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Chapter 01 Introduction to Managerial Accounting Answer Key
True / False Questions
1. Financial accounting information is generally used exclusively by internal
parties such as managers.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
2. Financial accounting information is reported for the company as a whole.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-1
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McGraw-Hill Education.
3. Managers must direct, lead and motivate during the implementation function.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
4. Managers of small, private corporations use managerial accounting
information whereas managers of large, public corporations use financial
accounting information.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Types of organizations
1-2
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McGraw-Hill Education.
5. The Sarbanes-Oxley Act of 2002 places full responsibility on the board of
directors for the accuracy of the reporting system.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
6. The Sarbanes-Oxley Act of 2002 focuses on three factors that affect the
accounting reporting environment: ethics, fraud, and managers.
AICPA: BB Legal
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-3
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McGraw-Hill Education.
7. A sustainable business is one with the ability to meet the needs of today
without sacrificing the ability of future generations to meet their own needs.
AICPA: BB Resource Management
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Sustainability accounting
8. An opportunity cost is the cost of not doing something.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
1-4
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9. Whether a cost is treated as direct or indirect depends on whether tracing the
cost is both possible and feasible.
AICPA: FN Measurement
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
10. Variable costs are always direct costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-5
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11. Fixed costs stay the same, on a per-unit basis, as activity level changes.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
12. Prime costs include direct materials, direct labor, and manufacturing
overhead.
AICPA: FN Measurement
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-6
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13. All manufacturing costs are treated as product costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
14. All manufacturing costs are inventoriable costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
1-7
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McGraw-Hill Education.
15. A cost that will occur in the future and differs between various alternatives
under consideration is a relevant cost.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
Multiple Choice Questions
16. What is the primary goal of accounting?
A. To set long-term goals and objectives.
B. To arrange for the necessary resources to achieve a plan.
D. To motivate others to work towards a plan's success.
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Difficulty: 1 Easy
1-8
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McGraw-Hill Education.
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
17. Of the following groups, which is the primary user of managerial accounting
information?
A. Investors
B. Creditors
C. Regulators
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Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-9
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18. Managerial accounting, as compared to financial accounting, is primarily
intended to facilitate:
A. an understanding of GAAP.
C. conducting ethics investigations under SOX.
D. reporting results to
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Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
19. Managerial accounting information includes all of the following except:
A. Budgets.
B. Performance evaluations, for example budget-to-actual
reports.
C. Cost reports.
1-10
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AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
20. Which of the following is not a characteristic of financial accounting?
A. Financial reports are prepared according to GAAP.
B. Information is used by external parties.
C. Information is subjective, relevant and future-oriented.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-11
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21. Which of the following is not a characteristic of financial accounting?
level.
B. Information is used by external parties.
C. Information is objective, reliable and historical.
D. Reports are prepared periodically.
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
22. Which of the following is not a characteristic of financial accounting?
A. Financial reports are prepared according to GAAP.
C. Information is objective, reliable and historical.
D. Reports are prepared periodically.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
1-12
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McGraw-Hill Education.
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
23. Which of the following is not a characteristic of managerial accounting?
A. Information is used by internal parties.
B. Information is subjective, relevant, future-
oriented.
C. Reports are prepared as needed.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-13
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24. Which of the following is not a characteristic of managerial accounting?
B. Information is subjective, relevant, future-
oriented.
C. Reports are prepared as needed.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
25. Which of the following is not a characteristic of managerial accounting?
A. Information is used by internal parties.
B. Information is subjective, relevant, future-
oriented.
C. Reports are prepared as needed.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
1-14
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
26. Which of the following types of reports is more characteristic of managerial
accounting than financial accounting?
B. An external report used by investors
C. A report prepared according to GAAP
D. A report prepared periodically (monthly, quarterly, annually)
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-15
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27. The control function is:
needed.
B. Arranging of the necessary resources to carry out the plan.
C. The directing, leading, and motivating of those necessary to carry out the
plan.
D. Drafting the goals and strategies to achieve long-term
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
1-16
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28. During the last fiscal year, XYZ organization implemented managerial
accounting to allocate program costs to its soup kitchen. The kitchen's
manager is reviewing actual results from the prior month to compare the
outcomes with the organization's objectives. Which function of the Plan-
Implement-Control cycle is she conducting?
A. Plan
B. Implement
D. Strategize
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Functions of management
1-17
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29. Which of the following types of organizations purchases raw materials from
suppliers and uses them to create a finished product?
B. Merchandising companies
C. Service companies
D. Retailers
AICPA: BB Industry
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Types of organizations
30. Hair salons and law firms are examples of which of the following type of
organization?
A. Retailers
C. Manufacturing firms
D. Merchandising companies
AICPA: BB Industry
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Blooms: Understand
1-18
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Difficulty: 2 Medium
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Types of organizations
31. Which of the following types of organizations sells goods to the general
public?
A. Service companies
B. Manufacturing firms
C. Merchandising companies
AICPA: BB Industry
Accessibility: Keyboard Navigation
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Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Types of organizations
1-19
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32. Which of the following statements is true about the use of managerial
accounting information in nonprofit organizations?
A. Universities do not exist strictly to earn profit for shareholders, so
managerial accounting information is not vital to their operations.
B. Unlike other nonprofits, hospitals (which exist with a focus on financial
results in addition to health metrics) make use of managerial accounting.
information to make decisions, managerial accounting is vital to these
organizations.
D. Because nonprofit organizations - hospitals, educational institutions,
AICPA: BB Critical Thinking
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Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Types of organizations
1-20
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33. Which of the following functions of management involves comparing actual
results with budgeted results?
