ACCT 201 B -- Final Review (conceptual questions)

Which of the following is not a manufacturing cost category? a. Cost of goods sold b. Direct materials c. Direct labor d. Manufacturing overhead

a. Cost of goods sold

Which of the following is not viewed as part of accumulating manufacturing costs in a job order cost system? a. Cost of goods sold is recognized b. Raw materials are purchased c. Factory labor is incurred d. Manufacturing overhead is incurred

a. Cost of goods sold is recognized

Which of the following is not a fixed cost? a. Direct materials b. Depreciation c. Lease charge d. Property taxes

a. Direct materials

Which one of the following is not considered as material costs? a. Partially completed motor engines for a motorcycle plant b. Bolts used in manufacturing the compressor of an engine c. Rivets for the wings of a new commercial jet aircraft d. Lumber used to build tables

a. Partially completed motor engines for a motorcycle plant

Which one of the following costs would not be inventoriable? a. Period costs b. Factory insurance costs c. Indirect materials d. Indirect labor costs

a. Period costs

Which one of the following represents a period cost? a. The VP of Sales' salary and benefits b. Overhead allocated to the manufacturing operations c. Labor costs associated with quality control d. Fringe benefits associated with factory workers

a. The VP of Sales' salary and benefits

Which cost is charged to the product under variable costing? a. Variable manufacturing overhead b. Fixed manufacturing overhead c. Variable administrative expenses d. Fixed administrative expenses

a. Variable manufacturing overhead

A mixed cost contains a. a variable element and a fixed element. b. both selling and administrative costs. c. both retailing and manufacturing costs. d. both operating and nonoperating costs.

a. a variable element and a fixed element.

Some fixed manufacturing overhead costs of the current period are deferred to future periods under a. absorption costing. b. variable costing. c. both absorption and variable costing. d. neither absorption nor variable costing.

a. absorption costing.

If the entry to assign factory labor showed only a debit to Work In Process Inventory, then all labor costs were a. direct labor. b. indirect labor. c. overtime related. d. regular hours.

a. direct labor.

The flow of costs in a job order cost system a. involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done. b. cannot be measured until all jobs are complete. c. measures product costs for a set time period. d. generally follows a LIFO cost flow assumption.

a. involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done.

A shift from low-margin sales to high-margin sales a. may increase net income, even though there is a decline in total units sold. b. will always increase net income. c. will always decrease net income. d. will always decrease units sold.

a. may increase net income, even though there is a decline in total units sold.

A cost structure which relies more heavily on fixed costs makes the company a. more sensitive to changes in sales revenue. b. less sensitive to changes in sales revenue. c. either more or less sensitive to changes in sales revenue, depending on other factors. d. have a lower break-even point.

a. more sensitive to changes in sales revenue.

If Manufacturing Overhead has a debit balance at the end of the period, then a. overhead has been underapplied. b. the overhead assigned to Work in Process Inventory is more than the overhead incurred. c. overhead has been overapplied. d. management must take corrective action.

a. overhead has been underapplied.

Both direct materials and indirect materials are a. raw materials. b. manufacturing overhead. c. merchandise inventory. d. sold directly to customers by a manufacturing company.

a. raw materials.

Process costing is used when a. the production process is continuous. b. production is aimed at filling a specific customer order. c. dissimilar products are involved. d. costs are to be assigned to specific jobs.

a. the production process is continuous.

Sales mix is a. the relative percentage in which a company sells its multiple products. b. the trend of sales over recent periods. c. the mix of variable and fixed expenses in relation to sales. d. a measure of leverage used by the company.

a. the relative percentage in which a company sells its multiple products.

Fixed selling expenses are period costs a. under both absorption and variable costing. b. under neither absorption nor variable costing. c. under absorption costing, but not under variable costing. d. under variable costing, but not under absorption costing.

a. under both absorption and variable costing.

If actual overhead is greater than applied manufacturing overhead, then manufacturing overhead is: a. underapplied. b. overapplied. c. a loss on the income statement under "Other Expenses and Losses." d. considered a miscellaneous expense.

a. underapplied.

A cost which remains constant per unit at various levels of activity is a a. variable cost. b. fixed cost. c. mixed cost. d. manufacturing cost.

a. variable cost.

