Question 1

Both direct labor cost and indirect labor cost are product costs.

Accepted Answer

Both direct labor cost and indirect labor cost are considered as part of the manufacturing cost of a product, which is a product cost. Direct labor cost refers to the cost of labor that is directly involved in the production of goods, such as assembly line workers. Indirect labor cost refers to the cost of labor that supports the production process, such as supervisors, maintenance workers, and quality control inspectors. Both of these costs are necessary for the production of a product and are included in the overall product cost.

Question 2

Period costs are not inventoriable costs.

Accepted Answer

Period costs are costs that are expensed in the period in which they are incurred, rather than being added to the cost of inventory. Examples of period costs include selling and administrative expenses, such as salaries and advertising costs, which are not directly associated with the production of goods. As such, period costs are not inventoriable costs.

Question 3

Direct materials costs and indirect materials costs are manufacturing overhead.

Accepted Answer

Direct materials costs are not considered manufacturing overhead; they are directly attributable to the production of goods. Manufacturing overhead includes indirect costs such as indirect materials, indirect labor, and other overhead costs associated with the production process.

Question 4

The management function of organizing and directing is mainly concerned with setting goals and objectives for the entity.

Accepted Answer

The management function of organizing is concerned with identifying resources, establishing a structure, and coordinating activities to achieve the goals and objectives set by the entity. The management function of directing involves making decisions, assigning tasks, and motivating employees to achieve the established goals and objectives.

Question 5

Manufacturing costs that cannot be classified as direct materials or direct labor are classified as manufacturing overhead.

Accepted Answer

Manufacturing overhead includes expenses such as rent for the factory, utilities, depreciation on equipment, and indirect labor costs. These costs cannot be directly traced to specific products or services and are allocated to products based on a predetermined overhead rate.

Question 6

Total period costs are deducted from total cost of work in process to calculate cost of goods manufactured.

Accepted Answer

Period costs, such as selling and administrative expenses, are not included in the cost of goods manufactured. Only direct materials, direct labor, and manufacturing overhead costs are included in the calculation of cost of goods manufactured.

Question 7

Managerial accounting information generally pertains to an entity as a whole and is highly aggregated.

Accepted Answer

Managerial accounting information is often detailed, pertains to specific segments of a business, and is used internally for decision-making, planning, and control purposes.

Question 8

Determining the unit cost of manufacturing a product is an output of financial accounting.

Accepted Answer

Determining the unit cost of manufacturing a product is an output of managerial accounting, not financial accounting. Financial accounting focuses on reporting financial information to external parties, while managerial accounting is concerned with providing information for internal decision-making.

Question 9

Period costs include selling and administrative expenses.

Accepted Answer

Period costs are those costs that are not directly related to the production process, but rather are associated with the passage of time. Selling and administrative expenses are examples of period costs.

Question 10

Direct materials and direct labor are the only product costs.

Accepted Answer

Product costs include direct materials, direct labor, and manufacturing overhead.

Question 11

Managerial accounting internal reports are prepared more frequently than are classified financial statements.

Accepted Answer

Managerial accounting internal reports are often prepared on a more frequent basis (such as monthly or quarterly) to provide timely information for decision-making, whereas classified financial statements (such as balance sheets and income statements) are typically prepared on an annual basis.

Question 12

Reports prepared in financial accounting are general-purpose reports, whereas reports prepared in managerial accounting are usually special-purpose reports.

Accepted Answer

Financial accounting reports are prepared for external users and are general-purpose in nature, providing information about a company's financial performance and position. Managerial accounting reports, on the other hand, are prepared for internal users and are special-purpose in nature, providing detailed information to aid in decision-making and planning within the organization.

Question 13

Raw materials are equal to direct materials minus indirect materials.

Accepted Answer

Raw materials include both direct materials and indirect materials. Direct materials are those that are directly used in the production process to create a product, while indirect materials are those that are necessary for production but are not directly used in the product itself (such as cleaning supplies or lubricants).

Question 14

Controlling is the process of determining whether planned goals are being met.

Accepted Answer

Controlling involves monitoring progress towards achieving goals and taking corrective action if necessary to ensure that the goals are being met.

Question 15

The total cost of a finished product does not generally contain equal amounts of materials, labor, and overhead costs.

Accepted Answer

The cost of a finished product is calculated by taking into account several factors such as direct materials, direct labor, and manufacturing overhead. However, the proportion of each component may vary depending on the nature of the product and the production process. For instance, a labor-intensive product may have higher labor costs compared to materials and overhead costs. On the other hand, a capital-intensive product may have higher overhead costs due to the use of expensive machinery and equipment. Therefore, the total cost of a finished product does not generally contain equal amounts of materials, labor, and overhead costs.

Question 16

Decision-making is an integral part of the planning, directing, and controlling functions.

Accepted Answer

Decision-making is essential to all three functions of management - planning, directing, and controlling. In planning, decisions are made regarding goals, strategies, and tactics. In directing, decisions are made regarding delegation, communication, and motivation. In controlling, decisions are made regarding performance evaluation and corrective action. Therefore, decision-making is an integral part of all three functions of management.

Question 17

The Sarbanes-Oxley Act replaces generally accepted accounting principles in a manufacturing company.

Accepted Answer

The Sarbanes-Oxley Act (SOX) does not replace generally accepted accounting principles (GAAP) in any company, including manufacturing companies. Rather, SOX sets requirements for financial reporting and accounting practices to increase transparency and prevent fraudulent activity, while companies must still adhere to GAAP.

Question 18

Raw materials that can be conveniently and directly associated with a finished product are called materials overhead.

Accepted Answer

Raw materials that can be conveniently and directly associated with a finished product are called direct materials, not materials overhead. Materials overhead refers to indirect materials that are necessary for production but cannot be directly traced to a specific product, such as lubricants, cleaning supplies, or small tools and equipment.

Question 19

Indirect materials and indirect labor are both inventoriable costs.

Accepted Answer

Both indirect materials and indirect labor are considered part of manufacturing overhead, which is an inventoriable cost. These costs are allocated to the cost of goods produced and are included in the finished product's inventory value until they are sold.

Question 20

Managerial accounting applies to all forms of business organizations.

Accepted Answer

Managerial accounting is relevant to all forms of business organizations, whether it is a sole proprietorship, partnership, corporation, or not-for-profit entity. The principles and techniques of managerial accounting can help managers and decision-makers in these organizations make informed and effective decisions through the use of financial and non-financial information.

Quiz 1: Introduction to Financial Statements