A. Planning
B. Implementing
C. Reviewing
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
34. Which of the following functions of management involves setting short and
long-term objectives and the tactics to achieve them?
B. Implementing
C. Reviewing
D. Control
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Blooms: Remember
1-21
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Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
35. Which of the following functions of management involves arranging the
necessary resources to carry out the plan?
A. Planning
C. Reviewing
D. Control
Implementing involves arranging for the necessary resources needed to
achieve the plan within the Plan-Implement-Control cycle.
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
1-22
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36. Which of the following functions of management involves providing motivation
to achieve results?
A. Planning
C. Reviewing
D. Control
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
37. Which of the following functions of management involves taking corrective
action if needed?
A. Planning
B. Implementing
C. Reviewing
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1-23
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
38. Which of the following functions of management involves providing feedback
for future plans?
A. Planning
B. Implementing
C. Reviewing
AICPA: BB Critical Thinking
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Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
1-24
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39. Which of the following is the correct sequencing of the functions within the
managerial cycle?
A. Plan - Control - Implement
B. Review - Plan - Implement
D. Review - Control - Plan
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Difficulty: 2 Medium
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
40. Which of the following describes the Planning function within the management
cycle?
B. Comparing actual to budgeted results and taking corrective
action
C. Taking actions to implement the plan
D. Arranging the necessary resources to carry out the plan
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1-25
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Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
41. Which of the following describes the Control function within the management
cycle?
A. Setting short and long-term objectives
action
C. Taking actions to implement the plan
D. Arranging the necessary resources to carry out the plan
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
1-26
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42. Which of the following does not describe the Implementing function within the
management cycle?
A. Leading, directing, and motivating others to achieve the plan's goals
B. Arranging the necessary resources to carry out the plan
C. Taking actions to implement the plan
AICPA: BB Critical Thinking
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
43. "Ethics" refers to all of the following except:
A. The standards of conduct for judging fair from unfair.
B. The standards of conduct for judging right from wrong.
D. The standards of conduct for judging honest from
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Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
44. Which of the following is not one of the factors affecting the accounting
reporting environment focused on by the Sarbanes-Oxley Act?
B. Opportunity
C. Character
D. Incentives
AICPA: BB Legal
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Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-28
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45. Which of the following is a requirement under the Sarbanes-Oxley Act?
A. Financial statements must be audited by a Big Four accounting firm.
B. Management must issue a report that indicates whether the financial
statements are free of error.
system.
D. Background checks must be performed on all
AICPA: BB Legal
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Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
46. Which of the following is not a provision of the Sarbanes-Oxley Act?
B. Stiffer penalties for fraud in terms of monetary fines and jail time decrease
the incentive to commit fraud.
C. Public companies must adopt a code of ethics for senior financial officers.
D. Management must issue a report that indicates whether internal controls
AICPA: BB Legal
1-29
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McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
47. Which of the following is not true about how the Sarbanes-Oxley Act
counteracts incentives for committing fraud?
A. It provides for stiffer monetary penalties.
B. It increases the maximum jail sentence for fraudulent reporting.
D. It provides that violators must repay any money obtained via fraud and pay
AICPA: BB Legal
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-30
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48. The requirement of the Sarbanes-Oxley Act that requires management to
issue a report on internal controls places responsibility for the accuracy of the
reporting system on:
A. accounting managers.
B. marketing managers.
C. production managers.
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Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-31
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49. Which of the following changes introduced by the Sarbanes-Oxley Act is not
one intended to reduce opportunities for error and fraud?
A. Internal control report from
management
C. Stronger oversight by directors
D. Internal control audit by external auditors
AICPA: BB Legal
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
50. Which of the following changes introduced by the Sarbanes-Oxley Act is not
one intended to encourage good character?
A. Anonymous tip lines
B. Whistle-blower protection
C. Code of ethics
As part of the act's attempt to reduce opportunities for error and fraud (not to
encourage good character), it provides stiffer penalties in terms of monetary
fines and jail time.
1-32
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AICPA: BB Legal
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
51. Which of the following changes introduced by the Sarbanes-Oxley Act is
intended to counteract incentives for fraud?
A. Stronger oversight by directors
B. Code of ethics
D. Anonymous tip lines
The Sarbanes-Oxley Act attempts to counteract the incentive to commit fraud
by providing much stiffer penalties in terms of monetary fines and jail time.
AICPA: BB Legal
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-33
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52. Which of the following is not true about how the Sarbanes-Oxley Act
emphasizes the importance of the character of managers and employees?
B. It requires that audit committees establish anonymous tip lines.
C. It provides protection for whistle-blowers.
D. It requires that public companies adopt a code of ethics for senior financial
officers.
The Sarbanes-Oxley Act does not require that ethics be embedded in the
organizational culture.
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Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-34
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53. Which of the following statements is correct about sustainability accounting?
A. Sustainability accounting has been in existence since 1592.
B. Sustainability accounting tracks a company's "green" score.
information to meet the needs of multiple stakeholders.
D. Sustainability accounting is a subset of GAAP applied only to socially
AICPA: BB Resource Management
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Sustainability accounting
1-35
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54. Which of the following statements is correct about the triple bottom line?
A. The triple bottom line measures a company's social impact, without regard
for profit.
Planet.
C. The triple bottom line has replaced net income as the most crucial measure
of a company's success.
D. The triple bottom line reports profit at the expense of social
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Sustainability accounting
1-36
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McGraw-Hill Education.