The one primary difference between variable and absorption costing is that under a. variable costing, companies charge the fixed manufacturing overhead as an expense in the current period. b. absorption costing, companies charge the fixed manufacturing overhead as an expense in the current period. c. variable costing, companies charge the variable manufacturing overhead as an expense in the current period. d. absorption costing, companies charge the variable manufacturing overhead as an expense in the current period.

a. variable costing, companies charge the fixed manufacturing overhead as an expense in the current period.

Net income under absorption costing is higher than net income under variable costing a. when units produced exceed units sold. b. when units produced equal units sold. c. when units produced are less than units sold. d. regardless of the relationship between units produced and units sold.

a. when units produced exceed units sold.

Which of the following is a true statement about process cost systems? a. In process cost systems, costs are accumulated but not assigned. b. A process cost system has one work in process account for each process. c. In process cost systems, costs are summarized on job cost sheets. d. Unit costs are not computed in process cost systems.

b. A process cost system has one work in process account for each process.

Why is identification of a relevant range important? a. It is required under GAAP. b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis. c. It directly impacts the number of units of product a customer buys. d. It is a cost that is incurred by a company that must be accounted for.

b. Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.

Which one of the following would not be classified as manufacturing overhead? a. Indirect labor b. Direct materials c. Insurance on factory building d. Indirect materials

b. Direct materials

Which of the following is not a cost classification? a. Mixed b. Multiple c. Variable d. Fixed

b. Multiple

Which of the following factors would suggest a switch to activity-based costing? a. Product lines similar in volume and manufacturing complexity. b. Overhead costs constitute a significant portion of total costs. c. The manufacturing process has been stable. d. Production managers use data provided by the existing system.

b. Overhead costs constitute a significant portion of total costs.

Which of the following is not another name for the term manufacturing overhead? a. Factory overhead b. Pervasive costs c. Burden d. Indirect manufacturing costs

b. Pervasive costs

Which of the following would not be an acceptable way to express contribution margin? a. Sales minus variable costs b. Sales minus unit costs c. Unit selling price minus unit variable costs d. Contribution margin per unit divided by unit selling price

b. Sales minus unit costs

Which of the following is a potential advantage of variable costing relative to absorption costing? a. Net income is affected by changes in production levels. b. The use of variable costing is consistent with cost-volume-profit analysis. c. Net income computed under variable costing is not closely tied to changes in sales levels. d. More than one of the above.

b. The use of variable costing is consistent with cost-volume-profit analysis.

In a job order cost accounting system, the Raw Materials Inventory account is a. an expense. b. a control account. c. not used. d. a period cost.

b. a control account.

When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using a. operations costing. b. absorption costing. c. variable costing. d. product costing.

b. absorption costing.

A process cost system would be used by all of the following except a(n) a. chemical company. b. advertising company. c. oil company. d. computer chip company.

b. advertising company.

In computing equivalent units, ___________ is not part of the equivalent units of production formula. a. units transferred out b. beginning work in process c. ending work in process d. None of these is correct.

b. beginning work in process

The break-even point is where a. total sales equal total variable costs. b. contribution margin equals total fixed costs. c. total variable costs equal total fixed costs. d. total sales equal total fixed costs.

b. contribution margin equals total fixed costs.

Product costs consist of Select one: a. direct materials and direct labor only. b. direct materials, direct labor, and manufacturing overhead. c. selling and administrative expenses. d. period costs

b. direct materials, direct labor, and manufacturing overhead.

Net income under variable costing is contribution margin less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses.

b. fixed manufacturing overhead and fixed selling and administrative expenses.

An important feature of a job order cost system is that each job a. must be similar to previous jobs completed. b. has its own distinguishing characteristics. c. must be completed before a new job is accepted. d. consists of one unit of output.

b. has its own distinguishing characteristics.

Assigning overhead using ABC will usually a. decrease the cost per unit for low volume products as compared to a traditional overhead allocation. b. increase the cost per unit for low volume products as compared to a traditional overhead allocation. c. provide less accurate cost per unit for low volume products than will traditional costing. d. result in the same cost per unit for low volume products as does traditional costing.

b. increase the cost per unit for low volume products as compared to a traditional overhead allocation.

