Ch 2/3 True/False

A fixed cost remains constant if expressed on a unit basis.

false

Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity

true

Depreciation on manufacturing equipment is a product cost.

true

In a job-order cost system, direct labor is assigned to a job using information from the employee time ticket.

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

The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted.

true

The cost of a completed job in a job-order costing system typically consists of the actual direct materials cost of the job, the actual direct labor cost of the job, and the manufacturing overhead cost applied to the job.

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

Conversion cost equals product cost less direct labor cost.

FALSE

A direct cost is a cost that cannot be easily traced to the particular cost object under consideration.

False

Direct material costs are generally fixed costs.

False

Property taxes and insurance premiums paid on a factory building are examples of period costs.

False

Selling costs can be either direct or indirect costs.

True

Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.

True

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 traditional format income statement organizes costs on the basis of behavior.

false

Contribution margin equals revenue minus all fixed costs.

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

In a contribution format income statement, the gross margin minus selling and administrative expenses equals net operating income.

false

Indirect materials are charged to specific jobs.

false

Job cost sheets are used to record the costs of preparing routine accounting reports.

false

Manufacturing overhead is overapplied if actual manufacturing overhead costs for a period are greater than the amount of manufacturing overhead cost that was charged to Work in Process.

false

Manufacturing salaries and wages incurred in the factory are period costs.

false

The cost categories that appear on a job cost sheet include selling expense, manufacturing expense, and administrative expense

false

The following entry would be used to record depreciation on manufacturing equipment:

false

The sum of all amounts transferred from the Work in Process account to the Finished Goods account represents the Cost of Goods Sold for the period.

false

The use of a predetermined overhead rate in a job-order cost system makes it possible to compute the total cost of a job before production is begun.

false

Total variable cost is expected to remain unchanged as activity changes within the relevant range.

false

When a job is completed, the goods are transferred from the production department to the finished goods warehouse and the journal entry would include a debit to Work in Process.

false

When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the estimated amount of direct labor-hours for the job.

false

a cost that differs from one month to another is known as a differential cost

false

if direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be undercosted relative to jobs with low direct labor requirements.

false

Commissions paid to salespersons are a variable selling expense.

true

The formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

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

Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of activity.

true

When completed goods are sold, the transaction is recorded as a debit to Cost of Goods Sold and a credit to Finished Goods.

true

if the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost applied, then manufacturing overhead would be considered to be underapplied

true