Chapter 2

Ending finished goods inventory

for a manufacturing company is equivalent to merchandise inventory for a merchandising company.

Fees for office telephones are

mixed period costs.

The high-low method

is a useful means of separating fixed and variable elements from a mixed cost.

If the ending work in process inventory is less than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the period.

False

Manufacturing costs that cannot be classified as direct material or direct labour are classified as operating expenses.

False

Raw materials are equal to direct materials.

False

Raw materials inventory is not an asset until it is used to make a product.

False

What amount is given by the sum of direct materials, direct labour, and manufacturing overhead incurred?

total manufacturing costs

A curvilinear relationship between variable costs and changes in activity levels suggests what?

Since the relationship between activity levels and variable costs is linear within the relevant range and less linear at lower and higher levels outside the relevant range, the straight-line (linear) relationship takes on a curvature in the real world.

Which of the following is true?

Within the relevant range a valid argument can be made for the assumption of linearity of variable costs.

Fixed costs are costs that remain the same per unit regardless of changes in the activity level.

False

The cost of beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured.

False

In which of the following categories do indirect materials belong?

Product Cost, Manufacturing Overhead, Period Cost Yes, Yes, No

Both direct and indirect materials may physically become part of the finished product.

True

Product costs are costs that are a necessary and integral part of producing the finished product.

True

The high-low method is a quick means of separating fixed and variable costs.

True

What the high-low method may lack in precision, it makes up for in efficiency and ease of use.

True

Which of the following are period costs?

workers wages in the shipping department

At May 31, 2020, Vaughn Inc. has $4300 in beginning raw materials, $6000 of direct labour. If manufacturing overhead was $10200, total manufacturing costs was $50000, and total raw material purchases were $35800, how much is ending amount of raw materials?

($6000 + $10200 + $4300 + $35800 - $50000) = $6300

Bonita Combines, Inc. has $3900 of finished goods inventory as of December 31, 2020. If beginning finished goods inventory was $2500 and cost of goods sold was $8100, how much would Bonita report for cost of goods manufactured?

($8100 - $2500 + $3900) = $9500

Which of the following would most likely be considered direct labour?

a worker installing components in a computer

Which of the following would most likely be viewed as indirect materials?

axle grease associated with the suspension of a new car

Which one of the following represents a period cost?

company advertisement

Examples of fixed costs include all but one of the following:

cost of a car rental which includes a fee per km driven.

Which of the following is considered manufacturing overhead?

depreciation on the press that moulds the plastic into work in process