Deck 1: Managerial Accounting and Cost Concepts

Question 1

Depreciation on office equipment would be included in product costs.

Answer 1

False

Question 2

Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the number of meals served at the restaurant.

Answer 2

True

Question 3

A direct cost is a cost that cannot be easily traced to the particular cost object under consideration.

Answer 3

False

Question 4

Committed fixed costs represent organizational investments with a multi-year planning horizon that can't be significantly reduced even for short periods.

Question 5

Property taxes and insurance premiums paid on a factory building are examples of period costs.

Question 6

A fixed cost remains constant if expressed on a unit basis.

Question 7

Total variable cost is expected to remain unchanged as activity changes within the relevant range.

Question 8

Product costs are recorded as expenses in the period in which the related products are sold.

Question 9

Rent on a factory building used in the production process would be classified as a product cost and as a fixed cost.

Question 10

Conversion cost equals product cost less direct labor cost.

Question 11

Selling costs can be either direct or indirect costs.

Question 12

Direct labor is a part of prime cost, but not conversion cost.

Question 13

Direct material costs are generally fixed costs.

Question 14

Manufacturing salaries and wages incurred in the factory are period costs.

Question 15

Depreciation on manufacturing equipment is a product cost.

Question 16

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

Question 17

The planning horizon for a committed fixed cost usually encompasses many years.

Question 18

Commissions paid to salespersons are a variable selling expense.

Question 19

Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of activity.

Question 20

Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.

Question 21

The traditional format income statement provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, control, and decision making.

Question 22

Contribution margin equals revenue minus all fixed costs.

Question 23

A cost that differs from one month to another is known as a differential cost.

Question 24

A traditional format income statement organizes costs on the basis of behavior.

Question 25

In a contribution format income statement, the gross margin minus selling and administrative expenses equals net operating income.

Question 26

The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery patients. The costs of prescription drugs administered by the nursing station to patients should be classified as:

A)direct patient costs.
B)indirect patient costs.
C)overhead costs of the nursing station.
D)period costs of the hospital.

Question 27

All of the following costs would be found in a company's accounting records except:

A)sunk cost.
B)opportunity cost.
C)indirect costs.
D)direct costs.

Question 28

A contribution format income statement for a merchandising company organizes costs into two categories-cost of goods sold and selling and administrative expenses.

Question 29

The property taxes on a factory building would be an example of:

A)Option A
B)Option B
C)Option C
D)Option D

Question 30

Which of the following is classified as a direct labor cost?

A)Option A
B)Option B
C)Option C
D)Option D

Question 31

Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table?

A)The amount paid to the individual who stains the table.
B)The commission paid to the salesperson who sold the table.
C)The cost of glue used in the table.
D)The cost of the wood used in the table.

Question 32

In a manufacturing company, direct labor costs combined with direct materials costs are known as:

A)period costs.
B)conversion costs.
C)prime costs.
D)opportunity costs.

Question 33

The potential benefit that is given up when one alternative is selected over another is called an opportunity cost.

Question 34

In a traditional format income statement for a merchandising company, the selling and administrative expenses report all period costs that have been expensed as incurred.

Question 35

The costs of the Accounting Department at Central Hospital would be considered by the Surgery Department to be:

A)direct costs.
B)indirect costs.
C)incremental costs.
D)opportunity costs.

Question 36

The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted.

Question 37

Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity.

Question 38

The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost.

Question 39

The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on.

Question 40

The contribution format is widely used for preparing external financial statements.

Question 41

Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases?

A)Sales commissions.
B)Fixed manufacturing overhead.
C)Variable manufacturing overhead.
D)Direct materials.

Question 42

Discretionary fixed costs:

A)have a planning horizon that covers many years.
B)may be reduced for short periods of time with minimal damage to the long-run goals of the organization.
C)cannot be reduced for even short periods of time without making fundamental changes.
D)are most effectively controlled through the effective utilization of facilities and organization.

Question 43

Within the relevant range:

A)variable cost per unit decreases as production decreases.
B)fixed cost per unit increases as production decreases.
C)fixed cost per unit decreases as production decreases.
D)variable cost per unit increases as production decreases.

Question 44

For planning, control, and decision-making purposes:

A)fixed costs should be converted to a per unit basis.
B)discretionary fixed costs should be eliminated.
C)variable costs should be ignored.
D)mixed costs should be separated into their variable and fixed components.

Question 45

The salary paid to the maintenance supervisor in a manufacturing plant is an example of:

A)Option A
B)Option B
C)Option C
D)Option D

Question 46

Which of the following costs is classified as a prime cost?

A)Option A
B)Option B
C)Option C
D)Option D

Question 47

Indirect labor is a(n):

A)Prime cost.
B)Conversion cost.
C)Period cost.
D)Opportunity cost.

Question 48

In describing the cost equation, Y = a + bX, "a" is:

A)the dependent variable cost.
B)the independent variable the level of activity.
C)the total fixed cost.
D)the variable cost per unit of activity.

Question 49

When the level of activity decreases, variable costs will:

A)increase per unit.
B)increase in total.
C)decrease in total.
D)decrease per unit.

Question 50

When the activity level declines within the relevant range, what should happen with respect to the following?

A)Option A
B)Option B
C)Option C
D)Option D

Question 51

If the level of activity increases within the relevant range:

A)variable cost per unit and total fixed costs also increase.
B)fixed cost per unit and total variable cost also increase.
C)total cost will increase and fixed cost per unit will decrease.
D)variable cost per unit and total cost also increase.

Question 52

Which of the following companies would have the highest proportion of variable costs in its cost structure?

A)Public utility.
B)Airline.
C)Fast food outlet.
D)Architectural firm.

Question 53

Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths?

A)variable cost and product cost
B)variable cost and period cost
C)fixed cost and product cost
D)fixed cost and period cost

Question 54

Property taxes on a manufacturing facility are classified as:

A)Option A
B)Option B
C)Option C
D)Option D

Question 55

Data for Cost A and Cost B appear below: Which of the above best describes the behavior of Costs A and B?

A)Cost A is fixed, Cost B is variable.
B)Cost A is variable, Cost B is fixed.
C)Both Cost A and Cost B are variable.
D)Both Cost A and Cost B are fixed.

Question 56

Inventoriable costs are also known as:

A)variable costs.
B)conversion costs.
C)product costs.
D)fixed costs.

Question 57

The cost of direct materials cost is classified as a: $$\begin{array} { | l | l | l | } \hline & \text { Period cost } & \text { Product cost } \\\text { A) } & \text { Yes } & \text { Yes } \\\hline \text { B) } & \text { No } & \text { No } \\\hline \text { C) } & \text { Yes } & \text { No } \\\hline \text { D) } & \text { No } & \text { Yes } \\\hline\end{array}$$

A)Option A
B)Option B
C)Option C
D)Option D

Question 58

An example of a discretionary fixed cost would be:

A)taxes on the factory.
B)depreciation on manufacturing equipment.
C)insurance.
D)research and development.

Question 59

All of the following would be classified as product costs except:

A)property taxes on production equipment.
B)insurance on factory machinery.
C)salaries of the marketing staff.
D)wages of machine operators.

Question 60

Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wages for these dock hands would be:

A)variable.
B)mixed.
C)step-variable.
D)curvilinear.

Question 61

At an activity level of 6,900 units in a month, Zelinski Corporation's total variable maintenance and repair cost is $408,756 and its total fixed maintenance and repair cost is $230,253. What would be the total maintenance and repair cost, both fixed and variable, at an activity level of 7,100 units in a month? Assume that this level of activity is within the relevant range.

