Deck 1: Managerial Accounting and Cost Concepts

Question 1

Indirect costs, such as manufacturing overhead, are always fixed costs.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any short-run savings that might be realized.

Answer 3

True

Question 4

In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period.

Question 5

Automation results in a shift away from variable costs toward more fixed costs.

Question 6

Manufacturing overhead combined with direct materials is known as conversion cost.

Question 7

When the level of activity increases, total variable cost will increase.

Question 8

Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead.

Question 9

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

Question 10

Direct material costs are generally variable costs.

Question 11

Advertising costs are considered product costs for external financial reports because they are incurred in order to promote specific products.

Question 12

Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas.

Question 13

Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm.

Question 14

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

Question 15

All costs incurred in a merchandising firm are considered to be period costs.

Question 16

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

Question 17

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

Question 18

Committed fixed costs are fixed costs that are not controllable.

Question 19

A mixed cost is partially variable and partially fixed.

Question 20

In order for a cost to be variable it must vary with either units produced or units sold.

Question 21

The cost of leasing production equipment is classified as:

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

Question 22

The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm's offices, the law firm's receptionist's wages, the costs of heating the law firm's offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client.

Question 23

The advertising costs that Pepsi incurred to air its commercials during the Super Bowl can best be described as a:

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

Question 24

Manufacturing overhead consists of:

A)all manufacturing costs.
B)indirect materials but not indirect labor.
C)all manufacturing costs, except direct materials and direct labor.
D)indirect labor but not indirect materials.

Question 25

The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician's fees, and a portion of the liability insurance carried by the hospital to cover the delivery room.

Question 26

The traditional 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 27

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

Question 28

Although the contribution 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 29

In a traditional 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 30

Which of the following costs is an example of a period rather than a product cost?

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

Question 31

Which of the following costs would not be included as part of manufacturing overhead?

A)Insurance on sales vehicles.
B)Depreciation of production equipment.
C)Lubricants for production equipment.
D)Direct labor overtime premium.

Question 32

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

Question 33

Which of the following would be considered a product cost for external financial reporting purposes?

A)Cost of a warehouse used to store finished goods.
B)Cost of guided public tours through the company's facilities.
C)Cost of travel necessary to sell the manufactured product.
D)Cost of sand spread on the factory floor to absorb oil from manufacturing machines.

Question 34

Each of the following would be a period cost except:

A)the salary of the company president's secretary.
B)the cost of a general accounting office.
C)depreciation of a machine used in manufacturing.
D)sales commissions.

Question 35

In any decision making situation, sunk costs are irrelevant and should be ignored.

Question 36

The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager's salary, and the cost of the General Electric jet engines installed on the aircraft.

Question 37

Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture?

A)sheet steel in a file cabinet made by the company.
B)manufacturing equipment depreciation.
C)idle time for direct labor.
D)taxes on a factory building.

Question 38

The wages of factory maintenance personnel would usually be considered to be: $$\begin{array} { c c c } & \text { Indirect labor } & \begin{array} { c } \text { Manufacturing } \\\text { overhead }\end{array} \\\text { A) } & \text { No } & \text { Yes } \\\text { B) } & \text { Yes } & \text { No } \\\text { C) } & \text { Yes } & \text { Yes } \\\text { D) } & \text { No } & \text { No }\end{array}$$

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

Question 39

For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver lamps to customers is best described as a:

A)prime cost.
B)manufacturing overhead cost.
C)period cost.
D)differential (incremental) cost of a lamp.

Question 40

Conversion cost consists of which of the following?

A)Manufacturing overhead cost.
B)Direct materials and direct labor cost.
C)Direct labor cost.
D)Direct labor and manufacturing overhead cost.

Question 41

Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the:

A)total variable cost will remain unchanged.
B)fixed costs will increase in total.
C)variable cost per unit will increase.
D)total cost per unit will decrease.

Question 42

In describing the cost formula equation Y = a + bX, which of the following statements is correct?

