Question 1

The costs of direct materials are classified as:
$\begin{array} { ccc} 
& \text { Conversion cost } & \text { Manufacturing cost } & \text { Prime cost } \\end{array}$
A. $\begin{array} { ccc} &&& \text { Yes } &&&&&& \text { Yes } &&&&&&&  \text { Yes } \\end{array}$
B. $\begin{array} { ccc}  &&& \text { No } &&&&&&& \text { No } &&&&&&& \text { No } \\end{array}$
C. $\begin{array} { ccc}  &&& \text { Yes } &&&&&& \text { Yes } &&&&&&& \text { No } \\end{array}$
D. $\begin{array} { ccc}  &&& \text { No } &&&&&& \text { Yes } &&&&&&& \text { Yes } \
\end{array}$

Accepted Answer

Direct materials are part of manufacturing costs and prime costs, but not conversion costs.

Question 2

Which of the following best distinguishes an opportunity cost from an outlay cost?

Accepted Answer

Opportunity costs represent the benefits of the next best alternative that is foregone, while outlay costs are actual cash expenditures.

Question 3

An opportunity cost is

Accepted Answer

Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Question 4

Which of the following accounts would be a period cost rather than a product cost?

Accepted Answer

Period costs are not directly tied to the production process and are expensed in the period they are incurred. Freight out is a selling expense, which is a period cost.

Question 5

Which of the following statements is (are) false?
(1) In general, the term expense is used for managerial purposes, while the term cost refers to external financial reports.
(2) An opportunity cost is the benefit forgone by selecting one alternative over another.

Accepted Answer

The term "expense" is typically used in external financial reports, while "cost" is a broader term used in both managerial and financial contexts. Statement (2) is true as it correctly defines opportunity cost.

Question 6

Grover Company has the following data for the production and sale of 2,000 units.
$$\begin{array} { l l r } 
\text { Sales price per unit } & \$  \text { 800per unit } \
\text { Fixed costs: } & & \
\text { Marketing and adrinistrative } & \$ 400,000 \text { per period } \
\text { Marufacturing overhead } & \$ 200,000 \text { per period } \
\text { Variable costs: } & & \
\text { Marketing and adrinistrative } & \$  50 \text {  per unit } \
\text { Marnufacturing overhead } & \$  80  \text { per unit } \
\text { Direct labor } & \$  100 \text {  perunit } \
\text { Direct Materials } & \$  200 \text { per unit }
\end{array}$$
-
What is the conversion cost per unit?

Accepted Answer

Conversion cost per unit is the sum of direct labor and manufacturing overhead (both fixed and variable). Here, it is $100 (direct labor) + $80 (variable manufacturing overhead) = $180.

Question 7

The cost of direct labor will be treated as an expense on the income statement when the resulting:

Accepted Answer

Direct labor costs are treated as an expense on the income statement when the products are sold, as they are part of the cost of goods sold.

Question 8

Doran Technical 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 a toll-free telephone line for customer inquiries is considered a period cost because it is not directly tied to the production process and is incurred regardless of the level of production. Period costs are expensed in the period in which they are incurred.

Question 9

Tallon Company manufactures a single product. The product's prime costs consist of

Accepted Answer

Prime costs are the sum of direct materials and direct labor, which are the primary costs directly associated with the production of a product.

Question 10

A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. Which of the following is a proper classification of this cost?

Accepted Answer

Telephone costs incurred in taking sales orders are considered period costs because they are not directly tied to the production process and are expensed in the period they are incurred.

Question 11

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

Accepted Answer

The corporate controller's salary would fall under administrative costs, which are expenses related to general management and administration of the company, including salaries of executives and other administrative personnel.

Question 12

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

Accepted Answer

Direct labor is considered both a prime cost and a conversion cost because it is directly involved in the production process and is necessary to convert raw materials into finished goods.

Question 13

Calculate the conversion costs from the following information:
$\begin{array}{llr}
  \text {  Fixed manufacturing overhead} &\$2,000\
 \text {Variable manufacturing overhead  } &1,000\
 \text {  Direct materials} &2,500\
 \text {Direct labor  } &1,500\
\end{array}$

Accepted Answer

The answer of Calculate the conversion costs from the following...

Question 14

Marketing costs include all of the following except:

Accepted Answer

Legal and accounting fees are not typically considered marketing costs; they are more related to administrative or operational expenses.

Question 15

Property taxes on the manufacturing facility are an element of
$\begin{array} {cc } 
 & \text { Conversion Cost } & \text { Period Cost } \\end{array}$
A.$\begin{array} {cc } &&& \text { No } &&&&&& \text { No } \\end{array}$
B.$\begin{array} {cc }  &&& \text { No } &&&&&& \text { Yes } \\end{array}$
C.$\begin{array} {cc } &&& \text { Yes } &&&&&&\text { No } \\end{array}$
D.$\begin{array} {cc }  &&& \text { Yes }  &&&&&& \text { Yes } \
\end{array}$

Accepted Answer

Property taxes on the manufacturing facility are an element of period cost.

Question 16

An example of a period cost is:

Accepted Answer

Rent on a headquarters building is an example of a period cost as it is not directly related to the production of goods or services. Instead, it is a cost that is incurred over a period of time and is necessary for the overall operation of the business. Fire insurance on a factory building could be considered a period cost if it is not included as part of the inventory cost, but it is not the best choice as it still has a direct relation to the production process. The salary of a factory supervisor and direct materials are both examples of product costs as they are directly related to the production of goods.

Question 17

Which of the following statements is (are) true?
(1) An asset is a cost that will be matched with revenues in a future accounting period.
(2) Opportunity costs are recorded as intangible assets in the current accounting period.

Accepted Answer

An asset is indeed a cost that will be matched with revenues in a future accounting period, as it represents future economic benefits. Opportunity costs, however, are not recorded in financial statements as they are not actual transactions or assets.

Question 18

For a manufacturing company, which of the following is an example of a period cost rather than a product cost?

Accepted Answer

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred. Wages of salespersons are considered period costs because they are related to selling activities, not manufacturing.

Question 19

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 incurred to ship products to customers are considered period costs as they are expensed in the period in which they are incurred and not included as part of the cost of manufacturing the product.

Question 20

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...

Quiz 2: Cost Concepts and Behavior