A)$648,270
B)$639,009
C)$650,857
D)$657,531

Question 62

The following costs were incurred in April: $$\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 18,000 \\\text { Direct labor } & \$ 21,000 \\\hline \text { Mlanufacturing overhead } & \$ 33,000 \\\hline \text { Selling expenses } & \$ 14,000 \\\hline \text { Administrative expenses } & \$ 19,000 \\\hline\end{array}$$ Conversion costs during the month totaled:

A)$39,000
B)$54,000
C)$105,000
D)$51,000

Question 63

In April direct labor was 70% of conversion cost. If the manufacturing overhead for the month was $42,000 and the direct materials cost was $28,000, the direct labor cost was:

A)$98,000
B)$65,333
C)$18,000
D)$12,000

Question 64

Which of the following is an example of a cost that is variable with respect to the number of units produced?

A)Rent on the administrative office building.
B)Rent on the factory building.
C)Direct labor cost, where the direct labor workforce is adjusted to the actual production of the period.
D)Salaries of top marketing executives.

Question 65

Kaelker Corporation reports that at an activity level of 7,000 units, its total variable cost is $590,730 and its total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

A)$963,480
B)$977,244
C)$971,919
D)$970,362

Question 66

Ricwy Corporation uses the cost formula Y = $4,800 + $0.40X for the maintenance cost, where X is machine-hours. The August budget is based on 9,000 hours of planned machine time. Maintenance cost expected to be incurred during August is:

A)$4,800
B)$3,600
C)$8,400
D)$1,200

Question 67

Given the cost formula, Y = $7,000 + $1.80X, total cost for an activity level of 4,000 units would be:

A)$7,000
B)$200
C)$7,200
D)$14,200

Question 68

Eddy Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

A)$22.90
B)$119.80
C)$142.70
D)$97.10

Question 69

Eddy Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is:

A)$22.90
B)$119.80
C)$142.70
D)$97.10

Question 70

The cost of factory machinery purchased last year is:

A)an opportunity cost.
B)a differential cost.
C)a direct materials cost.
D)a sunk cost.

Question 71

The following data pertains to activity and costs for two months: Assuming that these activity levels are within the relevant range, the manufacturing overhead for July was:

A)$10,000
B)$11,700
C)$19,000
D)$9,300

Question 72

Given the cost formula Y = $18,000 + $6X, total cost at an activity level of 9,000 units would be:

A)$72,000
B)$18,000
C)$36,000
D)$54,000

Question 73

The ________________________ is the amount remaining from sales revenue after all variable expenses have been deducted.

A)cost structure
B)gross margin
C)contribution margin
D)committed fixed cost

Question 74

A manufacturing company prepays its insurance coverage for a three-year period. The premium for the three years is $2,400 and is paid at the beginning of the first year. Seventy percent of the premium applies to manufacturing operations and thirty percent applies to selling and administrative activities. What amounts should be considered product and period costs respectively for the first year of coverage?

A)Option A
B)Option B
C)Option C
D)Option D

Question 75

A sunk cost is:

A)a cost which may be saved by not adopting an alternative.
B)a cost which may be shifted to the future with little or no effect on current operations.
C)a cost which cannot be avoided because it has already been incurred.
D)a cost which does not entail any dollar outlay but which is relevant to the decision-making process.

Question 76

Contribution margin means:

A)what remains from total sales after deducting fixed expenses.
B)what remains from total sales after deducting cost of goods sold.
C)the sum of cost of goods sold and variable expenses.
D)what remains from total sales after deducting all variable expenses.

Question 77

At an activity level of 4,000 machine-hours in a month, Curt Corporation's total variable production engineering cost is $154,200 and its total fixed production engineering cost is $129,000. What would be the total production engineering cost per unit, both fixed and variable, at an activity level of 4,300 machine-hours in a month? Assume that this level of activity is within the relevant range.

A)$68.33
B)$68.55
C)$70.80
D)$65.86

Question 78

Abbott Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $23,000, the manufacturing overhead is:

A)$9,500
B)$152,000
C)$5,750
D)$15,250

Question 79

The following costs were incurred in April: Prime costs during the month totaled:

A)$53,000
B)$67,000
C)$38,000
D)$103,000

Question 80

During the month of April, direct labor cost totaled $15,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during April were $79,000, the manufacturing overhead was:

A)$35,000
B)$29,000
C)$50,000
D)$129,000