A)"X" is the dependent variable.
B)"a" is the fixed component.
C)In the high-low method, "b" equals change in activity divided by change in costs.
D)As "X" increases "Y" decreases.

Question 43

The following costs were incurred in September: Prime costs during the month totaled:

A)$79,000
B)$120,000
C)$62,000
D)$40,000

Question 44

The term differential cost refers to:

A)a difference in cost which results from selecting one alternative instead of another.
B)the benefit forgone by selecting one alternative instead of another.
C)a cost which does not involve any dollar outlay but which is relevant to the decision-making process.
D)a cost which continues to be incurred even though there is no activity.

Question 45

An example of a committed fixed cost is:

A)a training program for salespersons.
B)executive travel expenses.
C)property taxes on the factory building.
D)new product research and development.

Question 46

The salary of the president of a manufacturing company would be classified as which of the following?

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

Question 47

The salary paid to the production manager in a factory is:

A)a variable cost.
B)part of prime cost.
C)part of conversion cost.
D)both a variable cost and a prime cost.

Question 48

When a decision is made among a number of alternatives, the benefit that is lost by choosing one alternative over another is the:

A)realized cost.
B)opportunity cost.
C)conversion cost.
D)accrued cost.

Question 49

Which of the following statements regarding fixed costs is incorrect?

A)Expressing fixed costs on a per unit basis usually is the best approach for decision making.
B)Fixed costs expressed on a per unit basis will decrease with increases in activity.
C)Total fixed costs are constant within the relevant range.
D)Fixed costs expressed on a per unit basis will increase with decreases in activity.

Question 50

During the month of September, direct labor cost totaled $11,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during September were $73,000, the manufacturing overhead was:

A)$16,500
B)$27,500
C)$62,000
D)$45,500

Question 51

Aberge Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is $38,000 and if direct materials are $21,000, the manufacturing overhead is:

A)$57,000
B)$88,500
C)$25,333
D)$31,500

Question 52

Which of the following costs is often important in decision making, but is omitted from conventional accounting records?

A)Fixed cost.
B)Sunk cost.
C)Opportunity cost.
D)Indirect cost.

Question 53

Variable cost:

A)increases on a per unit basis as the number of units produced increases.
B)remains constant on a per unit basis as the number of units produced increases.
C)remains the same in total as production increases.
D)decreases on a per unit basis as the number of units produced increases.

Question 54

Conversion costs do NOT include:

A)depreciation.
B)direct materials.
C)indirect labor.
D)indirect materials.

Question 55

The term "relevant range" means the range of activity over which:

A)relevant costs are incurred.
B)costs may fluctuate.
C)production may vary.
D)the assumptions about fixed and variable cost behavior are reasonably valid.

Question 56

Within the relevant range, variable cost per unit will:

A)increase as the level of activity increases.
B)remain constant.
C)decrease as the level of activity increases.
D)none of these.

Question 57

The following costs were incurred in September: Conversion costs during the month totaled:

A)$50,000
B)$59,000
C)$137,000
D)$67,000

Question 58

Which of the following would NOT be treated as a product cost for external financial reporting purposes?

A)Depreciation on a factory building.
B)Salaries of factory workers.
C)Indirect labor in the factory.
D)Advertising expenses.

Question 59

In September direct labor was 40% of conversion cost. If the manufacturing overhead for the month was $66,000 and the direct materials cost was $20,000, the direct labor cost was:

A)$13,333
B)$44,000
C)$99,000
D)$30,000

Question 60

Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer?

A)the cost of the hard disk drive installed in the computer.
B)the cost of shipping the computer to the customer.
C)the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers.
D)the cost of packaging the computer for shipment.

Question 61

Anderwald Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is:

A)$360,800
B)$136,800
C)$196,800
D)$176,800

Question 62

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,700 and is paid at the beginning of the first year. Eighty percent of the premium applies to manufacturing operations and 20% applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?

