Question 1

Under GAAP, for the purposes of calculating inventory costs, product costs include ________.
A) all costs incurred along the value chain
B) design costs
C) only inventoriable costs
D) only research and development costs

Accepted Answer

GAAP requires that the cost of inventory includes all direct and indirect costs incurred to bring inventory to its present location and condition. These costs are referred to as inventoriable costs and include costs of purchase, conversion, and other costs incurred in bringing the inventory to its present location and condition. Design costs and research and development costs are not included in inventory costs.

Question 2

When should an overtime premium of direct manufacturing labor be considered an indirect manufacturing cost? A direct manufacturing cost?

Accepted Answer

The answer of When should an overtime premium of direct...

Question 3

Which of the following influences the make or buy decision to the company?
A) opportunity cost
B) sunk cost
C) historical cost
D) plant depreciation

Accepted Answer

The opportunity cost is a factor that influences the make or buy decision to the company as it refers to the potential benefits that are forgone when choosing one option over the other. By choosing to make a product, the company may miss out on the opportunity to utilize its resources in another area of production or investment, which may be more profitable. Therefore, the opportunity cost of choosing to make rather than buy has to be carefully considered before making a decision. Sunk cost, historical cost, and plant depreciation are not relevant to this decision.

Question 4

One possible item that some companies include as direct manufacturing labor include ________.
A) fringe benefits
B) overtime
C) idle time
D) plant supervisor's salary

Accepted Answer

The answer of One possible item that some companies include...

Question 5

For external reporting ________.
A) costs are classified as either inventoriable or period costs
B) costs reflect current values
C) there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers
D) costs include amounts that reflect both current and future benefits

Accepted Answer

External reporting follows generally accepted accounting principles (GAAP) which classifies costs as either inventoriable or period costs. Inventoriable costs are those that are associated with the production of goods or services, and are recorded as assets until the goods are sold. Period costs are those that are not associated with the production of goods or services, and are expensed in the period they are incurred.

Answer: D
 External reporting also includes amounts that reflect both current and future benefits. This is because some costs, such as research and development or advertising expenses, may not result in immediate benefits but will contribute to the future success and profitability of the business. Therefore, these costs are capitalized and recorded as assets on the balance sheet and are recognized as expenses over time through amortization or depreciation.

Question 6

Product costs used for government contracts generally include ________.
A) marketing costs, and customer service costs
B) design costs and production costs
C) all the costs for pricing and product-mix decisions
D) production costs, distribution costs, marketing costs, and customer service costs

Accepted Answer

Product costs for government contracts typically include design costs and production costs, as these are directly related to the creation and manufacturing of the product being supplied under the contract.

Question 7

For external reporting purposes, indirect manufacturing costs must be allocated to individual units.

Accepted Answer

Indirect manufacturing costs, also known as overhead costs, must be allocated to individual units for external reporting purposes. This is usually done through a predetermined overhead rate or activity-based costing. This is necessary to accurately determine the cost of goods sold and inventory values on the company's financial statements.

Question 8

Since budgeting is a financial function and mostly an analytical and quantitative exercise, it generally has no impact on human behavior, motivation and decision making.

Accepted Answer

Budgeting can impact the way people work. Budgeted goals can help people focus on the activities that will help assure achievement of the goals. Financial rewards, promotions, and recognition tied to budgetary performance can also alter behaviors.

Question 9

Which of the following might explain why one manager might assign certain costs to a cost object while a different manager might assign some different costs to that same cost object?
A) one manager might classify one cost as direct while another might classify that same cost as indirect
B) For financial statement purposes, one manager might include all the costs of the value chain while the other might only only include GAAP cost
C) one manager might value an inventory item for the balance sheet as the sum of all the value chain costs while another manager might choose to only recognize variable costs as inventoribale costs for GAAP purposes.
D) one manager might be pricing a cost object while the other manager might be seeking the inventoriable cost

Accepted Answer

The answer of Which of the following might explain why...

Question 10

Francis Kenney is paid $26 an hour for straight-time and $31 an hour for overtime. One week she worked 46 hours, which included 6 hours of overtime. What is the overtime premium incurred to the company?
A) $186
B) $72
C) $31
D) $432

Accepted Answer

The overtime premium is the difference between the overtime rate and the straight-time rate, multiplied by the number of overtime hours worked. In this case, the overtime premium is $31 - $26 = $5 per hour, and Francis worked 6 hours of overtime, so the overtime premium incurred to the company is $5 x 6 = $30.

