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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

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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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3. Managers must direct, lead and motivate during the implementation function.

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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

4. Managers of small, private corporations use managerial accounting

information whereas managers of large, public corporations use financial

accounting information.

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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

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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

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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

6. The Sarbanes-Oxley Act of 2002 focuses on three factors that affect the

accounting reporting environment: ethics, fraud, and managers.

AICPA: BB Legal

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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

1-3

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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

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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: Sustainability accounting

8. An opportunity cost is the cost of not doing something.

AICPA: FN Measurement

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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

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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.

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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.

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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

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11. Fixed costs stay the same, on a per-unit basis, as activity level changes.

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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.

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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

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13. All manufacturing costs are treated as product costs.

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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.

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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

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15. A cost that will occur in the future and differs between various alternatives

under consideration is a relevant cost.

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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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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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Learning Objective: 01-01 Describe the key differences between financial

accounting and managerial accounting.

Topic: Comparison of financial and managerial accounting

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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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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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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.

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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

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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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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.

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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

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.

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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

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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.

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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

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

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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)

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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

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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

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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

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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

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Difficulty: 3 Hard

Learning Objective: 01-01 Describe the key differences between financial

accounting and managerial accounting.

Topic: Functions of management

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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

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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

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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

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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

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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,

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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

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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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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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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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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

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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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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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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

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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

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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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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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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

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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

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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

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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

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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

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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

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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

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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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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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

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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

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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

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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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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

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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: 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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Learning Objective: 01-03 Explain the role of ethics in managerial decision making

and the effects of the Sarbanes-Oxley Act.

Topic: Sustainability accounting

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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.

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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: 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

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Blooms: Remember

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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

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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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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.

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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

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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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

McGraw-Hill Education.

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

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

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

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

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

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

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

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

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

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

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

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

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

Mate

rials

Dir

ect

bor

Mfg

Over

head

Pri

Conve

rsion

Cost

Cost of

hardwa

(slides,

handles

, etc.)

Cost of

wood

Depreci

ation

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

McGraw-Hill Education.

Wages

assemb

workers

Wages

finishin

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

McGraw-Hill Education.

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

McGraw-Hill Education.

AACSB: Knowledge Application

1-83

McGraw-Hill Education.

1-84

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

McGraw-Hill Education.

1-87

McGraw-Hill Education.

115. For each of the following independent cases, compute the missing values:

Pri

Conv

ersio

Cost

Dire

Mat

eria

Use

Dir

ect

bor

Manuf

acturi

Overh

ead

Total

Manuf

acturi

Cost

A $27

,20

$46,0

$9,2

?? $28,00

B ?? ?? $12,

000

$6,

000

$21,00

C $46

,00

$82,0

$14,

000

?? ?? ??

D ?? $47,1

$8,4

$19

,50

?? $55,50

E ?? ?? ?? $12

,60

$18,60

$34,80

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

McGraw-Hill Education.

1-90

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

McGraw-Hill Education.

1-93

McGraw-Hill Education.

117. For each of the following independent cases, compute the missing values:

Pri

Conv

ersio

Cost

Dire

Mat

eria

Use

Dir

ect

bor

Manuf

acturi

Overh

ead

Total

Manuf

acturi

Cost

A $40

,80

$69,0

$13,

800

?? $42,00

B $27

,00

?? ?? $9,

000

$31,50

C $69

,00

$123,

000

$21,

000

?? ?? ??

D ?? $70,6

$12,

600

$29

,25

?? $83,25

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

McGraw-Hill Education.

1-96

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

McGraw-Hill Education.

1-99

McGraw-Hill Education.

119. For each of the following independent cases, compute the missing values:

Pri

Conv

ersio

Cost

Dire

Mat

eria

Use

Dir

ect

bor

Manuf

acturi

Overh

ead

Total

Manuf

acturi

Cost

A $23

,80

$40,2

$8,0

?? $24,50

B ?? ?? $10,

500

$5,

250

$18,37

C ?? $82,4

$14,

700

$34

,12

?? $97,12

D ?? ?? ?? $11

,02

$16,27

$30,45

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

McGraw-Hill Education.

