Deck 1: Managerial Accounting and Cost Concepts

Question 1

Conversion cost equals product cost less direct materials cost.

Answer 1

True

Question 2

Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

Answer 2

True

Question 3

Advertising is not considered a product cost even if it promotes a specific product.

Answer 3

True

Question 4

Opportunity costs at a manufacturing company are not part of manufacturing overhead.

Question 5

In a manufacturing company, all costs are period costs.

Question 6

Administrative costs are indirect costs.

Question 7

Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company.

Question 8

A direct cost is a cost that can be easily traced to the particular cost object under consideration.

Question 9

The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

Question 10

A factory supervisor's salary would be classified as an indirect cost with respect to a unit of product.

Question 11

Selling costs are indirect costs.

Question 12

The cost of shipping parts from a supplier is considered a period cost.

Question 13

The three cost elements ordinarily included in product costs are direct materials, direct labor, and manufacturing overhead.

Question 14

Prime cost equals manufacturing overhead cost.

Question 15

Selling and administrative expenses are period costs under generally accepted accounting principles.

Question 16

A cost can be direct or indirect. The classification can change if the cost object changes.

Question 17

Wages paid to production supervisors would be classified as manufacturing overhead.

Question 18

Product costs are also known as inventoriable costs.

Question 19

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

Question 20

Conversion cost is the same thing as manufacturing overhead.

Question 21

Committed fixed costs remain largely unchanged in the short run.

Question 22

Indirect costs, such as manufacturing overhead, are variable costs.

Question 23

Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost.

Question 24

The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served.

Question 25

As activity decreases within the relevant range, fixed costs remain constant on a per unit basis.

Question 26

When operations are interrupted or cut back, committed fixed costs are cut in the short term because the costs of restoring them later are likely to be far less than the short-run savings that are realized

Question 27

A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.

Question 28

Fixed costs expressed on a per unit basis do not change with changes in activity.

Question 29

The concept of the relevant range does not apply to variable costs.

Question 30

If the activity level increases, then one would expect the fixed cost per unit to increase as well.

Question 31

In account analysis, an account is classified as either variable or fixed based on an analyst's prior knowledge of how the cost in the account behaves.

Question 32

Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.

Question 33

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

Question 34

A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.

Question 35

A decrease in production will ordinarily result in a decrease in fixed production costs per unit.

Question 36

A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range.

Question 37

The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.

Question 38

If managers are reluctant to lay off direct labor employees when activity declines leads to a decrease in the ratio of variable to fixed costs.

Question 39

The variable cost per unit depends on how many units are produced.

Question 40

A step-variable cost is a cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in activity.

Question 41

The contribution format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.

Question 42

Although the traditional format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.

Question 43

The following costs are all examples of committed fixed costs: depreciation on buildings, salaries of highly trained engineers, real estate taxes, and insurance expenses.

Question 44

A contribution format income statement separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.

Question 45

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

Question 46

In a traditional format income statement, the gross margin is sales minus cost of goods sold.

Question 47

Committed fixed costs represent organizational investments with a one-year planning horizon.

Question 48

The relevant range concept is applicable to mixed costs.

Question 49

The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost.

Question 50

A fixed cost is not constant per unit of product.

Question 51

Variable costs per unit are not affected by changes in activity.

Question 52

Contribution format income statements are prepared primarily for external reporting purposes

Question 53

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

Question 54

Contribution margin and gross margin mean the same thing.

Question 55

Most companies use the contribution approach in preparing financial statements for external reporting purposes.

Question 56

Differential costs can only be variable.

Question 57

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

Question 58

In a contribution format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period.

Question 59

In a traditional format income statement for a merchandising company, cost of goods sold is a variable cost that is included in the "Variable expenses" portion of the income statement.

Question 60

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

Question 61

Direct costs:

A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.

Question 62

Which of the following statements about product costs is true?

A) Product costs are deducted from revenue when the production process is completed.
B) Product costs are deducted from revenue as expenditures are made.
C) Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets.
D) Product costs appear on financial statements only when products are sold.

Question 63

Wages paid to the supervisor of the warehouse where raw materials and parts are temporarily stored before being used in production is considered an example of:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 64

Which of the following is an example of a period cost in a company that makes clothing?

A) Fabric used to produce men's pants.
B) Advertising cost for a new line of clothing.
C) Factory supervisor's salary.
D) Monthly depreciation on production equipment.

Question 65

All of the following are examples of product costs except:

A) depreciation on the company's retail outlets.
B) salary of the plant manager.
C) insurance on the factory equipment.
D) rental costs of factory equipment.

Question 66

The salary paid to the president of a company would be classified on the income statement as a(n):

A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.

Question 67

The costs of direct materials are classified as:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 68

The cost of direct materials is classified as a:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 69

Traditional format income statements are widely used for preparing external financial statements.

Question 70

Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?

A) Direct Cost - Yes; Fixed Cost - Yes
B) Direct Cost - Yes; Fixed Cost - No
C) Direct Cost - No; Fixed Cost - Yes
D) Direct Cost - No; Fixed Cost - No

Question 71

Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as:

A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.

Question 72

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

A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.

Question 73

Which of the following statements concerning direct and indirect costs is NOT true?

A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.
B) A direct cost is one that can be easily traced to the particular cost object.
C) The factory manager's salary would be classified as an indirect cost of producing one unit of product.
D) A particular cost may be direct or indirect, depending on the cost object.

Question 74

Which of the following is NOT a period cost?

A) Depreciation of factory maintenance equipment.
B) Salary of a clerk who handles customer billing.
C) Insurance on a company showroom where customers can view new products.
D) Cost of a seminar concerning tax law updates that was attended by the company's controller.

Question 75

The cost of electricity for running production equipment is classified as:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 76

The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n):

A) period cost.
B) direct material cost.
C) indirect material cost.
D) opportunity cost.

Question 77

A factory supervisor's wages are classified as:

A) Indirect labor - No; Fixed manufacturing overhead - No
B) Indirect labor - Yes; Fixed manufacturing overhead - Yes
C) Indirect labor - Yes; Fixed manufacturing overhead - No
D) Indirect labor - No; Fixed manufacturing overhead - Yes

Question 78

Manufacturing overhead includes:

A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.

Question 79

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

A) The cost of the glue in a chair.
B) The amount paid to the individual who stains a chair.
C) The workman's compensation insurance of the supervisor who oversees production.
D) The factory utilities of the department in which production takes place.

Question 80

Product costs that have become expenses can be found in:

A) period costs.
B) selling expenses.
C) cost of goods sold.
D) administrative expenses.