55. Many organizations are building sustainable business practices into their
strategies, including by issuing:
B. Reports on internal controls.
C. Profit and loss statements that reflect people and planet costs.
D. Reports from the board of directors on sustainability.
AICPA: BB Resource Management
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Sustainability accounting
56. An out-of-pocket costs is:
B. the cost of not doing something.
C. a deferred cost.
D. a budgeted estimate.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
1-37
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McGraw-Hill Education.
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
57. Which of the following is not one of the categories used to sort costs in
managerial accounting?
A. Relevant or irrelevant
B. Variable or fixed
D. Direct or indirect
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
1-38
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McGraw-Hill Education.
58. Which of the following statements concerning costs is incorrect?
A. Costs are treated differently depending on how the information will be used.
course of action.
C. Any single cost can be classified in more than one way.
D. Costs can be categorized on the basis of relevant or irrelevant costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
59. The cost of not doing something is a(n):
A. out-of-pocket cost.
C. direct cost.
D. cost object.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
1-39
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
60. An actual outlay of cash is a(n):
B. opportunity cost.
C. direct cost.
D. cost object.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
1-40
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McGraw-Hill Education.
61. An opportunity cost is:
B. an actual outlay of cash.
C. the initial investment required to pursue an opportunity.
D. a cost that cannot be traced to a specific cost object.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
62. An out-of-pocket cost involves which of the following?
A. Choosing to do one thing instead of another.
B. Tracing the cost directly to a cost object.
D. Determining how the cost changes with a change in activity level.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
1-41
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
63. To earn summer money, Joe could mow lawns in his neighborhood, or he
could work at a local grocery store. Which of the following is an opportunity
cost of mowing lawns?
A. Cash paid for gas to run the lawnmower.
B. The time spent mowing the lawns.
D. Depreciation on the lawnmower.
An opportunity cost is the foregone benefit of the path not taken; in this case,
the wages Joe could have earned working at the grocery store.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
1-42
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McGraw-Hill Education.
64. To earn summer money, Joe could mow lawns in his neighborhood, or he
could work at a local grocery store. Which of the following is an out-of-pocket
cost of mowing lawns?
A. The use of his father's truck to get to job sites.
B. The wages he could have earned working at the grocery store.
C. The time spent mowing the lawns.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
65. Which of the following cannot be an out-of-pocket cost?
A. A direct cost.
C. A variable cost.
D. A period cost.
AICPA: BB Critical Thinking
1-43
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
66. Costs that can be traced to a specific cost object are:
A. opportunity costs.
C. indirect costs.
D. irrelevant costs.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
1-44
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McGraw-Hill Education.
67. Costs that are not worth the effort to trace to a specific cost object are:
A. opportunity costs.
B. direct costs.
D. irrelevant costs.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
1-45
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McGraw-Hill Education.
68. Which of the following statements is correct?
A. A direct cost can be readily traced to a cost object while an indirect cost is
traced only to manufacturing costs.
B. An indirect cost can be readily traced to a cost object while a direct cost is
traced only to manufacturing costs.
cannot.
D. An indirect cost can be traced to a specific cost object, while a direct cost
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
1-46
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McGraw-Hill Education.
69. A direct cost is one that:
A. involves an actual outlay of cash for a specific cost
object.
C. cannot be traced to a specific cost object.
D. is not worth the effort of tracing to a specific cost object.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
70. What determines the difference between a direct and an indirect cost?
A. Whether it changes when activity levels change.
B. Whether it is relevant to a particular decision.
D. Whether it is related to manufacturing or nonmanufacturing activities.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
1-47
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
71. Which of the following is an indirect cost of manufacturing a table made of
wood and glass for a firm that manufactures furniture?
A. The cost of the wood in the table.
B. The cost of the labor used to assemble the table.
C. The cost of the glass in the table.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
1-48
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McGraw-Hill Education.
72. Which of the following is a direct cost of manufacturing a table made of wood
and glass, for a firm that manufactures furniture?
B. The cost of rent on the factory where the table is manufactured.
C. The salary of the supervisor who oversees all production for the firm.
D. Depreciation on the tools used to manufacture the table.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
73. A cost object is:
cost.
B. an item to which managers must directly trace costs.
C. an item to which it is not worth the effort of tracing costs.
D. an item for sale by a business.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
1-49
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
74. Indirect costs are:
B. costs that change, in total, in direct proportion to changes in activity levels.
C. always irrelevant.
D. costs that remain constant no matter the activity level.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
1-50
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McGraw-Hill Education.
75. Variable costs are:
A. costs that are not worth the effort to trace to a specific cost object.
C. always irrelevant.
D. costs that remain constant no matter the activity level.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
76. A cost is $50,000 when 25,000 units are produced, and $100,000 when 50,000
units are produced. This is an example of a(n):
A. fixed cost.
B. direct cost.
D. indirect cost.
AICPA: FN Measurement
1-51
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McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
77. A cost is $50,000 when 25,000 units are produced, and $50,000 when 50,000
units are produced. This is an example of a(n):
B. direct cost.
C. variable cost.
D. indirect cost.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
1-52
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McGraw-Hill Education.
78. What determines the difference between a variable and a fixed cost?
B. Whether the total cost is relevant to a particular
decision.
C. Whether the total cost can be traced to a specific cost object.
D. Whether the total cost is related to manufacturing or nonmanufacturing
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
1-53
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McGraw-Hill Education.
79. Which of the following is an example of a variable cost for a manufacturing
firm?
