Managerial Accounting Practice Questions Chapter 2

We Shit It, Inc. is considering changing its shipping methods, which they believe will attract new customers. The following information relates to the present and proposed methods. Present Proposed. Rev. 140,000 190,000 Var.Cost 60,000 70,000 Fix.Cost 20,000 25,000 Calculate the differential net income or loss from the proposal.

$35,000 differential net income NOT 40,000 b/c a differential cost analysis considers the change in revenues ($50,000) and subtracts the change in both variable ($10,000) and fixed ($5,000) costs.

Which of the following are most likely fixed costs?

1. Administrative Salaries 2. Factory rent 3. Factory insurance

Which of the following are examples of indirect labor costs?

1. Assembly-line supervisor salary 2. Factory security guard wages

Which of the following statements are true?

1. advertising and sales commissions are period costs 2. direct labor and indirect labor are product costs (indirect labor is part of manufacturing overhead)

The components of prime costs are:

1. direct labor 2. direct materials

Manufacturing costs include:

1. indirect labor 2. direct labor 3. direct materials (administrative costs and selling costs are non-manufacturing costs)

A dress manufacturer would consider the cost of relatively inexpensive items like thread to be part of:

1. manufacturing overhead 2. indirect materials

Cost objects:

1. may be assigned costs to help spending 2. can be products, customers, or jobs (a cost object is anything for which cost data is desired)

Which of the following statements are true?

1. period costs are expensed in the same period in which they are incurred 2. non-manufacturing costs are period costs

Which of the following statements are true?

1. step-variable costs can be adjusted quickly as conditions change 2. total salaried employee expense may be a step-variable cost

True or False: Variable costs remain fixed in total within the relevant range of activity.

False

True or False: Another term for direct materials is raw materials.

False (Raw materials may include both direct and indirect materials)

Which of the following is not a COST CLASSIFICATION associated with decision making?

Indirect costs

Period cost =

Selling Expenses + Administrative Expenses

True or False: A particular cost may be direct or indirect depending on the cost object

True

True or False: Presenting fixed costs on an average per unit basis can be misleading.

True

A _________ cost changes in direct proportion to changes in the activity level

Variable

Which of the following are discretionary fixed costs?

a. advertising b. management training periods

Opportunity costs:

a. are benefits that are given up when selecting one alternative over another b. should be considered in decision making

Which of the following are examples of common activity bases?

a. machine hours b. number of purchase orders c. direct labor hours

Within the relevant range of activity, variable costs:

a. remain constant per unit b. vary in total

Which of the following statements are true?

a. the equation for a straight-line can be used to express the relationship between mixed costs and the level of activity b. mixed costs contain both fixed and variable cost elements

Which of the following are examples of committed fixed costs?

a. top management salaries b. real estate taxes

Costs that are shared by multiple cost objects in a company are known as _______ costs.

common

Direct labor and overhead costs incurred to change raw materials into finished products are known as _________ costs.

conversion

A change in revenues between two alternative is known as __________ revenue or incremental revenue

differential

The difference in costs between two alternatives is called a(n) __________ cost.

differential

Materials that become an important component of the finished product and their cost can be easily and conveniently traced to the finished product are _________ materials.

direct (raw)

A __________ __________ can be easily and conveniently traced to a specific cost object.

direct cost

In an automobile manufacturing plant, the assembly-line workers are considered to be ___________ ___________.

direct labor

Manufacturing costs can be divided into three categories: direct materials, direct ___________ and ___________ ___________.

direct labor and manufacturing overhead

A laptop computer manufacturer would consider the computer's processor chip to be a(n):

direct material cost

Administrative costs include:

executive compensation and public relations costs

Indirect materials can be easily and inexpensively traced to a specific product.

false

Differential costs are also known as ___________ costs.

incremental

Manufacturing costs can be divided into three categories: direct materials, direct __________ and _________ _________.

labor and manufacturing overhead

Factory materials, such as cleaning supplies, that are not components of finished products are classified as:

manufacturing overhead

The revenue obtained from selling one additional unit of product is called ___________ revenue.

marginal

There are two broad classifications of costs: manufacturing costs and __________ costs.

non-manufacturing

Direct materials, direct labor, and manufacturing overhead are all _________ costs.

product

Inventoriable costs is another term for _________ costs.

product

The materials that go into the final product are called _________ materials.

raw

The materials that go into the final product are called ________ materials.

raw (direct)

Cost behavior:

refers to how a cost will change as activity level changes

The level of activity within which variable and fixed cost assumptions are valid is known as the _________ ________.

relevant range

Variable costs:

remain constant per unit and vary in total

Costs that have already been incurred and can not be changed by decisions made in the current period or in the future periods are called __________ costs.

sunk

Marginal cost is:

the cost incurred to produce one more unit of a product

In the equation Y = a + bX, Y is the :

total mixed cost

Within the relevant range, _________ costs remain constant on a per unit basis.

variable