Deck 1: Managerial Accounting and Cost Concepts

Question 1

A cost can be direct or indirect. The classification can change if the cost object changes.

Answer 1

True

Question 2

Prime cost is the sum of direct materials cost and direct labor cost.

Answer 2

True

Question 3

Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company.

Answer 3

False

Question 4

The cost of shipping parts from a supplier is considered a period cost.

Question 5

Product costs are also known as inventoriable costs.

Question 6

Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

Question 7

Wages paid to production supervisors would be classified as manufacturing overhead.

Question 8

A direct cost is a cost that can be easily traced to the particular cost object under consideration.

Question 9

Selling and administrative expenses are period costs under generally accepted accounting principles.

Question 10

The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

Question 11

Conversion cost is the same thing as manufacturing overhead.

Question 12

The three cost elements ordinarily included in product costs are direct materials, direct labor, and manufacturing overhead.

Question 13

Selling costs are indirect costs.

Question 14

Opportunity costs at a manufacturing company are not part of manufacturing overhead.

Question 15

Conversion cost equals product cost less direct materials cost.

Question 16

Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost.

Question 17

Advertising is not considered as a product cost even if it promotes a specific product.

Question 18

In a manufacturing company, all costs are period costs.

Question 19

Prime cost equals manufacturing overhead cost.

Question 20

Administrative costs are indirect costs.

Question 21

In account analysis, an account is classified as either variable or fixed based on an analyst's prior knowledge of how the cost in the account behaves.

Question 22

If managers are reluctant to lay off direct labor employees when activity declines leads to a decrease in the ratio of variable to fixed costs.

Question 23

A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.

Question 24

Indirect costs, such as manufacturing overhead, are variable costs.

Question 25

Committed fixed costs remain largely unchanged in the short run.

Question 26

A step-variable cost is a cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in activity.

Question 27

The variable cost per unit depends on how many units are produced.

Question 28

If the activity level increases, then one would expect the fixed cost per unit to increase as well.

Question 29

The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

Question 30

A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.

Question 31

A decrease in production will ordinarily result in a decrease in fixed production costs per unit.

Question 32

Variable costs per unit are not affected by changes in activity.

Question 33

When operations are interrupted or cut back, committed fixed costs are cut in the short term because the costs of restoring them later are likely to be far less than the short-run savings that are realized.

Question 34

Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.

Question 35

Fixed costs expressed on a per unit basis do not change with changes in activity.

Question 36

As activity decreases within the relevant range, fixed costs remain constant on a per unit basis.

Question 37

The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served.

Question 38

Cost behavior is considered curvilinear whenever a straight line is a reasonable approximation for the relation between cost and activity.

Question 39

A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.

Question 40

The concept of the relevant range does not apply to variable costs.

Question 41

The following costs are all examples of committed fixed costs: depreciation on buildings, salaries of highly trained engineers, real estate taxes, and insurance expenses.

Question 42

A variable cost remains constant if expressed on a unit basis.

Question 43

Traditional format income statements are widely used for preparing external financial statements.

Question 44

In a contribution format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period.

Question 45

Although the traditional format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.

Question 46

The contribution format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.

Question 47

The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost.

Question 48

A contribution format income statement separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.

Question 49

Contribution margin and gross margin mean the same thing.

Question 50

In a traditional format income statement, the gross margin is sales minus cost of goods sold.

Question 51

A fixed cost is not constant per unit of product.

Question 52

The relevant range concept is applicable to mixed costs.

Question 53

Differential costs can only be variable.

Question 54

Committed fixed costs represent organizational investments with a one-year planning horizon.

Question 55

In a traditional format income statement for a merchandising company, cost of goods sold is a variable cost that is included in the "Variable expenses" portion of the income statement.

Question 56

Contribution format income statements are prepared primarily for external reporting purposes.

Question 57

Most companies use the contribution approach in preparing financial statements for external reporting purposes.

Question 58

The potential benefit that is given up when one alternative is selected over another is called a sunk cost.

Question 59

A cost that differs from one month to another is known as a sunk cost.

Question 60

In a traditional format income statement, the gross margin minus selling and administrative expenses equals net operating income.

Question 61

Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:

A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.

Question 62

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

A) The cost of the glue in a chair.
B) The amount paid to the individual who stains a chair.
C) The workman's compensation insurance of the supervisor who oversees production.
D) The factory utilities of the department in which production takes place.

Question 63

Product costs that have become expenses can be found in:

A) period costs.
B) selling expenses.
C) cost of goods sold.
D) administrative expenses.

Question 64

A factory supervisor's wages are classified as:

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

Question 65

Which of the following is NOT a period cost?

A) Depreciation of factory maintenance equipment.
B) Salary of a clerk who handles customer billing.
C) Insurance on a company showroom where customers can view new products.
D) Cost of a seminar concerning tax law updates that was attended by the company's controller.

Question 66

Which of the following statements about product costs is true?

A) Product costs are deducted from revenue when the production process is completed.
B) Product costs are deducted from revenue as expenditures are made.
C) Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets.
D) Product costs appear on financial statements only when products are sold.

Question 67

Wages paid to the supervisor of the warehouse where raw materials and parts are temporarily stored before being used in production is considered an example of:

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

Question 68

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

A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.

Question 69

The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n):

A) period cost.
B) direct material cost.
C) indirect material cost.
D) opportunity cost.

Question 70

The cost of direct materials is classified as a:

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

Question 71

The salary paid to the president of a company would be classified on the income statement as a(n):

A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.

Question 72

The cost of electricity for running production equipment is classified as:

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

Question 73

Direct costs:

A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.

Question 74

Direct labor cost is classified as:

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

Question 75

Manufacturing overhead includes:

A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.

Question 76

All of the following are examples of product costs except:

A) depreciation on the company's retail outlets.
B) salary of the plant manager.
C) insurance on the factory equipment.
D) rental costs of factory equipment.

Question 77

The costs of direct materials are classified as:

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

Question 78

Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?

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

Question 79

Which of the following is an example of a period cost in a company that makes clothing?

A) Fabric used to produce men's pants.
B) Advertising cost for a new line of clothing.
C) Factory supervisor's salary.
D) Monthly depreciation on production equipment.

Question 80

Which of the following statements is correct in describing manufacturing overhead?

A) Manufacturing overhead when combined with direct materials cost forms conversion cost.
B) Manufacturing overhead consists of all manufacturing cost except for prime cost.
C) Manufacturing overhead is a period cost.
D) Manufacturing overhead when combined with direct labor cost forms prime cost.