Only (1) is false.
B) Only (2) is false.
C) Both of these are false.
D) None of these are false.

Question 26

Grover Company has the following data for the production and sale of 2,000 units.
$$\begin{array} { l l r } \text { Sales price per unit } & \$ \text { 800per unit } \\\text { Fixed costs: } & & \\\text { Marketing and adrinistrative } & \$ 400,000 \text { per period } \\\text { Marufacturing overhead } & \$ 200,000 \text { per period } \\\text { Variable costs: } & & \\\text { Marketing and adrinistrative } & \$ 50 \text { per unit } \\\text { Marnufacturing overhead } & \$ 80 \text { per unit } \\\text { Direct labor } & \$ 100 \text { perunit } \\\text { Direct Materials } & \$ 200 \text { per unit }\end{array}$$

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What is the conversion cost per unit?

A) $100
B) $180
C) $280
D) $380

Question 27

The cost of direct labor will be treated as an expense on the income statement when the resulting:

A) payroll costs are paid.
B) payroll costs are incurred.
C) products are completed.
D) products are sold.

Question 28

Doran Technical Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following?

A) Product cost
B) Manufacturing overhead
C) Direct labor
D) Period cost

Question 29

Tallon Company manufactures a single product. The product's prime costs consist of

A) direct materials and direct labor.
B) direct materials and manufacturing overhead.
C) direct labor and manufacturing overhead.
D) direct materials, direct labor and manufacturing overhead.

Question 30

A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?

A) Product cost
B) Period cost
C) Conversion cost
D) Prime cost

Question 31

The corporate controller's salary would be considered a(n):

A) manufacturing cost.
B) product cost.
C) administrative cost.
D) selling expense.

Question 32

Which of the following costs is both a prime cost and a conversion cost?

A) direct materials
B) direct labor
C) manufacturing overhead
D) administrative costs

Question 33

Calculate the conversion costs from the following information:
$\begin{array}{llr} \text { Fixed manufacturing overhead} &\$2,000\\ \text {Variable manufacturing overhead } &1,000\\ \text { Direct materials} &2,500\\ \text {Direct labor } &1,500\\\end{array}$

A) $3,000
B) $4,000
C) $4,500
D) $5,000

Question 34

Marketing costs include all of the following except:

A) Advertising.
B) Shipping costs.
C) Sales commissions.
D) Legal and accounting fees.

Question 35

Property taxes on the manufacturing facility are an element of
$\begin{array} {cc } & \text { Conversion Cost } & \text { Period Cost } \\\end{array}$
A. $\begin{array} {cc } &&& \text { No } &&&&&& \text { No } \\\end{array}$
B. $\begin{array} {cc } &&& \text { No } &&&&&& \text { Yes } \\\end{array}$
C. $\begin{array} {cc } &&& \text { Yes } &&&&&&\text { No } \\\end{array}$
D. $\begin{array} {cc } &&& \text { Yes } &&&&&& \text { Yes } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 36

An example of a period cost is:

A) fire insurance on a factory building.
B) salary of a factory supervisor.
C) direct materials.
D) rent on a headquarters building.

Question 37

Which of the following statements is (are) true?
(1) An asset is a cost that will be matched with revenues in a future accounting period.
(2) Opportunity costs are recorded as intangible assets in the current accounting period.

A) Only (1) is true.
B) Only (2) is true.
C) Both of these are true.
D) None of these are true.

Question 38

For a manufacturing company, which of the following is an example of a period cost rather than a product cost?

A) Wages of salespersons.
B) Salaries of machine operators.
C) Insurance on factory equipment.
D) Depreciation of factory equipment.

Question 39

Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following?

A) Product cost
B) Manufacturing overhead
C) Period cost
D) Administrative cost

Question 40

The cost of fire insurance for a manufacturing plant is generally considered to be a:

A) product cost.
B) period cost.
C) variable cost.
D) prime cost.

Question 41

The three basic elements of manufacturing cost are direct materials, direct labor, and:

A) cost of goods manufactured.
B) cost of goods sold.
C) work in process.
D) manufacturing overhead.

