Managerial Accounting Test 1 Concepts

"Outliers" are points that seem to fit the general pattern of behavior. True or False

False

Any costs associated with storing, selling, and delivering the product are classified as product costs. True or False

False

Assigning costs tells the accountant who spent the money. True or False

False

Costs can be assigned to cost objects in only one way. True or False

False

Expired costs are called assets. True or False

False

Glue used in the manufacture of cabinets would be an example of a fixed cost. True or False

False

Price must be greater than cost in order for the firm to generate revenue. True or False

False

Product costs are carried in inventory until the goods are finished, then they are expensed. True or False

False

Product costs include direct materials, direct labor, and selling costs. True or False

False

Reducing the cost required to achieve a given benefit means that a company is becoming less efficient. True or False

False

Research and development costs would be classified as product cost. True or False

False

The revenue per unit is called cost. True or False

False

The slope of a mixed cost line is equal to the fixed element of the cost. True or False

False

Using a linear regression program, the term 'Intercept' refers to the variable cost. True or False

False

Using a regression program, the term 'X Variable 1' refers to the dependent variable. True or False

False

Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is a period cost? - a. Depreciation on automobiles used by the sales staff b. Glue used in the production of kitchen cabinets c. Supplies for the factory washroom d. Wood used in the production process

a. Depreciation on automobiles used by the sales staff

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. MTC provides meals at each focus group session. Is the cost of meals direct or indirect? a. Direct cost b. Indirect cost

a. Direct Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the cost of tires for Honda Civics a direct or indirect cost? - a. Direct Cost b. Indirect Cost

a. Direct Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the salary of the engineer who monitors production quality for Honda Civics a direct or indirect cost? - a. Direct Cost b. Indirect Cost

a. Direct Cost

Indirect labor would include - a. salary of the vice-president of marketing. b. salary of CEO. c. salary of factory supervisor. d. none of these are correct.

c. Salary of factory supervisor

Which of the following would probably be a discretionary fixed cost for a law firm? - a. cost of legal forms b. depreciation on furniture and equipment c. advertising d. salary of receptionist

c. advertising

Period costs - a. are carried in inventory until the goods are sold. b. are used to compute product cost. c. are selling costs and administrative costs. d. can be included in overhead costs.

c. are selling costs and administrative costs

A mixed cost - a. remains constant when the output level increases. b. cannot be separated. c. contains both a fixed and variable component. d. All of these are correct.

c. contains both a fixed and variable component.

Which of the following would not be found on an income statement of a service organization? - a. operating income b. sales revenue c. cost of goods sold d. selling expenses

c. cost of goods sold

Expired costs are called - a. costs b. fixed. c. expenses. d. profit.

c. expenses

Which of the following would be found on the balance sheet of a manufacturer? - a. sales revenue b. selling expenses c. factory equipment d. all of these are correct

c. factory equipment

Which of the following would not be an example of a fixed cost? - a. property taxes b. insurance on factory building c. glue used to put together tables d. depreciation on factory building

c. glue used to put together tables

Indirect costs are costs that are not easily and accurately traced to a cost object. True or False

True

Marketing costs would be classified as period costs. True or False

True

Property taxes on a factory building would normally be classified as a fixed cost. True or False

True

Gross margin is the difference between sales revenue and cost of goods sold. True or False

True

A cost object is any item such as products, customers, departments, regions, and so on, for which costs are measured and assigned. True or False

True

A cost object is something for which a company wants to know the cost. True or False

True

A factory building needs to hire janitorial services. This is classified as indirect labor. True or False

True

A fixed cost is a cost that does not increase in total as output increases and does not decrease in total as output decreases. True or False

True

Accumulating costs is the way that costs are measured and recorded. True or False

True

Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method. True or False

True

As costs are used up in the production of revenues, they are said to expire. Expired costs are called expenses. True or False

True

Assigning costs involves the way that a cost is linked to some cost object. True or False

True

Cost is a dollar measure of the resources used to achieve a given benefit. True or False

