Question 1

Variable marketing and administrative costs are included in determining full absorption costs.The two costs are included in full cost and not in determining full absorption costs.

Accepted Answer

Variable marketing and administrative costs are not included in determining full absorption costs. Only variable manufacturing costs and fixed overhead costs are included in full absorption costs.

Question 2

If the cost of goods manufactured during the period exceeds the cost of goods sold,the ending balance of Finished Goods Inventory account increased.Cost of goods sold = cost of goods manufactured + beginning finished goods inventory - ending finished goods inventory.

Accepted Answer

If the cost of goods manufactured is greater than the cost of goods sold, it implies that not all manufactured goods were sold, leading to an increase in the ending balance of the Finished Goods Inventory.

Question 3

An asset is a cost matched with revenues in a future accounting period.This statement is the definition of asset.

Accepted Answer

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit.

Question 4

The three categories of product costs are direct materials,direct labor,and manufacturing overhead.This statement is the definition of product cost.

Accepted Answer

The statement correctly defines the three categories of product costs as direct materials, direct labor, and manufacturing overhead, which together make up the total cost of producing a product.

Question 5

The primary goal of the cost accounting system is to provide managers with information to prepare their annual financial statements.The primary goal is to provide managers with information for decision making.

Accepted Answer

The primary goal of the cost accounting system is to provide managers with information for decision making, such as determining the cost of producing goods or services, identifying areas where costs can be reduced or eliminated, and evaluating the profitability of different products or projects. The preparation of financial statements is a secondary goal of the cost accounting system.

Question 6

Accounting systems typically record opportunity costs as assets and treat them as intangible items on the financial statements.Opportunity costs are not reflected in the accounting system-they are what did not happen.

Accepted Answer

Opportunity costs are not recorded as assets because they are not tangible items. They are also not reflected in the accounting system because they refer to the value of the alternative opportunity that was foregone.

Question 7

Revenue minus cost of goods sold equals contribution margin.Revenue minus cost of goods sold equals gross margin.

Accepted Answer

Revenue minus cost of goods sold equals gross margin, not contribution margin. Contribution margin is calculated as sales revenue minus variable costs.

Question 8

The cost of an item is the sacrifice of resources made to acquire it.This statement is the definition of cost.

Accepted Answer

This statement accurately describes the concept of cost, which refers to the resources (such as money, time, effort, or other assets) that are required to obtain or produce a particular item or outcome. These costs represent a trade-off, as the resources used to acquire one thing could have been used to obtain something else instead. Understanding the true cost of an item is important for making informed decisions about how to allocate resources and prioritize spending.

Question 9

Period costs are those costs assigned to units of production in the period in which they are incurred.This statement describes product costs,not period costs.

Accepted Answer

This statement describes period costs, which are not assigned to units of production but are expensed in the period in which they are incurred. Product costs, on the other hand, are assigned to units of production and include direct materials, direct labor, and manufacturing overhead.

Question 10

The first step in determining whether a cost is direct or indirect is to specify the cost allocation rule.This is the first step to define the cost object.

Accepted Answer

The first step is to define the cost object, which is the item or activity for which the cost is being measured, before determining if a cost is direct or indirect.

Question 11

Only direct costs can be classified as product costs;indirect costs are classified as period costs.Product costs can include both direct and indirect costs.

Accepted Answer

Only direct costs can be classified as product costs, but indirect costs cannot be classified as period costs. In fact, indirect costs are also a component of product costs along with direct costs.

Question 12

The range within which fixed costs remain constant as volume of activity varies is known as the relevant range.This statement is the definition of a relevant range.

Accepted Answer

The relevant range refers to the range of activity levels within which the assumptions made about cost behavior are valid. Within this relevant range, fixed costs remain constant and variable costs remain proportional to the level of activity. Therefore, the statement is true.

Question 13

Cost of goods sold plus the ending finished goods inventory minus the beginning finished goods inventory equals the cost of goods manufactured.This statement works backwards from cost of goods sold to cost of goods manufactured.

Accepted Answer

This is a commonly used formula in accounting and costing to calculate the cost of goods manufactured. By subtracting the beginning finished goods inventory from the sum of cost of goods sold and ending finished goods inventory, we can calculate the amount of cost that was allocated to the finished goods during the period, also known as the cost of goods manufactured.

Question 14

Fixed costs per unit change inversely with changes in the volume of activity.Fixed costs per unit would vary inversely with the volume of activity.

Accepted Answer

Fixed costs per unit decrease as the volume of activity increases because the total fixed cost is spread over more units, and vice versa.

Question 15

Total work-in-process during the period is the sum of the beginning work-in-process inventory and the total manufacturing costs incurred during the period.This is the correct formula for total work-in-process.

Accepted Answer

The formula for total work-in-process is the sum of beginning inventory and total manufacturing costs incurred during the period. Therefore, the statement is true.

Question 16

Total cost of goods purchased minus beginning merchandise inventory plus ending merchandise inventory equals cost of goods sold.Purchases plus beginning inventory minus ending inventory equals cost of goods sold.

Accepted Answer

The correct formula for cost of goods sold (COGS) is: Beginning Inventory + Purchases - Ending Inventory = COGS. The statement provided incorrectly describes the formula.

Question 17

Cost of goods sold includes the actual costs of the goods sold and the cost of selling them to the customer.Cost of goods sold does not include selling costs.

Accepted Answer

Cost of goods sold (COGS) includes only the direct costs of producing goods, such as materials and labor, but does not include selling costs, which are considered operating expenses.

Question 18

The term full cost refers to the cost of manufacturing and selling a unit of product and includes both fixed and variable costs.We need to distinguish between full cost (which includes selling costs)and full absorption cost (which does not include selling costs. )

Accepted Answer

Full cost includes both variable and fixed costs, as well as selling costs. Full absorption cost only includes variable and fixed costs, excluding selling costs.

Question 19

Total variable costs change inversely with changes in the volume of activity.Total variable costs are linear and vary directly with changes in the volume of activity,fixed costs vary inversely.

Accepted Answer

Total variable costs vary directly with changes in the volume of activity, while fixed costs remain constant regardless of changes in the volume of activity.

Question 20

An expense is an expired cost matched with revenues in a specific accounting period.This statement is the definition of expense.

Accepted Answer

The statement accurately defines what an expense is in accounting terms.

Quiz 2: Cost Concepts and Behavior