Question 1

Conversion cost is the same thing as manufacturing overhead.

Accepted Answer

Conversion cost includes both direct labor and manufacturing overhead costs, not just manufacturing overhead.

Question 2

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

Accepted Answer

A factory supervisor's salary would be classified as an indirect cost as it cannot be directly traced to a unit of product. It is typically allocated to the products based on some predetermined allocation method such as machine hours or direct labor hours.

Question 3

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

Accepted Answer

A direct cost is a cost that can be specifically identified with a particular cost object such as a product, service or department. These costs are typically variable and can include materials, labor, and other expenses that are directly related to the production or provision of a product or service.

Question 4

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

Accepted Answer

Prime cost includes only direct materials cost and direct labor cost. It does not include indirect costs such as overhead expenses.

Question 5

Conversion cost equals product cost less direct materials cost.

Accepted Answer

Conversion cost is the sum of direct labor and manufacturing overhead costs, which means it is the total product cost minus the direct materials cost.

Question 6

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

Accepted Answer

Yes, a cost can be classified as direct or indirect depending on the cost object. If the cost object changes, the classification may also change. For example, a cost may be direct for one cost object and indirect for another.

Question 7

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

Accepted Answer

Opportunity costs represent the benefits a company misses out on when choosing one alternative over another and are not actual cash outflows, hence they are not included in manufacturing overhead which consists of direct costs like raw materials, labor, and other expenses directly tied to the production process.

Question 8

In a manufacturing company, all costs are period costs.

Accepted Answer

In a manufacturing company, some costs are period costs (e.g. selling, general and administrative expenses) and others are product costs (e.g. direct materials, direct labor, and manufacturing overhead). Product costs are inventoried as part of the cost of goods sold until the product is sold, while period costs are expensed in the period in which they are incurred.

Question 9

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

Accepted Answer

Manufacturing overhead includes costs such as indirect labor, factory rent, utilities, and depreciation of equipment.

Question 10

Prime cost equals manufacturing overhead cost.

Accepted Answer

Prime cost includes direct materials and direct labor costs, while manufacturing overhead cost includes indirect expenses such as rent, utilities, and depreciation. Therefore, prime cost is not equal to manufacturing overhead cost.

Question 11

Product costs are also known as inventoriable costs.

Accepted Answer

Product costs are costs that are directly related to the production of goods and are treated as assets until the goods are sold. Therefore, they are also known as inventoriable costs.

Question 12

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

Accepted Answer

Wages paid to production supervisors are considered indirect costs since they do not directly work on the product, hence they are classified as manufacturing overhead.

Question 13

Selling costs are indirect costs.

Accepted Answer

The answer of Selling costs are indirect costs....

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

Conversion cost is defined as the sum of direct labor cost and manufacturing overhead cost, both of which are necessary to convert raw materials into finished goods.

Question 16

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

Accepted Answer

Selling and administrative expenses are considered period costs as they are incurred in a particular period and are expensed in that same period, rather than being directly associated with the production of goods or services.

Question 17

Administrative costs are indirect costs.

Accepted Answer

The answer of Administrative costs are indirect costs....

Question 18

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

Accepted Answer

Advertising is considered a selling expense, not a product cost, because it is not directly tied to the production process of a product but rather to promoting and selling the product.

Question 19

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

Accepted Answer

The cost of shipping parts from a supplier is considered a product cost, as it is directly related to the production and acquisition of the product. Period costs are not directly related to the production process, but are instead incurred in the normal operation of the business, such as administrative expenses and selling expenses.

Question 20

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

Accepted Answer

Depreciation on manufacturing equipment is considered a product cost and is allocated to the cost of goods sold when the manufactured products are sold. However, depreciation on non-manufacturing assets (like office equipment) is considered a period cost and expensed in the period incurred.

Quiz 1: Managerial Accounting and Cost Concepts