A. The cost of rent on the factory.
B. The cost of factory supervision.
D. The cost of depreciation on equipment.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
80. Fixed costs are:
A. costs that are not worth the effort to trace to a specific cost object.
B. costs that change, in total, in direct proportion to changes in activity levels.
C. always irrelevant.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
1-54
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
81. A fixed cost:
A. goes up in total when activity
increases.
B. goes up per unit when activity increases.
C. goes down in total when activity
increases.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
1-55
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McGraw-Hill Education.
82. A relevant cost is a cost that:
B. changes in direct proportion to changes in activity level.
C. can be traced to a specific cost object.
D. is used for control purposes.
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
83. An irrelevant cost:
A. is also called a differential cost.
B. must differ between decision alternatives.
C. must be incurred in the future rather than in the past.
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
1-56
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McGraw-Hill Education.
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
84. For a cost to be relevant, it must:
B. have already been incurred.
C. not influence a decision.
D. not be a differential cost.
A relevant cost must differ between the decision alternatives, and it must be
incurred in the future.
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
1-57
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McGraw-Hill Education.
85. A cost that has already been incurred is called a(n) _______________ cost.
A. indirect
C. relevant
D. opportunity
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
86. You are to receive five gold coins from your great uncle as an incentive to
study hard. The coins were originally purchased in 1982. Your great uncle will
deliver the coins the week after finals (assuming your grades are
"acceptable"). The amount your great uncle paid for the coins is a(n):
A. opportunity cost.
B. indirect cost.
D. overhead cost.
AICPA: FN Decision Making
1-58
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McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
87. For a cost to be relevant, it must meet which of the following criteria?
A. It must not differ between the decision alternatives and it must be incurred
in the future rather than in the past.
the future rather than in the past.
C. It must not differ between the decision alternatives and it must have
occurred in the past rather than in the future.
D. It must differ between the decision alternatives and it must have occurred in
the past rather than in the future.
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
1-59
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McGraw-Hill Education.
88. For a cost to be relevant, it must be:
A. a differential cost and a sunk cost.
C. a sunk cost, but not a differential cost.
D. neither a differential cost nor a sunk cost.
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
89. Which of the following costs is not relevant to the decision whether to replace
an old computer with a new one?
A. The cost of the new computer.
C. The cost of a service plan on the new computer.
D. The cost to repair the old computer if a new computer is not purchased.
AICPA: FN Decision Making
1-60
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McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Relevant versus irrelevant costs
90. Manufacturing costs are generally classified into which of the following
categories?
A. Relevant costs and irrelevant costs
C. Prime costs and conversion costs
D. Conversion costs, marketing costs, and administrative costs
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-61
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McGraw-Hill Education.
91. Prime costs are defined as:
A. manufacturing costs plus non-manufacturing costs.
C. variable costs equal fixed costs.
D. manufacturing overhead plus direct labor.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
92. Which of the following is not a manufacturing cost?
A. Raw materials cost.
C. Direct labor cost.
D. Manufacturing overhead cost.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
1-62
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
93. Nonmanufacturing costs are generally classified into what two groups?
A. Conversion costs and prime costs.
B. Direct materials and direct labor.
D. Direct labor and manufacturing
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-63
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McGraw-Hill Education.
94. Robin Company has the following balances for the current month:
Direct materials used $24,000
Direct labor $36,800
Sales salaries $19,200
Indirect labor $4,800
Production manager’s
salary
$9,600
Marketing costs $14,400
Factory lease $6,400
What are Robin's prime costs?
B. $56,000
C. $75,200
D. $65,600
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-64
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McGraw-Hill Education.
95. Conversion costs can be defined as:
A. manufacturing costs plus non-manufacturing costs.
B. direct labor plus direct materials.
C. variable costs plus fixed costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
96. Manufacturing costs are:
A. always relevant.
B. always fixed.
D. split into prime costs and conversion costs.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
1-65
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McGraw-Hill Education.
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
97. Prime costs are the same as:
A. manufacturing costs minus non-manufacturing
costs.
C. manufacturing costs minus fixed costs.
D. manufacturing costs minus direct materials.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-66
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98. Robin Company has the following balances for the current month:
Direct materials used $24,000
Direct labor $36,800
Sales salaries $19,200
Indirect labor $4,800
Production manager’s
salary
$9,600
Marketing costs $14,400
Factory lease $6,400
What is Robin's total manufacturing cost?
A. $115,200
C. $33,600
D. $60,800
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-67
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McGraw-Hill Education.
99. Robin Company has the following balances for the current month:
Direct materials used $24,000
Direct labor $36,800
Sales salaries $19,200
Indirect labor $4,800
Production manager’s
salary
$9,600
Marketing costs $14,400
Factory lease $6,400
What is Robin's total manufacturing overhead?
A. $14,400
B. $28,800
D. $33,600
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-68
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McGraw-Hill Education.
100. Robin Company has the following balances for the current month:
Direct materials used $24,000
Direct labor $36,800
Sales salaries $19,200
Indirect labor $4,800
Production manager’s
salary
$9,600
Marketing costs $14,400
Factory lease $6,400
What are Robin's conversion costs?
A. $70,400
B. $60,800
C. $91,200
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-69
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McGraw-Hill Education.
101. GAAP reporting rules require that all manufacturing costs be treated as:
A. period costs.
C. value-added costs.
D. relevant costs.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
102. Product costs are sometimes called:
A. relevant costs.
B. sunk costs.
C. differential costs.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
1-70
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McGraw-Hill Education.
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
103. Which of the following is true about product and period costs?
nonmanufacturing costs.
B. Product costs are usually nonmanufacturing costs, and period costs are
usually manufacturing costs.
