Chapter 1 Managerial Accounting and the Business Environment &

Chapter 2 Cost Terms, Concepts, and Classifications

 

  1. Managerial accounting differs from financial accounting in that financial accounting is

  1. more oriented toward the future

  2. primarily concerned with external financial reporting

  3. concerned with nonquantitative information

  4. heavily involved with decision analysis and implementation of decisions

 

2) Which one of the following is least likely to be an objective of a cost accounting system?

  1. product costing and inventory valuation

  2. departmental efficiency

  3. sales commission determination

  4. income determination

 

3) Which one of the following costs would be relevant in short-term decision making?

  1. incremental fixed costs

  2. all costs of inventory

  3. total variable costs that are the same in the considered alternatives

  4. costs of fixed assets to be used in the alternatives

 

  1. 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

  1. net realizable value

  2. expected value

  3. opportunity cost

  4. incremental cost

 

5) In cost terminology, conversion costs consist of

  1. direct and indirect cost

  2. direct labor and direct materials

  3. direct labor and factory overhead

  4. indirect labor and variable factory overhead

 

6) Cost is the amount measured by the current monetary value of economic resources given up or to be given up in obtaining goods and services. Costs may be classified as unexpired or expired. Which of the following costs is not always considered to be expired immediately upon being recognized?

  1. cost of goods sold

  2. sales salaries

  3. depreciation expenses for plant machinery

  4. loss from bankruptcy of a major debtor not provided for in the annual adjustment

 

  1. In a retailing enterprise, the income statement includes cost of goods sold. Cost of goods sold is, in effect, purchases adjusted for changes in inventory. In a manufacturing company, the purchases account is replaced by which account?

  1. inventory

  2. cost of goods manufactured

  3. finished goods

  4. cost of goods sold

 

8) The information contained in a cost of goods manufactured budget most directly relates to the

  1. materials used, direct labor, overhead applied, and ending work-in-process budgets

  2. materials used, direct labor, overhead applied, and work-in-process inventories budgets

  3. materials used, direct labor, overhead applied, work-in-process inventories, and finished goods inventories budgets

  4. materials used, direct labor, overhead applied, and finished goods inventories budgets

 

9) What is the nature of the work-in-process account?

  1. inventory

  2. cost of goods sold

  3. productivity

  4. nominal

 

  1. The following cost data were taken from the records of a manufacturing company:

Depreciation on factory equipment $ 1,000

Depreciation on sales office 500

Advertising 7,000

Freight-out (shipping) 3,000

Wages of production workers 28,000

Raw materials used 47,000

Sales salaries and commissions 10,000

Factory rent 2,000

Factory insurance 500

Materials handling 1,500

Administrative salaries 2,000

Based upon the information, the manufacturing cost incurred during the year was

  1. $78,000

  2. $80,000

  3. $80,500

  4. $83,000

 

11) The difference between variable costs and fixed costs is

  1. unit variable costs fluctuate, and unit fixed costs remain constant

  2. unit variable costs are fixed over the relevant range, and unit fixed costs are variable

  3. total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change

  4. unit variable costs change in varying increments, while unit fixed costs change in equal increments

 

12) Unit fixed costs

  1. are constant per unit regardless of units produced or sold

  2. are determined by dividing total fixed costs by a denominator such as production or sales volume

  3. vary directly with the activity level when stated on a per unit basis

  4. include both fixed and variable elements

 

  1. Sales of a company’s product have suffered because of intense price competition. As a result, the company must lower the price of the product. The lowest feasible short-run price would just exceed the product’s

  1. fixed cost per unit

  2. variable cost per unit

  3. fixed cost per unit plus variable cost per unit

  4. variable cost per unit minus fixed cost per unit

 

14) The term relevant range as used in cost accounting means the range over which

  1. costs may fluctuate

  2. cost relationships are valid

  3. production may vary

  4. relevant costs are incurred

 

15) The term incremental cost refers to

  1. the difference in total costs that results from selecting one choice instead of another

  2. the profit forgone by selecting one choice instead of another

  3. a cost that continues to be incurred in the absence of activity

  4. a cost common to all choices in question and not clearly or feasibly allocable to any of them

 

16) The cost of the direct labor associated with the manufacture of a product should be classified as an expense when the

  1. labor is performed

  2. product is transferred to finished goods inventory

  3. product is sold

  4. employees are paid

 

17) Following are Mill Co.’s production costs for October:

Direct materials $ 100,000

Direct labor 90,000

Factory overhead 4,000

What amount of costs should be traced to specific products in the production process?

  1. $194,000

  2. $190,000

  3. $100,000

  4. $90,000

 

18) Which of the following are usually considered period costs?

 

A

B

C

D

Direct labor

    

X

X

Direct materials

  

X

  

X

Sales materials

X

X

X

  

Advertising costs

X

X

    

Indirect factory materials

      

X

Indirect labor

      

X

Sales commissions

X

X

X

  

Factory utilities

  

X

  

X

Administrative supplies expense

X

X

X

  

Administrative labor

X

X

X

X

Depreciation on administrative building

X

X

X

X

Cost of research on customer demographics

X

X

X

  

  1. A

  2. B

  3. C

  4. D

 

19) Indirect materials are a

Conversion cost Manufacturing cost Prime cost

a. Yes Yes Yes

b. Yes Yes No

c. No Yes Yes

d. No No No