Chapter 2 Multiple Choice

23) Prime costs include ________. A) direct materials and direct labor B) direct labor and overhead C) direct and indirect materials and direct labor D) direct and indirect materials and direct and indirect labor

A) direct materials and direct labor

14) Which of the following is true if the production volume decreases? A) fixed costs per unit increase B) fixed cost per unit decrease C) variable costs per unit increase D) variable costs per unit decrease

A) fixed costs per unit increase

13) Cost behavior refers to ________. A) how costs react to a change in the level of activity B) how costs react to a change in the proportion of direct and indirect costs for a particular cost object C) how costs are classified with respect to product vs. period or variable vs. fixed D) how costs react to a change in the rate of inflation

A) how costs react to a change in the level of activity

3) 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

A) the assignment of direct costs to the chosen cost object

29. Arsenault Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is $38,000 and if direct materials are $21,000, the manufacturing overhead is: A. $57,000 B. $88,500 C. $25,333 D. $31,500

A. $57,000

10) 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 costs that could be traced to cost objects may be treated as indirect costs. C) All fixed costs are indirect costs. D) All direct costs are variable costs.

B) Because of a cost-benefit tradeoff, some costs that could be traced to cost objects may be treated as indirect costs.

2) 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.

B) Indirect costs are always allocated.

16) 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

B) considered to be a direct variable cost

1) 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

B) cost assignment

24) Conversion costs include ________. A) direct materials and direct labor B) direct labor and overhead C) direct and indirect labor and overhead D) only direct and indirect labor used in converting raw materials into finished products

B) direct labor and overhead

20 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 for further improvements in quality

B) goods partially worked on but not yet fully completed

15) Within the relevant range, variable costs ________. A) are always indirect costs B) increase in total when activity levels increase C) are either prime or conversion costs but never both D) are never considered a part of prime cost

B) increase in total when activity levels increase

25) Total manufacturing costs equal ________. A) the sum of direct materials and prime costs B) the sum of direct materials and conversion costs C) the sum of direct labor costs and other prime costs D) the sum of prime costs and conversion costs

B) the sum of direct materials and conversion costs

28. In September direct labor was 40% of conversion cost. If the manufacturing overhead for the month was $66,000 and the direct materials cost was $20,000, the direct labor cost was: A. $13,333 B. $44,000 C. $99,000 D. $30,000

B. $44,000

27. Within the relevant range, a variable cost: A. increases on a per unit basis as the number of units produced increases. B. remains constant on a per unit basis as the number of units produced increases. C. remains the same in total as production increases. D. decreases on a per unit basis as the number of units produced increases.

B. remains constant on a per unit basis as the number of units produced increases.

11) Which of the following statements is true of direct costs? A) The direct cost of a cost object is always its budgeted cost only when lean manufacturing processes have been adopted. 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.

C) A direct cost of one cost object can be an indirect cost of another cost object.

21) 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 for further improvements in quality

C) goods fully completed but not yet sold

18) For a manufacturing company, direct labor costs may be included in ________. A) only in work in process inventory B) only in work in process and finished goods inventory C) only in work-in-process inventory, finished goods inventory and cost of goods sold D) only in work-in-process inventory, finished goods inventory, cost of goods sold and gross margin

C) only in work-in-process inventory, finished goods inventory and cost of goods sold

4) 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

C) the assignment of indirect costs to the chosen cost object

12 Which of the following is true if the volume of sales increases (within the relevant range) for a company that has both fixed and variable costs? A) per unit fixed costs increase B) per unit variable costs increase C) total variable costs increase D) total fixed costs increase

C) total variable costs increase

22) 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

C) when the products are sold

6) 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 economically traced to the cost object D) whether a cost is fixed or variable

C) whether the cost can be economically traced to the cost object

9) 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.

D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.

5) 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

D) cost object chosen

7) 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) direct material used to make the soccer balls B) direct labor to shape the leather used to make the soccer ball C) direct freight charges incurred in shipping the soccer balls to customers D) direct salary paid to the plant manager

D) direct salary paid to the plant manager

8) 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 all materials and labor D) may include both variable and fixed costs

D) may include both variable and fixed costs

19) For a manufacturing company, indirect manufacturing costs may be included ________ A) only in raw materials inventory B) only in raw materials inventory and work in process inventory C) only in raw materials inventory, work-in-process inventory and finished goods inventory D) only in raw materials inventory, work-in-process inventory, finished goods inventory and cost of goods sold

D) only in raw materials inventory, work-in-process inventory, finished goods inventory and cost of goods sold

17) For a manufacturing company, direct material costs may be included in ________. A) raw materials inventory only B) work in process inventory only C) work-in-process inventory and finished goods inventory D) raw materials inventory, work-in-process inventory, and finished goods inventory

D) raw materials inventory, work-in-process inventory, and finished goods inventory

30. During the month of September, direct labor cost totaled $11,000 and direct labor cost was 40% of prime cost. If total manufacturing costs during September were $73,000, the manufacturing overhead was: A. $16,500 B. $27,500 C. $62,000 D. $45,500

D. $45,500

26. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and production activity is still within the relevant range, A. total variable costs will remain unchanged. B. total fixed costs will increase. C. per unit variable cost will increase. D. per unit total cost will decrease.

D. per unit total cost will decrease.