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

Question 63

Bakker Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

A)$89.70
B)$131.80
C)$19.50
D)$112.30

Question 64

At an activity level of 4,400 units in a month, Goldbach Corporation's total variable maintenance and repair cost is $313,632 and its total fixed maintenance and repair cost is $93,104. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 4,600 units in a month? Assume that this level of activity is within the relevant range.

A)$420,992
B)$425,224
C)$415,980
D)$406,736

Question 65

Jumpst Corporation uses the cost formula Y = $3,600 + $0.30X for the maintenance cost in Department B, where X is machine-hours. The August budget is based on 20,000 hours of planned machine time. Maintenance cost expected to be incurred during August is:

A)$3,600
B)$6,000
C)$6,300
D)$9,600

Question 66

Average maintenance costs are $1.50 per machine-hour at an activity level of 8,000 machine-hours and $1.20 per machine-hour at an activity level of 13,000 machine-hours. Assuming that this activity is within the relevant range, total expected maintenance cost for a budgeted activity level of 10,000 machine-hours would be closest to:

A)$16,128
B)$15,000
C)$13,440
D)$11,433

Question 67

Blore Corporation reports that at an activity level of 7,300 units, its total variable cost is $511,803 and its total fixed cost is $76,650. What would be the total cost, both fixed and variable, at an activity level of 7,500 units? Assume that this level of activity is within the relevant range.

A)$604,575
B)$602,475
C)$596,514
D)$588,453

Question 68

At a volume of 10,000 units, Company P incurs $30,000 in factory overhead costs, including $10,000 in fixed costs. Assuming that this activity is within the relevant range, if volume increases to 12,000 units, Company P would expect to incur total factory overhead costs of:

A)$36,000
B)$34,000
C)$30,000
D)$32,000

Question 69

Haras Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $141.30 per unit. The best estimate of the total variable cost per unit is:

A)$123.40
B)$79.60
C)$57.90
D)$130.70

Question 70

Edeen Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

A)$62.20
B)$96.50
C)$109.30
D)$12.80

Question 71

Given the cost formula, Y = $9,000 + $2.50X, total cost for an activity level of 3,000 units would be:

A)$9,750
B)$12,000
C)$16,500
D)$7,500

Question 72

Gambarini Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $197.80 per unit. The best estimate of the total monthly fixed cost is:

A)$541,800
B)$1,192,100
C)$1,099,200
D)$1,145,650

Question 73

Carbaugh Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total cost to manufacture 3,300 units is closest to:

A)$637,560
B)$612,975
C)$588,390
D)$619,680

Question 74

The following data pertains to activity and costs for two months: Assuming that these activity levels are within the relevant range, the mixed cost for July was:

A)$10,000
B)$35,000
C)$15,000
D)$40,000

Question 75

Iadanza Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $195.70 per unit. The best estimate of the total contribution margin when 6,300 units are sold is:

A)$752,220
B)$638,190
C)$100,170
D)$177,030

Question 76

The following data pertains to activity and the cost of cleaning and maintenance for two recent months: The best estimate of the total month 1 variable cost for cleaning and maintenance is:

A)$300
B)$500
C)$800
D)$100

Question 77

Given the cost formula Y = $15,000 + $5X, total cost at an activity level of 8,000 units would be:

A)$23,000
B)$15,000
C)$55,000
D)$40,000

Question 78

Anaconda Mining Company shipped 9,000 tons of copper concentrate for $450,000 in March and 11,000 tons for $549,000 in April. Shipping costs for 12,000 tons to be shipped in May would be expected to be:

A)$548,780
B)$549,020
C)$594,000
D)$598,500

Question 79

At an activity level of 9,200 machine-hours in a month, Nooner Corporation's total variable production engineering cost is $761,300 and its total fixed production engineering cost is $154,008. What would be the total production engineering cost per unit, both fixed and variable, at an activity level of 9,300 machine-hours in a month? Assume that this level of activity is within the relevant range.

A)$98.42
B)$99.49
C)$99.31
D)$98.96

Question 80

Dabney Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is:

A)$778,400
B)$1,457,400
C)$1,505,900
D)$1,554,400