Question 42

Which of the following is not a product cost under full-absorption costing?

A) Direct materials used in the current period.
B) Rent for the warehouse used to store direct materials.
C) Salaries paid to the top management in the company.
D) Vacation pay accrued for the production workers.

Question 43

A product cost is deducted from revenue when

A) the finished goods are sold.
B) the expenditure is incurred.
C) the production process takes place.
D) the production process is completed.

Question 44

Direct labor would be part of the cost of the ending inventory for which of these accounts?

A) Work-in-Process.
B) Finished Goods.
C) Direct Materials and Work-in-Process.
D) Work-in-Process and Finished Goods.

Question 45

The beginning Work-in-Process Inventory plus the total of the manufacturing costs equals

A) total finished goods during the period.
B) cost of goods sold for the period.
C) total work-in-process during the period.
D) cost of goods manufactured for the period.

Question 46

The process of assigning indirect costs to products, services, people, business units, etc., is

A) cost object.
B) cost pool.
C) cost allocation.
D) opportunity cost.

Question 47

Which of the following should be considered part of a manufacturing company's direct labor cost?

A) Factory supervisor's salary
B) Forklift operator's hourly wages
C) Employer-paid health insurance on factory assemblers' wages
D) Cost of idle time

Question 48

The following cost data for the month of May were taken from the records of the Terrence Manufacturing Company: (CIA adapted)
$$\begin{array} { l r } \text { Depreciation on factory equipment } & 1,000 \\\text { Depreciation on sales office } & 500 \\\text { Advertising } & 7,000 \\\text { Wages of production workers } & 28,000 \\\text { Raw materials used } & 47,000 \\\text { Sales salaries and cornrnissions } & 10,000 \\\text { Factory rent } & 2,000 \\\text { Factory insurance } & 500 \\\text { Materials handling } & 1,500 \\\text { Adrnirnistrative salaries } & 2,000\end{array}$$
Based upon this information, the manufacturing cost incurred during the month was:

A) $78,500.
B) $80,000.
C) $80,500.
D) $83,000.

Question 49

The amount of direct materials issued to production is found by

A) subtracting ending work in process from total work in process during the period.
B) adding beginning direct materials inventory and the delivered cost of direct materials.
C) subtracting ending direct materials from direct materials available for production.
D) adding delivered cost of materials, labor, and manufacturing overhead.

Question 50

Which of the following is not a name for indirect resources?

A) Overhead costs
B) Burden
C) Direct costs
D) Common costs

Question 51

Grover Company has the following data for the production and sale of 2,000 units.
$$\begin{array} { l l r } \text { Sales price per unit } & \$ \text { 800per unit } \\\text { Fixed costs: } & & \\\text { Marketing and adrinistrative } & \$ 400,000 \text { per period } \\\text { Marufacturing overhead } & \$ 200,000 \text { per period } \\\text { Variable costs: } & & \\\text { Marketing and adrinistrative } & \$ 50 \text { per unit } \\\text { Marnufacturing overhead } & \$ 80 \text { per unit } \\\text { Direct labor } & \$ 100 \text { perunit } \\\text { Direct Materials } & \$ 200 \text { per unit }\end{array}$$


-
What is the prime cost per unit?

A) $100
B) $280
C) $300
D) $480

Question 52

The Work-in-Process Inventory of the Model Fabricating Corp. was $3,000 higher on December 31, 2019 than it was on January 1, 2019. This implies that in 2019:

A) cost of goods manufactured was higher than cost of goods sold.
B) cost of goods manufactured was less than total manufacturing costs.
C) manufacturing costs were higher than cost of goods sold.
D) manufacturing costs were less than cost of goods manufactured.

Question 53

The beginning Finished Goods Inventory plus the cost of goods manufactured equals

A) ending finished goods inventory.
B) cost of goods sold for the period.
C) total work-in-process during the period.
D) cost of goods available for sale for the period.

Question 54

A cost allocation rule is the method or process used to assign the costs in the ________ to the ________.

