Deck 2: Basic Cost Management Concepts

Question 1

The total cost of direct material, direct labor, and manufacturing overhead transferred from work-in-process inventory to finished-goods inventory is called the cost of goods manufactured.

Answer 1

True

Question 2

Costs that a manager can influence significantly are classified as uncontrollable costs of that manager.

Answer 2

False

Question 3

Another term for product cost is cost of goods sold.

Answer 3

False

Question 4

An important first step in studying managerial accounting is to create a framework for thinking about the various types of costs incurred by organizations and how those costs are actively managed.

Question 5

A suitable cost driver for the amount of direct materials used is the number of direct labor hours worked.

Question 6

A job shop is generally associated with high production volume.

Question 7

Inventoriable costs are expensed when incurred.

Question 8

Manufacturing costs are classified into four categories.

Question 9

Sunk costs are irrelevant to all future decisions.

Question 10

Out-of-pocket costs are defined as the benefit that is sacrificed when the choice of one action precludes taking an alternative course of action.

Question 11

There are three standard categories of manufacturing processes.

Question 12

Indirect labor is not a component of manufacturing overhead.

Question 13

Selling and administrative costs are always period costs on any type of company's income statement.

Question 14

Different cost concepts and classifications are used for different purposes.

Question 15

As the activity level increases, total fixed cost remains constant and unit fixed cost remains the same.

Question 16

A cost that is not directly traceable to a particular cost object is called an indirect cost.

Question 17

The following equation -- Beginning finished goods + cost of goods manufactured - ending finished goods -- is used to calculate cost of goods sold during the period.

Question 18

The higher the correlation between the cost and the cost driver, the more accurate will be the resulting understanding of cost behavior.

Question 19

Finished goods inventory is ordinarily held for sale by a manufacturing company.

Question 20

As activity changes, total variable cost increases or decreases proportionately with the activity change, but unit variable cost remains the same.

Question 21

Which type of production process is likely used by a paint manufacturer to produce paint?

A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Question 22

Which of the following inventories would a company ordinarily hold for sale?

A) Raw materials.
B) Work in process.
C) Finished goods.
D) Raw materials and finished goods.
E) Work in process and finished goods.

Question 23

Which of the following is a product cost?

A) Circuitry used in producing hard drives.
B) Monthly advertising in the newspaper.
C) The salary of the vice president-finance.
D) Sales commissions.
E) Research costs for new router development.

Question 24

Product costs are:

A) expensed when incurred.
B) inventoried.
C) treated in the same manner as period costs.
D) treated in the same manner as advertising costs.
E) subtracted from cost of goods sold.

Question 25

The accounting records of Younkin Corporation revealed the following selected costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000. Younkin's period costs total:

A) $250,000.
B) $440,000.
C) $375,000.
D) $255,000.
E) $185,000.

Question 26

Which of the following is not a period cost?

A) Legal costs.
B) Public relations costs.
C) Sales commissions.
D) Wages of assembly-line workers.
E) The salary of a company's chief financial officer (CFO).

Question 27

Costs that are expensed when incurred are called:

A) product costs.
B) direct costs.
C) inventoriable costs.
D) period costs.
E) indirect costs.

Question 28

Selling and administrative expenses would likely appear on the balance sheet of:

A) A clothing store.
B) A computer manufacturer.
C) A television network.
D) All of these firms.
E) None of these firms.

Question 29

Which type of production process is likely used for custom yachts built by Hargrave?

A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Question 30

Which of the four items listed below is not a type of production process?

A) Batch.
B) Job Shop.
C) Continuous Flow.
D) Job Flow.
E) Assembly.

Question 31

Which of the following would not be classified as a product cost?

A) Direct materials.
B) Direct labor.
C) Indirect materials.
D) Insurance on a manufacturing plant.
E) Sales bonuses for meeting quota sales.

Question 32

Research and development costs are classified as:

A) product costs.
B) period costs.
C) inventoriable costs.
D) cost of goods sold.
E) labor costs.

Question 33

Which of the following is a period cost?

A) Direct material.
B) Advertising expense.
C) Indirect labor.
D) Miscellaneous supplies used in production activities.
E) Factory foreman salary for the motor production line.