A manufacturing process requires small amounts of glue. The glue used in the production process is classified as a(n) a. period cost. b. indirect material. c. direct material. d. miscellaneous expense.

b. indirect material.

Each of the following is a limitation of activity-based costing except that a. it can be expensive to use. b. it decreases control over overhead costs c. it is complex and can be difficult to understand d. some arbitrary allocations continue.

b. it decreases control over overhead costs

The two basic types of cost accounting systems are a. job order and job accumulation systems. b. job order and process cost systems. c. process cost and batch systems. d. job order and batch systems.

b. job order and process cost systems.

Cost of raw materials is debited to Raw Materials Inventory when the a. materials are ordered. b. materials are received. c. materials are put into production. d. bill for the materials is paid.

b. materials are received.

The high-low method is often employed in analyzing a. fixed costs. b. mixed costs. c. variable costs. d. conversion costs.

b. mixed costs.

Sales commissions are classified as a. overhead costs b. period costs. c. product costs. d. indirect labor.

b. period costs.

Cost of goods sold is obtained from a. analysis of all the control accounts in the cost system. b. the finished goods inventory records. c. the work in process inventory records. d. the Raw Materials Inventory control account.

b. the finished goods inventory records.

When determining costs of jobs, how does a company account for indirect materials? a. It is added to work in process as used. b. It remains part of raw materials inventory. c. It is transferred out of raw materials into manufacturing overhead when used. d. It is transferred out of raw materials into work in process as used.

c. It is transferred out of raw materials into manufacturing overhead when used.

Which one of the following is not a cost element in manufacturing a product? a. Manufacturing overhead b. Direct materials c. Office salaries d. Direct labor

c. Office salaries

Which of the following is not classified as direct labor? a. Bottlers of beer in a brewery b. Copy machine operators at a copy shop c. Wages of supervisors d. Bakers in a bakery

c. Wages of supervisors

In a job order cost system, a credit to Manufacturing Overhead will be accompanied by a debit to Select one: a. Cost of Goods Manufactured. b. Finished Goods Inventory. c. Work in Process Inventory. d. Raw Materials Inventory.

c. Work in Process Inventory.

In a process cost system, a. a Work in Process account is maintained for each product. b. a materials requisition must identify the job on which the materials will be used. c. a Work in Process account is maintained for each process. d. one Work in Process account is maintained for all the processes, similar to a job order cost system.

c. a Work in Process account is maintained for each process.

The two major steps in the flow of costs are a. allocating and assigning. b. acquiring and accumulating. c. accumulating and assigning. d. accumulating and amortizing.

c. accumulating and assigning.

The manufacturing cost per unit for absorption costing is a. usually, but not always, higher than manufacturing cost per unit for variable costing. b. usually, but not always, lower than manufacturing cost per unit for variable costing. c. always higher than manufacturing cost per unit for variable costing. d. always lower than manufacturing cost per unit for variable costing.

c. always higher than manufacturing cost per unit for variable costing.

A process cost system would most likely be used by a company that makes a. motion pictures. b. repairs to automobiles. c. breakfast cereal. d. college graduation announcements.

c. breakfast cereal.

As inventoriable costs expire, they become a. selling expenses. b. gross profit. c. cost of goods sold. d. sales revenue.

c. cost of goods sold.

The total costs accounted for in a production cost report equal the a. cost of units completed and transferred out only. b. cost of units started into production. c. cost of units completed and transferred out plus the cost of ending work in process. d. cost of beginning work in process plus the cost of units completed and transferred out.

c. cost of units completed and transferred out plus the cost of ending work in process.

The wages of a timekeeper in the factory would be classified as a. a period cost. b. direct labor. c. indirect labor. d. compliance costs.

c. indirect labor.

Cotter pins and lubricants used irregularly in a production process are classified as a. miscellaneous expense. b. direct materials. c. indirect materials. d. nonmaterial materials.

c. indirect materials.

Changes in activity have a(n) _________ effect on fixed costs per unit. a. positive b. negative c. inverse d. neutral

c. inverse

Changes in activity have a(n) _________ effect on fixed costs per unit. a. positive b. negative c. inverse d. neutral

c. inverse

The degree of operating leverage a. does not provide a reliable measure of a company's earnings volatility. b. cannot be used to compare companies. c. is computed by dividing total contribution margin by net income. d. measures how much of each sales dollar is available to cover fixed expenses.

c. is computed by dividing total contribution margin by net income.

