Cornerstones of Managerial Accounting Study Set 5

Business

Quiz 2 :

Basic Managerial Accounting Concepts

Quiz 2 :

Basic Managerial Accounting Concepts

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Stone Inc. is a company that purchases goods (e.g., chess sets, pottery) from overseas and resells them to gift shops in the United States. Stone Inc. is which of the following?
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Stone Inc. is a company that purchases goods (e.g., chess sets, pottery) from overseas and resells them to gift shops in the United States. Stone Inc. is
a) Wholesaler
Manufacturing firm is one where finished goods are produced using raw material with the help of labor and manufacturing overhead. Stone Inc. is not producing any thing thus it is not a manufacturer.
Wholesaler is one who is a middle man between the manufacturers and retailers. The wholesalers buy in huge bulk from the manufacturers and then distribute the goods in smaller lots to the retailers. Stone Inc. is a wholesaler as is a link between the manufacturers and the retailers. It is buying goods and then selling it to gift shops.
Retailers sell the goods to the customers. Thus they are the first hand contact to the customers. Stone Inc. is selling the goods to shops and not to customers thus it is not also a retailer.
Service firms do not deal in goods; rather they provide utility and facilities to the customers and are in direct contact with the customers. Stone Inc. is not providing any service.

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Accumulating costs means that
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Costs:
It is the amount of money spent on goods and services to obtain future benefits. Management process requires costs to be accumulated and assigned to products.
Accumulating cost means that
c. Cost must be measured and tracked.
Explanation:
Accumulating costs is a system to collect information about costs. Linking of cost to cost object and allocation to units is called assignment of costs. Thus, (b) (d) are incorrect. Point (e) is incorrect as transferring of expired cost from balance sheet to income statement is not accumulation of costs. Accumulating costs requires costs related to a single object to be pooled together. Thus, (a) is incorrect.

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is the difference between accumulating cost and assigning cost?
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Accumulating cost is the way the costs are recorded in the financial books. This is a measure by which the accountants using the accounting principles measure the costs incurred and then record the same in a typical manner. This helps the management to make decisions in easy and convenient manner as the accumulated cost shows that how much is spend in a particular period of time.
Assigning cost is the way the costs are allocated to specific items. This can be done in number of ways, where some give accurate results whereas the others are easy to calculate. This helps the management to know how much exactly is spend on the particular item.
Let us explain the same with the help of an example:
Say an organization receives electricity bill for a month of $200. Next month, it again receives a bill of $500.
Now at the end of two months the total cost incurred on electricity bill is $700. This is accumulated cost. The bill gets on added for the accounting period under the same head of electricity and the management knows at the end of each month how much total electricity has been used up in the organization. This is how costs are accumulated.
Next the management has to decide how much electricity has been used by the each department in the organization. Say, if there are two departments in the organization, one the factory and other sales department. Now the easy way to assign the electricity bill to both the departments is to divide the total bill amount by the number of departments equally. The other accurate but tedious measure would be to calculate the per unit consumption of each department and then dividing the total bill amount in the ratio of the units consumed by each department. This is how costs are assigned.

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is a cost object? Give some examples.
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Explain the difference between cost and expense.
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Wachman Company produces a product with the following per-unit costs: img Last year, Wachman produced and sold 2,000 units at a price of $75 each. Total selling and administrative expense was $30,000. Refer to the information for Wachman Company above. Total gross margin for last year was
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Define manufacturing overhead.
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Product (or manufacturing) costs consist of
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is a direct cost? An indirect cost? Can the same cost be direct for one purpose and indirect for another? Give an example.
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Kellogg's makes a variety of breakfast cereals. Kellogg's is which of the following?
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does a period cost differ from a product cost?
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accountant in a factory that produces biscuits for fast-food restaurants wants to assign costs to boxes of biscuits. Which of the following costs can be traced directly to boxes of biscuits?
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Explain the difference between direct materials purchased in a month and direct materials used for the month.
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Which of the following is an indirect cost?
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Define prime cost and conversion cost. Why can't prime cost be added to conversion cost to get total product cost?
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Bobby Dee's is an owner-operated company that details (thoroughly cleans-inside and out) automobiles. Bobby Dee's is which of the following?
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Target is which of the following?
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is allocation?
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Wachman Company produces a product with the following per-unit costs: img Last year, Wachman produced and sold 2,000 units at a price of $75 each. Total selling and administrative expense was $30,000. Refer to the information for Wachman Company above. Conversion cost per unit was
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is the difference between a product and a service? Give an example of each.
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