Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Managerial Accounting, 16e (Garrison)
Chapter 1 Managerial Accounting and Cost Concepts
1) A factory supervisor's salary would be classified as an indirect cost with respect to a unit of
product.
2) A direct cost is a cost that can be easily traced to the particular cost object under
consideration.
3) A cost can be direct or indirect. The classification can change if the cost object changes.
4) Wages paid to production supervisors would be classified as manufacturing overhead.
5) Selling costs are indirect costs.
6) The sum of all manufacturing costs except for direct materials and direct labor is called
manufacturing overhead.
7) The three cost elements ordinarily included in product costs are direct materials, direct labor,
and manufacturing overhead.
8) Administrative costs are indirect costs.
9) Depreciation is always considered a period cost for external financial reporting purposes in a
manufacturing company.
10) Opportunity costs at a manufacturing company are not part of manufacturing overhead.
11) Conversion cost is the sum of direct labor cost and manufacturing overhead cost.
12) In a manufacturing company, all costs are period costs.
13) Advertising is not considered a product cost even if it promotes a specific product.
14) Selling and administrative expenses are period costs under generally accepted accounting
principles.
15) Conversion cost equals product cost less direct materials cost.
16) Prime cost is the sum of direct materials cost and direct labor cost.
17) Product costs are also known as inventoriable costs.
18) Prime cost equals manufacturing overhead cost.
19) Conversion cost is the same thing as manufacturing overhead.
20) The cost of shipping parts from a supplier is considered a period cost.
21) Depreciation on equipment a company uses in its selling and administrative activities would
be classified as a period cost.
22) Indirect costs, such as manufacturing overhead, are variable costs.
23) If the activity level increases, then one would expect the fixed cost per unit to increase as
well.
24) A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.
25) Cost behavior is considered curvilinear whenever a straight line is a reasonable
approximation for the relation between cost and activity.
26) A decrease in production will ordinarily result in a decrease in fixed production costs per
unit.
27) As activity decreases within the relevant range, fixed costs remain constant on a per unit
basis.
28) The variable cost per unit depends on how many units are produced.
29) In account analysis, an account is classified as either variable or fixed based on an analyst's
prior knowledge of how the cost in the account behaves.
30) A step-variable cost is a cost that is obtained in large chunks and that increases or decreases
only in response to fairly wide changes in activity.
31) Committed fixed costs remain largely unchanged in the short run.
32) Fixed costs expressed on a per unit basis do not change with changes in activity.
33) A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as
the number of units increases or decreases.
34) If managers are reluctant to lay off direct labor employees when activity declines leads to a
decrease in the ratio of variable to fixed costs.
35) Within the relevant range, a change in activity results in a change in variable cost per unit
and total fixed cost.
36) When operations are interrupted or cut back, committed fixed costs are cut in the short term
because the costs of restoring them later are likely to be far less than the short-run savings that
are realized
37) The concept of the relevant range does not apply to variable costs.
38) The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with
respect to how many persons are served.
39) A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis
over the relevant range.
40) The relevant range is the range of activity within which the assumption that cost behavior is
strictly linear is reasonably valid.
41) Variable costs per unit are not affected by changes in activity.
42) The relevant range concept is applicable to mixed costs.
43) A variable cost remains constant if expressed on a unit basis.
44) Committed fixed costs represent organizational investments with a one-year planning
horizon.
45) The following costs are all examples of committed fixed costs: depreciation on buildings,
salaries of highly trained engineers, real estate taxes, and insurance expenses.
46) A fixed cost is not constant per unit of product.
47) Differential costs can only be variable.
48) The potential benefit that is given up when one alternative is selected over another is called a
sunk cost.
49) The amount that a manufacturing company could earn by renting unused portions of its
warehouse is an example of an opportunity cost.
50) A cost that differs from one month to another is known as a sunk cost.
51) In a traditional format income statement, the gross margin is sales minus cost of goods sold.
52) In a traditional format income statement for a merchandising company, cost of goods sold is
a variable cost that is included in the "Variable expenses" portion of the income statement.
53) In a contribution format income statement for a merchandising company, the cost of goods
sold reports the product costs attached to the merchandise sold during the period.
54) Contribution format income statements are prepared primarily for external reporting
purposes
55) Contribution margin and gross margin mean the same thing.
56) In a traditional format income statement, the gross margin minus selling and administrative
expenses equals net operating income.
57) Most companies use the contribution approach in preparing financial statements for external
reporting purposes.
58) Although the traditional format income statement is useful for external reporting purposes, it
has serious limitations when used for internal purposes because it does not distinguish between
fixed and variable costs.
59) The contribution format income statement is used as an internal planning and decision-
making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management
performance appraisals, and budgeting.
60) A contribution format income statement separates costs into fixed and variable categories,
first deducting variable expenses from sales to obtain the contribution margin.
61) Traditional format income statements are widely used for preparing external financial
statements.
62) Which of the following statements concerning direct and indirect costs is NOT true?
A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.
B) A direct cost is one that can be easily traced to the particular cost object.
C) The factory manager's salary would be classified as an indirect cost of producing one unit of
product.
D) A particular cost may be direct or indirect, depending on the cost object.
63) Direct costs:
A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.
64) Which of the following would most likely NOT be included as manufacturing overhead in a
furniture factory?
A) The cost of the glue in a chair.
B) The amount paid to the individual who stains a chair.
C) The workman's compensation insurance of the supervisor who oversees production.
D) The factory utilities of the department in which production takes place.
20
65) Rotonga Manufacturing Company leases a vehicle to deliver its finished products to
customers. Which of the following terms correctly describes the monthly lease payments made
on the delivery vehicle?
Direct Cost
Fixed Cost
A) Yes
Yes
B) Yes
No
C) No
Yes
D) No
No
66) The costs of direct materials are classified as:
Conversion cost
Manufacturing cost
Prime cost
A)
Yes
Yes
Yes
B)
No
No
No
C)
Yes
Yes
No
D)
No
Yes
Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
67) Manufacturing overhead includes:
