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Chapter 2 (part 2)

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The cost incurred is: A) actual costs. B) budgeted costs. C) cost object. D) cost accumulation. E) cost allocation

A) actual costs.

The broader definition of a cost object is: A) the higher proportion of costs that are direct costs and the managers are more confident in the accuracy of the cost amounts. B) the lower proportion of costs that are direct costs and the managers are more confident in the accuracy of the cost amounts. C) the higher proportion of costs that are indirect costs and the managers are less confident in the accuracy of cost amounts. D) the lower proportion of costs that are indirect costs and the managers are less confident in the accuracy of cost amounts. E) the managers are never confident in the accuracy of cost amounts.

A) the higher proportion of costs that are direct costs and the managers are more confident in the accuracy of the cost amounts.

As a general rule, managers first calculate total costs, and then compute which of the following costs when they need to make decisions? A) A direct cost. B) A unit cost. C) A variable cost. D) An indirect cost. E) A cost driver.

B) A unit cost.

Financial accountants realize that a mixed cost is: A) a fixed cost. B) a cost with fixed and variable elements. C) a variable cost. D) always an indirect cost. E) only an indirect cost.

B) a cost with fixed and variable elements.

A/an ________ cost is the cost incurred; and they are distinguished from a ________ cost; which is a predicted, forecasted, or future cost. A) budget; object B) actual; budgeted C) accumulated; actual D) budgeted; actual E) cost object; actual

B) actual; budgeted

Fixed and variable costs: A) always change in the same proportion. B) are defined as variable or fixed for a specific activity for a given time period. C) are only defined for a specific activity and never for a given period of time. D) are only defined for a given period of time and not for a specific activity. E) are never useful to managers when they make cost decisions

B) are defined as variable or fixed for a specific activity for a given time period.

Cost accumulation: A) is the cost incurred. B) is a collection of cost data in an organized way by means of a cost object. C) predicts, or forecasts, costs. D) measures the desired costs. E) describes the assignment of indirect costs to a particular cost object.

B) is a collection of cost data in an organized way by means of a cost object.

A manager at an airline must purchase individual annual licenses and pay registration costs for each airplane in the fleet of airplanes they operate at the airport. What type of cost is/are the registration and license costs for the miles flown each year for each individual airplane? A) Fixed and variable cost for the miles flown by each individual plane. B) Mixed cost for the miles flown by all planes each year. C) Fixed cost for the miles flown by each individual plane. D) Variable cost for the miles flown by each individual plane. E) Licenses and registrations are not considered costs to the airline

C) Fixed cost for the miles flown by each individual plane.

When are inventoried unit costs expensed? A) Unit costs are never expensed. B) Expensed before units are sold. C) Not expensed until the units are sold. D) Expensed when they are in production. E) These costs are period costs not unit costs

C) Not expensed until the units are sold.

________ ________ is the wage rate paid to workers for both direct labor and indirect labor in excess of their straight-time wage rates. A) Overtime payout B) One payment C) Overtime premium D) Premier pay E) Objection pay

C) Overtime premium

When 40,000 units are produced, fixed costs are $16 per unit. Therefore, when 80,000 units are produced, fixed costs will: A) increase to $32 per unit. B) remain at $16 per unit. C) decrease to $8 per unit. D) total $640,000. E) total $540,000.

C) decrease to $8 per unit.

In finished goods inventory: A) direct materials are in stock and awaiting use in the manufacturing process. B) goods are partially worked on but not yet fully completed. C) goods are fully completed but not yet sold. D) products are in their original form intended to be sold but the basic form is changed basic form. E) goods are partially completed and sold as is.

C) goods are fully completed but not yet sold.

An example of a mixed cost is: A) monthly rent payments. B) manager's salary. C) monthly electric bill. D) direct materials. E) none of these are mixed costs

C) monthly electric bill.

Budgeted costs include: A) the costs incurred this year. B) the costs incurred last year. C) the planned or forecasted costs. D) the cost of a competitor. E) the costs incurred two years ago

C) the planned or forecasted costs.

Which of the following statements about the direct or indirect cost classification is not true? A) Indirect costs are always traced. B) Indirect costs are always allocated. C) The design of operations affects the direct or indirect cost classification. D) The direct/indirect classification depends on the choice of the cost object. E) All of these statements are true

A) Indirect costs are always traced.

Which of the following is not true about unit costs? A) Decision makers think in terms of total costs rather than unit costs. B) Decision makers think in terms of unit costs rather than total costs. C) Calculating unit cost is essential. D) Unit costs are also known as average costs. E) Managers can express costs in various ways

B) Decision makers think in terms of unit costs rather than total costs.