Question 34

Shu Corporation recently computed total product costs of $567,000 and total period costs of $420,000, excluding $35,000 of sales commissions that were overlooked by the company's administrative assistant. On the basis of this information, Shu's income statement should reveal operating expenses of:

A) $35,000.
B) $420,000.
C) $455,000.
D) $567,000.
E) $602,000.

Question 35

Which type of production process is ideal for a low production volume and one-of-a-kind products?

A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Question 36

The accounting records of Dixon Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Dixon's product costs total:

A) $1,050,000.
B) $830,000.
C) $895,000.
D) $1,270,000.
E) None of the answers is correct.

Question 37

Which of the following entities would most likely have raw materials, work in process, and finished goods?

A) A petroleum refiner.
B) A national department store.
C) A fast food restaurant.
D) A regional airline.
E) A state university.

Question 38

Which of the following would not be a period cost?

A) Sales salaries.
B) Sales commissions.
C) Tamper-proof packaging.
D) Legal costs.
E) Accounting costs.

Question 39

Which of the following inventories would a discount retailer report as an asset?

A) Raw materials.
B) Work in process.
C) Finished goods.
D) Merchandise inventory.
E) All of the answers are correct.

Question 40

Which of the following statements is true?

A) The word "cost" has the same meaning in all situations in which it is used.
B) Cost data, once classified and recorded for a specific application, are appropriate for use in any application.
C) Different cost concepts and classifications are used for different purposes.
D) All organizations incur the same types of costs.
E) Costs incurred in one year are always meaningful in the following year.

Question 41

Texas Plating Company reported a cost of goods manufactured of $520,000, with the firm's year-end balance sheet revealing work in process and finished goods of $70,000 and $134,000, respectively. If supplemental information disclosed raw materials used in production of $80,000, direct labor of $140,000, and manufacturing overhead of $240,000, the company's beginning work in process must have been:

A) $130,000.
B) $10,000.
C) $66,000.
D) $390,000.
E) None of the answers is correct.

Question 42

Which of the following employees would not be classified as indirect labor?

A) Plant Custodian.
B) Salesperson.
C) An employee that packs products for shipment.
D) Plant security guard.
E) A line employee that produces parts for chairs using a saw and template.

Question 43

Work-in-process inventory is composed of:

A) direct material and direct labor.
B) direct labor and manufacturing overhead.
C) direct material and manufacturing overhead.
D) direct material, direct labor, and manufacturing overhead.
E) direct material only.

Question 44

Which of the following would not be classified as direct materials by a company that makes automobiles?

A) Wheel lubricant.
B) Tires.
C) Interior leather.
D) CD player.
E) Sheet metal used in the automobile's body.

Question 45

Depreciation of factory equipment would be classified as:

A) operating cost.
B) "other" cost.
C) manufacturing overhead.
D) period cost.
E) administrative cost.

Question 46

Which of the following costs is not a component of manufacturing overhead?

A) Indirect materials.
B) Factory utilities.
C) Factory equipment.
D) Indirect labor.
E) Property taxes on the manufacturing plant.

Question 47

Prime costs are comprised of:

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

Question 48

Harrison Industries began July with a finished-goods inventory of $48,000. The finished-goods inventory at the end of July was $56,000 and the cost of goods sold during the month was $125,000. The cost of goods manufactured during July was:

A) $104,000.
B) $125,000.
C) $117,000.
D) $133,000.
E) None of the answers is correct.

Question 49

Guaranteed Appliance Co. produces washers and dryers in an assembly-line process. Labor costs incurred during a recent period were: corporate executives, $500,000; assembly-line workers, $180,000; security guards, $45,000; and plant supervisor, $110,000. The total of Guaranteed's direct labor cost was:

A) $110,000.
B) $180,000.
C) $155,000.
D) $235,000.
E) $735,000.

Question 50

What would the cost of fire insurance for a manufacturing plant generally be categorized as?

A) Prime cost.
B) Direct material cost.
C) Period cost.
D) Direct labor cost.
E) Product cost.

Question 51

Which of the following statements is true?

A) Product costs affect only the balance sheet.
B) Product costs affect only the income statement.
C) Period costs affect only the balance sheet.
D) Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation).
E) Product costs eventually affect both the balance sheet and the income statement.

Question 52

How should a company that manufactures automobiles classify its partially completed vehicles?

A) Supplies.
B) Raw materials inventory.
C) Finished goods inventory.
D) Cost of goods manufactured.
E) Work-in-process inventory.