C. Both product and period costs are usually manufacturing costs.
D. Both product and period costs are usually nonmanufacturing
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
1-71
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McGraw-Hill Education.
104. Product costs are:
A. expensed on the income statement when
incurred.
B. treated as an asset and depreciated.
C. inventoried until the units are sold.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
105. When are period costs counted as inventory?
A. Before products are sold.
B. After products are sold.
C. After products are completed, but before they are sold.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
1-72
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McGraw-Hill Education.
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
106. What determines the difference between a product cost and a period cost?
A. Whether the cost changes when activity levels
change.
B. Whether the cost is relevant to a particular decision.
C. Whether the cost can be traced to a specific cost object.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
1-73
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McGraw-Hill Education.
107. Product costs are reported:
A. only on the balance sheet.
B. only on the income statement.
after goods are sold.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Product versus period costs
1-74
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McGraw-Hill Education.
108. Which of the following might you find in a job description for a managerial
accountant in a manufacturing company?
the company, suggest variances to emphasize in evaluations, and review
unusual results.
B. The Managerial Accountant will be the primary contact in dealing with the
external audit team.
C. The Managerial Accountant will be responsible for preparing and presenting
quarterly financial statements to management.
D. The ideal candidate for this position will have a strong knowledge of
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-01 Describe the key differences between financial
accounting and managerial accounting.
Topic: Comparison of financial and managerial accounting
1-75
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McGraw-Hill Education.
109. Pretend you are the president of the Managerial Accounting Club and you are
responsible for executing the club's most important event: A recruiting event
for members and local firms. How might you use the Plan-Implement-Control
cycle?
a kick-off meeting with the club's membership to present and revise the
plan.
B. To control, I would identify two additional individuals within the club to help
lead the event.
C. To control, I would create a timeline and schedule of key tasks leading up to
the event and assign responsibility for each task to key members of the
club.
D. To implement, I would hold regular check-in meetings to monitor progress.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-02 Describe how managerial accounting is used in different
types of organizations to support the key functions of management.
Topic: Functions of management
1-76
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McGraw-Hill Education.
110. Pretend you are a junior managerial accountant. Your supervisor has no
knowledge of sustainability accounting. All of the following statements would
be convincing arguments to advocate for the importance of sustainability
accounting, except one. Which one?
A. Sustainability accounting reflects the changing nature of accountability.
about sustainability.
C. Companies are accountable to the world at large, not simply to
shareholders.
D. Sustainability accounting does not replace the emphasis on financial
results; rather it complements financial strength in building a strong
company for the future.
AICPA: BB Resource Management
Accessibility: Keyboard Navigation
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 01-03 Explain the role of ethics in managerial decision making
and the effects of the Sarbanes-Oxley Act.
Topic: Ethics and the Sarbanes-Oxley Act
1-77
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McGraw-Hill Education.
111. Imagine purchasing a cup of coffee. Which of the following statements
correctly classifies the direct, indirect, variable, and fixed costs associated with
that purchase, assuming the cost object is the cup of coffee?
A. The cost of the cup and the lid is an indirect cost because it can be readily
traced to the cost object.
B. The shop supervisor's salary is a direct cost because it cannot be readily
and feasibly traced to the cost object.
changes along with the changing volume of cups of coffee sold.
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Cost terminology
Essay Questions
1-78
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McGraw-Hill Education.
112. Stetson Manufacturing builds custom wooden cabinets. Classify the following
items as to a) what category of product costs and b) whether the item is a
prime or conversion cost.
Product Costs
Direc
t
Mate
rials
Dir
ect
La
bor
Mfg
Over
head
Pri
me
Co
st
Conve
rsion
Cost
Cost of
hardwa
re
(slides,
handles
, etc.)
Cost of
wood
Depreci
ation
on
product
ion
equipm
ent
Factory
propert
y taxes
Factory
rent
Glue
Product
ion
supervi
sor
salary
Utilities
for
factory
Wages
for
mainte
nance
workers
1-79
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McGraw-Hill Education.
Wages
of
assemb
ly
workers
Wages
of
finishin
g
workers
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-81
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McGraw-Hill Education.
11
3.
For each of the following independent cases, compute the missing values:
Case Prime
Cost
Conversion
Cost
Direct
Materials
Used
Direct
Labor
Manufacturing
Overhead Manufacturing
A $13,600 $23,000 $4,600 ?? $14,000
B ?? ?? $6,000 $3,000 $10,500
C $23,000 $41,000 $7,000 ?? ??
D ?? $23,550 $4,200 $9,750 ??
E ?? ?? ?? $6,300 $9,300
1-82
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McGraw-Hill Education.
AACSB: Knowledge Application
1-83
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McGraw-Hill Education.
1-84
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McGraw-Hill Education.
114. Quail Company builds snowboards. Quail Company has reported the following
costs for the previous year. Assume no production inventories.
Cost of fiberglass (raw
material)
$119,000
Factory rent $67,200
Advertising $175,000
Utilities for factory $25,200
Wages of assembly
workers
$126,000
Production supervisor
salary
$63,000
Sales manager salary $58,800
Factory property taxes $16,800
Depreciation on
production equipment
$35,000
Cost of bindings (raw
material)
$35,000
Screws $1,680
Wages of snowboard
painters
$105,000
Wages for maintenance
workers
$53,200
Compute the following:
a. Direct material costs
b. Direct labor cost
c. Manufacturing overhead
d. Total manufacturing cost
e. Prime cost
f. Conversion cost
g. Total period cost
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-86
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McGraw-Hill Education.
1-87
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McGraw-Hill Education.
