Acct 3121 Ch. 2

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 driver range D) relevant range

D

Variable costs depend on the resources used.

FALSE

Direct materials inventory would normally include ________. 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

A

________ are the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object. A) Sales taxes paid to acquire materials B) Wages paid to assembly-line workers C) Plant depreciation incurred D) Property taxes on plant

A

Which of the following statements is true? A) A direct cost of one cost object will always be a direct cost of another cost object. B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs. C) All fixed costs are indirect costs. D) All direct costs are variable costs.

B

Which one of the following items is a direct cost? A) Customer-service costs of a multiproduct firm; Product A is the cost object. B) Printing costs incurred for payroll check processing; payroll check processing is the cost object. C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object. D) Utility costs of the administrative offices; the accounting department is the cost object.

B

Work-in- process inventory would normally include ________. 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) goods returned after being sold to be re-worked on further improvements and quality

B

Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units for $15 per unit Beginning inventory $3,500 What is the average manufacturing cost per unit? A) $11.00 B) $9.00 C) $11.25 D) $11

B) $135,000 / 15,000 = $9.00

For a manufacturing-sector company, the cost of factory depreciation is classified as a ________. A) direct material cost B) direct manufacturing labor cost C) manufacturing overhead cost D) period cost

C

Which of the following companies is part of the merchandising sector of our economy? A) Jaguar B) Hewlett Packard C) Arrow Electronics D) Michael Toback Accounting Firm

C

For a manufacturing company, direct material costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in- process inventory and finished goods inventory D) direct materials inventory, work-in- process inventory, and finished goods inventory accounts

D

Cost accumulation is ________. A) the collection of cost data in some organized way by means of an accounting system B) anything for which a cost measurement is desired C) anything for which a profit measurement is desired D) the collection of profit data in some organized way by means of an accounting system

A

In making product mix and pricing decisions, managers should focus on ________. A) total costs B) unit costs C) variable costs D) manufacturing costs

A

Which of the following is a fixed cost for an automobile manufacturing plant? A) administrative salaries B) electricity used by assembly-line machines C) sales commissions D) tires

A

Which of the following is a fixed cost? A) monthly rent payment B) electricity expenses C) travel expenses D) direct material costs

A

Which of the following is a period cost? A) sales promotion expenses B) direct material cost C) direct labor cost D) indirect manufacturing costs like plant insurance

A

The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost? A) 32% B) 28% C) 26% D) 20%

B Explanation: B) $25 + 10 = $35/125 = 28%

Which of the following is a direct manufacturing cost? A) plant maintenance B) plant rent C) fringe benefits paid to machine operators D) property taxes on plant

C

Which of the following is true if the volume of sales increases? A) fixed cost increases B) variable cost decreases C) variable cost increases D) fixed cost decreases

C

Yahoo, an Internet search firm, would be classified as a(n) ________. A) manufacturing-sector company B) merchandising-sector company C) service-sector company D) financial services

C

________ sector companies purchase materials and components and convert them into finished goods. A) Merchandising B) Service C) Manufacturing D) Professional

C

A cost system determines the cost of a cost object by ________. A) accumulating and then assigning costs B) accumulating costs C) assigning and then accumulating costs D) assigning costs

A

An actual cost is ________. A) is the cost incurred B) is a predicted or forecasted cost C) is anything for which a cost measurement is desired D) is the collection of cost data in some organized way by means of an accounting system

A

Cost behavior refers to ________. A) how costs react to a change in the level of activity B) whether a cost is incurred in a manufacturing, merchandising, or service company C) classifying costs as either perpetual or period costs D) whether a particular expense is expensed in the same or the following period

A

Cost tracing is ________. A) the assignment of direct costs to the 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

A

Manufacturing overhead costs are also referred to as ________. A) indirect manufacturing costs B) prime costs C) direct manufacturing costs D) direct material

