Managerial Chp 2 T/F
A contribution format income statement for a merchandising company organizes costs into two categories—cost of goods sold and selling and administrative expenses
False
A cost that differs from one month to another is known as a differential cost.
False
A direct cost is a cost that cannot be easily traced to the particular cost object under consideration.
False
A fixed cost remains constant if expressed on a unit basis.
False
A traditional format income statement organizes costs on the basis of behavior.
False
Contribution margin equals revenue minus all fixed costs.
False
Conversion cost equals product cost less direct labor cost.
False
Conversion cost is the sum of direct labor cost and direct materials cost.
False
Depreciation on office equipment would be included in product costs.
False
Direct material costs are generally fixed costs.
False
In a contribution format income statement, the gross margin minus selling and administrative expenses equals net operating income.
False
Manufacturing salaries and wages incurred in the factory are period costs.
False
Property taxes and insurance premiums paid on a factory building are examples of period costs.
False
The contribution format is widely used for preparing external financial statements.
False
Total variable cost is expected to remain unchanged as activity changes within the relevant range.
False
income statement provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, control, and decision making.
False
Commissions paid to salespersons are a variable selling expense.
True
Committed fixed costs represent organizational investments with a multi-year planning horizon that can't be significantly reduced even for short periods.
True
Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity.
True
Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the number of meals served at the restaurant.
True
Depreciation on manufacturing equipment is a product cost.
True
Direct labor is a part of prime cost, but not conversion cost.
True
In a traditional format income statement for a merchandising company, the selling and administrative expenses report all period costs that have been expensed as incurred.
True
Product costs are recorded as expenses in the period in which the related products are sold.
True
Rent on a factory building used in the production process would be classified as a product cost and as a fixed cost.
True
Selling costs can be either direct or indirect costs.
True
The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted.
True
The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on.
True
The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost.
True
The planning horizon for a committed fixed cost usually encompasses many years.
True
The potential benefit that is given up when one alternative is selected over another is called an opportunity cost.
True
Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.
True
Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of activity.
True
