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Test Bank For Managerial Accounting, 15th Edition

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    2-6 Chapter 02 Managerial Accounting and Cost Concepts True / False Questions 1. Selling costs can be either direct or indirect costs. True False 2. A direct cost is a cost that cannot be easily traced to the particular cost object under consideration. True False 3. Property taxes and insurance premiums paid on a factory building are examples of period costs. True False 4. Conversion cost equals product cost less direct labor cost. True False 5. Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead. True False

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    2-7 6. Direct labor is a part of prime cost, but not conversion cost. True False 7. Conversion cost is the sum of direct labor cost and direct materials cost. True False 8. Direct material costs are generally fixed costs. True False 9. Product costs are recorded as expenses in the period in which the related products are sold. True False 10. Depreciation on manufacturing equipment is a product cost. True False 11. Manufacturing salaries and wages incurred in the factory are period costs. True False 12. Depreciation on office equipmen t would be included in product costs. True False 13. Rent on a factory building used in the production process would be classified as a product cost and as a fixed cost. True False

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    2-8 14. A fixed cost remains constant if expressed on a unit basis. True False 15. Total variable cost is expected to remain unchanged as activity changes within the relevant range. True False 16. Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in the mi ddle of its dining area. The cost of the firewood for this fire is fixed with respect to the number of meals served at the restaurant. True False 17. Committed fixed costs represent organizational investments with a multi - year planning horizon tha t can't be significantly reduced even for short periods. True False 18. Commissions paid to salespersons are a variable selling expense. True False 19. Variable costs are costs that vary, in total, in direct proportion to changes in the v olume or level of activity. True False

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    2-9 20. The planning horizon for a committed fixed cost usually encompasses many years. True False 21. Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity. True False 22. The high - low method uses cost and activity data from just two periods to establish the formula for a mixed cost. True False 23. The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, an d so on. True False 24. The contribution margin is the amount remaining from sales revenues after variable expenses have been deducted. True False 25. A contribution format income statement for a merchandising company organizes costs into two categories — cost of goods sold and selling and administrative expenses. True False

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    2-10 26. The traditional format income statement provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, control, and decision making. True False 27. In a contribution format income statement, the gross margin minus selling and administrative expenses equals net operating income. True False 28. A traditional format income sta tement organizes costs on the basis of behavior. True False 29. In a traditional format income statement for a merchandising company, the selling and administrative expenses report all period costs that have been expensed as incurred. True False 30. The contribution format is widely used for preparing external financial statements. True False 31. Contribution margin equals revenue minus all fixed costs. True False

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    2-11 32. The potential benefit that is given up when one alternative is selected over another is called an opportunity cost. True False 33. A cost that differs from one month to another is known as a differential cost. True False Multiple Choice Questions 34. The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery patients. The costs of prescription drugs administered by the nursing station to patients should be classified as: A. direct patient costs. B. indirect patient costs. C. overhead costs of the nursing station. D. period costs of the hospital. 35. All of the following costs would be found in a company's accounting records except: A. sunk cost. B. opportunity cost. C. indirect costs. D. direct costs.

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    2-12 36. The costs of the Accounting Department at Central Hospital would be considered by the Surgery Department to be: A. direct costs. B. indirect costs. C. incremental costs. D. opportunity costs. 37. Which of the following is classified as a direct labor cost? A. Option A B. Option B C. Option C D. Option D 38. In a manufacturing company, direct labor costs combined with direct materials costs are known as: A. period costs. B. conversion costs. C. prime costs. D. opportunity costs.

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    2-13 39. The property taxes on a factory building would be an example of: A. Option A B. Option B C. Option C D. Option D 40. Which of the following would most likely be included as part of manufacturing overhead in the production of a wooden table? A. The amount paid to the individual who stains the table. B. The commission paid to the salesperson who sold the table. C. The cost of glue used in the table. D. The cost of the wood used in the table.

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    2-14 41. Property taxes on a manufacturing facility are classified as: A. Option A B. Option B C. Option C D. Option D 42. Indirect labor is a(n): A. Prime cost. B. Conversion cost. C. Period cost. D. Opportunity cost. 43. The salary paid to the maintenance supervisor in a manufacturing plant is an example of: A. Option A B. Option B C. Option C D. Option D

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    2-15 44. 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 marketing staff. D. wages of machine operators. 45. The cost of direct materials cost is classified as a: A. Option A B. Option B C. Option C D. Option D 46. Which of the following costs is classified as a prime cost? A. Option A B. Option B C. Option C D. Option D

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    2-16 47. Inventoriable costs are also known as: A. variable costs. B. conversion costs. C. product costs. D. fixed costs. 48. Fresh Wreath Corporation manufactures wreaths according to customer specifications and ships them to customers using United Parcel Service (UPS). Which two terms below describe the cost of shipping these wreaths? A. variable cost and product cost B. variable cost and period cost C. fixed cost and product cost D. fixed cost and period cost 49. If the level of activity increases within the relevant range: A. variable cost per unit and total fixed costs also increase. B. fixed cost per unit and total variable cost also increase. C. total cost will increase and fixed cost per unit will decrease. D. variable cost per unit and total cost also increase.

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    2-17 50. Within the relevant range: A. variable cost per unit decreases as production decreases. B. fixed cost per unit increases as production decreases. C. fixed cost per unit decreases as production decreases. D. variable cost per unit increases as production decreases. 51. Discretionary fixed costs: A. have a planning horizon that covers many years. B. may be reduced for short periods of time with minimal damage to the long - run goals of the organization. C. cannot be reduced for even short periods of time without making fundamental changes. D. are most effectively controlled through the effective utilization of facilities and organization. 52. When the activity level declines within the relevant range, what should happen with respect to the following? A. Option A B. Option B C. Option C D. Option D

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    2-18 53. Stott Company requires one full - time dock hand for every 500 packages loaded daily. The wages for these dock hands would be: A. variable. B. mixed. C. step - variable. D. curvilinear. 54. When the level of activity decreases, variable costs will: A. increase per unit. B. increase in total. C. decrease in total. D. decrease per unit.

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    2-19 55. Data for Cost A and Cost B appear below: Which of the above best describes the behavior of Costs A and B? A. Cost A is fixed, Cost B is variable. B. Cost A is variable, Cost B is fixed. C. Both Cost A and Cost B are variable. D. Both Cost A and Cost B are fixed. 56. Which of the following companies would have the highest proportion of variable costs in its cost structure? A. Public utility. B. Airline. C. Fast food outlet. D. Architectural firm.

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    2-20 57. An example of a discretionary fixed cost would be: A. taxes on the factory. B. depreciation on manufacturing equipment. C. insurance. D. research and development. 58. For planning, control, and decision - making purposes: A. fixed costs should be converted to a per unit basis. B. discretionary fixed costs should be eliminated. C. variable costs should be ignored. D. mixed costs should be separated into their variable and fixed components. 59. Which of the following costs, if expressed on a per unit basis, would be expected to decrease as the level of production and sales increases? A. Sales commissions. B. Fixed manufacturing overhead. C. Variable manufacturing overhead. D. Direct materials.

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