Managerial Accounting Ch. 2 Dynamic Study Modules

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Identify the indirect cost element, assuming the cost object is one factory in which a product is manufactured for a large corporation. A. CEO's salary B. Assembly labor used in the factory C. Materials to produce units manufactured in the factory D. Factory supervisor's salary

A. CEO's salary The indirect cost element, assuming the cost object is one factory in which a product is manufactured for a large corporation, is the CEO's salary. The supervisor's salary, assembly labor and materials can be directly traced to the cost object which is the factory. The CEO's salary is allocated since it is an indirect cost.

Which is an example of a sunk cost? A. Depreciation expense B. Utility cost C. Insurance expense D. Rent expense

A. Depreciation expense Depreciation expense is an example of a sunk cost. The cash flow for the depreciable assets occurred in the past. It would not be relevant to a decision. Rent expense, utility cost, and insurance expenses are examples of future costs.

Identify which cost element is NOT a product cost. A. Distribution (freight-out) B. Direct labor C. Materials D. Manufacturing overhead

A. Distribution (freight-out) Distribution (freight-out) is NOT a product cost. Distribution (freight-out) is a period cost. Product costs include direct materials, direct labor, and manufacturing overhead. Product costs are the costs incurred by manufacturers to produce their products or incurred by merchandisers to purchase their products.

Which of the following is an uncontrollable cost? A. Insurance expense B. Research & development (R&D) C. Advertising expense D. Design costs

A. Insurance expense Insurance expense is an uncontrollable cost. Advertising expense, research and development (R&D), and design costs represent controllable costs.

Which of the following is a controllable cost? A. Property tax expense B. Insurance expense C. Advertising D. Rent expense

A. Property tax expense Advertising is a controllable cost. Rent expense, property tax expense, and insurance expense are uncontrollable costs.

Utilities, plant insurance, and depreciation expense are examples of ________. A. other indirect manufacturing costs B. period expenses C. costs that are expensed as incurred D. administrative expenses

A. other indirect manufacturing costs Utilities, plant insurance and depreciation expense are examples of other indirect manufacturing costs. Period expenses include the costs incurred by the company that do not get treated as inventory. Period costs are the costs incurred by the company that do not get treated as inventory, but rather, are expensed immediately in the period in which they are incurred. Administrative expenses include "period costs"; most other people refer to them as "operating expenses" or "selling, general, and administrative expenses (SG &A)."

Selling, marketing, and administrative costs are examples of ________. A. period costs B. expenditures that are initially recorded as inventory C. purchases D. production

A. period costs Selling, marketing, and administrative costs are examples of period costs. Production, purchase, and expenditures that are initially recorded as inventory include characteristics of product costs instead of period costs.

Which of the following is an example of a merchandising company? A. Bank of America B. Best Buy C. Progressive Insurance D. Southwest Airlines

B. Best Buy Best Buy is an example of a merchandising company. Southwest Airlines, Bank of America, and Progressive Insurance include examples of service companies.

________ are always expensed in the period in which they are incurred and NEVER become part of an inventory account. A. Product costs B. Period costs C. Total costs D. Direct costs

B. Period costs Period costs are always expensed in the period in which they are incurred and never become part of an inventory account. Product costs are the costs incurred by manufacturers to produce their products or are incurred by merchandisers to purchase their products. Total costs include the costs of all resources used throughout the value chain. A direct cost is a cost that can be traced to the cost object.

Direct material, direct labor, and manufacturing overhead are all examples of what classification of costs? A. Period costs B. Product costs C. Direct costs D. Indirect costs

B. Product costs Direct materials, direct labor, and manufacturing overhead are all examples of product costs. Period costs are always expensed in the period in which they are incurred and never become part of an inventory account. A direct cost is a cost that can be traced to the cost object. An indirect cost is a cost that relates to the cost object but cannot be traced specifically to it. Think of an indirect cost as a cost that is jointly used or shared by several cost objects.

