ACC-211: Chapter 2, 3, & 6

Operating Income =

Contribution Margin - Fixed Costs

A cost object is always either a product or a service.

FALSE

Gross Margin =

Revenue - COGS

Cost object #3: The availability and use of manufacturing labor

d. Supervisors salaries e. Fringe benefits

Which statement is true?

A) A direct cost of one cost object cannot be an indirect cost of another cost object. 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. Answer: C

Which statement is true?

A) All variable costs are direct costs. 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. Answer: 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. Answer: B

Which of the following statements about the direct/indirect cost classification is NOT true?

A) Indirect costs are always traced. B) Indirect costs are always allocated. C) The design of operations affects the direct/indirect classification. D) The direct/indirect classification depends on the choice of cost object. Answer: A

Which of the following statements is FALSE?

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 long run all costs have cost drivers. D) Volume of production is a cost driver of direct manufacturing costs. Answer: B

A mixed cost is:

A) a fixed cost B) a cost with fixed and variable elements C) a variable cost D) always an indirect cost Answer: B

The determination of a cost as either direct or indirect depends upon the:

A) accounting system B) allocation system C) cost tracing system D) cost object chosen Answer: D

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 Answer: A

In order to make decisions, managers need to know:

A) actual costs B) budgeted costs C) both costs D) neither cost Answer: C

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) windows for each car produced Answer: A

Fixed costs depend on the:

A) amount of resources used B) amount of resources acquired C) volume of production D) volume of sales Answer: 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) can always be traced directly to the cost object Answer: 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 Answer: B

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 Answer: D

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line are:

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) utilities paid for the manufacturing plant Answer: B

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 Answer: D

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 Answer: B

The collection of accounting data in some organized way is:

A) cost accumulation B) cost assignment C) cost tracing D) conversion costing Answer: A

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 Answer: B

An understanding of the underlying behavior of costs helps in all of the following EXCEPT:

A) costs can be better estimated as volume expands and contracts B) true costs can be better evaluated C) process inefficiencies can be better identified and as a result improved D) sales volume can be better estimated Answer: D

Within the relevant range, if there is a change in the level of the cost driver, then:

A) fixed and variable costs per unit will change B) fixed and variable costs per unit will remain the same C) fixed costs per unit will remain the same and variable costs per unit will change D) fixed costs per unit will change and variable costs per unit will remain the same Answer: D

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 inventoriable or period costs D) whether a particular expense has been ethically incurred Answer: A

Cost assignment:

A) is always arbitrary B) is includes tracing and allocating C) is the same as cost accumulation D) is finding the difference between budgeted and actual costs Answer: B

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is:

A) material used to make the soccer balls B) labor to shape the leather used to make the soccer ball C) shift supervisor for the soccer line D) plant supervisor Answer: D

All of the following are true EXCEPT that indirect costs:

A) may be included in prime costs B) are not easily traced to products or services C) vary with the selection of the cost object D) may be included in manufacturing overhead Answer: A

Fixed costs:

A) may include either direct or indirect costs B) vary with production or sales volumes C) include parts and materials used to manufacture a product D) can be adjusted in the short run to meet actual demands Answer: A

Which of the following is a mixed cost?

A) monthly rent payment B) manager's salary C) monthly electric bill D) direct materials Answer: 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 Answer: C

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 Answer: B

Cost objects include:

A) products B) customers C) departments D) All of these answers are correct. Answer: D

Which one of the following is a variable cost for an insurance company?

A) rent B) president's salary C) sales commissions D) property taxes Answer: C

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 Answer: A

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 identified with the cost object D) whether an expenditure is avoidable or not in the future Answer: C

Actual costs are:

A) the costs incurred B) budgeted costs C) estimated costs D) forecasted costs Answer: A

Budgeted costs are:

A) the costs incurred this year B) the costs incurred last year C) planned or forecasted costs D) competitor's costs Answer: C

Which of the following does NOT affect the direct/indirect classification of a cost?

A) the level of budgeted profit for the next year B) the materiality of the cost in question C) available technology to gather information about the cost D) the design of the operation Answer: A

Which of the following would be LEAST likely to be a cost driver for a company's human resource costs?

A) the number of employees in the human resource department 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 Answer: 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 actual cost of the cost object C) the assignment of indirect costs to the chosen cost object D) a function of cost tracing Answer: 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 Answer: C

Assigning direct costs poses more problems than assigning indirect costs.

FALSE

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

FALSE

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

Net Income =

Revenue - Taxes

A customer could be considered a cost object.

TRUE

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

TRUE

Actual costs and historical costs are two different terms referring to the same thing.

TRUE

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

TRUE

Misallocated indirect costs may lead to NOT promoting profitability.

TRUE

Products, services, departments, and customers may be cost objects.

TRUE

Some fixed costs may be classified as direct manufacturing costs.

TRUE

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

TRUE

The materiality of the cost is a factor in classifying the cost as a direct or indirect cost.

TRUE

The same cost may be direct for one cost object and indirect for another cost object.

TRUE

Cost object #1: The physical buildings and equipment

a. Depreciation on buildings and equipment c. Property insurance f. Property taxes

Cost object #2: The use of buildings and equipment

b. Lubricants for machines g. Utilities