Topic 2 PDF

Chapter 02: managerial accounting and cost concepts Chapter 02 Managerial Accounting and Cost Concepts True / False Questions 1. Direct material costs are generally variable costs. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objec...

Chapter 02: managerial accounting and cost concepts Chapter 02 Managerial Accounting and Cost Concepts True / False Questions 1. Direct material costs are generally variable costs. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 2. Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Easy 3. Manufacturing overhead combined with direct materials is known as conversion cost. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Easy 1/117 Chapter 02: managerial accounting and cost concepts 4. All costs incurred in a merchandising firm are considered to be period costs. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 5. Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Medium 6. In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Hard 7. Advertising costs are considered product costs for external financial reports because they are incurred in order to promote specific products. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Medium 2/117 Chapter 02: managerial accounting and cost concepts 8. Selling and administrative expenses are product costs under generally accepted accounting principles. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 9. A variable cost is a cost whose cost per unit varies as the activity level rises and falls. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 10. When the level of activity increases, total variable cost will increase. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 11. A decrease in production will ordinarily result in an increase in fixed production costs per unit. TRUE AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 3/117 Chapter 02: managerial accounting and cost concepts 12. Automation results in a shift away from variable costs toward more fixed costs. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 13. In order for a cost to be variable it must vary with either units produced or units sold. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Medium 14. The concept of the relevant range does not apply to fixed costs. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 15. Indirect costs, such as manufacturing overhead, are always fixed costs. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Medium 4/117 Chapter 02: managerial accounting and cost concepts 16. Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 17. Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any short-run savings that might be realized. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 18. Committed fixed costs are fixed costs that are not controllable. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Hard 19. A mixed cost is partially variable and partially fixed. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 5/117 Chapter 02: managerial accounting and cost concepts 20. Traditional format income statements are prepared primarily for external reporting purposes. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 21. In a contribution format income statement, sales minus cost of goods sold equals the gross margin. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 22. In a traditional format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 6/117 Chapter 02: managerial accounting and cost concepts 23. Although the contribution format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 24. In a contribution format income statement for a merchandising company, cost of goods sold is a variable cost that gets included in the "Variable expenses" portion of the income statement. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 25. The traditional format income statement is used as an internal planning and decisionmaking tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-05 Prepare income statements for a merchandising company using the traditional and contribution formats Level: Easy 7/117 Chapter 02: managerial accounting and cost concepts 26. The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager's salary, and the cost of the General Electric jet engines installed on the aircraft. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-06 Understand the differences between direct and indirect costs Level: Medium 27. The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician's fees, and a portion of the liability insurance carried by the hospital to cover the delivery room. FALSE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-06 Understand the differences between direct and indirect costs Level: Hard 28. The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm's offices, the law firm's receptionist's wages, the costs of heating the law firm's offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-06 Understand the differences between direct and indirect costs Level: Hard 8/117 Chapter 02: managerial accounting and cost concepts 29. In any decision making situation, sunk costs are irrelevant and should be ignored. TRUE AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Knowledge Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs Level: Easy Multiple Choice Questions 30. For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver lamps to customers is best described as a: A. prime cost. B. manufacturing overhead cost. C. period cost. D. differential (incremental) cost of a lamp. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs Level: Hard 9/117 Chapter 02: managerial accounting and cost concepts 31. The cost of leasing production equipment is classified as: A. Option A B. Option B C. Option C D. Option D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Medium 32. The wages of factory maintenance personnel would usually be considered to be: A. Option A B. Option B C. Option C D. Option D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Learning Objective: 02-06 Understand the differences between direct and indirect costs Level: Medium 10/117 Chapter 02: managerial accounting and cost concepts 33. Manufacturing overhead consists of: A. all manufacturing costs. B. indirect materials but not indirect labor. C. all manufacturing costs, except direct materials and direct labor. D. indirect labor but not indirect materials. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Medium 34. Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture? A. Sheet steel in a file cabinet made by the company. B. Manufacturing equipment depreciation. C. Idle time for direct labor. D. Taxes on a factory building. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Medium 35. Which of the following costs would not be included as part of manufacturing overhead? A. Insurance on sales vehicles. B. Depreciation of production equipment. C. Lubricants for production equipment. D. Direct labor overtime premium. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Easy 11/117 Chapter 02: managerial accounting and cost concepts 36. Conversion cost consists of which of the following? A. Manufacturing overhead cost. B. Direct materials and direct labor cost. C. Direct labor cost. D. Direct labor and manufacturing overhead cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories Level: Easy 37. The advertising costs that Pepsi incurred to air its commercials during the Super Bowl can best be described as a: A. variable cost. B. fixed cost. C. product cost. D. prime cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Medium 38. Each of the following would be a period cost except: A. the salary of the company president's secretary. B. the cost of a general accounting office. C. depreciation of a machine used in manufacturing. D. sales commissions. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 12/117 Chapter 02: managerial accounting and cost concepts 39. Which of the following costs is an example of a period rather than a product cost? A. Depreciation on production equipment. B. Wages of salespersons. C. Wages of production machine operators. D. Insurance on production equipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 40. Which of the following would be considered a product cost for external financial reporting purposes? A. Cost of a warehouse used to store finished goods. B. Cost of guided public tours through the company's facilities. C. Cost of travel necessary to sell the manufactured product. D. Cost of sand spread on the factory floor to absorb oil from manufacturing machines. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Medium 41. Which of the following would NOT be treated as a product cost for external financial reporting purposes? A. Depreciation on a factory building. B. Salaries of factory workers. C. Indirect labor in the factory. D. Advertising expenses. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 13/117 Chapter 02: managerial accounting and cost concepts 42. The salary of the president of a manufacturing company would be classified as which of the following? A. Product cost B. Period cost C. Manufacturing overhead D. Direct labor AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Easy 43. Conversion costs do NOT include: A. depreciation. B. direct materials. C. indirect labor. D. indirect materials. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-02 Distinguish between product costs and period costs and give examples of each Level: Medium Source: CMA, adapted 44. 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 cost behavior patterns remain unchanged the: A. total variable cost will remain unchanged. B. fixed costs will increase in total. C. variable cost per unit will increase. D. total cost per unit will decrease. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Hard 14/117 Chapter 02: managerial accounting and cost concepts 45. 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. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Medium 46. Which of the following statements regarding fixed costs is incorrect? A. Expressing fixed costs on a per unit basis usually is the best approach for decision making. B. Fixed costs expressed on a per unit basis will decrease with increases in activity. C. Total fixed costs are constant within the relevant range. D. Fixed costs expressed on a per unit basis will increase with decreases in activity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Medium 47. The salary paid to the production manager in a factory is: A. a variable cost. B. part of prime cost. C. part of conversion cost. D. both a variable cost and a prime cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Hard 15/117 Chapter 02: managerial accounting and cost concepts 48. Within the relevant range, variable cost per unit will: A. increase as the level of activity increases. B. remain constant. C. decrease as the level of activity increases. D. none of these. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 49. The term "relevant range" means the range of activity over which: A. relevant costs are incurred. B. costs may fluctuate. C. production may vary. D. the assumptions about fixed and variable cost behavior are reasonably valid. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 50. An example of a committed fixed cost is: A. a training program for salespersons. B. executive travel expenses. C. property taxes on the factory building. D. new product research and development. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Easy 16/117 Chapter 02: managerial accounting and cost concepts 51. In describing the cost formula equation Y = a + bX, which of the following statements is correct? A. "X" is the dependent variable. B. "a" is the fixed component. C. In the high-low method, "b" equals change in activity divided by change in costs. D. As "X" increases "Y" decreases. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs Level: Hard 52. Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer? A. The cost of the hard disk drive installed in the computer. B. The cost of shipping the computer to the customer. C. The cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers. D. The cost of packaging the computer for shipment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 02-06 Understand the differences between direct and indirect costs Level: Hard 53. The term differential cost refers to: A. a difference in cost which results from selecting one alternative instead of another. B. the benefit forgone by selecting one alternative instead of another. C. a cost which does not involve any dollar outlay but which is relevant to the decisionmaking process. D. a cost which continues to be incurred even though there is no activity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs Level: Medium 17/117 Chapter 02: managerial accounting and cost concepts 54. Which of the following costs is often important in decision making, but is omitted from conventional accounting records? A. Fixed cost. B. Sunk cost. C. Opportunity cost. D. Indirect cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Knowledge Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs Level: Easy 55. When a decision is made among a number of alternatives, the benefit that is lost by choosing one alternative over another is the: A. realized cost. B. opportunity cost. C. conversion cost. D. accrued cost. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Knowledge Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs Level: Easy Source: CMA, adapted 18/117