Question 1

The total cost of direct material, direct labor, and manufacturing overhead transferred from work-in-process inventory to finished-goods inventory is called the cost of goods manufactured.

Accepted Answer

The cost of goods manufactured includes all the costs directly associated with the production of goods, which are direct materials, direct labor, and manufacturing overhead, and represents the total cost of goods that are completed and transferred from work-in-process inventory to finished-goods inventory.

Question 2

Costs that a manager can influence significantly are classified as uncontrollable costs of that manager.

Accepted Answer

Costs that a manager can significantly influence are classified as controllable costs, not uncontrollable costs. Uncontrollable costs are those that the manager cannot influence significantly.

Question 3

Another term for product cost is cost of goods sold.

Accepted Answer

Product cost refers to the total costs incurred to create a product, including direct labor, materials, and manufacturing overhead. Cost of Goods Sold (COGS) is the direct costs attributable to the production of the goods sold by a company. While product cost is a component of COGS, they are not synonymous; COGS also includes additional expenses such as distribution and shipping.

Question 4

An important first step in studying managerial accounting is to create a framework for thinking about the various types of costs incurred by organizations and how those costs are actively managed.

Accepted Answer

Understanding the types of costs and how they are managed is crucial in managerial accounting for effective decision-making and financial planning within organizations.

Question 5

A suitable cost driver for the amount of direct materials used is the number of direct labor hours worked.

Accepted Answer

A suitable cost driver for the amount of direct materials used is more directly related to the quantity of materials themselves, such as the number of units produced or the weight of materials used, rather than the number of direct labor hours worked. Direct labor hours are typically more closely related to labor costs rather than material costs.

Question 6

A job shop is generally associated with high production volume.

Accepted Answer

A job shop is typically associated with low production volumes and high customization, focusing on specialized or custom orders rather than mass production.

Question 7

Inventoriable costs are expensed when incurred.

Accepted Answer

Inventoriable costs are capitalized as inventory on the balance sheet and are expensed as cost of goods sold only when the inventory is sold.

Question 8

Manufacturing costs are classified into four categories.

Accepted Answer

Manufacturing costs are typically classified into three main categories: direct materials, direct labor, and manufacturing overhead.

Question 9

Sunk costs are irrelevant to all future decisions.

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, so they should not influence future business decisions since they cannot be changed by any future actions.

Question 10

Out-of-pocket costs are defined as the benefit that is sacrificed when the choice of one action precludes taking an alternative course of action.

Accepted Answer

Out-of-pocket costs refer to actual cash expenditures made by an individual or organization, not the benefits sacrificed by choosing one action over another, which describes opportunity costs.

Question 11

There are three standard categories of manufacturing processes.

Accepted Answer

There are five standard categories of manufacturing processes: casting and molding, machining, joining, shearing and forming, and additive manufacturing.

Question 12

Indirect labor is not a component of manufacturing overhead.

Accepted Answer

Indirect labor is a component of manufacturing overhead, as it includes the wages of employees who assist in or supervise the manufacturing process but do not directly work on the product.

Question 13

Selling and administrative costs are always period costs on any type of company's income statement.

Accepted Answer

Selling and administrative costs are considered period costs because they are expensed in the period in which they are incurred, regardless of the type of company, and do not directly tie to the production of inventory.

Question 14

Different cost concepts and classifications are used for different purposes.

Accepted Answer

Different cost concepts and classifications, such as fixed vs. variable costs, direct vs. indirect costs, and product vs. period costs, are used for various purposes including financial reporting, decision making, and budgeting.

Question 15

As the activity level increases, total fixed cost remains constant and unit fixed cost remains the same.

Accepted Answer

As the activity level increases, total fixed cost remains constant, but unit fixed cost decreases because the fixed cost is spread over more units.

Question 16

A cost that is not directly traceable to a particular cost object is called an indirect cost.

Accepted Answer

Indirect costs are expenses that cannot be directly linked to a specific cost object, such as a product, project, or activity, because they benefit multiple cost objects or are not directly attributable to any one cost object. Examples include utilities, rent, and administrative salaries.

Question 17

The following equation -- Beginning finished goods + cost of goods manufactured - ending finished goods -- is used to calculate cost of goods sold during the period.

Accepted Answer

This equation accurately represents the calculation for the cost of goods sold (COGS) during a period, taking into account the beginning inventory of finished goods, adding the cost of goods manufactured during the period, and subtracting the ending inventory of finished goods to determine the total cost of goods that were sold.

Question 18

The higher the correlation between the cost and the cost driver, the more accurate will be the resulting understanding of cost behavior.

Accepted Answer

A higher correlation between the cost and its cost driver indicates a stronger relationship, meaning changes in the cost driver closely predict changes in the cost, leading to a more accurate understanding of how the cost behaves.

Question 19

Finished goods inventory is ordinarily held for sale by a manufacturing company.

Accepted Answer

Finished goods inventory consists of products that have completed the manufacturing process and are ready to be sold to customers, which is why they are held by a manufacturing company.

Question 20

As activity changes, total variable cost increases or decreases proportionately with the activity change, but unit variable cost remains the same.

Accepted Answer

Variable costs change in total in direct proportion to changes in activity level, but the cost per unit remains constant regardless of the level of activity.

Quiz 2: Basic Cost Management Concepts