Accounting T/F Prac

Direct cost

A cost that can be easily and conveniently traced to a specified cost object.

Indirect cost

A cost that cannot be easily and conveniently traced to a specified cost object.

Cost object

Anything for which cost data are desired- including products, customers, jobs and organizational subunits. (direct or indirect)

A contribution format income statement for a merchandising company organizes costs into two categories-cost of goods sold and selling and administrative expenses.

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 undercoated relative to jobs with low direct labor requirements.

False

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

False

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

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

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

False - A job cost sheet records the materials, labor and manufacturing overhead costs charged to that job.

Indirect materials are charged to specific jobs.

False - Indirect materials such as solder and glue; included as part of manufacturing overhead.

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

False - period costs: all the costs that are not product costs. All selling and administrative expenses are treated as period costs. Ex: sales, commissions, advertising, executive salaries, public relations and the rental costs of administrative offices. - They are expensed on the income statement in the period in which they are incurred

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

False : Total variable cost - changes in the level of activity.

Conversion cost equals product cost less direct labor cost.

False: direct labor cost + manufacturing overhead cost

Indirect materials

Included as part of manufacturing overhead (solder, glue)

Indirect labor

Labor costs that cannot be physically traced to particular products or that can be traced only at great cost and inconvenience

Commissions paid to salespersons are a variable selling expense.

True

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

True

Selling costs can be either direction or indirect costs.

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 following entry would be used to record depreciation on manufacturing equipment: Work in Process .... XXX Accumulated Depreciation ..... XXX

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 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

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

True

Direct labor

consists of labor costs that can be easily traced to individual units of product; workers typically touch the product while it is being made ex: assembly line workers at Toyota

Raw materials

the materials that go into the final product

Manufacturing overhead

the third manufacturing cost category; includes all manufacturing costs except direct materials and direct labor ex: heat and light, depreciation, property taxes,

Direct materials

those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.

Chapter 2 Vocab

vocab