Chapter 2
1. It is beneficial to assign indirect costs to cost objects.
a. True
b. False
2. Price must be greater than cost in order for the firm to generate revenue.
a. True
b. False
3. Accumulating costs is the way that costs are measured and recorded.
a. True
b. False
Chapter 2
4. Assigning costs involves the way that a cost is linked to some cost object.
a. True
b. False
5. Assigning costs tells the accountant who spent the money.
a. True
b. False
Chapter 2
6. A cost object is any item such as products, customers, departments, regions, and so on, for which costs are measured
and assigned.
a. True
b. False
7. Costs are directly, not indirectly, associated with cost objects.
a. True
b. False
Chapter 2
8. Direct costs are those costs that cannot be easily and accurately traced to a cost object.
a. True
b. False
9. Indirect costs are costs that are not easily and accurately traced to a cost object.
a. True
b. False
Chapter 2
10. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method.
a. True
b. False
11. A variable cost is one that does not increase in total as output increase and does not decrease in total as output
decreases.
a. True
b. False
Chapter 2
12. A fixed cost is a cost that does not increase in total as output increases and does not decrease in total as output
decreases.
a. True
b. False
13. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another.
a. True
b. False
Chapter 2
14. Cost is a dollar measure of the resources used to achieve a given benefit.
a. True
b. False
15. A cost object is something for which a company wants to know the cost.
a. True
b. False
Chapter 2
16. The revenue per unit is called cost.
a. True
b. False
17. As costs are used up in the production of revenues, they are said to expire. Expired costs are called expenses.
a. True
b. False
18. Costs are incurred to produce future benefits.
a. True
Chapter 2
b. False
19. Expired costs are called assets.
a. True
b. False
20. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient.
a. True
b. False
Chapter 2
21. Costs can be assigned to cost objects in only one way.
a. True
b. False
22. Property taxes on a factory building would normally be classified as a fixed cost.
a. True
b. False
Chapter 2
23. Glue used in the manufacture of cabinets would be an example of a fixed cost.
a. True
b. False
24. Industries that provide services do not normally have direct contact with their customers.
a. True
b. False
Chapter 2
25. Research and development costs would be classified as product cost.
a. True
b. False
26. Product costs include direct materials, direct labor, and selling costs.
a. True
b. False
Chapter 2
27. All product costs other than direct materials and indirect labor are called overhead.
a. True
b. False
28. Direct materials can be directly traced to the goods or services being produced.
a. True
b. False
Chapter 2
29. Any costs associated with storing, selling, and delivering the product are classified as product costs.
a. True
b. False
30. Prime cost is the sum of direct materials cost and direct labor cost.
a. True
b. False
31. Product costs are carried in inventory until the goods are finished, then they are expensed.
Chapter 2
a. True
b. False
32. Marketing costs would be classified as period costs.
a. True
b. False
33. A factory building needs to hire janitorial services. This is classified as indirect labor.
a. True
b. False
Chapter 2
34. Period costs are all costs that are not product costs, such as office supplies.
a. True
b. False
35. Employees who convert direct materials into a product or who provide a service to customers are classified as indirect
labor.
a. True
b. False
Chapter 2
36. All manufacturing costs are classified as overhead.
a. True
b. False
37. For external reporting purposes, costs must be classified into only three categories.
a. True
b. False
Chapter 2
38. Cost of goods manufactured represents the cost of direct materials, direct labor, and overhead incurred during the
current accounting period.
a. True
b. False
39. Cost of goods sold is the total product cost of the units sold during a period.
a. True
b. False
Chapter 2
40. Sales revenue equals the product cost per unit times the number of units sold.
a. True
b. False
41. Gross margin is the difference between sales revenue and cost of goods sold.
a. True
b. False
Chapter 2
42. Expired costs are called ____________.
43. ______________is the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to
bring a current or future benefit to the organization.