Question 1

Because management accountants prepare and analyze financial information used by company decision-makers, they are considered to be at the forefront of corporate governance.

Accepted Answer

Management accountants play a key role in providing financial information to decision-makers which is critical in corporate governance. Therefore, they are considered at the forefront of corporate governance.

Question 2

Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred.

Accepted Answer

The answer of Cash paid to production workers should be...

Question 3

Unlike manufacturers, service companies do not have an inventory of products.

Accepted Answer

Service companies provide intangible services rather than tangible products, so they do not have an inventory of physical goods.

Question 4

Costs associated with holding inventory include hidden costs, such as low employee motivation.

Accepted Answer

Inventory holding costs include more than just the obvious expenses like storage and insurance. Hidden costs, such as decreased employee morale and motivation due to cluttered work environments or inefficient inventory management systems, can also impact a company's bottom line.

Question 5

Assuming that the number of units produced exceeds the number of units sold, misclassifying period costs as product costs will overstate net income relative to what net income would be without this error.

Accepted Answer

Misclassifying period costs as product costs would result in overstatement of inventory and understatement of expenses. This would lead to higher gross margin and net income, thus overstating the net income relative to what it would be without this error.

Question 6

The objective of a just-in-time inventory system is to totally eliminate all inventories.

Accepted Answer

The objective of a just-in-time inventory system is to minimize inventory levels without causing stockouts or delays in production. It is not intended to eliminate all inventories completely.

Question 7

A potential negative effect of using a just in time inventory system is the immediate impact of labor strikes on the transportation system such as railroad.

Accepted Answer

Just in time inventory systems rely heavily on efficient transportation and logistics to deliver materials and goods quickly. Any disruption, such as a labor strike, can have an immediate impact on the system's ability to operate effectively. This can lead to delays in production and delivery, which can be costly and frustrating for both the company and its customers.

Question 8

Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes.

Accepted Answer

The answer of Upstream costs are classified as product costs...

Question 9

Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.

Accepted Answer

Depreciation on manufacturing equipment is considered an indirect cost because it is a cost that cannot be traced directly to a product, but is necessary for the manufacturing process. Depreciation on office equipment, however, is not related to the production process and is therefore considered a period cost.

Question 10

The primary difference between manufacturing companies and service companies is that the products provided by service companies are consumed immediately.

Accepted Answer

Manufacturing companies produce tangible goods that can be stored and sold later, while service companies provide intangible services that are consumed immediately by customers.

Question 11

Product costs flow from the balance sheet to the income statement.

Accepted Answer

Product costs are initially recorded as inventory on the balance sheet. When the goods are sold, these costs then flow to the income statement as part of the cost of goods sold.

Question 12

A manufacturing business paid $3,000 to purchase inventory. As a result, assets would increase by $3,000.

Accepted Answer

The answer of A manufacturing business paid $3,000 to purchase...

Question 13

All costs incurred prior to delivery of the product to the customer are referred to as upstream costs.

Accepted Answer

Upstream costs refer specifically to the costs associated with the exploration and production phases in the oil and gas industry, not to all costs incurred prior to delivery of a product to the customer in general industries.

Question 14

Unlike direct material and direct labor costs, overhead costs must be allocated to products.

Accepted Answer

Overhead costs, also known as indirect costs, cannot be traced directly to a specific product or service. Therefore, they must be allocated or assigned to different products or services using a cost allocation method.

Question 15

Just in time systems can be used by both manufacturing and merchandising companies.

Accepted Answer

Just in time systems, also known as JIT systems, can be used by both manufacturing and merchandising companies to streamline their inventory management, reduce waste, and improve efficiency.

Question 16

A company uses sandpaper to prepare its product for finishing. Most manufacturers would classify the sandpaper as direct material because it is physically consumed in the production process.

Accepted Answer

Sandpaper is typically classified as an indirect material because it does not become a part of the final product but is used in the production process for preparation or finishing.

Question 17

Transportation costs incurred to transfer products to customers are downstream costs.

Accepted Answer

Downstream costs are costs incurred after the production of goods and include all costs related to product distribution to customers, such as transportation costs.

Question 18

A merchandising business paid $2,500 to purchase inventory and $50 to have the inventory delivered to its customers. Its product costs were $2,550.

Accepted Answer

The answer of A merchandising business paid $2,500 to purchase...

Question 19

A just-in-time system can lower inventory holding costs and increase customer satisfaction.

Accepted Answer

A just-in-time system focuses on producing and delivering goods as they are needed, reducing the need for excess inventory. This can lead to lower inventory holding costs and increased customer satisfaction due to faster turnaround times and more accurate order fulfillment.

Question 20

For a manufacturing company, both direct labor costs and indirect labor costs are classified as product costs.

Accepted Answer

Both direct labor costs (which are tied directly to the production of goods) and indirect labor costs (such as supervision and maintenance of equipment) are considered part of the product costs for a manufacturing company, as they are necessary for the creation of the final product.

Quiz 10: An Introduction to Management Accounting