A

Merchandising-sectors ________. A) purchase and then sell tangible products without changing their basic form B) provide intangible products C) purchase materials and components and convert them into finished goods D) purchase and then sell tangible products by changing their basic form

A

Service-sector companies ________. A) provide intangible products B) purchase and then sell tangible products without changing their basic form C) purchase and then sell tangible products by changing their basic form D) purchase materials and components and convert them into finished goods

A

Target reports ________. A) only merchandise inventory B) only finished goods inventory C) direct materials inventory, work-in- process inventory, and finished goods inventory accounts D) no inventory accounts

A

When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________. A) variable costs will remain at $8 per unit 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

A

Which of the following companies is part of the manufacturing sector of our economy? A) Nike B) Barnes & Noble C) Corvette Law Firm D) Sears, Roebuck, and Company

A

Which of the following is true if the production volume decreases? A) fixed cost per unit increases B) average cost per unit decreases C) variable cost per unit increases D) variable cost per unit decreases

A

Which of the following statements is true? A) There is a cause-and- effect relationship between the cost driver and the amount of cost. B) Fixed costs have cost drivers over the short run. C) Over the short run all costs have cost drivers. D) Volume of production is a cost driver of distribution costs.

A

Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%? A) profits are reduced by $4,000 B) profits are reduced by $1,000 C) profits are reduced by $5,000 D) profits are reduced by $6,000

A Explanation: A) Variable cost per unit = $10,000 / 50 = $200 Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000) = $10,000 Sales after 10% drop = 50 × (1 - 0.10) = 45 Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))= $6,000 Change in profit = $10,000 - $6,000 = $4,000. Hence, the profit has decreased by $4,000.

The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost? A) 72% B) 68% C) 75% D) 70%

A Explanation: A) $60 + $10 + $15 + $5 = $90/125 = 72%

When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________. A) increase to $20 per unit B) remain at $16 per unit C) decrease to $10 per unit D) total $160,000

A Explanation: A) Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units = $20.

Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121? A) $5 B) $21 C) $90 D) $142

A Explanation: A) Indirect variable costs = Sales commissions = $5

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line is ________. A) beverages provided daily in the plant break room B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver C) salaries of the clerical staff that work in the company administrative offices D) overheads incurred in producing both golf and soccer equipment

B

A unit cost is computed by ________. A) multiplying total cost by the number of units produced B) dividing total cost by the number of units produced C) dividing variable cost by the number of units produced D) dividing fixed cost by the number of units produced

B

At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________. A) are considered a variable cost B) are considered a fixed cost C) depend on the scheduling of floor workers D) depend on the scheduling of production runs

B

Comparing budgeted costs to actual costs helps managers to improve ________. A) coordination B) control C) implementation D) planning

B

Cost assignment ________. A) includes future and arbitrary costs B) encompasses allocating indirect costs to a cost object C) is the same as cost accumulation D) is the difference between budgeted and actual costs

B

If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________. A) considered to be a direct 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

B

Manufacturing overhead costs in an automobile manufacturing plant most likely include ________. A) labor costs of the painting department B) indirect material costs such as lubricants C) leather seat costs D) tyre costs

B

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

B

The most likely cost driver of distribution costs is the ________. A) number of parts within the product B) number of miles driven C) number of products manufactured D) number of production hours

B

Variable costs ________. A) are always indirect costs B) increase in total when the actual level of activity increases C) include most personnel costs and depreciation on machinery D) are never considered a part of prime cost

B

Wages paid to machine operators on an assembly line are classified as a ________. A) direct material cost B) direct manufacturing labor cost C) manufacturing overhead cost D) period cost

B

Which of the following companies is part of the service sector of our economy? A) Target B) Ernst & Young C) Nokia D) Amazon.com

B

Which of the following cost is included in cost of goods sold? A) customer service cost B) manufacturing labor cost C) distribution cost D) marketing cost

B

Which of the following is a cost driver for a company's human resource costs? A) the number of employees in the company B) the number of job applications processed C) the number of units sold D) the square footage of the office space used by the human resource department

B

Which of the following statements about the direct/indirect cost classification is true? A) Indirect costs are always traced. B) Indirect costs are always allocated. C) The design of sales target affects the direct/indirect classification. D) The direct/indirect classification depends on the cost control measures.

