Cost - Chapter 2: Introduction to Cost Terms & Purposes

Select the following that are usually considered period costs: - Direct labor - Direct materials - Sales materials - Advertising costs - Indirect factory materials - Indirect labor - Sales commissions - Factory utilities - Administrative supplies expense - Administrative labor - Depreciation on administration building - Cost of research on customer demographics *Gleim 1.5.8

- Sales materials - Advertising costs - Sales commissions - Administrative supplies expense - Administrative labor - Depreciation on administration building - Cost of research on customer demographics

Period costs: a) Are always expenses in the same period in which they are incurred b) Vary from one period to the next c) Remain unchanged over a given period of time d) Are associated with the periodic inventory method *Gleim 1.5.7

a) Are always expenses in the same period in which they are incurred

Inventoriable costs are costs of a product that are considered: a) Assets in a company's balance sheet when the costs are incurred and that are expenses as cost of goods sold b) Liabilities in a company's balance sheet when the costs are incurred and that are expensed only when the product is sold c) Assets in the 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) Liabilities in a company's income statement when the costs are capitalized and that are expensed when the product is sold *In-Class CH 2 #7

a) Assets in a company's balance sheet when the costs are incurred and that are expenses as cost of goods sold

Manufacturing costs include all of the following except: a) Both inventoriable and period costs b) Both variable and fixed costs c) Both direct and indirect costs d) Costs incurred in the factory *Exam 1 #10

a) Both inventoriable and period costs

The salary of the line supervisor in the assembly division of an automobile company should be included in: a) Conversion costs b) Opportunity costs c) General and administrative costs d) Prime costs *Gleim 1.5.13

a) Conversion costs

Which of the following statements is FALSE? a) Conversion costs include all direct manufacturing costs b) A costing system traces direct costs and allocates indirect costs to products c) All manufacturing costs are inventoriable costs d) Period costs are never included as part of inventory *Exam 1 #7

a) Conversion costs include all direct manufacturing costs

For external reporting: a) Costs are classified as either inventoriable costs or period costs b) Costs reflect current values c) There are no prescribed rules since no one is exactly sure how investors and creditors use these numbers d) Costs include amounts that reflect both current and future benefits *In-Class CH 2 #10

a) Costs are classified as either inventoriable costs or period costs

What is the nature of work-in-process? a) Inventory b) Cost of goods sold c) Productivity d) Nominal *Gleim 1.3.9

a) Inventory

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 *In-Class CH 2 #9

a) Manufacturing costs

The wages of the factory janitorial staff should be classified as: a) Manufacturing overhead cost b) Direct labor cost c) Period cost d) Prime cost *Gleim 1.5.16

a) Manufacturing overhead cost

Which one of the following costs is classified as a period cost? a) The wages of the workers on the shipping docks who load completed products onto outgoing trucks b) The wages of a worker paid for idle time resulting from a machine breakdown in the molding operation c) The payments for employee (fringe) benefits paid on behalf of the workers in the manufacturing plant d) The wages paid to workers for rework on defective products *Gleim 1.5.11

a) The wages of the workers on the shipping docks who load completed products onto outgoing trucks

Indirect materials are a: a) Conversion cost, manufacturing cost, & prime cost b) Conversion cost, manufacturing cost, & not a prime cost c) Not a conversion cost, manufacturing cost, & prime cost d) Not a conversion cost, not a manufacturing cost, & not a prime cost *Gleim 1.5.14

b) Conversion cost, manufacturing cost, & not a prime cost

All of the following are factors affecting direct versus indirect cost classification except: a) Materiality of the cost b) Cost accuracy c) Info technology's ability to trace costs in an economically feasible way d) Design of operations *In-Class CH 2 #4

b) Cost accuracy

Conversion costs don't include: a) Depreciation b) Direct materials c) Indirect labor d) Indirect materials *Gleim 1.2.6

b) Direct materials

Total manufacturing costs equal: a) Direct materials plus prime costs b) Direct materials plus conversion costs c) Direct manufacturing labor plus sunk costs d) Direct manufacturing labor costs plus conversion costs *In-Class CH 2 #8 & Exam 1 #4

b) Direct materials plus conversion costs

Product costs are properly assigned to inventory when incurred. Period costs are always expensed in the same period in which they are incurred. Which of the following items is a product cost for a manufacturing company? a) Insurance on the corporate headquarters building b) Property taxes on a factory c) Depreciation on salesperson's automobile d) Salary of a sales manager *Gleim 1.5.2

b) Property taxes on a factory

A fixed cost that would be considered a direct cost is: a) A cost accountant's salary where the cost object is a unit of product b) The rental cost of a warehouse to store inventory when the cost object is the Purchasing Department c) A production supervisor's salary when the cost object is the Production Department d) Board of directors' fees when the cost object is the Marketing Department *Gleim 1.5.10

c) A production supervisor's salary when the cost object is the Production Department

Which of the following is FALSE? a) A cost object is anything about which a cost measurement is desired b) A cost is a resource sacrificed or forgone in order to obtain a specific objective c) Costs are accounted for in 2 basic stages: assignment followed by accumulation d) Managers use assigned cost in order to make decisions and implement them *In-Class CH 2 #3

c) Costs are accounted for in 2 basic stages: assignment followed by accumulation

When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the: a) Net realizable value b) Expected value c) Opportunity cost d) Incremental cost *Gleim 1.2.9

c) Opportunity cost

All costs related to the manufacturing function in a company are: a) Prime costs b) Direct costs c) Product costs d) Conversion costs *Gleim 1.5.5

c) Product costs

Which of the following is NOT an inventoriable cost of a manufacturer? a) Wages paid to assembly-line workers b) Plant depreciation incurred c) Sales commissions paid to sales representatives who sell the products made by the manufacturer d) Property taxes on the plant *In-Class CH 2 #6

c) Sales commissions paid to sales representatives who sell the products made by the manufacturer

Opportunity cost is defined as: a) The cost of manufacturing a one-time only special order when a firm has excess capacity to make more products b) The sum of variable and fixed costs in all business functions of the value chain, such as manufacturing costs or marketing costs c) The contribution to operating income that is forgone by not using a limited resource in its next best alternative use d) The sum of variable and fixed costs in a particular business function of the value chain, such as manufacturing costs or marketing costs *Exam 1 #1

c) The contribution to operating income that is forgone by not using a limited resource in its next best alternative use

Inventoriable costs: a) Include only the prime costs of manufacturing the product b) Include only the conversion costs of manufacturing a product c) Are expensed when products become part of finished goods inventory d) Are regarded as assets before the products are sold *Gleim 1.5.1

d) Are regarded as assets before the products are sold

Which of the following best describes direct labor? a) Prime cost b) Period cost c) Product cost d) Both a product cost and a prime cost *Gleim 1.5.4

d) Both a product cost and a prime cost

For a manufacturing company, direct material costs may be included in: a) Only the direct materials inventory account b) Only in the merchandise inventory account reflecting the inventory on hand c) Only in work in process inventory, and finished goods inventory d) Direct materials inventory, work in process inventory, and finished goods inventory accounts *In-Class CH 2 #5

d) Direct materials inventory, work in process inventory, and finished goods inventory accounts

Which one of the following categories of cost is most likely not considered a component of fixed factory overhead? a) Rent b) Property taxes c) Depreciation d) Power *Gleim 1.4.9

d) Power