True

Costs are incurred to produce future benefits. True or False

True

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. Is the payment to individual participants considered a direct or indirect cost? - a. Direct cost b. Indirect Cost

a. Direct cost

Copy of The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the salary of the engineer who monitors production quality for Honda Civics a fixed or variable cost? a. Fixed Cost b. Variable Cost

a. Fixed Cost

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. Would the salary of MTC's Director of Research be considered a variable or fixed cost? - a. Fixed cost b. Variable cost

a. Fixed Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the salary of the public relations manager at the Amarillo plant a variable or fixed cost? a. Fixed Cost b. Variable Cost

a. Fixed Cost

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. MTC leases a fancy office for its corporate headquarters. Would the cost of the lease be considered a direct or indirect cost? a. Indirect cost b. Direct cost

a. Indirect Cost

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. Would the salary of MTC's Director of Research be considered a direct or indirect cost? a. Indirect Cost b. Direct Cost

a. Indirect Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the cost of electricity for the entire plant a direct or indirect cost? a. Indirect Cost b. Direct Cost

a. Indirect Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the salary of the public relations manager at the Amarillo plant a direct or indirect cost? a. Indirect Cost b. Direct Cost

a. Indirect Cost

Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year. Which of the following is a period cost? - a. Salary of the Director of Marketing b. Salary of the shift supervisor on the production line c. Salary of the design engineer at the manufacturing facility. d. Salary paid to security officers at the manufacturing facility

a. Salary of the Director of Marketing

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. Is the payment to individual participants considered a variable or fixed cost? a. Variable Cost b. Fixed Cost

a. Variable Cost

Cost of goods manufactured equals - a.total product costs incurred during the current period + beginning work in process − ending work in process. b. direct materials cost + direct labor cost + overhead cost. c. sales − cost of goods sold. d. none of these are correct.

a. total product costs incurred during the current period + beginning work in process − ending work in process.

If output increases - a. total variable costs will increase. b. per-unit variable costs will increase. c. per-unit variable costs will decrease. d. per-unit fixed cost will increase.

a. total variable costs will increase.

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. MTC provides meals at each focus group session. Is the cost of meals variable or fixed? a. Variable Cost b. Fixed Cost

a. Variable Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the cost of electricity for the entire plant a fixed or variable cost? a. Variable Cost b. Fixed Cost

a. Variable Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the cost of electricity for the entire plant a fixed or variable cost? - a. Variable Cost b. Fixed Cost

a. Variable Cost

The Amarillo manufacturing plant of Compact Cars assembles two types of cars: Honda Civics and GM Chevys. The plant has two separate assembly lines: one for Civics and another for Chevys. The company must identify whether costs are Direct or Indirect with respect to its two product lines (Civics versus Chevys). And, whether costs are Variable or Fixed depending on the the number of cars assembled. Is the cost of tires for Honda Civics fixed or variable costs? a. Variable Cost b. Fixed Cost

a. Variable Cost

Which of the following is an example of direct labor? - a. assembly line worker for televisions b. staff accountant c. vice president of marketing d. supervisor at a manufacturing plant

a. assembly line worker for televisions

Which of the following would be a variable cost for a dentist's office? - a. cost of teeth cleaning material b. cost of renting office space c. salary of dentist d. depreciation on equipment

a. cost of teeth cleaning material

An income statement of a manufacturer - a. covers a certain period of time. b. will show the ending balance of work in process. c. will show the ending balance of materials inventory. d. contains only manufacturing costs.

a. covers a certain period of time.

Product costs consist of - a. direct materials, direct labor, and overhead. b. period costs. c. direct materials, direct labor, and selling costs. d. indirect materials, indirect labor, and administrative costs.

a. direct materials, direct labor, and overhead.

The cost of the partially completed goods at the end of the period would be - a. ending work in process inventory. b. beginning finished goods inventory. c. cost of goods sold. d. beginning work in process inventory.

a. ending work in process inventory.

Which of the following is an example of a service? a. eye exam b. stereo c. motorcycle d. television

a. eye exam

When a mixed cost is graphed the Y-intercept corresponds to the - a. fixed cost. b. price of the units sold. c. step cost. d. variable rate.

a. fixed cost.

A variable cost in total - a. increases as output increases and decreases as output decreases. b. remains constant no matter the level of output. c. increases as output decreases and decreases as output increases. d. increases as output increases and/or decreases.

a. increases as output increases and decreases as output decreases.

Cost of goods sold - a. is the total product cost for the units sold during a period. b. is found on the Balance Sheet. c. represents all costs associated with research, development, and general administration of the organization. d. is the cost of the partially completed goods that are still on the factory floor at the end of the period.

a. is the total product cost for the units sold during a period.

The following cost formula was developed using monthly data for a retail clothing store. Total cost = $75,620 + ($242 × number of customers) Refer to Figure 3-9. The term $242 - a. is the variable rate. b. is the independent variable. c. is the dependent variable. d. is the intercept.

a. is the variable rate.

The following cost formula was developed using the monthly data for an accounting firm. Total cost = $87,100 + ($210 × number of tax returns) Refer to Figure 3-10. The term $210 - a. is the variable rate. b. is the independent variable. c. is the intercept. d. is the dependent variable.

a. is the variable rate.

