Cost Accounting: Chapter 2

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

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

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

C

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

Costs expensed on the income statement in the accounting period incurred are called ________. A) direct costs B) indirect costs C) period costs D) inventoriable costs

C

Inventoriable costs are expensed on the income statement ________. A) when direct materials for the product are purchased B) after the products are manufactured C) when the products are sold D) when the goods move from work-in process to finished goods account

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

C

Under GAAP, for the purposes of calculating inventory costs, product costs include ________. A) all costs incurred along the value chain B) design costs C) only inventoriable costs D) only research and development costs

A

Under GAAP, only ________ can be assigned to inventories in the financial statements. A) manufacturing costs B) period costs C) cost of goods sold D) historical costs

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

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 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

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

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

A

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

C

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

B

Inventoriable costs ________. A) include administrative and marketing costs B) are expensed in the accounting period in which the products are sold C) are expensed in the accounting period in which the products are manufactured D) are also referred to as nonmanufacturing costs

A

Prime costs include ________. A) direct materials and direct manufacturing labor costs B) direct manufacturing labor and manufacturing overhead costs C) direct materials and manufacturing overhead costs D) only direct materials

D

Product cost for reimbursement under government contracts includes ________. A) marketing costs B) design costs C) production costs D) research and development costs

A

Product costs for financial statements may refer to ________. A) inventoriable costs for external reporting purposes B) exchange cost incurred during transportation C) only the costs incurred along the supply chain D) opportunity costs incurred for the decisions forgone

B

Product costs used for government contracts generally include ________. A) marketing costs, and customer service costs B) design costs and production costs C) all the costs for pricing and product-mix decisions D) production costs, distribution costs, marketing costs, and customer service 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

A Explanation: A) $375,000 − $118,000 = $257,000

3) A company reported revenues of $375,000, cost of goods sold of $118,000, selling expenses of $11,000, and total operating costs of $70,000. Gross margin for the year is ________. A) $257,000 B) $246,000 C) $176,000 D) $252,000

D

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

A Explanation: A) $375,000 − $118,000 = $257,000

A company reported revenues of $375,000, cost of goods sold of $118,000, selling expenses of $11,000, and total operating costs of $70,000. Gross margin for the year is ________. A) $257,000 B) $246,000 C) $176,000 D) $252,000

B

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

D

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

B

A plant manufactures several different products. The wages of the plant supervisor can be classified as a(n) ________. A) direct cost B) inventoriable cost C) variable cost D) period cost

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

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

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

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

B

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

B

Conversion costs include ________. A) direct materials and direct manufacturing labor costs B) direct manufacturing labor and manufacturing overhead costs C) direct materials and manufacturing overhead costs D) only direct materials

A

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

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

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

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

B

Costs that are initially recorded as assets and expensed when goods sold are called ________. A) period costs B) inventoriable costs C) irrelevant costs D) research and development costs

A

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

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

B

Fixed costs depend on the ________. A) amount of resources used B) amount of unchanged costs for a given time period C) volume of production D) total number of units sold

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

D

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

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

B

For an automobile manufacturer, period costs include the cost of ________. A) the dashboard B) labor used for assembly C) advertising D) assembly-line equipment

D Explanation: D) $420,000 - $108,000 - $70,000 = $242,000

For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Operating income for that year was ________. A) $319,000 B) $312,000 C) $249,000 D) $242,000

A

For manufacturing firms, inventoriable costs include ________. A) plant supervisor salaries B) research and development costs C) costs of dealing with customers after the sale D) distribution costs

B

For merchandising companies, inventoriable costs include ________. A) sales costs B) incoming freight costs C) distribution costs D) outgoing freight 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

A

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

B

In the cost classification system used by manufacturing firms, assembly workers' wages would be included in ________. A) irrelevant cost B) direct manufacturing costs C) indirect manufacturing costs D) period cost

D

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

A

Inventoriable costs are costs of a product that are ________. A) costs of a product that are considered assets in a company's balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold B) considered liabilities in a company's balance sheet when the costs are incurred and that are expensed only when the product is sold C) considered as assets in a company's income statement when the costs are capitalized and that are expensed as cost of goods sold only when the product is sold D) considered as liabilities in a company's income statement when the costs are capitalized and that are expensed only when the product is sold

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.

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

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

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) tire costs

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

A

Period costs ________. A) are treated as expenses in the period they are incurred B) are directly traceable to products C) are treated as expenses in the following period they are incurred D) are also referred to as manufacturing overhead costs

C

Period costs ________. A) include only fixed costs B) seldom influence financial success or failure C) include the cost of selling, delivering, and after-sales support for customers D) should be treated as an indirect cost rather than as a direct manufacturing cost

B

R&D costs are treated as period costs because ________. A) these costs may increase revenues in the current period B) these costs may increase revenues in the future period C) these costs may decrease revenues in the current period D) these costs are expensed when the goods are sold

C

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

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

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

C

The income statement of a manufacturing firm reports ________. A) sales promotion costs only B) inventoriable costs only C) cost of goods sold D) only manufacturing overhead costs

A

The income statement of a service-sector firm reports ________. A) period costs only B) inventoriable costs only C) both period and inventoriable costs D) direct labor costs

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

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

Total manufacturing costs equal ________. A) direct materials plus prime costs B) direct materials plus conversion costs C) direct manufacturing labor costs plus sunk costs D) direct manufacturing labor costs plus conversion costs

B

Total manufacturing costs is comprised of ________. A) direct materials costs and period costs B) direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs C) indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs D) prime costs and period costs

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

A

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

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

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

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

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 formulas determine cost of goods sold in a manufacturing entity? A) Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process inventory = Cost of goods sold B) Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods sold C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold

B

Which of the following formulas determine cost of goods sold in a merchandising entity? A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold B) Beginning inventory + Purchases - Ending inventory = Costs of goods sold C) Beginning inventory - Purchases + Ending inventory = Cost of goods sold D) Beginning inventory - Ending inventory - Purchases = Cost of goods sold

C

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

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

D

Which of the following is a manufacturing overhead cost? A) cost of conversion of direct materials to finished goods B) labor cost that can be traced to individual products C) cost of materials that can be traced to individual products D) overtime premiums paid to plant workers

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

Which of the following is an inventoriable cost? A) manufacturing overhead cost B) customer service costs C) distribution costs D) marketing costs

A

Which of the following is included in product cost for pricing and product-mix decisions? A) design costs B) sunk costs C) opportunity costs D) cost of capital

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

C

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

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.

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.

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.

B

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.

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.

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.

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

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

XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change? A) Total manufacturing costs will increase and unit manufacturing costs will stay the same. B) Total manufacturing costs will increase and unit manufacturing costs will decrease. C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same. D) Total manufacturing costs will increase and unit manufacturing costs will also increase.

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

A

________ 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

________ 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