Question 1

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

Accepted Answer

Direct materials are part of manufacturing costs and prime costs, but not conversion costs.

Question 2

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.

Accepted Answer

Opportunity costs represent the benefits of the next best alternative that is foregone, while outlay costs are actual cash expenditures.

Question 3

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.

Accepted Answer

Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Question 4

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.

Accepted Answer

Period costs are not directly tied to the production process and are expensed in the period they are incurred. Freight out is a selling expense, which is a period cost.

Question 5

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.

Accepted Answer

The term "expense" is typically used in external financial reports, while "cost" is a broader term used in both managerial and financial contexts. Statement (2) is true as it correctly defines opportunity cost.

Question 6

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 conversion cost per unit?
A) $100
B) $180
C) $280
D) $380

Accepted Answer

Conversion cost per unit is the sum of direct labor and manufacturing overhead (both fixed and variable). Here, it is $100 (direct labor) + $80 (variable manufacturing overhead) = $180.

Question 7

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.

Accepted Answer

Direct labor costs are treated as an expense on the income statement when the products are sold, as they are part of the cost of goods sold.

Question 8

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

Accepted Answer

The cost of a toll-free telephone line for customer inquiries is considered a period cost because it is not directly tied to the production process and is incurred regardless of the level of production. Period costs are expensed in the period in which they are incurred.

Question 9

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.

Accepted Answer

Prime costs are the sum of direct materials and direct labor, which are the primary costs directly associated with the production of a product.

Question 10

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

Accepted Answer

Telephone costs incurred in taking sales orders are considered period costs because they are not directly tied to the production process and are expensed in the period they are incurred.

Question 11

The corporate controller's salary would be considered a(n):
A) manufacturing cost.
B) product cost.
C) administrative cost.
D) selling expense.

Accepted Answer

The corporate controller's salary would fall under administrative costs, which are expenses related to general management and administration of the company, including salaries of executives and other administrative personnel.

Question 12

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

Accepted Answer

Direct labor is considered both a prime cost and a conversion cost because it is directly involved in the production process and is necessary to convert raw materials into finished goods.

Question 13

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

Accepted Answer

The answer of Calculate the conversion costs from the following...

Question 14

Marketing costs include all of the following except:
A) Advertising.
B) Shipping costs.
C) Sales commissions.
D) Legal and accounting fees.

Accepted Answer

Legal and accounting fees are not typically considered marketing costs; they are more related to administrative or operational expenses.

Question 15

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

Accepted Answer

Property taxes on the manufacturing facility are an element of period cost.

Question 16

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.

Accepted Answer

Rent on a headquarters building is an example of a period cost as it is not directly related to the production of goods or services. Instead, it is a cost that is incurred over a period of time and is necessary for the overall operation of the business. Fire insurance on a factory building could be considered a period cost if it is not included as part of the inventory cost, but it is not the best choice as it still has a direct relation to the production process. The salary of a factory supervisor and direct materials are both examples of product costs as they are directly related to the production of goods.

Question 17

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.

Accepted Answer

An asset is indeed a cost that will be matched with revenues in a future accounting period, as it represents future economic benefits. Opportunity costs, however, are not recorded in financial statements as they are not actual transactions or assets.

Question 18

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.

Accepted Answer

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred. Wages of salespersons are considered period costs because they are related to selling activities, not manufacturing.

Question 19

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

Accepted Answer

Transportation costs incurred to ship products to customers are considered period costs as they are expensed in the period in which they are incurred and not included as part of the cost of manufacturing the product.

Question 20

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.

Accepted Answer

The answer of The cost of fire insurance for a...

Quiz 2: Cost Concepts and Behavior

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

An opportunity cost is

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

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.

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

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?

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

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?

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

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

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

Marketing costs include all of the following except:

An example of a period cost is:

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.

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

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

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