Question 1

Which of the following items would NOT be classified as part of factory overhead of a firm that makes sailboats?
A) factory supplies used
B) canvas used in sail
C) depreciation of factory buildings
D) indirect materials

Accepted Answer

Canvas used in sail would be classified as direct materials rather than factory overhead, as it is specifically used in the production of the sailboats. The other options (factory supplies used, depreciation of factory buildings, and indirect materials) are all commonly classified as part of factory overhead.

Question 2

All of Jill Enterprise's operations are housed in one building with the costs of occupying the building accumulated in a separate account. The total costs incurred in May amounted to £24,000. The company allocates these costs on the basis of square feet of floor space occupied. Administrative offices, sales offices, and factory operations occupy 9,000, 6,000, and 30,000 square feet, respectively. How much will be classified as a product cost for May?
A) £4,800
B) £3,200
C) £16,000
D) £24,000

Accepted Answer

Product costs are costs that are directly associated with production, such as direct materials, direct labor, and manufacturing overhead. As factory operations occupy 30,000 square feet out of a total of 45,000 square feet (9,000 + 6,000 + 30,000), they will be allocated a proportionately larger share of the building costs. The product cost is calculated by multiplying the total building costs by the proportion of square footage occupied by the factory operations:  
Product Cost = Total Building Costs x (Square Feet of Factory Operations / Total Square Feet) 
Product Cost = £24,000 x (30,000 / 45,000) 
Product Cost = £16,000

Question 3

Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished product?
A) the wages paid to assembly-line production workers
B) the tires for buses
C) the windshields for buses
D) the depreciation on factory building

Accepted Answer

Depreciation on factory building is an indirect cost that cannot be directly attributed to the finished product. It is a fixed cost that applies to the entire manufacturing process, not just the production of buses. The wages paid to assembly-line production workers, the cost of tires, and the cost of windshields are all direct costs that can be directly traced to the finished product.

Question 4

Which of the following costs is NOT a product cost?
A) rent on an office building
B) indirect labour
C) repairs on manufacturing equipment
D) steel used in inventory items produced

Accepted Answer

Rent on an office building is not a product cost because it is not directly related to the manufacturing or production of a specific item. It is a period cost, which is incurred during a particular period of time rather than being directly tied to the production of a product.

Question 5

Product costs are converted from cost to expense when
A) units are completed.
B) materials are purchased.
C) units are sold.
D) materials are requisitioned.

Accepted Answer

Product costs are converted from cost to expense when the units are sold. This process is known as cost of goods sold (COGS). Until the units are sold, the product costs remain as an asset in the inventory account.

Question 6

Which of the following costs would be included as part of factory overhead?
A) depreciation of plant equipment
B) paint used for product finish
C) depreciation on the corporation's office building
D) paper used in the production of books

Accepted Answer

Factory overhead costs are indirect costs associated with manufacturing the product, such as rent, utilities, and depreciation of plant equipment. Depreciation on plant equipment is an example of factory overhead costs.

Answer: C 
 Depreciation on the corporation's office building is not an overhead cost for the factory as it is not directly related to the manufacturing of products.

Answer: B and D 
 Paint used for product finish and paper used in the production of books are direct materials costs and should be included as part of the product's cost of goods sold, not part of factory overhead costs.

Question 7

Which of the following costs incurred by a furniture manufacturer would be a product cost?
A) lumber
B) office salaries
C) commissions paid to sales staff
D) controller's salary

Accepted Answer

Lumber is a direct material used in the production of furniture, making it a product cost. Office salaries, commissions paid to sales staff, and the controller's salary are not directly related to the production of the furniture and would be considered period costs.

Question 8

If total warehousing cost for the year amounts to £350,000, and 40 percent of the warehousing activity is associated with finished goods and 60 percent with direct materials, how much of the cost would be charged as a product cost?
A) £70,000
B) £140,000
C) £210,000
D) £350,000

Accepted Answer

Product costs include all costs involved in acquiring or making a product, which encompasses the cost associated with direct materials. Therefore, 60 percent of the total warehousing cost, which is associated with direct materials, would be considered a product cost. This amounts to £350,000 * 60% = £210,000.

Question 9

Selling and administrative costs are classified as
A) product costs.
B) conversion costs.
C) period costs.
D) factory overhead.

Accepted Answer

Selling and administrative costs are expenses that are directly related to the period and not to the production of goods. As such, they are classified as period costs.

Question 10

Which of the following costs is an example of product costs?
A) selling commissions
B) nonfactory office salaries
C) direct materials
D) advertising expense

Accepted Answer

Direct materials are an example of product costs because they are costs that can be directly traced to the production of a specific product. Option A is a selling expense, option B is an overhead expense, and option D is a period expense.

Question 11

An example of a period cost is
A) insurance on factory equipment.
B) chief executive's salary.
C) property taxes on factory building.
D) wages of factory custodians.