Question 11

Ralph Johnson is paid $30 an hour for straight-time and $40 an hour for overtime. One week he worked 39 hours, which included 9 hours of overtime, and 4 hours of idle time caused by material shortages. What is the direct labor cost incurred to the company?
A) $1,050
B) $1,260
C) $1,140
D) $1,100

Accepted Answer

Direct labor (39 - 4 = 35 hours × $30) = $1,050

Question 12

If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hour of idle time would be considered a component of direct labor.

Accepted Answer

Idle time is normally considered a component of indirect labor since it is usually not associated with a particular job.

Question 13

Cost accounting and cost management include calculating various costs, obtaining financial and nonfinancial information, and analyzing relevant information for decision making.

Accepted Answer

Cost accounting and cost management do involve calculating costs, obtaining financial and nonfinancial information, and analyzing relevant information to make decisions.

Question 14

Overtime premium is normally considered as a component of direct labor.

Accepted Answer

Overtime premium is normally considered as part of indirect labor since it is usually not associated with a particular job.

Question 15

Rework labor time is considered an overhead cost and not a direct labor cost.

Accepted Answer

Rework labor time is the time spent by employees to correct errors or defects in the products they have previously worked on. Since this time is not spent on creating new products or providing direct services to customers, it is not considered a direct labor cost. Instead, it is classified as an overhead cost, which is an indirect cost that is incurred to support business operations as a whole. Examples of other overhead costs include rent, utilities, and office supplies.

Question 16

Idle time wages consists of the wages paid to all workers (for both direct labor and indirect labor) in excess of their straight-time wage rates.

Accepted Answer

Overtime premium consists of the wages paid to all workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Idle time wages refers to the wages paid for unproductive time caused by lack of orders, machine or computer breakdowns, work delays, etc.

Question 17

Andy worked 60 hours last week for Bread Works Manufacturing. Of the 60 hours 10 hours were considered overtime, and also Tony was idle for 8 of the 60 hours due to an equipment malfunction. Andy makes $90 per hour and is paid $135 an hour (time and a half) for overtime. Andy's total compensation for that week would be ________, and assuming Bread Works charges overtime premium and idle time to indirect labor, the amount of this compensation credited to indirect labor would be ________.
A) $5,850; $1,170
B) $6,300; $2,070
C) $5,130; $2,430
D) $5,400; $1,620

Accepted Answer

total compensation (50 × $90) + (10 × $135) = $5,850;
indirect labor (8 × $90) + (10 × $45) = $1,170

Question 18

In determining product cost, what concerns does a manufacturing firm have when contracting with a government agency?

Accepted Answer

The answer of In determining product cost, what concerns does...

Question 19

A common classification of costs is by business function. Which of the following classifications is not by business function?
A) cost object
B) research and development
C) distribution
D) production

Accepted Answer

Cost object is not a classification of costs by business function. It refers to the specific product, service, or department to which a cost is assigned. The other options, research and development, distribution, and production, are all classifications of costs by business function.

Question 20

The cost system of Charlton Frabricators indicates that a product cost $30 to make in house. Of that $30 cost, $7 consists of plant costs that have already been paid for. A supplier proposes to make the same product for $26 but Charlton's plant will have idle time and because of budgetary constraints, will not be retooled to take advantage of that idle time. Should the product be outsourced to the supplier?
A) No because the relevant cost for making the product is only $23 .
B) Yes because the Supplier can produce the product for $4.00 less per unit than Charlton can.
C) Yes because the Supplier can produce the product for $11.00 less per unit than Charlton can.
D) No because the plant can be utilized for other purposes and either save the company even more money or produce additional revenue.

Accepted Answer

The answer of The cost system of Charlton Frabricators indicates...

Quiz 2: An Introduction to Cost Terms and Purposes

Under GAAP, for the purposes of calculating inventory costs, product costs include ________.

When should an overtime premium of direct manufacturing labor be considered an indirect manufacturing cost? A direct manufacturing cost?

Which of the following influences the make or buy decision to the company?

One possible item that some companies include as direct manufacturing labor include ________.

For external reporting ________.

Product costs used for government contracts generally include ________.

For external reporting purposes, indirect manufacturing costs must be allocated to individual units.

Since budgeting is a financial function and mostly an analytical and quantitative exercise, it generally has no impact on human behavior, motivation and decision making.

Which of the following might explain why one manager might assign certain costs to a cost object while a different manager might assign some different costs to that same cost object?

Francis Kenney is paid $26 an hour for straight-time and $31 an hour for overtime. One week she worked 46 hours, which included 6 hours of overtime. What is the overtime premium incurred to the company?

Ralph Johnson is paid $30 an hour for straight-time and $40 an hour for overtime. One week he worked 39 hours, which included 9 hours of overtime, and 4 hours of idle time caused by material shortages. What is the direct labor cost incurred to the company?