Process costing is not used when a. similar goods are being produced. b. large volumes are produced. c. jobs have distinguishing characteristics. d. a series of connected manufacturing processes is necessary.

c. jobs have distinguishing characteristics.

The relevant range of activity refers to the a. geographical areas where the company plans to operate. b. activity level where all costs are curvilinear. c. levels of activity over which the company expects to operate. d. level of activity where all costs are constant.

c. levels of activity over which the company expects to operate.

The product cost that is most difficult to associate with a product is a. direct materials. b. direct labor. c. manufacturing overhead. d. advertising.

c. manufacturing overhead.

A process cost system would be used for all of the following products except a. chemicals. b. computer chips. c. motion pictures. d. soft drinks.

c. motion pictures.

If Manufacturing Overhead has a credit balance at the end of the period, then Select one: a. overhead has been underapplied. b. the overhead assigned to Work in Process Inventory is less than the overhead incurred. c. overhead has been overapplied. d. management must take corrective action.

c. overhead has been overapplied.

For the work of factory employees to be considered as direct labor, the work must be conveniently and a. materially associated with raw materials conversion. b. periodically associated with raw materials conversion. c. physically associated with raw materials conversion. d. promptly associated with raw materials conversion.

c. physically associated with raw materials conversion.

A process cost accounting system is most appropriate when a. a variety of different products are produced, each one requiring different types of materials, labor, and overhead. b. the focus of attention is on a particular job or order. c. similar products are mass-produced. d. individual products are custom made to the specification of customers.

c. similar products are mass-produced.

Variable costing a. is used for external reporting purposes. b. is required under GAAP. c. treats fixed manufacturing overhead as a period cost. d. is also known as full costing.

c. treats fixed manufacturing overhead as a period cost.

The contribution margin ratio increases when a. fixed costs increase. b. fixed costs decrease. c. variable costs as a percentage of sales decrease. d. variable costs as a percentage of sales increase.

c. variable costs as a percentage of sales decrease.

A variable cost is a cost that a. varies per unit at every level of activity. b. occurs at various times during the year. c. varies in total in proportion to changes in the level of activity. d. may or may not be incurred, depending on management's discretion.

c. varies in total in proportion to changes in the level of activity.

Which one of the following is an example of a period cost? a. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer b. Workers' compensation insurance on factory workers' wages allocated to the factory c. A box cost associated with computers d. A manager's salary for work that is done in the corporate head office

d. A manager's salary for work that is done in the corporate head office

Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true? (1) Direct labor constitutes a significant part of total product cost. (2) A high correlation exists between direct labor and changes in the amount of overhead costs. a. (1) only b. (2) only c. Either (1) or (2) d. Both (1) and (2)

d. Both (1) and (2)

Direct materials and direct labor of a company total $8,000,000. If manufacturing overhead is $4,000,000, what is direct labor cost? a. $4,000,000 b. $8,000,000 c. $0 d. Cannot be determined from the information provided

d. Cannot be determined from the information provided

Debits to Work in Process Inventory are accompanied by a credit to all but which one of the following accounts? a. Raw Materials Inventory b. Factory Labor c. Manufacturing Overhead d. Cost of Goods Sold

d. Cost of Goods Sold

Manufacturing overhead applied is added to direct labor incurred and to what other item to equal total manufacturing costs for the period? a. Goods available for sale. b. Raw materials purchased. c. Work in process. d. Direct materials used.

d. Direct materials used.

Which cost is not charged to the product under variable costing? a. Direct materials b. Direct labor c. Variable manufacturing overhead d. Fixed manufacturing overhead

d. Fixed manufacturing overhead

Which one of the following is not a direct material? a. A tire used for a lawn mower b. Plastic used in the covered case for a home PC c. Steel used in the manufacturing of steel-radial tires d. Lubricant for a ball-bearing joint for a large crane

d. Lubricant for a ball-bearing joint for a large crane

Which of the following are period costs? a. Raw materials b. Direct materials and direct labor c. Direct labor and manufacturing overhead d. Selling expenses

d. Selling expenses

Which of the following would be accounted for using a job order cost system? a. The production of personal computers. b. The production of automobiles. c. The refining of petroleum. d. The construction of a new campus building.

d. The construction of a new campus building.