If each motorcycle requires a fan belt that costs $20 and 2,000 motorcycles are produced in the month, the total cost for the fan belts is: A) considered to be a fixed cost. B) considered to be a direct variable cost. C) considered to be an indirect fixed cost. D) considered to be an indirect variable cost. E) none of these are true.

B) considered to be a direct variable cost.

We define cost allocation as: A) the process of tracking both direct and indirect costs associated with a cost object. B) the process of determining the actual cost of the cost object. C) the assignment of indirect costs to the chosen cost object. D) a function of cost tracing. E) not a function of cost assignment

C) the assignment of indirect costs to the chosen cost object.

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Personnel

Number of employees

T/F The managers at BMW utilize their knowledge about costs to make decisions about product innovation, quality, and customer service

TRUE

T/F The plant administrative costs at a manufacturing company are indirect costs

TRUE

T/F The two terms that managers use to describe cost classifications in manufacturing costing systems are prime costs and conversion costs

TRUE

T/F The unit cost, or average cost, is the ratio of total costs to the number of units produced

TRUE

T/F Under GAAP, only manufacturing costs can be assigned to inventories in the financial statements

TRUE

The manager at the Carburetor Factory buys a custom carburetor at $50.00 each for each of its custom vehicles. Compute the total fixed cost per custom carburetor if 1, 500, and 1,000 custom carburetors are produced. A) $25,000; $50,000 B) $30,000; $60,000 C) $35,000; $70,000 D) $40,000; $45,000 E) $45,000; $90,000

A) $25,000; $50,000

Which of the following is normally included in direct materials inventory? A) Direct materials in stock and awaiting use in the manufacturing process. B) Goods partially worked on but not yet fully completed. C) Goods fully completed but not yet sold. D) Products in their original form intended to be sold without changing their basic form. E) Goods and products that have been completed and sold.

A) Direct materials in stock and awaiting use in the manufacturing process.

Which of the following is not a prominent labor component of overhead? A) Direct programming labor that cannot be traced to individual products. B) Indirect labor compensation for office staff. C) Indirect compensation for idle time. D) Indirect labor compensation for rework labor. E) Indirect labor compensation for office security

A) Direct programming labor that cannot be traced to individual products.

A key aspect of making decisions is: A) analyzing relevant information. B) analyzing irrelevant information. C) analyzing unimportant information. D) analyzing only future information. E) analyzing only past information

A) analyzing relevant information.

Managers compare actual results to planned performance: A) at the end of the reporting period. B) at the beginning of the reporting period. C) at the middle of the reporting period. D) at the middle of the first quarter. E) at the future planning meetings.

A) at the end of the reporting period.

Cost tracing: A) describes the assignment of direct costs to a particular cost object. B) is the cost incurred which is a predicted or forecasted cost. C) is the collection of data in some organized way. D) is used to describe the assignment of indirect costs to a particular cost object. E) encompasses both cost tracing and allocating indirect costs to a cost object

A) describes the assignment of direct costs to a particular cost object.

The two main ways managers use cost information are when they ________ decisions; and, ________ decisions. A) make; implement B) create; brainstorm C) control; create D) brainstorm; control E) control; accumulate

A) make; implement

A BMW X6 sports activity coupe is an example of the ________ cost object at BMW. A) product B) service C) project D) customer E) activity

A) product

We define cost tracing as: A) the assignment of direct costs to a chosen cost object. B) a function of cost allocation. C) the process of tracking both direct and indirect costs associated with a cost object. D) the process of determining the actual cost of the cost object. E) the process of tracking only the direct and indirect costs

A) the assignment of direct costs to a chosen cost object.

When 5,000 units are produced, variable costs are $6 per unit. Therefore, when 20,000 units are produced: A) variable costs will total $120,000. B) variable costs will total $60,000. C) variable unit costs will increase to $12 per unit. D) variable unit costs will decrease to $3 per unit. E) variable costs will decrease to $2 per unit.

A) variable costs will total $120,000.

The predicted, or forecasted costs, are: A) actual costs. B) budgeted costs. C) cost object. D) cost accumulation. E) cost allocation.

B) budgeted costs.

A ________ is usually measured as the amount of money that must be paid to acquire goods and services. A) time B) cost C) goal D) product E) prediction

B) cost

The general term used to identify the tracing and allocation of accumulated costs to a cost object is: A) cost accumulation. B) cost assignment. C) cost tracing. D) conversion costing. E) convertible costing.

B) cost assignment.

In government contracts, product costs include: A) manufacturing costs only. B) design costs plus manufacturing costs. C) all costs incurred along the value chain. D) distribution costs only. E) production costs only.

B) design costs plus manufacturing costs.

Managers compute the unit cost by: A) multiplying total cost by the number of units. B) dividing total cost by the number of units. C) dividing variable cost by the number of units. D) adding variable cost to fixed cost. E) adding variable, direct, and indirect costs.

