ACCT 505 MIDTERM EXAM QUESTIONS AND ANSWERS

ACCT 505 MIDTERM EXAM QUESTIONS AND ANSWERS 1. Question : (TCO A) Direct material cost is a part of Student Answer: Conversion Cost NO.... Prime Cost NO. Conversion Cost YES.... Prime Cost NO. Conversion Cost YES.... Prime Cost YES. Conversion Cost NO.... Prime Cost YES. Instructor Explanation: See Chapter 2. Question 2. Question : (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n) Student Answer: period cost. incremental cost. opportunity cost. None of the above Instructor Explanation: See Chapter 2. Question 3. Question : (TCO A) The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n) Student Answer: period cost. direct material cost. indirect manufacturing cost. ACCT 505 MIDTERM EXAM QUESTIONS AND ANSWERS direct product cost. None of the above Instructor Explanation: See Chapter 2. Question 4. Question : (TCO C) When the activity level is expected to decrease within the relevant range, what effects would be anticipated with respect to each of the following? Fixed cost per unit Variable cost per unit Student Answer: Increase No change Increase Increase Decrease No change No change Increase Instructor Explanation: See Chapter 5. Question 5. Question : (TCO B) When manufacturing overhead is applied to production, it is added to Student Answer: the cost of goods sold account. the raw materials account. the direct labor account. None of the above Instructor Explanation: See Chapter 3. ACCT 505 MIDTERM EXAM QUESTIONS AND ANSWERS Question 6. Question : (TCO B) Which of the following statements about the process-costing system is/are correct? Student Answer: In a process-costing system, each processing department has a work-in-process account. In a process-costing system, equivalent units are separately computed for materials and for conversion costs. In a process-costing system, overhead can be under- or overapplied just as in job-order costing. All of the statements above are correct. Instructor Explanation: See Chapter 4. Question 7. Question : (TCO B) The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method Student Answer: can be used under any cost-flow assumption. does not require the use of predetermined overhead rates. keeps costs in the beginning inventory separate from current period costs. does not consider the degree of completion of units in the beginning work-in-process inventory when computing equivalent units of production. Instructor Explanation: See Chapter 4. ACCT 505 MIDTERM EXAM QUESTIONS AND ANSWERS Question 8. Question : (TCO C) The contribution margin ratio always increases when the Student Answer: fixed expenses increase. fixed expenses decrease. variable expenses as a percentage of net sales increase. variable expenses as a percentage of net sales decrease. Instructor Explanation: See Chapter 5. Question 9. Question : (TCO C) To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following? Student Answer: Variable expense per unit Variable expense per unit/selling price per unit Fixed expense per unit (Selling price per unit - variable expense per unit) / selling price per unit Instructor Explanation: See Chapter 5. Question 10. Question : (TCO D) Under variable costing, Student Answer: inventory costs will be lower than under absorption costing. inventory costs will be higher than under absorption costing. net operating income will always be lower than under absorption