Question 1

Which type of production process is likely used by a paint manufacturer to produce paint?
A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Accepted Answer

Continuous Flow production is most likely used by a paint manufacturer because this process is ideal for producing large quantities of a standardized product, such as paint, efficiently and with a consistent quality. Continuous flow involves a constant production process where ingredients are added and processed non-stop, which suits the nature of paint production.

Question 2

Which of the following inventories would a company ordinarily hold for sale?
A) Raw materials.
B) Work in process.
C) Finished goods.
D) Raw materials and finished goods.
E) Work in process and finished goods.

Accepted Answer

Finished goods are the inventory items that a company has completed manufacturing and are ready to sell to customers. Raw materials and work in process are stages prior to becoming finished goods.

Question 3

Which of the following is a product cost?
A) Circuitry used in producing hard drives.
B) Monthly advertising in the newspaper.
C) The salary of the vice president-finance.
D) Sales commissions.
E) Research costs for new router development.

Accepted Answer

Circuitry used in producing hard drives is a direct material cost, which is a component of product costs. Product costs are all costs involved in acquiring or making a product, including direct materials, direct labor, and manufacturing overhead.

Question 4

Product costs are:
A) expensed when incurred.
B) inventoried.
C) treated in the same manner as period costs.
D) treated in the same manner as advertising costs.
E) subtracted from cost of goods sold.

Accepted Answer

Product costs are inventoried, meaning they are recorded as assets (inventory) when incurred and expensed as cost of goods sold when the product is sold.

Question 5

The accounting records of Younkin Corporation revealed the following selected costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000. Younkin's period costs total:
A) $250,000.
B) $440,000.
C) $375,000.
D) $255,000.
E) $185,000.

Accepted Answer

Period costs include all non-manufacturing costs, which are sales commissions and administrative expenses, totaling $65,000 + $185,000 = $250,000. Plant supervision is a product cost, not a period cost.

Question 6

Which of the following is not a period cost?
A) Legal costs.
B) Public relations costs.
C) Sales commissions.
D) Wages of assembly-line workers.
E) The salary of a company's chief financial officer (CFO).

Accepted Answer

Period costs are all costs on the income statement other than product costs. Unlike product costs that are associated with the manufacturing process, period costs are not directly tied to the production process and are expensed in the period in which they are incurred. Wages of assembly-line workers are considered a product cost because they are directly associated with the production of goods.

Question 7

Costs that are expensed when incurred are called:
A) product costs.
B) direct costs.
C) inventoriable costs.
D) period costs.
E) indirect costs.

Accepted Answer

Period costs are expenses that are incurred during a specific period and are expensed in that period, rather than being capitalized as part of the cost of a product. This includes selling, general, and administrative expenses.

Question 8

Selling and administrative expenses would likely appear on the balance sheet of:
A) A clothing store.
B) A computer manufacturer.
C) A television network.
D) All of these firms.
E) None of these firms.

Accepted Answer

Selling and administrative expenses are considered operating expenses and are recorded on the income statement, not the balance sheet. The balance sheet reflects a company's assets, liabilities, and equity at a specific point in time.

Question 9

Which type of production process is likely used for custom yachts built by Hargrave?
A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Accepted Answer

Custom yachts built by Hargrave would likely use a Job Shop production process, as this type of process is characterized by low volume and high customization, fitting the description of custom yacht building.

Question 10

Which of the four items listed below is not a type of production process?
A) Batch.
B) Job Shop.
C) Continuous Flow.
D) Job Flow.
E) Assembly.

Accepted Answer

Job Flow is not a recognized type of production process. The recognized types include Batch, Job Shop, Continuous Flow, and Assembly, each catering to different production needs and scales.

Question 11

Which of the following would not be classified as a product cost?
A) Direct materials.
B) Direct labor.
C) Indirect materials.
D) Insurance on a manufacturing plant.
E) Sales bonuses for meeting quota sales.

Accepted Answer

Product costs include all costs involved in acquiring or making a product, which typically encompass direct materials, direct labor, and manufacturing overhead (including indirect materials and factory-related expenses like insurance on a manufacturing plant). Sales bonuses for meeting quota sales are considered period costs, not product costs, because they are not directly tied to the production process.

Question 12

Research and development costs are classified as:
A) product costs.
B) period costs.
C) inventoriable costs.
D) cost of goods sold.
E) labor costs.

Accepted Answer

Research and development costs are classified as period costs because they are expensed in the period in which they are incurred, rather than being capitalized or included in the cost of inventory.

