Question 1

The three basic elements of manufacturing cost are direct materials, direct labor, and:

Accepted Answer

The third basic element of manufacturing cost is manufacturing overhead, which includes all indirect costs associated with manufacturing such as rent, utilities, and depreciation of equipment. Direct materials and direct labor are the two direct costs that can be easily traced to a specific product. Cost of goods manufactured and cost of goods sold are not elements of manufacturing cost, but rather are accounting measures used to track the flow of inventory through the production process and ultimately to the customer.

Question 2

Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet?

Accepted Answer

The cost of the hamburger patty is a direct cost of serving the customer, as it is directly related to the production of the burger that the customer ordered. Indirect costs are those that are necessary for the overall operation of the restaurant, but not directly related to serving a particular customer. B, C, and D are all indirect costs. The employee's wages are necessary regardless of whether or not a specific customer places an order, heating and lighting the kitchen is required for all food preparation, and the manager's salary is an overhead cost of running the entire outlet.

Question 3

The costs of direct materials are classified as:

Accepted Answer

The answer of The costs of direct materials are classified...

Question 4

An example of a period cost is:

Accepted Answer

Rent on a headquarters building is an example of a period cost because it is not directly related to the production or sale of goods. It is a cost that is incurred over a specific period of time (such as a month or a year) and is typically expensed in the period it is incurred.

Question 5

Which terms below correctly describe the cost of the black paint used to paint the dots on a pair of dice?

Accepted Answer

The answer of Which terms below correctly describe the cost...

Question 6

Manufacturing overhead:

Accepted Answer

Manufacturing overhead can include both variable costs (such as utilities or materials used in production that vary depending on production levels) and fixed costs (such as rent or depreciation that do not vary with production levels). Additionally, manufacturing overhead does not include shipping costs (these are typically categorized as a selling expense) or all factory labor costs (direct labor costs are not considered a part of overhead).

Question 7

Cost of goods manufactured will usually include:

Accepted Answer

The cost of goods manufactured includes all the costs incurred during the current period for the production of goods, as well as some costs incurred during the prior period, such as the beginning inventory of raw materials and work-in-progress. Therefore, option A and B are incorrect. Option D is also incorrect because period costs are not included in the cost of goods manufactured.

Question 8

Which two terms below describe the wages paid to security guards that monitor a factory 24 hours a day?

Accepted Answer

The wages paid to security guards are considered a fixed cost because they do not vary with the level of production. They are also considered an indirect cost because they are not directly tied to the production of a specific product.

Question 9

Rossiter Company failed to record a credit sale at the end of the year, although the reduction in finished goods inventories was correctly recorded when the goods were shipped to the customer. Which one of the following statements is correct?

Accepted Answer

Accounts receivable was understated because the credit sale was not recorded. Inventory was not affected because the reduction was correctly recorded. Sales were understated because the sale was not recorded. Cost of goods sold was not affected because it was recorded when the inventory was reduced.

Question 10

The corporate controller's salary would be considered a(n):

Accepted Answer

The corporate controller's salary is considered an administrative cost because it is a non-manufacturing cost related to the administration of the company. It is not directly related to the production or sale of any particular product.

Question 11

The cost of fire insurance for a manufacturing plant is generally considered to be a:

Accepted Answer

The answer of The cost of fire insurance for a...

Question 12

Each of the following would be classified as variable in terms of cost behavior except:

Accepted Answer

Plant manager's salary is a fixed cost, not a variable cost.

Question 13

Prime cost consists of direct materials combined with:

Accepted Answer

Prime cost includes direct materials and direct labor, but not manufacturing overhead or other indirect costs.

Question 14

Transportation costs incurred by a manufacturing company to ship its product to its customers would be classified as which of the following?

Accepted Answer

Transportation costs are considered a period cost because they are incurred after the manufacturing process is completed and the product is ready to be shipped to customers. Period costs are expensed in the period they are incurred and are not included in the cost of goods sold.

Question 15

Within the relevant range, the difference between variable costs and fixed costs is:

Accepted Answer

Within the relevant range, variable costs per unit remain constant, while total variable costs fluctuate with changes in activity level. Fixed costs per unit fluctuate because total fixed costs remain constant regardless of activity level.

Question 16

An opportunity cost is:

Accepted Answer

An opportunity cost refers to the benefit that could have been gained from selecting the next best alternative, which is forgone when a particular alternative is chosen. Therefore, option B is the correct answer. Option A refers to the concept of differential costs, Option C is about savings, and Option D is about deferred costs.

Question 17

A lawnmower manufacturer computed a cost per unit of $53 by adding together last month's direct labor, direct materials, and manufacturing overhead and dividing that total by the 10,000 units produced last month. (There were no beginning or ending inventories.) If 9,000 units are going to be manufactured this month, we would expect that the:

Accepted Answer

The cost per unit will increase because the fixed portion of manufacturing overhead will be spread over fewer units, increasing the cost per unit.

Question 18

The following costs were incurred in August: 
Conversion costs during the month totaled:

Accepted Answer

Conversion costs are the sum of direct labor cost and manufacturing overheads. However, the given information only provides us with the total costs incurred in August, without revealing how much of these costs were for materials and how much were for conversion costs. Hence, we cannot compute the total conversion costs from the given information.

Question 19

Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following?

Accepted Answer

The cost of the toll-free telephone line is not directly related to the production of computer hardware, therefore it cannot be classified as a product cost or a manufacturing overhead. Instead, it is a period cost as it is incurred during a specific period of time and is necessary to run the business.

Question 20

Buford Company rents out a small unused portion of its factory to another company for $1,000 per month. The rental agreement will expire next month, and rather than renew the agreement Buford Company is thinking about using the space itself to store materials. The term to describe the $1,000 per month is:

Accepted Answer

The $1,000 per month represents the opportunity cost of using the space for storing materials, as the company would be giving up the revenue it could have gained by continuing to rent it out. It is not a sunk cost as it is not a cost that has already been incurred and cannot be recovered, nor is it a period cost or variable cost as it is not directly related to the company's ongoing operations.

Quiz 2: Managerial Accounting and Cost Concepts