Chapter 1 Quiz

Kesterson Corporation has provided the following information: Direct materials: $6.20/unit Direct labor: $3.10/unit Variable manufacturing overhead: $1.35/unit Fixed Manufacturing overhead: $14,000/period Sales commissions: $1.50/unit Variable administrative expense: $0.40/unit Fixed selling and administrative expense: $4,500/period If 6,000 units are produced, the total amount of direct manufacturing cost incurred is closest to: a. $55,800 b. $63,900 c. $80,700 d. $64,800

a. $55,800 = (Direct materials + Direct labor) * Units Produced = ($6.20 + $3.10) * 6,000

The salary paid to the president of a company would be classified on the income statement as a(n): a. administrative expense. b. direct labor cost. c. manufacturing overhead cost. d. selling expense.

a. administrative expense.

All of the following are examples of product costs except: a. depreciation on the company's retail outlets. b. salary of the plant manager. c. insurance on the factory equipment. d. rental costs of factory equipment.

a. depreciation on the company's retail outlets.

In the standard cost formula Y = a + bX, what does the "Y" represent? a. total cost b. total fixed cost c. total variable cost d. variable cost per unit

a. total cost

Within the relevant range, variable costs can be expected to: a. vary in total in direct proportion to changes in the activity level. b. remain constant in total as the activity level changes. c. increase on a per unit basis as the activity level increases. d. increase on a per unit basis as the activity level decreases.

a. vary in total in direct proportion to changes in the activity level.

Which of the following approaches to preparing an income statement includes a calculation of the gross margin? A) Yes - Traditional Approach, Yes - Contribution Approach B) Yes - Traditional Approach, No - Contribution Approach C) No - Traditional Approach, Yes - Contribution Approach D) No - Traditional Approach, No - Contribution Approach a. Choice A b. Choice B c. Choice C d. Choice D

b. Choice B

Contribution margin is: a. Sales less cost of goods sold. b. Sales less variable production, variable selling, and variable administrative expenses. c. Sales less variable production expense. d. Sales less all variable and fixed expenses.

b. Sales less variable production, variable selling, and variable administrative expenses.

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory? a. The cost of the glue in a chair. b. The amount paid to the individual who stains a chair. c. The workman's compensation insurance of the supervisor who oversees production. d. The factory utilities of the department in which production takes place.

b. The amount paid to the individual who stains a chair.

Which costs will change with a decrease in activity within the relevant range? a. Total fixed costs and total variable cost. b. Unit fixed costs and total variable cost. c. Unit variable cost and unit fixed cost. d. Unit fixed cost and total fixed cost.

b. Unit fixed costs and total variable cost.

An example of a committed fixed cost is: a. management training seminars. b. a long-term equipment lease. c. research and development. d. advertising.

b. a long-term equipment lease.

Fixed costs expressed on a per unit basis: a. increase with increases in activity. b. decrease with increases in activity. c. are not affected by activity. d. should be ignored in making decisions since they cannot change.

b. decrease with increases in activity.

Dizzy Amusement Park is open from 8:00 am till midnight every day of the year. Dizzy charges its patrons a daily entrance fee of $30 per person which gives them unlimited access to all of the park's 35 rides. For liability insurance, Dizzy pays a set monthly fee plus a small additional amount for every patron entering the park. The cost of liability insurance would best be described as a: a. fixed cost b. mixed cost c. step-variable cost d. true variable cost

b. mixed cost

All of the following can be differential costs except: a. variable costs. b. sunk costs. c. opportunity costs. d. fixed costs.

b. sunk costs.

Pedregon Corporation has provided the following information: Direct materials: $6.35/unit Direct labor: $3.75/unit Variable manufacturing overhead: $1.50/unit Fixed Manufacturing overhead: $15,000/period Sales commissions: $0.50/unit Variable administrative expense: $0.55/unit Fixed selling and administrative expense: $4,500/period If 4,000 units are sold, the total variable cost is closest to: a. $58,400 b. $66,200 c. $50,600 d. $46,400

c. $50,600 = (All per unit costs) * units sold = ($6.35 + $3.75 + $1.50 + $0.50 + $0.55) * 4,000

The following costs were incurred in May: Direct materials: $41,000 Direct labor: $13,000 Manufacturing overhead: $46,000 Selling expenses: $18,000 Administrative expenses: $15,000 Conversion costs during the month totaled: a. $54,000 b. $133,000 c. $59,000 d. $87,000

c. $59,000 = Direct labor + Manufacturing overhead = $13,000 + $46,000

Direct costs: a. are incurred to benefit a particular accounting period. b. are incurred due to a specific decision. c. an be easily traced to a particular cost object. d. are the variable costs of producing a product.

c. an be easily traced to a particular cost object.

Prime cost consists of: a. direct labor and manufacturing overhead. b. direct materials and manufacturing overhead. c. direct materials and direct labor. d. direct materials, direct labor and manufacturing overhead.

c. direct materials and direct labor.

A cost incurred in the past that is not relevant to any current decision is classified as a(n): a. period cost. b. opportunity cost. c. sunk cost. d. differential cost.

c. sunk cost.

Wages paid to the supervisor of the warehouse where raw materials and parts are temporarily stored before being used in production is considered an example of: A) Yes - Direct Labor, Yes - Period Cost B) Yes - Direct Labor, No - Period Cost C) No - Direct Labor, Yes - Period Cost D) No - Direct Labor, No - Period Cost a. Choice A b. Choice B c. Choice C d. Choice D

d. Choice D

Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device. The cost of the raw materials that will be used in manufacturing the computer board is: a. a sunk cost b. a fixed cost c. a period cost d. a variable cost

d. a variable cost