Question 13

Which of the following is a period cost?
A) Direct material.
B) Advertising expense.
C) Indirect labor.
D) Miscellaneous supplies used in production activities.
E) Factory foreman salary for the motor production line.

Accepted Answer

Advertising expense is considered a period cost because it is not directly tied to the production process and is expensed in the period in which it is incurred. Period costs are not capitalized into inventory or product costs.

Question 14

Shu Corporation recently computed total product costs of $567,000 and total period costs of $420,000, excluding $35,000 of sales commissions that were overlooked by the company's administrative assistant. On the basis of this information, Shu's income statement should reveal operating expenses of:
A) $35,000.
B) $420,000.
C) $455,000.
D) $567,000.
E) $602,000.

Accepted Answer

Operating expenses include both period costs and sales commissions. Therefore, the correct total is $420,000 (period costs) + $35,000 (overlooked sales commissions) = $455,000.

Question 15

Which type of production process is ideal for a low production volume and one-of-a-kind products?
A) Batch.
B) Continuous Flow.
C) Job Shop.
D) Assembly.
E) Direct assembly.

Accepted Answer

Job Shop production is best suited for low production volumes and one-of-a-kind products because it involves producing items to meet specific customer requirements, allowing for a high degree of customization and flexibility.

Question 16

The accounting records of Dixon Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Dixon's product costs total:
A) $1,050,000.
B) $830,000.
C) $895,000.
D) $1,270,000.
E) None of the answers is correct.

Accepted Answer

Product costs include direct materials, direct labor, and manufacturing overhead. Therefore, Dixon's product costs total $250,000 + $425,000 + $375,000 = $1,050,000.

Question 17

Which of the following entities would most likely have raw materials, work in process, and finished goods?
A) A petroleum refiner.
B) A national department store.
C) A fast food restaurant.
D) A regional airline.
E) A state university.

Accepted Answer

A petroleum refiner would have raw materials (crude oil), work in process (partially refined products), and finished goods (gasoline, diesel, etc.), fitting the description of an entity with these inventory categories.

Question 18

Which of the following would not be a period cost?
A) Sales salaries.
B) Sales commissions.
C) Tamper-proof packaging.
D) Legal costs.
E) Accounting costs.

Accepted Answer

Tamper-proof packaging is considered a product cost, not a period cost, because it is directly associated with the manufacturing of a product. Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred, such as sales salaries, commissions, legal, and accounting costs.

Question 19

Which of the following inventories would a discount retailer report as an asset?
A) Raw materials.
B) Work in process.
C) Finished goods.
D) Merchandise inventory.
E) All of the answers are correct.

Accepted Answer

Discount retailers typically report merchandise inventory as an asset because it consists of finished goods ready for sale to customers. They do not typically deal with raw materials or work in process inventory, as those are more relevant to manufacturing entities.

Question 20

Which of the following statements is true?
A) The word "cost" has the same meaning in all situations in which it is used.
B) Cost data, once classified and recorded for a specific application, are appropriate for use in any application.
C) Different cost concepts and classifications are used for different purposes.
D) All organizations incur the same types of costs.
E) Costs incurred in one year are always meaningful in the following year.

Accepted Answer

Different cost concepts and classifications are used for different purposes because costs are analyzed and interpreted differently depending on the context, such as for budgeting, accounting, or project management.

Quiz 2: Basic Cost Management Concepts

Which type of production process is likely used by a paint manufacturer to produce paint?

Which of the following inventories would a company ordinarily hold for sale?

Which of the following is a product cost?

Product costs are:

The accounting records of Younkin Corporation revealed the following selected costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000. Younkin's period costs total:

Which of the following is not a period cost?

Costs that are expensed when incurred are called:

Selling and administrative expenses would likely appear on the balance sheet of:

Which type of production process is likely used for custom yachts built by Hargrave?

Which of the four items listed below is not a type of production process?

Which of the following would not be classified as a product cost?

Research and development costs are classified as:

Which of the following is a period cost?

Shu Corporation recently computed total product costs of $567,000 and total period costs of $420,000, excluding $35,000 of sales commissions that were overlooked by the company's administrative assistant. On the basis of this information, Shu's income statement should reveal operating expenses of:

Which type of production process is ideal for a low production volume and one-of-a-kind products?

The accounting records of Dixon Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Dixon's product costs total:

Which of the following entities would most likely have raw materials, work in process, and finished goods?

Which of the following would not be a period cost?

Which of the following inventories would a discount retailer report as an asset?

Which of the following statements is true?