Direct labor is a(n) - a. product cost. b. opportunity cost. c. fixed cost. d. administrative cost.

a. product cost

Cost is - a. the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization. b. the difference between sales revenue and cost of goods sold. c. the benefit given up or sacrificed when one alternative is chosen over another. d. the revenue per unit.

a. the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.

When a mixed cost is graphed the slope of the line equals - a. the variable cost per unit of the activity driver. b. the total variable cost. c. the total fixed cost. d. the sales price per unit.

a. the variable cost per unit of the activity driver.

If output decreases - a. total fixed costs will remain the same. b. total variable costs will increase. c. per-unit fixed costs will decrease. d. All of these are correct.

a. total fixed costs will remain the same.

Materials in the raw materials account do not become direct materials - a. until they are withdrawn from inventory for use in production. b. until the finished product is sold. c. until they are purchased from a vendor. d. none of these are correct.

a. until they are withdrawn from inventory for use in production.

Which of the following would not be found on the income statement of a manufacturer? - a. work in process b. sales revenue c. operating income d. cost of goods sold

a. work in process

Marketing to Consumers (MTC) is a marketing research firm that organizes focus groups to evaluate consumer products. Each focus group has exactly 10 participants who are each paid $100 to evaluate a new product. MTC rents a conference room for each focus group session. MTC also hires a marketing consultant to lead discussions; consultants are paid $500 per focus group session. MTC is evaluating the cost of running focus groups. MTC must identify whether costs are Direct or Indirect with respect to individual focus groups. And, whether costs are Variable or Fixed depending on the number of focus groups conducted during the fiscal year. MTC leases a fancy office for its corporate headquarters. Would the cost of the lease be considered a variable or fixed cost? a. Variable cost b. Fixed cost

b. Fixed Cost

Per-unit fixed costs - a. increase as output increases. b. can be misleading and lead to poor decisions. c. stay the same as output changes. d. decrease as output decreases.

b. can be misleading and lead to poor decisions.

Which of the following would probably be a variable cost at a college? - a. salary of the head janitor b. cost of registration forms c. salary of the college president d. none of these options

b. cost of registration forms

Which of the following is not an example of a discretionary fixed cost? - a. training costs b. direct materials c. research and development d. advertising costs

b. direct materials

A fixed cost within the relevant range - a. increases in total as output decreases. b. does not change in total as output changes. c. decreases in total as output increases. d. All of these are correct.

b. does not change in total as output changes.

A factor that causes or leads to a change in a cost or activity is a(n) - a. cost formula. b. driver. c. step cost. d. mixed cost.

b. driver.

Total cost = Fixed cost + (Variable Rate × Output) Refer to Figure 3-1. In the cost formula above which element would be the intercept? - a. total cost b. fixed cost c. variable rate d. output

b. fixed cost

Step costs - a. remain the same within the relevant range. b. have an increased fixed component at specified intervals. c. increase in direct proportion to increases in output. d. none of these are correct.

b. have an increased fixed component at specified intervals.

An indirect cost - a. can be easily and accurately traced to a cost object. b. is hard to trace. c. should never be assigned to a cost object. d. do none of these.

b. is hard to trace

The following cost formula was developed using monthly data for a retail clothing store. Total cost = $75,620 + ($242 × number of customers) Refer to Figure 3-9. The term $75,620 - a. is the dependent variable. b. is the intercept. c. is the variable rate. d. is the independent variable.

b. is the intercept.

Non-manufacturing costs include a. overhead. b. marketing and administration. c. indirect materials. d. direct materials.

b. marketing and administration

Which of the following is not an example of a direct materials cost? a. tires on a bicycle b. nails used to manufacture a desk c. shelves on a bookcase d. engine in a car

b. nails used to manufacture a desk

A committed fixed cost - a. can easily be changed. b. often involves a long-term contract. c. changes when the level of output changes. d. all of these are correct

b. often involves a long-term contract.

The range of output over which the assumed cost relationship is valid for normal operations of a firm is called the - a. dependent range. b. relevant range. c. linear range. d. mixed range.

b. relevant range.

The formula for a mixed cost is - a. total cost = total variable cost + ( fixed rate × amount of output). b. total cost = total fixed cost + (variable rate × amount of output). c. total cost = variable rate × amount of output. d. none of these are correct.

b. total cost = total fixed cost + (variable rate × amount of output).

The method of least squares - a. is the least accurate method. b. uses the results of regression analysis to construct a cost formula. c. can easily be calculated by hand. d. analyzes a cost relationship by plotting the data points on a graph.

b. uses the results of regression analysis to construct a cost formula.

