Question 1

In a service industry, direct materials are usually insignificant in amount and cannot easily be traced to a cost object.

Accepted Answer

In a service industry, the main costs are typically associated with labor and overhead, rather than direct materials. Direct materials are typically more relevant to manufacturing industries where physical goods are being produced. Therefore, they are usually not significant in amount in a service industry and cannot easily be traced to a specific cost object.

Question 2

In a service industry, direct materials are usually significant in amount and can be easily traced to a cost object.

Accepted Answer

In a service industry, direct materials are usually not significant in amount and cannot be easily traced to a cost object. Instead, direct labor and overhead costs tend to be more significant.

Question 3

In an normal cost system, actual production overhead costs are accumulated in an Overhead Control account and assigned to Work in Process at the end of the period.

Accepted Answer

The answer of In an normal cost system, actual production...

Question 4

There is an inverse relationship between prevention costs and failure costs.

Accepted Answer

Prevention costs are incurred to avoid defects, while failure costs are incurred when defects occur. Increasing prevention efforts typically reduces failure costs.

Question 5

In an actual cost system, overhead is assigned to Work in Process Inventory with a credit entry to the account.

Accepted Answer

In an actual cost system, overhead is assigned to Work in Process Inventory with a debit entry to the account, not a credit entry. The credit entry typically goes to the specific overhead accounts being allocated.

Question 6

Expired costs are reflected on the balance sheet.

Accepted Answer

Expired costs are no longer assets or liabilities and therefore do not appear on the balance sheet. They are typically recorded in the income statement as expenses.

Question 7

Retailers generally have a much higher degree of conversion than do manufacturing or professional firms.

Accepted Answer

The answer of Retailers generally have a much higher degree...

Question 8

In an actual cost system, actual production overhead costs are accumulated in an Overhead Control account and assigned to Work in Process at the end of the period.

Accepted Answer

In an actual cost system, overhead costs are recorded as they are incurred and then allocated to Work in Process at the end of the period based on actual usage.

Question 9

Distribution costs are an example of period costs.

Accepted Answer

Distribution costs are considered as period costs because they are expensed in the period they are incurred and do not contribute to the production of a specific product. These costs include expenses associated with selling, marketing, and distributing products or services.

Question 10

Retailers generally have a much lower degree of conversion than do manufacturing or professional firms.

Accepted Answer

Retailers typically have a lower degree of conversion because their sales depend on foot traffic and customer interest, which can fluctuate based on factors such as location, pricing, and competition. Manufacturing and professional firms, on the other hand, usually work through a more targeted sales process and have a higher likelihood of closing deals once they have identified qualified leads.

Question 11

In an actual cost system, overhead is assigned to Work in Process Inventory with a debit entry to the account.

Accepted Answer

In an actual cost system, overhead costs are assigned to Work in Process Inventory with a debit entry to the account. This is because overhead costs represent expenses incurred during the production process, and must be included in the cost of the finished products.

Question 12

Distribution costs are an example of product costs.

Accepted Answer

Distribution costs are considered period costs, not product costs, because they are not directly tied to the production process and are expensed in the period they are incurred.

Question 13

A cost that remains unchanged in total within the relevant range is known as a ____________________ cost.

Accepted Answer

The answer of A cost that remains unchanged in total...

Question 14

Costs that can be conveniently traced to a cost object are referred to as ____________________ costs.

Accepted Answer

The answer of Costs that can be conveniently traced to...

Question 15

In a normal cost system, factory overhead is applied to Work in Process using a predetermined overhead rate.

Accepted Answer

In a normal cost system, factory overhead is applied to Work in Process using a predetermined overhead rate based on estimated and actual levels of overhead costs.

Question 16

There is a direct relationship between prevention costs and failure costs.

Accepted Answer

The answer of There is a direct relationship between prevention...

Question 17

Anything for which management wants to accumulate or collect costs is known as a _________________________.

Accepted Answer

The answer of Anything for which management wants to accumulate...

Question 18

In an actual cost system, factory overhead is applied to Work in Process using a predetermined overhead rate.

Accepted Answer

In an actual cost system, factory overhead is applied to Work in Process based on the actual overhead costs incurred, not a predetermined overhead rate.

Question 19

Costs that cannot be conveniently traced to a cost object are known as ____________________ costs.

Accepted Answer

The answer of Costs that cannot be conveniently traced to...

Question 20

It is not necessary to prepare the Cost of Goods Manufactured statement prior to preparing the Cost of Goods Sold statement.

Accepted Answer

The Cost of Goods Manufactured statement must be prepared first in order to determine the Cost of Goods Sold. The Cost of Goods Manufactured statement calculates the total production costs for the period, while the Cost of Goods Sold statement calculates the cost of goods sold during the period based on the production costs and the inventory levels.

Quiz 1: Cost Terminology and Cost Behaviors