115. For each of the following independent cases, compute the missing values:
C
a
s
e
Pri
me
Co
st
Conv
ersio
n
Cost
Dire
ct
Mat
eria
ls
Use
d
Dir
ect
La
bor
Manuf
acturi
ng
Overh
ead
Total
Manuf
acturi
ng
Cost
A $27
,20
0
$46,0
00
$9,2
00
?? $28,00
0
??
B ?? ?? $12,
000
$6,
000
$21,00
0
??
C $46
,00
0
$82,0
00
$14,
000
?? ?? ??
D ?? $47,1
00
$8,4
00
$19
,50
0
?? $55,50
0
E ?? ?? ?? $12
,60
0
$18,60
0
$34,80
0
AACSB: Knowledge Application
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-89
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McGraw-Hill Education.
1-90
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McGraw-Hill Education.
116. Mariposa Manufacturing builds custom wooden cabinets. Mariposa
Manufacturing has reported the following costs for the previous year. Assume
no production inventories.
Advertising $70,000
Cost of hardware (slides,
handles, etc.)
$34,000
Cost of wood $117,000
Depreciation on
production equipment
$63,000
Factory property taxes $17,300
Factory rent $76,000
Glue $3,800
Production supervisor
salary
$40,700
Sales manager salary $41,600
Utilities for factory $23,900
Wages for maintenance
workers
$31,800
Wages of assembly
workers
$91,400
Wages of finishing
workers
$77,300
Compute the following:
a. Direct material costs
b. Direct labor cost
c. Manufacturing overhead
d. Total manufacturing cost
e. Prime cost
f. Conversion cost
g. Total period cost
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-92
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McGraw-Hill Education.
1-93
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McGraw-Hill Education.
117. For each of the following independent cases, compute the missing values:
C
a
s
e
Pri
me
Co
st
Conv
ersio
n
Cost
Dire
ct
Mat
eria
ls
Use
d
Dir
ect
La
bor
Manuf
acturi
ng
Overh
ead
Total
Manuf
acturi
ng
Cost
A $40
,80
0
$69,0
00
$13,
800
?? $42,00
0
??
B $27
,00
0
?? ?? $9,
000
$31,50
0
??
C $69
,00
0
$123,
000
$21,
000
?? ?? ??
D ?? $70,6
50
$12,
600
$29
,25
0
?? $83,25
0
AACSB: Knowledge Application
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-95
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McGraw-Hill Education.
1-96
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McGraw-Hill Education.
118. Alameda Manufacturing manufactures a variety of wooden picture frames
using recycled wood from old barns. Alameda Manufacturing has reported the
following costs for the previous year. Assume no production inventories.
Advertising $50,000
Cost of hardware
(hangers, decorations,
etc.)
$86,000
Cost of wood $122,000
Depreciation on
production equipment
$33,000
Factory property taxes $16,000
Factory rent $48,000
Glue $3,100
Production supervisor
salary
$41,000
Sales manager salary $84,000
Utilities for factory $26,600
Wages for maintenance
workers
$34,000
Wages of assembly
workers
$88,000
Wages of finishing
workers
$74,000
Compute the following:
a. Direct material costs
b. Direct labor cost
c. Manufacturing overhead
d. Total manufacturing cost
e. Prime cost
f. Conversion cost
g. Total period cost
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-98
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McGraw-Hill Education.
1-99
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McGraw-Hill Education.
119. For each of the following independent cases, compute the missing values:
C
a
s
e
Pri
me
Co
st
Conv
ersio
n
Cost
Dire
ct
Mat
eria
ls
Use
d
Dir
ect
La
bor
Manuf
acturi
ng
Overh
ead
Total
Manuf
acturi
ng
Cost
A $23
,80
0
$40,2
50
$8,0
50
?? $24,50
0
??
B ?? ?? $10,
500
$5,
250
$18,37
5
??
C ?? $82,4
25
$14,
700
$34
,12
5
?? $97,12
5
D ?? ?? ?? $11
,02
5
$16,27
5
$30,45
0
AACSB: Knowledge Application
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
1-101
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McGraw-Hill Education.
1-102
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McGraw-Hill Education.
120. Willow Manufacturing manufactures custom table tops. For each cost listed
below, place an "X" in all of the appropriate categories.
Product Costs
Dire
ct
Mate
rials
Dir
ect
La
bo
r
Mfg
Over
head
Pri
me
Co
st
Conv
ersio
n
Cost
Per
iod
Co
st
Adverti
sing
Depre
ciation
on
produc
tion
equip
ment
Direct
materi
al
purcha
ses
Factor
y
insura
nce
Factor
y rent
Indirec
t
produc
tion
labor
Produ
ction
superv
isor
salary
Produ
ction
wages
:
1-103
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McGraw-Hill Education.
Assem
bly
Produ
ction
wages
:
Finishi
ng
Sales
commi
ssions
Sales
manag
er
salary
Utilitie
s for
factory
Product Costs
Dire
ct
Mate
rials
Dir
ect
La
bo
r
Mfg
Over
head
Pri
me
Co
st
Conv
ersio
n
Cost
Per
iod
Co
st
Adverti
sing X
Depre
ciation
on
produc
tion
equip
ment
X X
Direct
materi
al
purcha
X X
1-104
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McGraw-Hill Education.
ses
Factor
y
insura
nce
X X
Factor
y rent X X
Indirec
t
produc
tion
labor
X X
Produ
ction
superv
isor
salary
X X
Produ
ction
wages
:
Assem
bly
X X X
Produ
ction
wages
:
Finishi
ng
X X X
Sales
commi
ssions
X
Sales
manag
er
salary
X
Utilitie
s for
factory
X X
Feedback: Direct materials are the traceable material inputs. Direct labor is
the cost of traceable labor. Manufacturing overhead includes all manufacturing
costs other than direct materials and direct labor. Prime costs are direct
1-105
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McGraw-Hill Education.
materials and direct labor. Conversion costs are direct labor and
manufacturing overhead. The nonmanufacturing costs are period costs.
