Deck 2: An Introduction to Cost Terms and Purposes

Question 1

The distinction between direct and indirect costs is clearly set forth in international financial reporting standards (IFRS).

Answer 1

False

Question 2

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Carpenter wages

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Answer 2

Cost Tracing

Question 3

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Depreciation - office building

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Answer 3

Nonmanu-faturing

Question 4

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Lathe department supervisor

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 5

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Lathe depreciation

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 6

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Lathe maintenance

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 7

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Lathe operator wages

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 8

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Lumber

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 9

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Samples for trade shows

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 10

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Metal brackets for drawers

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 11

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.

-Factory washroom supplies

A) Cost Tracing
B) Cost Allocation
C) Nonmanu-faturing

Question 12

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

-Electronic monitoring

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 13

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

-Meals for patients

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 14

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

-Parking maintenance

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 15

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

-Security

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 16

Dima Manufacturing provided the following information for last month:

If sales double next month, what is the projected operating income?

A) $19,000
B) $10,000
C) $12,000
D) $25,000

Question 17

Tire and Spoke Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers:

The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000 bicycles?

A) $74 per unit
B) $134 per unit
C) $79 per unit
D) $158 per unit

Question 18

Answer the following questions using the information below:
Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:


-What is the per unit cost when producing 3,000 axles?

A) $125.00
B) $175.00
C) $85.00
D) $58.33

Question 19

Answer the following questions using the information below:
The following information pertains to Ali's Mannequins:


-What is the amount of ending finished goods inventory?

A) $42,500
B) $25,000
C) $1,475,000
D) $25,424

Question 20

Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:

Required:
a. What is the total cost of producing 1,000 axles?
b. What is the total cost of producing 1,500 axles?
c. What is the per unit cost when producing 1,500 axles?

Question 21

During 2014, Favata Corporation incurred manufacturing expenses of $20,000,000 to produce 400,000 finished units. At year-end, it was determined that 370,000 units were sold while 30,000 units remained in ending inventory.
Required:
a. What is the cost of producing one unit?
b. What is the amount that will be reported on the income statement for cost of goods sold?
c. What is the amount that will be reported on the balance sheet for ending inventory?

Question 22

Answer the following questions using the information below:
Hamour Company reported the following:


-What is the amount of gross margin?

A) $1,645,000
B) $3,525,000
C) $5,405,000
D) $1,750,000

Question 23

Which of the following companies is part of the service sector?

A) Ford
B) Arab Banking Corporation
C) Nokia
D) Microsoft

Question 24

The following information pertains to the Red Sea Corporation:

What is cost of goods sold?

A) $249,000
B) $244,000
C) $248,000
D) $243,000

Question 25

Wer the following questions using the information below:


-What is cost of goods manufactured for 2013?

A) $230,000
B) $283,000
C) $257,000
D) $355,000

Question 26

Wer the following questions using the information below:


-What is operating income for 2013?

A) $112,000
B) $62,000
C) $75,000
D) $230,000

Question 27

Answer the following questions using the information below:


-What is gross margin for 2015?

A) $350,000
B) $357,000
C) $527,000
D) $243,000

Question 28

Answer the following questions using the information below:


-What is operating income for 2015?

A) $107,000
B) $230,000
C) $123,000
D) $157,000

Question 29

Answer the following questions using the information below:
For last year, Faruq Manufacturing reported the following:


-How much of the above would be considered period costs for Faruq Manufacturing?

A) $140,000
B) $390,000
C) $104,000
D) $246,000

Question 30

Uzma Manufacturing wants to estimate costs for each product they produce at its Riyadh plant. The Riyadh plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

-Plant manager's wages

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 31

Uzma Manufacturing wants to estimate costs for each product they produce at its Riyadh plant. The Riyadh plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

-Depreciation on the assembly line equipment

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 32

Uzma Manufacturing wants to estimate costs for each product they produce at its Riyadh plant. The Riyadh plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

-Component parts for the product

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 33

Uzma Manufacturing wants to estimate costs for each product they produce at its Riyadh plant. The Riyadh plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

-Wages of security personnel for the factory

A) Direct
B) Indirect
C) Fixed
D) Variable

Question 34

Al Shakir Company, had the following activities during 2014:

Required:
a. What is the cost of direct materials used during 2014?
b. What is cost of goods manufactured for 2014?
c. What is cost of goods sold for 2014?
d. What amount of prime costs was added to production during 2014?
e. What amount of conversion costs was added to production during 2014?