Test Bank for Managerial Accounting for Business Leaders, 1st Edition by Carl S. Warren

Chap 01 1e - Warren

Indicate whether the statement is true or false.
1. Conversion cost is the combination of direct labor cost and manufacturing overhead cost.
a. True
b. False

ANSWER: True

2. Product costs are not expensed until the product is sold.
a. True
b. False

ANSWER: True

3. On the balance sheet for a manufacturing business, the costs of direct materials, direct labor, and manufacturing
overhead are categorized as either materials inventory, work in process inventory, or finished goods inventory.
a. True
b. False

ANSWER: True

4. Direct costs are identified with and can be traced to a cost object.
a. True
b. False

ANSWER: True

5. While no two company structures are identical, most large companies are organized in terms of verticals and
diagonals.
a. True
b. False

ANSWER: False

6. Only the value of the inventory that is sold will appear on the income statement.
a. True
b. False

ANSWER: True

7. A report analyzing the dollar savings of purchasing new equipment to speed up the production process is a
managerial accounting report.
a. True
b. False

ANSWER: True



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,Name: Class: Date:

Chap 01 1e - Warren

8. The cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost.
a. True
b. False

ANSWER: False

9. Prime costs are the combination of direct materials and direct labor costs.
a. True
b. False

ANSWER: True

10. A cost object can be anything to which costs are assigned and will vary depending upon the decision-making
needs of management.
a. True
b. False

ANSWER: True

11. Operational planning is the process of developing the company’s short-term objectives and actions needed to
achieve the company’s long-term, strategic objectives.
a. True
b. False

ANSWER: True

12. Managerial accounting uses only past data in reports to aid management in the decision-making process.
a. True
b. False

ANSWER: False

13. Strategic planning is the process of monitoring operating results and comparing actual results with the expected
results.
a. True
b. False

ANSWER: False

14. Direct labor costs are included in the conversion costs of a product.
a. True
b. False

ANSWER: True




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Chap 01 1e - Warren

15. Manufacturing overhead is an example of a product cost.
a. True
b. False

ANSWER: True

16. The role of horizontals is to provide services, assistance, and advice to the various verticals and other horizontal
departments.
a. True
b. False

ANSWER: True

17. The costs of materials and labor that cannot be traced directly to the finished product are classified as cost of
goods sold.
a. True
b. False

ANSWER: False

18. The cost of materials entering directly into the manufacturing process is classified as manufacturing overhead
cost.
a. True
b. False

ANSWER: False

19. Indirect costs are identified with and can be traced to a cost object.
a. True
b. False

ANSWER: False

20. The cost of wages paid to employees directly involved in converting materials to finished product is classified as
direct labor cost.
a. True
b. False

ANSWER: True

21. Prime costs consist of direct materials, indirect materials, and direct labor.
a. True
b. False

ANSWER: False




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, Name: Class: Date:

Chap 01 1e - Warren

22. Operating expenses are product costs and are expensed when the product is sold.
a. True
b. False

ANSWER: False

23. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and
manufacturing overhead cost.
a. True
b. False

ANSWER: True

24. Product costs include direct labor and advertising expense.
a. True
b. False

ANSWER: False

25. The costs of materials and labor that cannot be traced directly to the finished product are classified as
manufacturing overhead.
a. True
b. False

ANSWER: True

26. In a service company, the cost of services is accumulated and reported as inventory.
a. True
b. False

ANSWER: False

27. Managerial accounting information is for external users as well as company managers.
a. True
b. False

ANSWER: False

28. Conversion costs consist of product costs and period costs.
a. True
b. False

ANSWER: False




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