The following cost formula was developed using monthly data for a retail clothing store. Total cost = $75,620 + ($242 × number of customers) Refer to Figure 3-9. The term "total cost" - a. is the intercept. b. is the independent variable. c. is the dependent variable. d. is the variable rate.

c. is the dependent variable.

The following cost formula was developed using the monthly data for an accounting firm. Total cost = $87,100 + ($210 × number of tax returns) Refer to Figure 3-10. The term $87,100 - a. is the independent variable. b. is the variable rate. c. is the intercept. d. is the dependent variable.

c. is the intercept.

Cost of goods manufactured equals - a. the period costs for the current period. b. the cost of direct materials and direct labor used during the current period. c. the product cost of goods completed during the current period and transferred to finished goods. d. the cost of indirect materials used in production.

c. the product cost of goods completed during the current period and transferred to finished goods.

A manufacturer normally has - a. one inventory account. b. four inventory accounts. c. three inventory accounts. d. none of these are correct.

c. three inventory accounts.

Total cost = Fixed cost + (Variable Rate × Output) Refer to Figure 3-1. In the cost formula above which element would be the dependent variable? - a. output b. variable rate c. total cost d. fixed cost

c. total cost

Product costs are expensed - a. when the product is finished. b. when the product unit cost is calculated. c. when the product is sold. d. all of these are correct.

c. when the product is sold

The relevant range - a. is the normal range of output. b. is the range of output where cost relationships are valid. c. may change from period to period. d. All of these are correct.

d. All of these are correct.

Variable costs within the relevant range - a. stay constant on a per unit basis as output changes. b. increase in total as output increases. c. decrease in total as output decreases. d. All of these are correct.

d. All of these are correct.

Assigning costs - a. involves the way that a cost is linked to some cost object. b. occurs in both manufacturing and service businesses. c. to a cost object using a reasonable and convenient method is allocation. d. all of these

d. all of these

The method of least squares - a. is a way to find the "best fitting" line through a set of data points. b. is a statistical way of separating a mixed cost. c. always produces the same cost formula when used on the same data set. d. all of these are correct

d. all of these are correct

Total variable costs - a. increases as output increases. b. decreases as output decreases. c. equal a variable rate × amount of output. d. all of these are correct.

d. all of these are correct.

Overhead includes - a. indirect labor. b. indirect materials. c. factory supplies. d. all of these.

d. all of these.

Product costs - a. are costs that are included in the determining the value of the inventory. b. are manufacturing costs. c. include direct materials, direct labor, and overhead. d. are all of these.

d. are all of these

When the volume of activity increases within the relevant range, the fixed cost per unit - a. remains the same. b. increase. c. increases at first, then decreases. d. decreases.

d. decreases.

Which of the following would be an example of a fixed cost? - a. electric bill b. wages for an assembly line worker c. materials used d. depreciation on equipment

d. depreciation on equipment

Assigning costs to cost objects - a. provides information for decision making. b. can be accomplished in a number of ways. c. can be a simple or complex process. d. do all of these.

d. do all of these

The following cost formula was developed using monthly data for a retail clothing store. Total cost = $75,620 + ($242 × number of customers) Refer to Figure 3-9. The term "number of customers" - a. is the intercept. b. is the dependent variable. c. is the variable rate. d. is the independent variable.

d. is the independent variable.

On a manufacturer's income statement expenses are separated into the following three categories: - a. variable, fixed, and direct b. materials, work in process, and finished goods c. production, period, and indirect d. production, selling, and administrative

d. production, selling, and administrative

Per-unit variable costs - a. increase as output increases. b. decrease as output decreases. c. can be misleading and lead to poor decisions. d. remain constant within the relevant range.

d. remain constant within the relevant range.

Which of the following would probably be a fixed cost in a fast-food restaurant? - a. cost of french fries b. utility cost c. cost of hamburger d. shift manager's salary

d. shift manager's salary

Price is not: a. the revenue per unit. b. the same as cost per unit plus the income per unit. c. greater than cost in order for the firm to earn income. d. the same as cost.

d. the same as cost

If output increases by 50% and is still within the relevant range - a. total fixed costs will increase by 50%. b. net income will increase by 50%. c. per-unit fixed cost will remain the same. d. total variable costs will increase by 50%.

d. total variable costs will increase by 50%.

Total cost = Fixed cost + (Variable Rate × Output) Refer to Figure 3-1. In the cost formula above which element would be the slope? - a. output b. fixed cost c. total cost d. variable rate

d. variable rate