A) cost allocation; cost pool
B) cost pool; opportunity cost
C) cost object; cost pool
D) cost pool; cost object

Question 55

Classifying a cost as either direct or indirect depends upon

A) whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.
B) whether the cost is expensed in the period in which it is incurred.
C) the behavior of the cost in response to volume changes.
D) the cost object to which the cost is being related.

Question 56

Which one of the following costs is classified as a period cost? (CIA adapted)

A) The wages of the workers on the shipping docks who load completed products onto outgoing trucks.
B) The wages of a worker paid for idle time resulting from a machine breakdown in the molding department.
C) The payments for employee (fringe) benefits paid on behalf of the workers in the manufacturing plant.
D) The wages paid to workers for reworking defective products that failed the quality inspection upon completion.

Question 57

A(n) ________ is any end to which a cost is assigned.

A) cost object
B) cost pool
C) cost allocation
D) opportunity cost

Question 58

Tulsa Company, (a merchandising co.) has the following data pertaining to the year ended December 31, 2019: (CPA adapted)
$$\begin{array} { l r } \text { Purchases } & \$ 450,000 \\\text { Beginning inventory } & 170,000 \\\text { Ending inventory } & 210,000 \\\text { Freight-in } & 50,000 \\\text { Freight-out } & 75,000\end{array}$$
What is the cost of goods sold for the year?

A) $385,000
B) $460,000
C) $485,000
D) $536,000

Question 59

Prime cost consists of direct materials combined with:

A) direct labor.
B) manufacturing overhead.
C) indirect materials.
D) cost of goods manufactured.

Question 60

The Shoal Company's manufacturing costs for the third quarter of 2019 were as follows: (CPA adapted)
$\begin{array}{llr} \text {Direct materials and direct labor } &\$700,000\\ \text { Other variable manufacturing costs} &100,000\\ \text { Depreciation of factory building and manufacturing equipment} &80,000\\ \text { Other fixed manufacturing costs } &18,000\\\end{array}$

What amount should be considered product costs for external reporting purposes?

A) $700,000
B) $800,000
C) $880,000
D) $898,000

Question 61

The difference between variable costs and fixed costs is (CMA adapted)

A) Unit variable costs fluctuate and unit fixed costs remain constant.
B) Unit variable costs are fixed over the relevant range and unit fixed costs are variable.
C) Total variable costs are constant over the relevant range, while fixed costs change in the long-term.
D) Total variable costs are variable over the relevant range but fixed in the long-term, while fixed costs never change.

Question 62

Given the following information for a retail company, what is the total cost of goods purchased for the period?
$$\begin{array} { l r } \text { Purcheses discounts } & \$ 3,500 \\\text { Transportation-in } & 6,700 \\\text { Ending irventory } & 35,000 \\\text { Gross mercharidise cost } & 304,000 \\\text { Purcheses retirns } & 8,400 \\\text { Begirning irventory } & 27,000 \\\text { Sales discournts } & 10,300\end{array}$$

A) $298,800
B) $290,800
C) $282,100
D) $304,000

Question 63

The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:
$$\begin{array} { l r } & \text { Estimated } \\\text { Cost Item } & \text { Unit Cost } \\\text { Direct material } & \$3 2 \\\text { Direct labor } & 20 \\\text { Variable manfacturing overhead } & 15 \\\text { Fixed manfacturing overhead } & 6 \\\text { Variable selling expenses } & 3 \\\text { Fixed selling expenses } & 4\end{array}$$

-
What are the estimated conversion costs per unit?

A) $35
B) $41
C) $44
D) $48

Question 64

Manufacturing overhead:

A) can be either a variable cost or a fixed cost.
B) includes the costs of shipping finished goods to customers.
C) includes all factory labor costs.
D) includes all fixed costs.

