Questions and Answers
The cost of beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured.
False
Fixed costs are costs that remain the same per unit regardless of changes in the activity level.
False
Both direct and indirect materials may physically become part of the finished product.
True
Product costs are costs that are a necessary and integral part of producing the finished product.
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Raw materials inventory is not an asset until it is used to make a product.
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The high-low method is a quick means of separating fixed and variable costs.
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Raw materials are equal to direct materials.
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Manufacturing costs that cannot be classified as direct material or direct labour are classified as operating expenses.
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What the high-low method may lack in precision, it makes up for in efficiency and ease of use.
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If the ending work in process inventory is less than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the period.
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In which of the following categories do indirect materials belong?
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Which one of the following represents a period cost?
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Which of the following would most likely be viewed as indirect materials?
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Which of the following is considered manufacturing overhead?
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Which of the following are period costs?
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Within the relevant range, a valid argument can be made for the assumption of linearity of variable costs.
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At the upper and lower limits of the relevant range of company activity, linearity of variable costs is a given.
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The relevant range is reflective of the relevant range of products a company offers to its customers.
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Fixed costs vary in total within the relevant range.
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Examples of fixed costs include all but one of the following:
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Which of the following would most likely be considered direct labour?
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Fees for office telephones are:
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Study Notes
Manufacturing Costs and Classifications
- The cost of beginning work in process plus total manufacturing costs does not equal the cost of goods manufactured; it reflects total work in process costs.
- Fixed costs remain constant in total, but vary per unit with changes in activity level.
- Direct and indirect materials may both become integral parts of the finished product.
Product Costs
- Product costs are necessary for producing a finished item, including direct materials and labor.
- Raw materials inventory is considered an asset even before being utilized in production.
- Indirect materials are classified under product costs and manufacturing overhead.
Cost Classifications in Accounting
- Period costs include expenditures such as advertising and wages in shipping departments.
- Manufacturing overhead is represented by costs like depreciation on machinery used in production processes.
- Indirect materials, such as axle grease for vehicles, are considered part of manufacturing overhead rather than direct materials.
Variable and Fixed Costs
- The high-low method provides a straightforward way to separate fixed and variable costs, prioritizing efficiency over precision.
- Within the relevant range, variable costs can be assumed to behave linearly, although this is not guaranteed at activity extremes.
- Fixed costs do not vary in total within the relevant range; inconsistencies arise outside this range.
Direct Labor and Telephone Fees
- Direct labor includes employees directly involved in production, like workers assembling components.
- Fees for office telephones are classified as mixed period costs, reflecting a combination of fixed and variable elements.
Key Facts
- Company advertisements are categorized as period costs, while depreciation of plant equipment and factory worker wages are not.
- The effect of production-related costs is significant when determining the cost of goods manufactured during accounting periods.
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Description
Test your knowledge with these flashcards from Comm 305, Chapter 2. This quiz covers key concepts related to manufacturing costs and fixed costs. Determine whether the statements are true or false to enhance your understanding.
