ADMS 2510 Managerial Accounting Chapter 2 Cost Terms, Concepts, and Classifications - All Answers are Correct

Chapter 2 Cost Terms, Concepts, and Classifications Garrison, Managerial Accounting, 12th Edition 15 True/False Questions 1. Manufacturing overhead is an indirect cost with respect to units of product. Answer: True Level: Medium LO: 1 2. Depreciation on office equipment would not be included in the cost of goods manufactured. Answer: True Level: Easy LO: 2,4 3. Rent on a factory building used in the production process would be classified as a period cost and as a fixed cost. Answer: False Level: Medium LO: 2,5 4. Period costs are found only in manufacturing companies, not in merchandising companies. Answer: False Level: Medium LO: 2 5. Depreciation on equipment a company uses in its selling and administrative activities would be classified as a product cost. Answer: False Level: Medium LO: 2 6. If the finished goods inventory increases between the beginning and the end of a period, then the cost of goods manufactured is smaller than the cost of goods sold. Answer: False Level: Hard LO: 3,4 7. The cost of goods manufactured is calculated by adding the amount of work in process at the end of the year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the year and then subtracting work in process at the beginning of the year. Answer: False Level: Medium LO: 4 8. A publisher that sells its books through agents who are paid a constant percentage commission on each book sold would classify the commissions as a fixed cost. Answer: False Level: Medium LO: 5 Chapter 2 Cost Terms, Concepts, and Classifications 16 Garrison, Managerial Accounting, 12th Edition 9. Variable costs per unit are affected by changes in activity. Answer: False Level: Easy LO: 5 10. A cost is either direct or indirect. The classification will not change if the cost object changes. Answer: False Level: Medium LO: 6 11. The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost. Answer: True Level: Easy LO: 7 12. Labor fringe benefits may be charged to direct labor or manufacturing overhead while overtime premiums paid usually are considered a part of manufacturing overhead. Answer: True Level: Easy LO: 8 Appendix: 2A 13. The cost of idle time should be charged as direct labor of the job that is in process when the breakdown occurs. Answer: False Level: Medium LO: 8 Appendix: 2A 14. Internal failure costs result from identification of defects during the appraisal process. Such costs may include scrap, rejected products, rework, and downtime. Answer: True Level: Easy LO: 9 Appendix: 2B 15. ISO 9000 certification is relatively easy to achieve because little documentation on quality control procedures is needed. Answer: False Level: Easy LO: 11 Appendix: 2B Chapter 2 Cost Terms, Concepts, and Classifications Garrison, Managerial Accounting, 12th Edition 17 Multiple Choice Questions 16. Indirect labor is a part of: A) Prime cost. B) Conversion cost. C) Period cost. D) Nonmanufacturing cost. Answer: B Level: Medium LO: 1,2 Source: CPA, adapted 17. The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n): A) period cost. B) direct material cost. C) indirect material cost. D) none of the above. Answer: C Level: Easy LO: 1,2 18. The salary paid to the president of King Company would be classified on the income statement as a(n): A) administrative expense. B) direct labor cost. C) manufacturing overhead cost. D) selling expense. Answer: A Level: Easy LO: 1 19. Direct labor cost is a part of: Conversion cost Prime cost A) No No B) No Yes C) Yes Yes D) Yes No Answer: C Level: Easy LO: 1 Source: CPA, adapted Chapter 2 Cost Terms, Concepts, and Classifications 18 Garrison, Managerial Accounting, 12th Edition 20. Direct material cost is a: Conversion cost Prime cost A) No No B) No Yes C) Yes Yes D) Yes No Answer: B Level: Medium LO: 1 Source: CPA, adapted 21. Prime cost and conversion cost share what common element of total cost? A) Direct materials. B) Direct labor. C) Variable overhead. D) Fixed overhead. Answer: B Level: Easy LO: 1 Source: CPA, adapted 22. Prime cost consists of: A) direct labor and manufacturing overhead. B) direct materials and manufacturing overhead. C) direct materials and direct labor. D) direct materials, direct labor and manufacturing overhead. Answer: C Level: Easy LO: 1 23. Wages paid to a timekeeper in a factory are a: Prime cost Conversion cost A) Yes No B) Yes Yes C) No No D) No Yes Answer: D Level: Medium LO: 1 Source: CPA, adapted 24. Property taxes on a company's factory building would be classified as a(n): A) product cost. B) opportunity cost. C) period cost. D) variable cost. Answer: A Level: Easy LO: 2,5,7 Chapter 2 Cost Terms, Concepts, and Classifications Garrison, Managerial Accounting, 12th Edition 19 25. Depreciation on a personal computer used in the marketing department of a manufacturing firm would be classified as: A) a product cost that is fixed with respect to the company's output. B) a period cost that is fixed with respect to the company's output. C) a product cost that is variable with respect to the company's output. D) a period cost that is fixed with respect to the company's output. Answer: B Level: Medium LO: 2,5 26. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients would be classified as: A) direct costs of the patients. B) indirect costs of the patients. C) overhead costs of the nursing station. D) period costs of the hospital. Answer: A Level: Hard LO: 2,6 27. All of the following would be classified as product costs except: A) property taxes on production equipment. B) insurance on factory machinery. C) salaries of the advertising staff. D) wages of machine operators. Answer: C Level: Easy LO: 2 28. Product costs appear on the balance sheet: A) only if goods are partially completed at the end of the period. B) only if goods are unsold at the end of a period. C) only if goods are partially completed or are unsold at the end of a period. D) only in merchandising firms. Answer: C Level: Medium LO: 2 Chapter 2 Cost Terms, Concepts, and Classifications 20 Garrison, Managerial Accounting, 12th Edition 29. Ross Corporation shipped finished goods to a customer on credit, but the sale was not recorded and the costs of the finished goods were incorrectly included on the period's balance sheet as part of the finished goods inventory. Which one of the following statements is correct concerning the effects of this error? A) Accounts receivable was not affected, inventory was overstated, sales were understated, and cost of goods sold was understated. B) Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was understated. C) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated. D) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was understated. Answer: D Level: Easy LO: 3 Source: CMA, adapted 30. Data for Cost A and Cost B are as follows: Number of Units Produced Unit Cost Total Cost Cost A 1 ? $10 10 ? $100 100 ? $1,000 1,000 ? $10,000 Cost B 1 $5,0