Which is an example of an indirect cost if the cost object is one unit? A. Materials used to manufacture one unit B. Utilities cost C. Labor to assemble unit D. Labor to fabricate one unit

B. Utilities cost Utilities cost is an example of an indirect cost if the cost object is one unit. A direct cost is a cost that relates to the cost object but cannot be traced specifically to it. Think of an indirect cost as a cost that is jointly used or shared by several cost objects. Labor and materials can be directly traced to the unit. Utilities must be allocated as they are indirect.

An indirect cost ________. A. includes the costs of all resources used throughout the value chain B. is a cost that relates to the cost object but cannot be traced specifically to the cost object C. is always expensed in the period in which it is incurred and never becomes part of an inventory account D. is a cost that can be traced to the cost object

B. is a cost that relates to the cost object but cannot be traced specifically to the cost object An indirect cost is a cost that relates to the cost object but cannot be traced specifically to it. A direct cost is a cost that can be traced to the cost object. Total cost includes the costs of all resources used throughout the value chain. A period cost is always expensed in the period in which it is incurred and never becomes part of an inventory account.

The Cost of Goods Manufactured (CGM) is calculated as ________. A. Manufacturing Costs - Ending Inventory B. Manufacturing Costs - Beginning Inventory - Ending Inventory THE CORRECT ANSWER C. Beginning Work in Process Inventory + Manufacturing Costs Incurred - Ending Work in Process Inventory Ending Work in Process + Manufacturing costs - Beginning Work in Process

C. Beginning Work in Process Inventory + Manufacturing Costs Incurred - Ending Work in Process Inventory The Cost of Goods Manufactured (CGM) is calculated as Beginning Work in Process Inventory + Manufacturing Costs Incurred - Ending Work in Process Inventory. The remaining computations do not compute the Cost of Goods Manufactured (CGM).

Merchandising firms consider which of the following cost elements as a product cost? A. Operating expenses B. Employee salary C. Freight-in D. Other administrative expenses

C. Freight-in Merchandising firms consider freight-in to be a product cost. Operating expenses, employee salary, and other administrative expenses are example of merchandising firm period costs.

Identify which cost element is most likely a direct cost if the cost object is one unit. A. Rent for the plant B. Depreciation for the plant equipment C. Materials used to produce one unit D. Insurance cost for the plant

C. Materials used to produce one unit Materials used to produce one unit is the cost element that is most likely a direct cost if the cost object is one unit. A direct cost is a cost that can be traced to the cost object. The term trace means that the company can readily identify or associate the cost with the cost object. There is essentially a one-to-one correlation between the cost and the cost object. Materials cost used to produce one unit is traceable. The other cost elements are not traceable to one unit.

Which of the following is most likely to be a fixed cost? A. Commissions B. Labor to assemble units C. Rent expense D. Materials cost used in production

C. Rent expense Rent expense is most likely a fixed expense. Labor, commissions, and materials would behave as variable expenses.

Which of the following is an example of a service company? A. Amazon.com B. Walmart C. Southwest Airlines D. Best Buy

C. Southwest Airlines An example of a service company is Southwest Airlines. Amazon.com, Best Buy, and Walmart are examples of merchandising companies.

________ change in total in direct proportion to changes in volume. A. Fixed costs B. Variable and fixed costs C. Variable costs D. Total costs

C. Variable costs Variable costs change in total in direct proportion to changes in volume. Fixed costs, total costs, and variable and fixed costs do not.

An example of a variable cost is ________. A. insurance expense B. straight-line depreciation expense C. direct materials D. rent expense

C. direct materials An example of a variable cost is direct materials. Fixed costs such as rent, straight-line depreciation expense, and insurance expense do not vary.

