Question 1

Manufacturing costs that cannot be classified as direct material or direct labour are classified as operating expenses.

Accepted Answer

Manufacturing costs that cannot be classified as direct material or direct labour are classified as manufacturing overhead costs, not operating expenses. Operating expenses are the costs incurred in the normal course of business operations, such as rent, utilities, and salaries of administrative personnel.

Question 2

Within the relevant range a valid argument can be made for the assumption of linearity of variable costs

Accepted Answer

Within the relevant range (the range where the assumptions of the cost behavior pattern hold true), variable costs are assumed to be linear. This means that the total variable cost will increase proportionately with the level of activity, and the variable cost per unit will remain constant. However, outside the relevant range, this assumption may not hold true.

Question 3

Cost behaviour analysis is the study of how total costs, concurrently are affected by changes in the level of business activity.

Accepted Answer

False

Question 4

Direct material costs and direct labour costs are prime costs.

Accepted Answer

Direct material costs and direct labour costs are considered prime costs because they are directly related to the production of the final product or service.

Question 5

Raw materials that cannot be conveniently and directly associated with a finished product, but are used in production, are called indirect materials.

Accepted Answer

Indirect materials are necessary for the production process but cannot be directly associated with a finished product. Examples include cleaning supplies, lubricants, and small tools.

Question 6

Fixed costs may jump (rather than remaining fixed) at incremental levels of activity.

Accepted Answer

The answer of Fixed costs may jump (rather than remaining...

Question 7

Variable costs are fixed on a per-unit basis and variable in total.

Accepted Answer

Variable costs refer to costs that vary with changes in the level of production or sales volume, but are fixed on a per-unit basis. This means that for each additional unit produced or sold, the variable cost per unit remains the same but the total variable cost increases. Therefore, variable costs are variable in total but fixed on a per-unit basis.

Question 8

Fixed costs appear to vary on a per-unit basis but are fixed in total.

Accepted Answer

The answer of Fixed costs appear to vary on a...

Question 9

Indirect materials and indirect labour are both period costs.

Accepted Answer

The answer of Indirect materials and indirect labour are both...

Question 10

Raw materials are equal to direct materials.

Accepted Answer

The answer of Raw materials are equal to direct materials....

Question 11

At the upper and lower limits of the relevant range of company activity, linearity of variable costs is a given.

Accepted Answer

At the upper and lower limits of the relevant range of company activity, variable costs may not remain strictly linear due to factors such as capacity constraints, economies of scale, and changes in efficiency.

Question 12

Total product costs are deducted from total cost of work in process to calculate cost of goods manufactured.

Accepted Answer

The answer of Total product costs are deducted from total...

Question 13

Mixed costs are comprised of both fixed costs and variable costs, and as a result, mixed costs increase proportionately with an increase in activity level.

Accepted Answer

The answer of Mixed costs are comprised of both fixed...

Question 14

Product costs are inventoriable costs.

Accepted Answer

Product costs are costs that are directly associated with the production of a product, such as direct materials, direct labor, and manufacturing overhead. These costs are treated as inventory and are not expensed until the product they are associated with is sold. Thus, product costs are also referred to as inventoriable costs.

Question 15

An activity level can be expressed in sales dollars, kilometres driven, units produced, number of dance classes taught or percentage of rooms occupied.

Accepted Answer

An activity level can be expressed in various ways, including sales dollars, kilometres driven, units produced, number of dance classes taught or percentage of rooms occupied.

Question 16

Variable costs vary exponentially with the changes in the company's activity level.

Accepted Answer

Variable costs vary proportionally with the changes in the company's activity level, not exponentially.

Question 17

The relevant range is reflective of the relevant range of products a company offers to its customers.

Accepted Answer

The answer of The relevant range is reflective of the...

Question 18

The total cost of a finished product generally contains equal amounts of material, labour, and manufacturing overhead costs.

Accepted Answer

The total cost of a finished product can vary depending on the specific product and manufacturing process. Some products may require more materials than others, while some may require more labour or overhead costs. Therefore, the cost breakdown can vary significantly from product to product.

Question 19

Direct labour costs plus prime costs equals manufacturing overhead costs.

Accepted Answer

Manufacturing overhead costs include all costs other than direct labour and materials, such as rent, utilities, and depreciation.

Question 20

Both direct material cost and indirect material cost are product costs.

Accepted Answer

Both direct material cost (costs directly attributed to the production of a product) and indirect material cost (costs that cannot be directly traced to a product but are necessary for production) are considered product costs.

Quiz 2: Managerial Cost Concepts and Cost Behaviour Analysis