Question 1

A cost can be direct or indirect. The classification can change if the cost object changes.

Accepted Answer

Direct and indirect costs are classified based on their relationship with the cost object. If the cost object changes, the classification of the cost may also change. For example, a cost may be direct for one cost object but indirect for another cost object.

Question 2

Prime cost is the sum of direct materials cost and direct labor cost.

Accepted Answer

This is correct. Prime cost is the sum of direct materials cost and direct labor cost, and it does not include any overhead costs.

Question 3

Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company.

Accepted Answer

Depreciation on manufacturing equipment is considered a product cost and is allocated to the cost of goods sold when the manufactured product is sold. However, depreciation on non-manufacturing assets (like office equipment) is considered a period cost and expensed in the period incurred.

Question 4

The cost of shipping parts from a supplier is considered a period cost.

Accepted Answer

Shipping costs for parts from a supplier are typically considered a product cost, as they are directly associated with acquiring inventory and are included in the cost of goods sold. Period costs are not directly tied to production and are expensed in the period incurred.

Question 5

Product costs are also known as inventoriable costs.

Accepted Answer

Product costs refer to the costs incurred in the production of goods or services and are considered as inventoriable costs until the product is sold. Once the product is sold, these costs are expensed as Cost of Goods Sold (COGS) in the income statement.

Question 6

Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

Accepted Answer

Conversion cost = Direct labor cost + Manufacturing overhead cost.

Question 7

Wages paid to production supervisors would be classified as manufacturing overhead.

Accepted Answer

Wages paid to production supervisors are considered indirect costs since they do not directly work on the product, hence they are classified as manufacturing overhead.

Question 8

A direct cost is a cost that can be easily traced to the particular cost object under consideration.

Accepted Answer

Direct costs are directly related to a specific cost object or project and can be easily traced to it. Examples of direct costs include materials, labor, and equipment costs.

Question 9

Selling and administrative expenses are period costs under generally accepted accounting principles.

Accepted Answer

Selling and administrative expenses are incurred during a specific period (such as a month, quarter, or year) and are not directly tied to the production of goods or services. Therefore, they are considered period costs rather than product costs.

Question 10

The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

Accepted Answer

Manufacturing overhead includes costs such as indirect labor, rent on the factory building, depreciation on machinery, and utilities.

Question 11

Conversion cost is the same thing as manufacturing overhead.

Accepted Answer

Conversion cost includes both direct labor and manufacturing overhead costs, not just manufacturing overhead.

Question 12

The three cost elements ordinarily included in product costs are direct materials, direct labor, and manufacturing overhead.

Accepted Answer

This is a true statement. Direct materials, direct labor, and manufacturing overhead are the three main cost elements included in product costs.

Question 13

Selling costs are indirect costs.

Accepted Answer

The answer of Selling costs are indirect costs....

Question 14

Opportunity costs at a manufacturing company are not part of manufacturing overhead.

Accepted Answer

Opportunity costs represent the benefits a company misses out on when choosing one alternative over another and are not actual cash outflows, hence they are not included in manufacturing overhead costs.

Question 15

Conversion cost equals product cost less direct materials cost.

Accepted Answer

Conversion cost is the sum of direct labor and manufacturing overhead costs, which means it is the total product cost minus the direct materials cost.

Question 16

Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost.

Accepted Answer

Depreciation on equipment used in selling and administrative activities is a period cost because it is not directly related to the production of goods or services. Instead, it is considered a cost of doing business and is expensed in the period it is incurred.

Question 17

Advertising is not considered as a product cost even if it promotes a specific product.

Accepted Answer

Advertising is considered a selling expense, not a product cost, because it is not directly tied to the production process of a specific product.

Question 18

In a manufacturing company, all costs are period costs.

Accepted Answer

Manufacturing companies have both period costs (such as salaries, rent, and utilities) and product costs (such as direct materials, direct labor, and manufacturing overhead). Period costs are expensed in the period in which they are incurred, while product costs are assigned to the cost of goods sold when the products are sold.

Question 19

Prime cost equals manufacturing overhead cost.

Accepted Answer

Prime cost equals direct materials cost plus direct labor cost, while manufacturing overhead cost includes indirect materials, indirect labor, and other indirect costs. Therefore, prime cost and manufacturing overhead cost are not equal.

Question 20

Administrative costs are indirect costs.

Accepted Answer

The answer of Administrative costs are indirect costs....

Quiz 1: Managerial Accounting and Cost Concepts