B

Budgeted costs are ________. A) the costs incurred this year B) the costs incurred last year C) planned or forecasted costs D) competitor's costs

C

Classifying a cost as either direct or indirect depends upon ________. A) the behavior of the cost in response to volume changes B) whether the cost is expensed in the period in which it is incurred C) whether the cost can be easily traced with the cost object D) whether a cost is fixed or variable

C

Cost allocation is ________. A) the process of tracking both direct and indirect costs associated with a cost object B) the process of determining the opportunity cost of a cost object chosen C) the assignment of indirect costs to the chosen cost object D) made based on material acquisition document

C

Finished goods inventory would normally include ________. 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) goods returned after being sold to be re-worked on further improvements and quality

C

For a manufacturing company, direct labor costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in- process inventory and finished goods inventory D) direct materials inventory, work-in- process inventory, and finished goods inventory accounts

C

For a manufacturing company, indirect manufacturing costs may be included in ________. A) direct materials inventory only B) merchandise inventory only C) both work-in- process inventory and finished goods inventory D) direct materials inventory, work-in- process inventory, and finished goods inventory accounts

C

Manufacturing-sector companies report ________. A) only merchandise inventory B) only finished goods inventory C) direct materials inventory, work-in- process inventory, and finished goods inventory accounts D) direct materials inventory and finished goods inventory accounts only

C

Outside the relevant range, variable costs, such as direct material costs ________. A) will decrease proportionately with changes in sales volumes B) will remain the same with changes in production volumes C) will not change proportionately with changes in production volumes D) will increase proportionately with changes in sales volumes

C

The most likely cost driver of direct labor costs is the ________. A) number of machine setups for the product B) number of miles driven C) number of production hours D) number of machine hours

C

Which of the following statements is true of direct costs? A) A direct cost of one cost object is a true sense of the budgeted costs. B) All variable costs are direct costs. C) A direct cost of one cost object can be an indirect cost of another cost object. D) All fixed costs are direct costs.

C

Which one of the following is a variable cost for an insurance company? A) rent of the building B) CEO's salary C) electricity expenses D) property taxes

C

Within the relevant range, if there is a change in the level of the cost driver, then ________. A) total fixed costs and total variable costs will change B) total fixed costs and total variable costs will remain the same C) total fixed costs will remain the same and total variable costs will change D) total fixed costs will change and total variable costs will remain the same

C

Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the direct variable manufacturing costs per unit associated with Product DCT121? A) $142 B) $90 C) $105 D) $110

C Explanation: C) Direct variable manufacturing costs = $70 + $20 + $15 = $105

Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000 If sales reduce to half the amount in the next month, what is the projected operating income? A) $0 B) $4,000 C) $2,000 D) $6,000

C Explanation: C) Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000

Indirect manufacturing costs ________. A) can be traced to the product that created the costs B) can be easily identified with the cost object C) generally include the cost of material and the cost of labor D) may include both variable and fixed costs

D

Service-sector companies report ________. A) work-in- process inventory, and finished goods inventory accounts B) only finished goods inventory C) direct materials inventory, work-in- process inventory, and finished goods inventory accounts D) no inventory accounts

D

The determination of a cost as either direct or indirect depends upon the ________. A) accounting standards B) tax system chosen C) inventory valuation D) cost object chosen

D

Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 8 Variable manufacturing overhead 12 Fixed manufacturing overhead 15 Total manufacturing costs $85 The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000 bicycles? A) $78.50 per unit B) $170 per unit C) $72.50 per unit D) $77.50 per unit