Which of the following is not true about the graph of a mixed cost? a. It is possible to determine the amount of the fixed cost from the graph. b. There is a total cost line on the graph. c. The fixed cost portion of the graph is the same amount at all levels of activity. d. The variable cost portion of the graph is rectangular in shape.

d. The variable cost portion of the graph is rectangular in shape.

Which of the following is not typical of traditional costing systems? a. Use of a single predetermined overhead rate. b. Use of direct labor hours or direct labor cost to assign overhead. c. Assumption of correlation between direct labor and incurrence of overhead cost. d. Use of multiple cost drivers to allocate overhead.

d. Use of multiple cost drivers to allocate overhead.

Which of the following statements is not true? a. Operating leverage refers to the extent to which a company's net income reacts to a given change in sales. b. Companies that have higher fixed costs relative to variable costs have higher operating leverage. c. When a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly. d. When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

d. When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.

When manufacturing overhead costs are assigned to production in a process cost system, they are debited to a. the Finished Goods Inventory account. b. Cost of Goods Sold. c. a Manufacturing Overhead account. d. a Work in Process account.

d. a Work in Process account.

To use activity-based costing, it is necessary to know the a. cost driver for each activity cost pool. b. expected use of cost drivers per activity. c. expected use of cost drivers per product. d. all of the above.

d. all of the above.

The contribution margin ratio is a. sales divided by contribution margin. b. sales divided by fixed expenses. c. sales divided by variable expenses. d. contribution margin divided by sales.

d. contribution margin divided by sales.

The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is a. manufacturing overhead. b. indirect materials. c. indirect labor. d. direct labor.

d. direct labor.

Manufacturing costs include a. direct materials and direct labor only. b. direct materials and manufacturing overhead only. c. direct labor and manufacturing overhead only. d. direct materials, direct labor, and manufacturing overhead.

d. direct materials, direct labor, and manufacturing overhead.

Contribution margin a. is always the same as gross profit margin. b. excludes variable selling costs from its calculation. c. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. d. equals sales revenue minus variable costs.

d. equals sales revenue minus variable costs.

Contribution margin a. is always the same as gross profit margin. b. excludes variable selling costs from its calculation. c. is calculated by subtracting total manufacturing costs per unit from sales revenue per unit. d. equals sales revenue minus variable costs.

d. equals sales revenue minus variable costs.

If the activity level increases 10%, total variable costs will a. remain the same. b. increase by more than 10%. c. decrease by less than 10%. d. increase 10%.

d. increase 10%.

Manufacturing costs that cannot be classified as either direct materials or direct labor are known as a. period costs. b. nonmanufacturing costs. c. selling and administrative expenses. d. manufacturing overhead.

d. manufacturing overhead.

The primary benefit of ABC is it provides a. better management decisions. b. enhanced control over overhead costs. c. more cost pools. d. more accurate product costing.

d. more accurate product costing.

A fixed cost is a cost which a. varies in total with changes in the level of activity. b. remains constant per unit with changes in the level of activity. c. varies inversely in total with changes in the level of activity. d. remains constant in total with changes in the level of activity.

d. remains constant in total with changes in the level of activity.

If a firm increases its activity level, a. costs should remain the same. b. most costs will rise. c. no costs will remain the same. d. some costs will change, others will remain the same.

d. some costs will change, others will remain the same.

Equivalent units of production are a measure of a. units completed and transferred out. b. units transferred out. c. units in ending work in process. d. the work done in a period expressed in fully completed units.

d. the work done in a period expressed in fully completed units.

Companies recognize fixed manufacturing overhead costs as period costs (expenses) when incurred when using a. full costing. b. absorption costing. c. product costing. d. variable costing.

d. variable costing.

Net income under absorption costing is gross profit less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses.

d. variable selling and administrative expenses and fixed selling and administrative expenses.

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: Unit Variable Cost Unit Fixed Cost a.Increases Decreases b.Remains constant Remains constant c. Decreases Remains constant d.Remains constant Decreases

d.Remains constant Decreases