1-102

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

Mate

rials

Dir

ect

Mfg

Over

head

Pri

Conv

ersio

Cost

Per

iod

Adverti

sing

Depre

ciation

produc

tion

equip

ment

Direct

materi

purcha

ses

Factor

insura

nce

Factor

y rent

Indirec

produc

tion

labor

Produ

ction

superv

isor

salary

Produ

ction

wages

1-103

McGraw-Hill Education.

Assem

bly

Produ

ction

wages

Finishi

Sales

commi

ssions

Sales

manag

salary

Utilitie

s for

factory

Product Costs

Dire

Mate

rials

Dir

ect

Mfg

Over

head

Pri

Conv

ersio

Cost

Per

iod

Adverti

sing X

Depre

ciation

produc

tion

equip

ment

X X

Direct

materi

purcha

X X

1-104

McGraw-Hill Education.

ses

Factor

insura

nce

X X

Factor

y rent X X

Indirec

produc

tion

labor

X X

Produ

ction

superv

isor

salary

X X

Produ

ction

wages

Assem

bly

X X X

Produ

ction

wages

Finishi

X X X

Sales

commi

ssions

Sales

manag

salary

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

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

McGraw-Hill Education.

1-107

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

Mate

rials

Dir

ect

Mfg

Over

head

Pri

Conv

ersio

Cost

rio

Admini

strative

Salarie

Adverti

sing

Deprec

iation

product

ion

equipm

ent

Direct

materia

purcha

ses

Factory

insuran

Factory

rent

Indirect

materia

Indirect

product

ion

labor

Lease

Presid

1-108

McGraw-Hill Education.

ent’s

vehicle

Presid

ent’s

salary

Produc

tion

supervi

sor

salary

Produc

tion

wages:

Assem

bly

Produc

tion

wages:

Finishi

Sales

commi

ssions

Sales

manag

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

McGraw-Hill Education.

1-112

McGraw-Hill Education.

122. Elektra Enterprises manufactures custom boat covers. For each cost listed

below, place an “X” in all of the appropriate categories.

Product

Costs

Dire

Mate

rials

Dir

ect

Mfg

Over

head

Pri

Conv

ersio

Cost

rio

Utilities

for

factory

Utilities

for

corpor

ate

office

Sales

manag

salary

Produc

tion

wages:

Finishi

Produc

tion

wages:

Assem

bly

Produc

tion

supervi

sor

salary

Presid

ent’s

salary

Lease

Presid

1-113

McGraw-Hill Education.

ent’s

vehicle

Indirect

product

ion

labor

Indirect

materia

Factory

rent

Factory

insuran

Direct

materia

purcha

ses

Deprec

iation

product

ion

equipm

ent

Deprec

iation

office

equipm

ent

Commi

ssions

sales

Adverti

sing

Admini

strative

Salarie

1-114

McGraw-Hill Education.

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

McGraw-Hill Education.

1-118

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

McGraw-Hill Education.

1-121

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

McGraw-Hill Education.

1-124

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

McGraw-Hill Education.

1-127

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

Indire

Variabl

Fixe

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

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

1-128

McGraw-Hill Education.

company

truck,

used to

haul

supplies to

constructio

n sites

Paint

Fees paid

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

McGraw-Hill Education.

1-132

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

Indire

Variab

Fixe

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

McGraw-Hill Education.

AACSB: Knowledge Application

AICPA: BB Critical Thinking

AICPA: BB Industry

1-135

McGraw-Hill Education.

1-136

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

Indire

Variabl

Fixe

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

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

McGraw-Hill Education.

1-140

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

Indire

Variabl

Fixe

Assembly

labor

wages

Wood

Production

supervisor’

s salary

Advertisin

Factory

rent

Depreciati

on on

factory

equipment

Metal

Wood

polish

used to

finish the

wood

xylophone

Factory

utilities

(dependen

t on hours)

Paint

Salary of

product

designer

Depreciati

on on

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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

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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

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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

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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

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