Question 53

The accounting records of Comacho Company revealed the following costs, among others:

Costs that would be considered in the calculation of manufacturing overhead total:

A) $149,000.
B) $171,000.
C) $186,000.
D) $442,000.
E) None of the answers is correct.

Question 54

Conversion costs are:

A) direct material, direct labor, and manufacturing overhead.
B) direct material and direct labor.
C) direct labor and manufacturing overhead.
D) prime costs.
E) period costs.

Question 55

Which of the following employees of a commercial printer/publisher would be classified as direct labor?

A) Book binder.
B) Plant security guard.
C) Sales representative.
D) Plant supervisor.
E) Payroll supervisor.

Question 56

Which of the following equations is used to calculate cost of goods sold during the period?

A) Beginning finished goods + cost of goods manufactured + ending finished goods.
B) Beginning finished goods - ending finished goods.
C) Beginning finished goods + cost of goods manufactured.
D) Beginning finished goods + cost of goods manufactured - ending finished goods.
E) Beginning finished goods + ending finished goods - cost of goods manufactured.

Question 57

In a manufacturing company, the cost of goods completed during the period would include which of the following elements?

A) Raw materials used.
B) Beginning finished goods inventory.
C) Marketing costs.
D) Depreciation of delivery trucks.
E) All of the answers are correct.

Question 58

Which of the following statements is (are) correct?

A) Overtime premiums should be treated as a component of manufacturing overhead.
B) Overtime premiums should be treated as a component of direct labor.
C) Idle time should be treated as a component of direct labor.
D) Idle time should be accounted for as a special type of loss.
E) Overtime premiums should be treated as a component of direct labor and idle time should be treated as a component of direct labor.

Question 59

The accounting records of Falcon Company revealed the following information:

Falcon's cost of goods manufactured is:

A) $519,000.
B) $522,000.
C) $568,000.
D) $571,000.
E) None of the answers is correct.

Question 60

The accounting records of Stingray Company revealed the following information:

Stingray's cost of goods sold is:

A) $508,000.
B) $529,000.
C) $531,000.
D) $553,000.
E) None of the answers is correct.

Question 61

Dorsett Technologies had finished goods inventory on January 1, 20X8 of $29,300 and finished goods inventory on December 31, 20X8 of $24,100.

-If the cost of goods sold for the year was $427,500, what was the cost of goods manufactured for the year?

A) $402,100.
B) $422,300.
C) $417,100.
D) $427,500.
E) None of the answers is correct.

Question 62

Peyton Manufacturing has the following data:


-
If direct materials used during the year were $135,000, what was cost of goods manufactured?

A) $140,500.
B) $539,000.
C) $409,500.
D) $544,500.
E) None of the answers is correct.

Question 63

The fixed cost per unit:

A) will increase as activity increases.
B) will decrease as activity decreases.
C) will decrease as activity remains constant.
D) will remain constant.
E) will increase as activity decreases and will decrease as activity increases.

Question 64

Fixed costs are costs that:

A) vary directly with changes in activity.
B) vary inversely with changes in activity.
C) remain constant on a per-unit basis.
D) remain constant as activity changes.
E) increase on a per-unit basis as activity increases.

Question 65

Which of the following would likely be a suitable cost driver for the amount of direct materials used?

A) The number of units sold.
B) The number of direct labor hours worked.
C) The number of machine hours worked.
D) The number of units produced.
E) The number of employees working in the factory.

Question 66

An employee accidentally overstated the year's advertising expense by $50,000. Which of the following correctly depicts the effect of this error?

A) Cost of goods manufactured will be overstated by $50,000.
B) Cost of goods sold will be overstated by $50,000.
C) Both cost of goods manufactured and cost of goods sold will be overstated by $50,000.
D) Cost of goods sold will be overstated by $50,000, and cost of goods manufactured will be understated by $50,000.
E) None of the answers is correct.

Question 67

Rainier Industries has Raw materials inventory on January 1, 20x8 of $32,500 and Raw materials inventory on December 31, 20x8 of $26,700. If purchases of raw materials were $135,000 during the year, what was the amount of raw materials used during the year?

A) $129,200.
B) $140,800.
C) $135,000.
D) $146,600.
E) None of the answers is correct.

Question 68

Dorsett Technologies had finished goods inventory on January 1, 20X8 of $29,300 and finished goods inventory on December 31, 20X8 of $24,100.