AACSB: Analytical Thinking
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-106
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McGraw-Hill Education.
1-107
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McGraw-Hill Education.
121. Pinnacle Manufacturing manufactures custom wheel covers. For each cost
listed below, place an "X" in all of the appropriate categories.
Product
Costs
Dire
ct
Mate
rials
Dir
ect
La
bo
r
Mfg
Over
head
Pri
m
e
Co
st
Conv
ersio
n
Cost
Pe
rio
d
Co
st
Admini
strative
Salarie
s
Adverti
sing
Deprec
iation
on
product
ion
equipm
ent
Direct
materia
l
purcha
ses
Factory
insuran
ce
Factory
rent
Indirect
materia
ls
Indirect
product
ion
labor
Lease
on
Presid
1-108
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McGraw-Hill Education.
ent’s
vehicle
Presid
ent’s
salary
Produc
tion
supervi
sor
salary
Produc
tion
wages:
Assem
bly
Produc
tion
wages:
Finishi
ng
Sales
commi
ssions
Sales
manag
er
salary
Utilities
for
factory
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-111
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McGraw-Hill Education.
1-112
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122. Elektra Enterprises manufactures custom boat covers. For each cost listed
below, place an "X" in all of the appropriate categories.
Product
Costs
Dire
ct
Mate
rials
Dir
ect
La
bo
r
Mfg
Over
head
Pri
m
e
Co
st
Conv
ersio
n
Cost
Pe
rio
d
Co
st
Utilities
for
factory
Utilities
for
corpor
ate
office
Sales
manag
er
salary
Produc
tion
wages:
Finishi
ng
Produc
tion
wages:
Assem
bly
Produc
tion
supervi
sor
salary
Presid
ent’s
salary
Lease
on
Presid
1-113
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ent’s
vehicle
Indirect
product
ion
labor
Indirect
materia
ls
Factory
rent
Factory
insuran
ce
Direct
materia
l
purcha
ses
Deprec
iation
on
product
ion
equipm
ent
Deprec
iation
on
office
equipm
ent
Commi
ssions
on
sales
Adverti
sing
Admini
strative
Salarie
s
1-114
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AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Manufacturing versus nonmanufacturing costs
Topic: Product versus period costs
1-117
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McGraw-Hill Education.
1-118
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McGraw-Hill Education.
123. Parkside Rentals, a firm that rents tuxedos for special events, incurred costs
for the following items.
Cost to purchase tuxedos
(replaced when they show
wear, after approximately
80 - 100 rentals)
$7,000
Salespersons’ salaries $52,000
Advertising $29,000
Dry cleaning $24,000
Sales commissions on
tuxedo rentals
$15,000
Store rent $24,000
Store utilities $6,800
Store window displays $5,900
Depreciation on office
equipment
$16,000
Insurance $8,500
President’s salary $62,000
Calculate each of the following, where the cost object is tuxedo rentals:
a. Total variable costs
b. Total fixed costs
c. Total direct costs
d. Total indirect costs
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-120
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McGraw-Hill Education.
1-121
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McGraw-Hill Education.
124. Salon de Beauty, a local hair salon, incurred the following costs last month.
Salon rent $3,600
Salon utilities (electric and
water)
$890
Hairstylists’ salaries $10,000
Hairstylists’ commissions
(a percentage of sales)
$2,400
Depreciation on fixtures
and equipment
$780
Shampoo and conditioner
(only a small amount is
used on each customer)
$500
Insurance $1,650
Advertising $1,200
Store manager’s salary $2,800
Hair dye and perm kits
(each dye job or perm
uses one kit)
$390
Calculate each of the following, where the cost object is customers served:
a. Total variable costs
b. Total fixed costs
c. Total direct costs
d. Total indirect costs
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-123
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McGraw-Hill Education.
1-124
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McGraw-Hill Education.
125. Adobe Music Company, which manufactures wooden and metal xylophones,
incurred costs for the following items.
Assembly labor wages $21,000
Wood $17,600
Production supervisor’s
salary
$41,000
Advertising $9,000
Factory rent $19,000
Depreciation on factory
equipment
$8,500
Metal $26,000
Wood polish used to finish
the wood xylophones
$900
Factory utilities (dependent
on hours)
$2,800
Paint $1,900
Salary of product designer $18,500
Depreciation on office
equipment
$2,000
Insurance premiums $1,800
President’s salary $60,000
Glue $100
Calculate each of the following, where the cost object is the xylophones
manufactured by the company:
a. Total variable costs
b. Total fixed costs
c. Total direct costs
d. Total indirect costs
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-126
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McGraw-Hill Education.
1-127
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McGraw-Hill Education.
126. Melinda's Custom Homes, a construction company that builds custom-
designed houses, incurred costs for the following items. Place an "X" in the
appropriate column to indicate whether they are direct or indirect, and whether
they are variable or fixed. The cost object is the houses built by the company.