B) dividing total cost by the number of units.

Which of the following is correct about indirect costs of a cost object? A) Cost allocation is not used to describe the assignment of these costs to a particular cost object. B) Cost tracing is used to describe its assignment of these costs to a particular cost object. C) Can be traced to a cost object in an economically feasible way. D) Cannot be traced to a cost object in an economically feasible way. E) Cost assignment is not used in indirect costing methods.

C) Can be traced to a cost object in an economically feasible way.

Which of the following is not a true statement about variable costs? A) A total cost that can change in proportion to changes in the number of product produced. B) An important cost to identify so managers can make important management decisions. C) Total cost never changes in proportion to any changes in related levels of volume or activity. D) When considering total cost behavior, focus on total costs. E) Total cost is known to change in proportion to any changes in related level of volume or activity.

C) Total cost never changes in proportion to any changes in related levels of volume or activity.

The cost object is: A) the cost incurred. B) a collection of cost data in some organized way by means of a cost object. C) a predicted, or forecasted, cost. D) anything for which a measurement of costs is desired. E) used to describe the assignment of indirect costs to a particular cost object

C) a predicted, or forecasted, cost.

Unit costs are found in: A) only the production department. B) only the sales department. C) all areas of the value chain. D) only in the marketing department. E) only in the human resource department.

C) all areas of the value chain.

Pricing and product-mix decisions include: A) manufacturing costs only. B) design costs plus manufacturing costs. C) all costs incurred along the value chain. D) distribution costs only. E) production costs only

C) all costs incurred along the value chain.

Accounting systems report: A) only the total cost amounts. B) only the average-cost per unit amounts. C) both total-cost amounts and average-cost per unit amounts. D) only average costs. E) no cost amount data.

C) both total-cost amounts and average-cost per unit amounts.

The sum of the costs assigned to a product for a specific purpose are: A) manufacturing costs. B) design costs. C) product costs. D) service-sector costs. E) technology costs.

C) product costs.

Cost Object #1: The real estate dwelling(s) (physical buildings and equipment) Cost Object #2: The use of buildings and equipment Cost Object #3: The use and availability of manufacturing labor Insurance for property

Cost Object #1: The real estate dwelling(s) (physical buildings and equipment)

Cost Object #2: The use of buildings and equipment

Cost Object #3: The use and availability of manufacturing labor

Mrs. Jones earns $25.00 per hour for straight time worked in the office; and, she earns $40.00 per hour when she works overtime. In week one of the new pay period, she reported that she worked 48 hours, which included 8 hours of overtime. Compute Mrs. Jones's total compensation: A) $1,000 B) $1,220 C) $1,300 D) $1,320 E) $1,425

D) $1,320

Which of the following explains why managers compare the budgeted costs to actual costs? A) Managers only focus on the budgeted costs. B) Managers only learn how to make better decisions in the future. C) Managers know how well they did to control costs only. D) Managers evaluate how well they did to control costs and learn how to do better in the future. E) Managers never compare these costs.

D) Managers evaluate how well they did to control costs and learn how to do better in the future.

The costing systems that managers use to identify the cost of each activity such as testing, design, or set-up are called: A) product-based costing systems. B) action-based costing systems. C) managerial-based costing systems. D) activity-based costing systems. E) resource-based costing systems

D) activity-based costing systems.

Managers compute the cost of goods sold in a manufacturing entity as: A) beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process inventory = Cost of goods sold. B) beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods sold. C) cost of goods manufactured - Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold. D) cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold. E) cost of goods manufactured - Beginning finished goods inventory + Ending work-in-process inventory = Cost of goods sold.

D) cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold.

The cost of goods sold is the cost of finished goods inventory sold to customers: A) before the previous accounting period. B) after the previous accounting period. C) during a future accounting period. D) during the current accounting period. E) during the previous accounting period

D) during the current accounting period.

For the purpose of calculating inventory, product costs include only: A) direct costs. B) indirect costs. C) variable costs. D) inventoriable (manufacturing) costs. E) mixed costs.

D) inventoriable (manufacturing) costs.

A sunk cost: A) is a cost that occurs in the present. B) is not categorized as a cost. C) is a relevant cost. D) is a cost that occurred in the past. E) is expected to occur in the future

D) is a cost that occurred in the past.

The wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight time wage rate is: A) idle time. B) straight-time. C) accelerated time. D) overtime premium. E) direct costing method.

D) overtime premium.

A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the: A) average range. B) cost-allocation range. C) cost drive range. D) relevant range. E) driving range.

D) relevant range.

Which of the following is not a challenge to managers that allocate costs? A) Assign inaccurate product costs. B) Inaccurate product costs mislead managers about the profitability of products. C) Managers will promote unprofitable products. D) Managers deemphasize profitable products. E) Assign accurate product costs.