- If the cost of goods manufactured for the year was $385,000, what was the cost of goods sold for the year?

A) $395,400.
B) $385,000.
C) $390,200.
D) $400,600.
E) None of the answers is correct.

Question 69

The choices below depict five costs of Garfield Industries and a possible driver for each cost. Which of these choices likely contains an inappropriate cost driver?

A) Gasoline consumed; number of miles driven.
B) Manufacturing overhead incurred in a heavily automated facility; direct labor hours.
C) Sales commissions; gross sales revenue.
D) Building maintenance cost; building square footage.
E) Human resources department cost; number of employees.

Question 70

Amaz-a-nation reported the following data for the year just ended: sales revenue, $1,750,000; cost of goods sold, $980,000; cost of goods manufactured, $560,000; and selling and administrative expenses, $170,000. Amaz-a-nation's gross margin would be:

A) $940,000.
B) $1,190,000.
C) $1,020,000.
D) $380,000.
E) $770,000.

Question 71

Rainier Industries has Raw materials inventory on January 1, 20x8 of $32,500 and Raw materials inventory on December 31, 20x8 of $26,700. If raw materials used during the year were $135,000 what was the amount of raw materials purchased during the year?

A) $129,200.
B) $140,800.
C) $135,000.
D) $146,600.
E) None of the answers is correct.

Question 72

Peyton Manufacturing has the following data:


-
If the cost of goods manufactured for the year was $565,000, what was the amount of direct materials used during the year?

A) $155,500.
B) $140,500.
C) $150,000.
D) $145,500.
E) None of the answers is correct.

Question 73

Tempest Enterprises began operations on January 1, 20x1, with all of its activities conducted from a single facility. The company's accountant concluded that the year's building depreciation should be allocated as follows: selling activities, 20%; administrative activities, 35%; and manufacturing activities, 45%. If Tempest sold 60% of 20x1 production during that year, what percentage of the depreciation would appear (either directly or indirectly) on the 20x1 income statement?

A) 27%.
B) 45%.
C) 55%.
D) 82%.
E) 100%.

Question 74

What is the primary trade-off that an accountant must consider when deciding whether to identify cost drivers?

A) Will the cost driver identification provide different costs for different purposes?
B) Is the cost/benefit of the process reasonable for more accurate cost behavior obtained?
C) Will the cost relationships be too complex to understand?
D) Will material-related drivers be more accurate than labor-related drivers?.
E) There is no trade-off to consider when using cost drivers.

Question 75

As activity increases, unit variable cost:

A) increases proportionately with activity.
B) decreases proportionately with activity.
C) remains constant.
D) increases by a fixed amount.
E) decreases by a fixed amount.

Question 76

For the year just ended, Porter Corporation's manufacturing costs (raw materials used, direct labor, and manufacturing overhead) totaled $1,500,000. Beginning and ending work-in-process inventories were $60,000 and $90,000, respectively. Porter's balance sheet also revealed respective beginning and ending finished-goods inventories of $250,000 and $180,000. On the basis of this information, how much would the company report as cost of goods manufactured (CGM) and cost of goods sold (CGS)?

A) CGM, $1,430,000; CGS, $1,460,000.
B) CGM, $1,470,000; CGS, $1,540,000.
C) CGM, $1,530,000; CGS, $1,460,000.
D) CGM, $1,570,000; CGS, $1,540,000.
E) Some other amounts.

Question 77

As activity decreases, unit variable cost:

A) increases proportionately with activity.
B) decreases proportionately with activity.
C) remains constant.
D) increases by a fixed amount.
E) decreases by a fixed amount.

Question 78

Variable costs are costs that:

A) vary inversely with changes in activity.
B) vary directly with changes in activity.
C) remain constant as activity changes.
D) decrease on a per-unit basis as activity increases.
E) increase on a per-unit basis as activity increases.

Question 79

Which of the following is not an example of a variable cost?

A) Straight-line depreciation on a machine that has a five-year service life.
B) Wages of manufacturing workers whose pay is based on hours worked.
C) Tires used in the production of tractors.
D) Aluminum used to make patio furniture.
E) Commissions paid to sales personnel.

Question 80

The accounting records of Upton Company revealed the following information:

Upton's cost of goods sold is:

A) $721,000.
B) $730,000.
C) $778,000.
D) $787,000.
E) None of the answers is correct.