Direct or
Indirect
Variable or
Fixed
Dire
ct
Indire
ct
Variabl
e
Fixe
d
Wages
paid to
constructio
n crew
Wood
Production
supervisor’
s salary
Billboard
advertising
for the
company
Rent on
office
space
Depreciati
on on
tools used
at
constructio
n sites
Sheet rock
Machine
purchased
to cut a
special
kind of tile
requested
by one
customer
– cannot
be re-used
Gas for
the
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McGraw-Hill Education.
company
truck,
used to
haul
supplies to
constructio
n sites
Paint
Fees paid
to
electrical
contractor
(a fixed
amount
per house)
Depreciati
on on the
company
truck,
used to
haul
supplies to
constructio
n sites
(straight-
line)
Insurance
premiums
President’
s salary
Bricks
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-131
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McGraw-Hill Education.
1-132
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McGraw-Hill Education.
127. Parkside Rentals, a firm that rents tuxedos for special events, incurred costs
for the following items. Place an "X" in the appropriate column to indicate
whether they are direct or indirect, and whether they are variable or fixed. The
cost object is tuxedo rentals.
Direct or
Indirect
Variable or
Fixed
Dire
ct
Indire
ct
Variab
le
Fixe
d
Cost to
purchase
tuxedos
(replaced
when they
show wear,
after
approximat
ely 80 - 100
rentals)
Salesperso
ns’ salaries
Advertising
Dry
cleaning
Sales
commissio
ns on
tuxedo
rentals
Store rent
Store
utilities
Store
window
displays
Depreciatio
n on office
equipment
Insurance
President’s
salary
1-133
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McGraw-Hill Education.
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
1-135
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McGraw-Hill Education.
1-136
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McGraw-Hill Education.
128. Salon de Beauty, a local hair salon, incurred the following costs last month.
Place an "X" in the appropriate column to indicate whether they are direct or
indirect, and whether they are variable or fixed. The cost object is customers
served.
Direct or
Indirect
Variable or
Fixed
Dire
ct
Indire
ct
Variabl
e
Fixe
d
Salon rent
Salon
utilities
(electric
and water)
Hairstylists
’ salaries
Hairstylists
’
commissio
ns (a
percentag
e of sales)
Depreciati
on on
fixtures
and
equipment
Shampoo
and
conditioner
(only a
small
amount is
used on
each
customer)
Insurance
Advertising
Store
manager’s
salary
Hair dye
and perm
1-137
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McGraw-Hill Education.
kits (each
dye job or
perm uses
one kit)
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-139
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McGraw-Hill Education.
1-140
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McGraw-Hill Education.
129. Adobe Music Company, which manufactures wooden and metal xylophones,
incurred costs for the following items. Place an "X" in the appropriate column
to indicate whether they are direct or indirect, and whether they are variable or
fixed. The cost object is the xylophones manufactured by the company.
Direct or
Indirect
Variable or
Fixed
Dire
ct
Indire
ct
Variabl
e
Fixe
d
Assembly
labor
wages
Wood
Production
supervisor’
s salary
Advertisin
g
Factory
rent
Depreciati
on on
factory
equipment
Metal
Wood
polish
used to
finish the
wood
xylophone
s
Factory
utilities
(dependen
t on hours)
Paint
Salary of
product
designer
Depreciati
on on
1-141
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McGraw-Hill Education.
office
equipment
Insurance
premiums
President’
s salary
Glue
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: BB Industry
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-143
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McGraw-Hill Education.
1-144
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McGraw-Hill Education.
130. Melinda's Custom Homes, a construction company that builds custom-
designed houses, incurred costs for the following items.
Wages paid to
construction crew
$105,000
Wood $176,000
Production supervisor’s
salary
$52,000
Billboard advertising the
company
$9,000
Rent on office space $12,000
Depreciation on tools
used at construction sites
$32,500
Sheet rock $84,000
Machine purchased to cut
a special kind of tile
requested by one
customer – cannot be re-
used
$8,300
Gas for the company
truck, used to haul
supplies to construction
sites
$2,800
Paint $9,600
Fees paid to electrical
contractor, who charges a
set amount per house
$12,500
Depreciation on the
company truck, used to
haul supplies to
construction sites
(straight-line)
$10,000
Insurance premiums $13,800
President’s salary $101,000
Bricks $89,000
Calculate each of the following, where the cost object is the houses built by
the company:
a. Total variable costs
b. Total fixed costs
c. Total direct costs
1-145
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d. Total indirect costs
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Direct versus indirect costs
Topic: Variable versus fixed costs
1-146
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McGraw-Hill Education.
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McGraw-Hill Education.
131. Cactus Cookies incurred the following costs this month to manufacture 1,000
jumbo chocolate chip cookies.
Chocolate chips $75.00
Flour $22.00
Butter $48.50
Sugar $30.00
Other ingredients $27.00
Labor wages $300.00
Rent on manufacturing
space
$250.00
Utilities (paid at a fixed
monthly rate)
$52.00
Depreciation on kitchen
equipment
$88.00
Calculate each of the following:
a. The total variable cost this month
b. The total fixed cost this month
c. The variable cost per cookie this month
d. The fixed cost per cookie this month
e. The total variable cost if Cactus Cookies had manufactured 2,000 cookies
this month
f. The total fixed cost if Cactus Cookies had manufactured 2,000 cookies this
month
g. The variable cost per cookie if Cactus Cookies had manufactured 2,000
cookies this month
h. The fixed cost per cookie if Cactus Cookies had manufactured 2,000
cookies this month
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 01-04 Define and give examples of different types of cost: Out-
of-pocket or opportunity costs, Direct or indirect costs, Variable or fixed costs,
Manufacturing or nonmanufacturing costs, Product or period costs, Relevant or
irrelevant costs.
Topic: Variable versus fixed costs
1-149
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