Cost objects may include all of the following EXCEPT ________. A. a plant / factory B. a product line C. direct materials D. a unit

C. direct materials Cost objects may include all of the following EXCEPT direct materials. Direct materials are a product cost element, not a cost object. A unit is a cost object. A product line is a cost object. A plant/factory is a cost object.

Period costs are also known as ________. A. production costs B. purchase costs C. operating costs D. inventory costs

C. operating costs Period costs are also known as operating costs. Production costs, purchase costs, and inventory costs are known as product costs rather than period costs.

A(n) ________ is a cost that has already been incurred. A. product cost B. opportunity cost C. sunk cost D. relevant cost

C. sunk cost A sunk cost represents the cost that has already been incurred. Opportunity cost is what is foregone when the next best alternative is chosen. Product cost is the direct material, direct labor, and manufacturing overhead used to produce a product. Relevant cost should be included in a decision.

Which of the following is a correct statement about conversion costs? A. Conversion costs refer to the combination of direct materials and direct labor. B. Conversion costs include costs such as sales, marketing, and administrative. C. Conversion costs are expensed as incurred, such as with advertising. D. Conversion costs refer to the combination of direct labor and manufacturing overhead.

D. Conversion costs refer to the combination of direct labor and manufacturing overhead. Conversion costs refer to the combination of direct labor and manufacturing overhead. This statement is true regarding conversion costs. Prime cost refers to the combination of direct materials and direct labor. Non-manufacturing costs include costs such as sales, marketing, and administrative. Period costs are the costs incurred by the company that do not get treated as inventory, but rather, are expensed immediately in the period in which they are incurred.

Which of the following is NOT considered a product cost for a merchandising firm? A. Cost of merchandise purchased for resale B. Cost of shipping merchandise to the store (freight-in) C. Cost of import duties paid on merchandise purchased from an overseas supplier D. Cost of a sales associate's salary

D. Cost of a sales associate's salary The cost of sales associate's salary is NOT considered a product cost for a merchandising firm. Cost of merchandise purchased for resale, cost of shipping merchandise to the store (freight-in), and cost of import duties paid on merchandise purchased from an overseas supplier are examples of merchandising product costs.

Which of the following is NOT a way that companies might integrate sustainability throughout the value chain? A. Designing products using life-cycle assessment and biomimicry that can be integrated into all elements of the value chain B. Researching and developing environmentally safe packaging design C. Marketing with integrity D. Failure to adopt sustainable purchasing practices

D. Failure to adopt sustainable purchasing practices Failure to adopt sustainable purchasing practices is NOT a way that companies might integrate sustainability throughout the value chain. Companies should strive to adopt sustainable purchasing practices. Designing products using life-cycle assessment and biomimicry can be integrated into all elements of the value chain. Researching and developing environmentally safe packaging design, and marketing with integrity are ways organizations can integrate sustainability throughout the value chain.

An example of a service company includes ________. A. General Motors Corporation B. Best Buy C. Sam's Club D. Verizon

D. Verizon An example of a service company includes Verizon. Best buy is a retailer. General Motors is a manufacturer. Sam's Club is a wholesaler.

A(n) ________ is anything for which you want to know the cost. A. direct cost B. indirect cost C. product cost D. cost object

D. cost object A cost object is anything for which you want to know the cost. A direct cost is a cost that can be traced to the cost object. The term trace means that the company can readily identify or associate the cost with the cost object. There is essentially a one-to-one correlation between the cost and the cost object. An indirect cost is a cost that relates to the cost object but cannot be traced specifically to it. Think of an indirect cost as a cost that is jointly used or shared by several cost objects. Product costs are the costs incurred by manufacturers to produce their products or incurred by merchandisers to purchase their products.

The ________ is the cost of making one more unit. A. average cost B. total cost C. product cost D. marginal cost

D. marginal cost The marginal cost is the cost of making one more unit. The average cost is the total cost divided by the number of units and does not predict total costs at different levels of output. Product cost includes direct materials, direct labor, and manufacturing overhead.


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