D Explanation: D) Cost of producing 2,000 bicycles = [($50 + $8 + $12) × 2,000 units] + ($15 × 1,000 units) = $155,000 / 2,000 units = $77.50

Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units for $15 per unit Beginning inventory $3,500 What is the manufacturing cost for the ending finished goods inventory? A) $42,500 B) $25,500 C) $18,500 D) $30,500

D Explanation: D) Ending finished inventory = $3,500 + (15,000 - 12,000) × $9 = $30,500

Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000 If sales reduce to half of the amount in the next month, what is the projected operating income? A) $15,000 B) $6,000 C) $16,000 D) $3,000

D) Projected operating income = ($40,000 / 2) − ($14,000 / 2) − $10,000 = $3,000

Costs are accounted for in two basic stages: assignment followed by accumulation.

FALSE Explanation: Costs are accounted for in two basic stages: accumulation followed by assignment.

The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).

FALSE Explanation: The distinction between direct and indirect costs is not set forth in GAAP. Direct costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective) way.

The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.

FALSE Explanation: The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object.

Assigning indirect costs is easier than assigning direct costs.

FALSE Explanation: Tracing direct costs is quite straightforward, whereas assigning indirect costs to a number of different cost objects can be very challenging.

Variable costs per unit vary with the level of production or sales volume.

FALSE Explanation: Variable costs per unit are constant with the level of production or sales volume.

A cost may be direct for one cost object and indirect for another cost object.

T

A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span.

TRUE

A cost object is anything for which a cost measurement is desired.

TRUE

Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.

TRUE

An appropriate cost driver for shipping costs might be the number of units shipped.

TRUE

Fixed cost per unit reduces with an increase in production volume.

TRUE

Improvements in information-gathering technologies are making it possible to trace more costs as direct.

TRUE

The broader the cost object definition, higher the proportion of direct costs are of total costs.

TRUE

The cost of electricity used in the production of multiple products would be classified as a indirect cost.

TRUE

When making decisions for product mix or and pricing, the focus should be on total costs and not unit costs.

TRUE

Wood used to manufacture chairs is considered a direct variable cost.

TRUE

Managers use cost accumulation data to make decisions and implement them.

TRUE

Accountants define a cost as a resource to be sacrificed to achieve a specific objective.

TRUE

27) ________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object. A) Indirect manufacturing costs B) Marketing costs incurred C) Variable manufacturing costs D) Custom duties paid for the materials

A

Fixed costs depend on the ________. A) amount of resources used B) amount of resources acquired C) volume of production D) total number of units sold

B

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________. A) material used to make the soccer balls B) labor to shape the leather used to make the soccer ball C) material used to manufacture the soccer studs D) salary paid to plant supervisor

D

Which of the following factors affect the direct/indirect classification of a cost? A) the level of budgeted profit for the next year B) the estimation of time required to complete the order C) the ability to execute an order in the most cost-efficient manner D) the design of the operation

D

Which of the following is true of indirect costs? A) Indirect costs are always considered sunk costs. B) All indirect costs are included in cost of goods sold. C) Indirect costs always vary in direct proportion to the level of production. D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.

D

Manufacturing costs $2,000,000 Units manufactured 50,000 Units sold 47,000 units sold $75 per unit Beginning inventory 0 units What is the amount of gross profit margin? A) $1,750,000 B) $3,525,000 C) $5,405,000 D) $1,645,000

D Explanation: D) 47,000 × ($75 - ($2,000,000 / $50,000)) = $1,645,000

A direct cost of one cost object can be an indirect cost of another cost object.

TRUE

A unit cost is also called an average cost.

TRUE

A unit cost is computed by dividing total cost by the number of units.

TRUE

An actual cost is the cost incurred-a historical or past cost.

TRUE

A cost is a resource sacrificed or forgone to achieve a specific objective.

TRUE Explanation: A cost object could be anything management wishes to determine the cost of, for example, a department.