Question 1

Period costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold.

Accepted Answer

Period costs are expensed in the period in which they are incurred, rather than being recorded as assets. This includes expenses such as selling, general and administrative expenses, and research and development costs.

Question 2

Product costs flow from the balance sheet to the income statement.

Accepted Answer

Product costs, such as materials and labor, are initially recorded on the balance sheet as inventory. When the product is sold, the product costs are then expensed on the income statement as Cost of Goods Sold (COGS). Therefore, product costs flow from the balance sheet to the income statement.

Question 3

During its first year of operations, a company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. The company's ending finished goods inventory was $300.

Accepted Answer

The calculation for cost of goods sold is beginning inventory + purchases - ending inventory. Without knowing the beginning inventory and purchases, we cannot determine the cost of goods sold. Therefore, we cannot determine whether the reported cost of goods sold of $800 is accurate or not.

Question 4

For a manufacturing company, both direct labor costs and indirect labor costs are classified as product costs.

Accepted Answer

Both direct labor costs (wages paid to workers who physically assemble the product) and indirect labor costs (such as salaries of supervisors and quality control personnel) are essential for producing the final product and are therefore considered product costs in manufacturing companies.

Question 5

Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.

Accepted Answer

Managerial accounting is designed to satisfy the needs of internal users, such as managers and employees, in making business decisions. Financial accounting, on the other hand, is designed to provide information to external users, such as creditors, investors, and governmental agencies.

Question 6

Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.

Accepted Answer

Internal users of accounting information often require detailed, specific information to make decisions related to their particular departments or responsibilities, in addition to global information about the company's overall performance.

Question 7

Senior executives focus on financial data when comparing the performance of their companies to that of competitors.

Accepted Answer

Senior executives often use financial data such as revenue, profit margin, and market share to compare their company's performance to their competitors. This information can help them make strategic decisions and determine where to allocate resources.

Question 8

Costs that are not classified as product costs are normally expensed in the period incurred.

Accepted Answer

Costs that are not related to the production of goods or services, such as selling and administrative expenses, are expensed in the period incurred and are not considered product costs. Product costs, on the other hand, are inventoried and only expensed when the inventory is sold or used.

Question 9

Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.

Accepted Answer

Depreciation on manufacturing equipment is considered an indirect product cost because it is a cost necessary to produce the product but is not directly traceable to individual units. Depreciation on office equipment, on the other hand, is a period cost because it is not directly related to the production process and is expensed as incurred.

Question 10

Distinguishing between product and period costs is sometimes guided by the value-added principle

Accepted Answer

The answer of Distinguishing between product and period costs is...

Question 11

Product costs are immediately recorded in expense accounts when the products are manufactured.

Accepted Answer

Product costs are initially recorded in inventory accounts as assets when the products are manufactured. They are expensed through cost of goods sold when the products are sold.

Question 12

Product costs include materials, labor, and selling and administrative costs.

Accepted Answer

Product costs include materials, labor, and manufacturing overhead costs, but not selling and administrative costs.

Question 13

The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.

Accepted Answer

Overhead costs are indirect costs that cannot be directly traced to a specific unit of product. Allocating these costs to each unit can be difficult as it involves deciding on a cost allocation method that accurately reflects the amount of overhead each product uses. This makes determining the total cost per unit of a product a considerable challenge.

Question 14

Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred.

Accepted Answer

The answer of Cash paid to production workers should be...

Question 15

A company uses sandpaper to prepare its product for finishing. Most manufacturers would classify the sandpaper as direct material because it is physically consumed in the production process.

Accepted Answer

Sandpaper is typically classified as an indirect material because it does not become a part of the final product but is used in the production process for preparation or finishing.

Question 16

Average costs are used for internal decision-making, but actual costs are required for calculating cost of goods sold.

Accepted Answer

This statement is incorrect. Actual costs are used for internal decision-making, as they provide a more accurate picture of the true cost of producing each unit of product. Average costs are calculated and used to make decisions about pricing and production levels, but they are not typically used to calculate the cost of goods sold, which requires the actual costs incurred in producing each unit.

Question 17

Managerial accounting focuses primarily on the performance of the company as a whole.

Accepted Answer

Managerial accounting focuses on internal decision-making and provides information to managers to help them make informed business decisions. It often focuses on specific departments or projects within the company rather than the company as a whole.

Question 18

During its first year of operations, a company that incurred $1,500 in production costs reported cost of goods sold of $890 and selling costs of $190. The company's ending finished goods inventory was $610.

Accepted Answer

To calculate the cost of goods sold, we use the formula: Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory = Cost of Goods Sold. Since the company is in its first year of operations, there was no beginning finished goods inventory. Therefore, Cost of Goods Manufactured = $1,500. Thus, Cost of Goods Sold = 0 + $1,500 - $610 = $890, which matches the reported number. Additionally, selling costs are separate from production costs and do not affect the calculation of cost of goods sold.

Question 19

Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes.

Accepted Answer

The answer of Upstream costs are classified as product costs...

Question 20

Unlike direct material and direct labor costs, overhead costs must be allocated to products.

Accepted Answer

Overhead costs, also known as indirect costs, cannot be directly traced to specific products or services. Therefore, they must be allocated to products based on an allocation method such as using a predetermined overhead rate or activity-based costing.

Quiz 10: An Introduction to Management Accounting