Question 65

Foxburg Company has the following information:
$$\begin{array} { l c c c r } & \text { Work-in-Process } & \text { Finished } & \text { Goods } & { \text { Materials } } \\\text { Begirnirg irventory } & \$ 300 & \$ 400 & \$ 500 \\\text { Ending irventory } & \$ 700 & \$ 900 & \$ 1,500 \\\text { Purchases of materials (net) } & \$ 7,700 & & & \\\text { Cost of Goods Sold } & \$ 15,600 & & & \\\text { Marufacturing overhead } & \$ 4,300 & &\end{array}$$

-
What was the cost of goods available for sale for the period?

A) $16,800
B) $16,500
C) $16,100
D) $15,100

Question 66

The student health center employs one doctor, three nurses, and several other employees. How would you classify (1) the nurses' salary and (2) film and other materials used in radiology to take X-rays? Assume the activity is the number of students visiting the health center.
$\begin{array} {cc } & \text { Nurse's Salaries } & \text { Film and Other Materials Used in Radology } \\\end{array}$
A. $\begin{array} {cc } & \text { Fixed cost } &&&&&&&&\text { Fixed cost } \\\end{array}$
B. $\begin{array} {cc } & \text { Fixed cost } &&&&&&&& \text { Variable cost } \\\end{array}$
C. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Fixed cost } \\\end{array}$
D. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Variable cost } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 67

How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?

A) Fixed, period cost.
B) Fixed, product cost.
C) Variable, period cost.
D) Variable, product cost.

Question 68

During the year, a manufacturing company had the following operating results:
$\begin{array}{lcr}\text { Beginning work-in-process inventory } & \$ 45,000 \\\text { Beginning finished goods inventory } & \$ 190,000 \\\text { Direct materials used in production } & \$ 308,000 \\\text { Direct labor } & \$ 475,000\\\text { Manufacturing overhead incurred}&\$ 250,000\\\text { Ending work-in-process inventory}& \$ 67,000 \\\text { Ending finished goods inventory}& \$ 89,000 \end{array}$
What is the cost of goods manufactured for the year?

A) $1,011,000
B) $1,134,000
C) $1,033,000
D) $1,112,000

Question 69

Foxburg Company has the following information:
$$\begin{array} { l c c c } & \text { Work-in-Process } & \text { Finished Goods } & { \text { Materials } } \\\text { Begirnirg inventory } & \$ 300 & \$ 400 & \$ 500 \\\text { Endirg inventory } & \$ 4700 & \$ 900 & \$ 1,500 \\\text { Purchases of materials } & \$ 7,700 & & \\\text { Cost of Goods Sold } & \$ 15,600 & &\\\text { Manufacturing overhead}&\$ 4,300 \end{array}$$

-
What was the direct labor for the period?

A) $5,500.
B) $5,800.
C) $6,300.
D) $6,800.

Question 70

Compute the Cost of Goods Sold for 2019 using the following information:
$\begin{array}{lr}\text { Direct Materials, Jan. 1, 2019 } & \$ 40,000 \\\text { Work-in-Process, Dec. 31, 2019 } & 69,000 \\\text { Direct Labor } & 48,500 \\\text { Finished Goods, Dec. } 31,2019 & 105,000 \\\text { Finished Goods. Jan. } 1.2019 & 128,000\\\text {Manufacturing Overhead}&72,500\\\text {Direct Materials, Dec. 31, 2019}&43,000\\\text {Work-in Process, Jan. 1, 2019}&87,000\\\text {Purchases of Direct Material}&75,000\end{array}$

A) $244,000
B) $234,000
C) $211,000
D) $198,000

Question 71

Barton's Taco Tico has four taco makers and ten other employees who take orders from customers and perform other tasks. The four taco makers and the other employees are paid an hourly wage. How would you classify (1) the wages paid to the taco makers and other employees and (2) materials (e.g., cheeses, salsa, tomatoes, lettuce, taco shells, etc.) used to make the tacos? Assume the activity is the number of tacos made.
$\begin{array} {cc } & \text { Empluyees' Wages } & \text { Materials to Make the Tacos } \\\end{array}$
A. $\begin{array} {cc } & \text { Fixed cost } &&&&&&& \text { Fixed cost } \\\end{array}$
B. $\begin{array} {cc } & \text { Fixed cost } &&&&&&& \text { Variable cost } \\\end{array}$
C. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Fixed cost } \\\end{array}$
D. $\begin{array} {cc } & \text { Variable cost } &&&&&&& \text { Variable cost } \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 72