E) Assign accurate product costs.

Which of the following is not a commonly used classification or characteristic of manufacturing costs? A) Direct material costs. B) Direct manufacturing labor costs. C) Indirect manufacturing costs. D) Freight-in charges. E) Cost of goods sold.

E) Cost of goods sold.

Which of the following is not a characteristic of the type of inventory used in manufacturing-type sector companies? A) Direct materials inventory. B) Work-in process inventory. C) Finished goods inventory. D) Materials in stock and waiting to use. E) Products already manufactured and sold

E) Products already manufactured and sold

Which of the following is not true about payroll fringe costs? A) Managers do not need to classify payroll fringe costs. B) Contracts and laws should be as specific as possible regarding definitions and measurements. C) Disputes arise about whether they should be included as part of direct labor costs when calculating percentage of direct labor. D) Managers classify them as part of direct labor costs to make direct labor costs a higher percentage of total costs. E) Tax authorities argue that the costs are part of overhead

E) Tax authorities argue that the costs are part of overhead

The term that refers to the cost of goods brought to completion, whether they were started before or during the accounting period is: A) cost of goods sold. B) cost of goods produced. C) cost of goods insured. D) cost of goods serviced. E) cost of goods manufactured

E) cost of goods manufactured

Under Generally Accepted Accounting Principles (GAAP), only ________ costs can be assigned to inventories in the financial statements. A) period B) direct C) indirect D) variable E) manufacturing

E) manufacturing

T/F Indirect costs of a cost object can be traced to a specific cost object and direct costs of a cost object cannot be traced to a specific cost object

FALSE (Indirect cannot be traced, direct can be traced)

T/F Direct manufacturing labor costs are only a part of prime costs

FALSE (both prime and conversion costs)

T/F Cost tracing is used to describe the assignment of indirect costs to a particular cost object

FALSE (direct costs)

T/F Fixed costs can be changed quickly to match the amount of resources that are needed or used in the organization

FALSE (fixed costs cannot be changed)

T/F One highlight of indirect costs of a cost object is that it can be traced in an economically feasible way

FALSE (indirect costs cannot be traced)

T/F Service-sector companies are known as companies that provide products to its customers.

FALSE (provides services to its customers)

T/F Managers should think in terms of unit costs rather than terms of total costs for many decisions.

FALSE (should think in terms of total costs rather than unit costs)

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Customer Service

Number of customers

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Computer Support

Number of desktop computers

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Billing

Number of invoices

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Purchasing

Number of purchase orders

Representative Cost Driver (Number of shipments, employees, customers, invoices, desktop computers, purchase order) Shipping

Number of shipments

T/F Accountants measure the cost of direct materials or advertising at manufacturing plants by using the monetary amount paid to acquire them

TRUE

T/F Although labor cost classifications vary among companies, many companies use multiple labor cost categories

TRUE

T/F As information gathering technology improves, companies can add more and more direct-cost categories

TRUE

T/F Budgeted costs are also known as predicted or forecasted costs (future costs).

TRUE

T/F Conversion costs represent all manufacturing costs incurred to convert direct materials into finished goods

TRUE

T/F Costs are defined as variable or fixed for a specific activity and for a given time period.

TRUE

T/F Costs that have both fixed and variable elements are called mixed costs or semivariable costs

TRUE

T/F Depending on the purpose, a manager can assign different costs to the same cost object

TRUE

T/F Ford Motor Company is an example of a plant that manufactures automobiles. The cost of the lease where it manufactures automobiles can be categorized as an indirect cost

TRUE

T/F In general, a manager is more confident about the accuracy of direct costs of cost objects

TRUE

T/F Indirect costs such as rent, telephone, and depreciation are always costs of the period in which they are incurred and are not associated with inventories

TRUE

T/F Managers achieve clarity about direct labor costs because it may prevent disputes regarding cost reimbursement contracts, income tax payments, and labor union matters

TRUE

T/F Managers use their knowledge about costs to help guide their decisions about product innovation, quality, and customer service

TRUE

T/F Manufacturing-sector companies purchase materials and components and convert them into various finished goods

TRUE

T/F Merchandising-sector companies purchase and then sell tangible products without changing their basic form

TRUE

T/F Outside the relevant range, variable costs, such as direct materials, may not change proportionately with changes in production volume

TRUE

T/F Service-sector companies only provide services or intangible products and so do not hold inventories of tangible products

TRUE

T/F The cost of steel and tires to an automobile manufacturer is an example of a direct cost

TRUE

T/F The idle time associated with direct labor and indirect labor is a subclassification of indirect labor

TRUE

All costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold only when the product is sold are:

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