Accepted Answer

A period cost is a cost that is not directly related to the production of goods or services, but rather to the overall operation of the business. The chief executive's salary is an example of a period cost because it is an expense incurred in order to run the business as a whole, rather than to produce a specific product or service. The other options listed are examples of manufacturing costs, which are directly related to the production process.

Question 12

Direct costs
A) are incurred for the benefit of the business as a whole.
B) would continue even if a particular product were discontinued.
C) can be assigned to product only by a process of allocation.
D) are those costs that can be easily and accurately traced to a cost objective.

Accepted Answer

Direct costs are those costs that can be easily and accurately traced to a cost objective, such as a specific product, department, or project. They are typically variable costs and include items such as materials and labor directly involved in the production of a product.

Question 13

In a traditional manufacturing company, product costs include
A) direct materials only.
B) direct materials, direct labour, and factory overhead.
C) direct materials and direct labour only.
D) direct labour only.

Accepted Answer

Product costs in a traditional manufacturing company include direct materials, direct labour, and factory overhead. Direct materials refer to the raw materials and components that go into the production of a product. Direct labour is the cost of the workers who are directly involved in the production process. Factory overhead includes all other production costs that cannot be directly attributed to a specific product, such as rent, insurance, and utilities.

Question 14

Which of the following costs is a period cost for a manufacturing company?
A) accountant's salary
B) wages of machine operators
C) insurance on factory equipment
D) fringe benefits on factory employees

Accepted Answer

Period costs are expensed during the period in which they are incurred and are not directly tied to the production of goods. Accountant's salary is a period cost because it is not directly related to the manufacturing process.

Question 15

Which of the following costs incurred by a chair manufacturer would be traced to the product cost through direct tracing?
A) the depreciation on factory equipment
B) the supervisor's salary
C) the insurance on the factory building
D) the woodmaker's salary

Accepted Answer

The woodmaker's salary is a direct cost that can be traced to the product cost since they are directly involved in the manufacturing process. Depreciation on factory equipment, the supervisor's salary, and insurance on the factory building are indirect costs that would be allocated to the product cost based on some predetermined allocation method.

Question 16

Which of the following costs is an indirect product cost?
A) property taxes on plant facilities
B) wages of assembly workers
C) materials used
D) president's salary

Accepted Answer

Indirect product costs are the costs that cannot be traced to a particular product, but are incurred in the production process. Property taxes on plant facilities are an indirect cost as it is incurred for the whole plant and not specific to any particular product. The other options are direct product costs as they can be traced or allocated to a specific product.

Question 17

Prime product costs include
A) only factory overhead.
B) only direct labour.
C) direct labour and factory overhead.
D) direct materials and direct labour.

Accepted Answer

Prime product costs include direct materials and direct labour, which are the costs directly associated with the production of goods. Factory overhead is an indirect cost that is not included in prime product costs.

Question 18

The direct costs of operating a university computer centre would NOT include
A) rent paid for computers.
B) a fair share of university utilities.
C) paper used by the centre.
D) computer consultants' salaries.

Accepted Answer

A fair share of university utilities is considered an indirect cost, as it is not directly attributable to the operation of the computer centre but rather a general overhead expense shared across various departments or functions within the university. Direct costs are those that can be directly tied to the operation of the computer centre, such as rent for computers, paper used by the centre, and salaries for computer consultants.

Question 19

_____ are expensed in the period in which they are incurred.
A) Direct materials
B) Product costs
C) Factory overhead
D) Nonproduction costs

Accepted Answer

Nonproduction costs, such as selling and administrative expenses, are expensed in the period in which they are incurred. Direct materials and factory overhead are product costs which are included in the cost of manufacturing a product and expensed when the product is sold.

Question 20

_____ are expensed in the period in which they are incurred.
A) Direct materials
B) Product costs
C) Noninventoriable costs
D) Inventoriable costs

Accepted Answer

Noninventoriable costs, also known as period costs, are expensed in the period in which they are incurred. This includes expenses such as salaries, advertising, and rent. Direct materials and product costs are both inventoriable costs, meaning they are not expensed until the product is sold or used in production.

Quiz 2: An Introduction to Cost Terms and Concepts

Which of the following items would NOT be classified as part of factory overhead of a firm that makes sailboats?

Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished product?

Which of the following costs is NOT a product cost?

Product costs are converted from cost to expense when

Which of the following costs would be included as part of factory overhead?

Which of the following costs incurred by a furniture manufacturer would be a product cost?

If total warehousing cost for the year amounts to £350,000, and 40 percent of the warehousing activity is associated with finished goods and 60 percent with direct materials, how much of the cost would be charged as a product cost?

Selling and administrative costs are classified as

Which of the following costs is an example of product costs?

An example of a period cost is

Direct costs

In a traditional manufacturing company, product costs include

Which of the following costs is a period cost for a manufacturing company?

Which of the following costs incurred by a chair manufacturer would be traced to the product cost through direct tracing?

Which of the following costs is an indirect product cost?

Prime product costs include

The direct costs of operating a university computer centre would NOT include

_____ are expensed in the period in which they are incurred.

_____ are expensed in the period in which they are incurred.