A company had beginning inventories as follows: Direct Materials, $300; Work-in-Process, $500; Finished Goods, $700. It had ending inventories as follows: Direct Materials, $400; Work-in-Process, $600; Finished Goods, $800. Material Purchases net were $1,400, Direct Labor $1,500, and Manufacturing Overhead $1,600. What is the Cost of Goods Sold for the period?

A) $4,100.
B) $4,200.
C) $4,300.
D) $4,400.

Question 73

During April, the Meade Enterprises had the following operating results:
$$\begin{array} { l r r } \text { Sales revernue } & \$ 1,500,000 \\\text { Gross margin } & \$ 600,000 \\\text { Ending work-in-process inventory } & \$ 50,000 \\\text { Beginning work-in-process inventory } & \$ 80,000 \\\text { Ending finished goods inventory } & \$ 100,000 \\\text { Beginnirng finished goods inventory } & \$ 125,000 \\\text { Marketing costs } & \$ 250,000 \\\text { Administrative costs } & \$ 150,000\end{array}$$
What is the cost of goods manufactured for April?

A) $900,000
B) $875,000
C) $925,000
D) $905,000

Question 74

The term "gross margin" for a manufacturing firm refers to the excess of sales over:

A) cost of goods sold, excluding fixed indirect manufacturing costs.
B) all variable costs, including variable marketing and administrative costs.
C) cost of goods sold, including fixed indirect manufacturing costs.
D) variable costs, excluding variable marketing and administrative costs.

Question 75

Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice?
$\begin{array} {cc} & \text { Variable Cost } & \text { Adninistrative Cost } \\\end{array}$
A. $\begin{array} {cc} &&& \text { Yes } & &&& && \text { Yes } \\\end{array}$
B. $\begin{array} {cc} &&&\text { Yes } & &&& && \text { No } \\\end{array}$
C. $\begin{array} {cc} &&& \text { No } & &&& && \text { Yes } \\\end{array}$
D. $\begin{array} {cc} &&& \text { No } & &&& && \text { No } \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 76

How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?

A) Fixed, period cost.
B) Fixed, product cost.
C) Variable, period cost.
D) Variable, product cost.

Question 77

The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:
$$\begin{array} { l r } & \text { Estimated } \\\text { Cost Item } & \text { Unit Cost } \\\text { Direct material } & \$3 2 \\\text { Direct labor } & 20 \\\text { Variable manfacturing overhead } & 15 \\\text { Fixed manfacturing overhead } & 6 \\\text { Variable selling expenses } & 3 \\\text { Fixed selling expenses } & 4\end{array}$$

-
What are the estimated prime costs per unit?

A) $73
B) $32
C) $67
D) $52

Question 78

The estimated unit costs for a company to produce and sell a product at a level of 12,000 units per month are as follows:
$$\begin{array} { l r } & \text { Estimated } \\\text { Cost Item } & \text { Unit Cos } \\\text { Direct material } & \$ 3 2 \\\text { Direct labor } & 20 \\\text { Variable manfacturing overhead } & 15 \\\text { Fixed manfacturing overhead } & 6 \\\text { Variable selling expenses } & 3 \\\text { Fixed selling expenses } & 4\end{array}$$

-
What are the estimated variable costs per unit?

A) $70
B) $38
C) $67
D) $52

Question 79

Which of the following statements is (are) true?
(1) The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs.
(2) The fixed cost per unit is considered constant despite changes in volume of activity within the relevant range.

A) Only (1) is true.
B) Only (2) is true.
C) Both of these are true.
D) None of these are true.

Question 80

How would property taxes paid on a factory building be classified in a manufacturing company?

A) Fixed, period cost.
B) Fixed, product cost.
C) Variable, period cost.
D) Variable, product cost.