Chapter 1—Managerial Accounting Concepts and Decision Making
Support Key
1. Both managerial and financial accounting are governed by GAAP.
2. Managerial Accounting is designed primarily for external users.
3. Management accounting information is only used by manufacturing organizations.
4. Management accounting information is important for both for-profit and not-for-profit organizations.
5. The managerial activity of monitoring a plan’s implementation and taking corrective action as needed is
referred to as decision-making.
6. The process of choosing among competing alternatives is decision making.
7. Financial accounting has its emphasis on the future.
8. Activity-based costing is a more detailed approach to determining the cost of goods and services.
9. The value chain is the set of activities required to design, develop, produce, market, and deliver products and
service to customers.
10. Time is not a crucial element in all phases of the value chain.
11. Positions that have direct responsibility for the basic objectives of an organization are referred to as staff
positions.
12. A cost accountant would normally occupy a staff position within an organization
13. Excellent customer service is an example of a non-value added activity.
14. Continuous improvement reflects the philosophy that companies strive to create an environment that will
enable workers to manufacture perfect (zero-defect) products.
15. Manufacturing overhead includes the materials and labor that can be directly traced to the goods produced.
16. Cost is a dollar measure of the resources used to achieve a given benefit.
17. Expired costs are called assets.
18. A cost object is something for which a company wants to know the cost.
19. Costs can be assigned to cost objects in a number of ways.
20. It is not necessary to assign indirect costs to cost objects.
21. Property taxes on a factory building would normally be classified as a variable cost.
22. Glue used in the manufacture of cabinets would be an example of a variable cost.
23. Industries that provide intangible services do not normally have direct contact with their customers.
24. Period costs are those costs associated with the manufacture of goods or the providing of services.
25. Research and development costs would be classified as non-production costs.
26. Production costs include direct materials, direct labor, and selling costs.
27. Employees who convert direct materials into a product or who provide a service to customers are classified
as direct labor.
28. All product costs other than direct materials and indirect labor are called overhead.
29. All manufacturing costs are classified as direct materials, direct labor, or overhead.
30. Any costs associated with storing, selling, and delivering the product are classified as period costs.
31. Prime cost is the sum of indirect materials and indirect labor.
32. Product costs are carried in inventory until the goods are finished.
33. Marketing costs would be classified as period costs.
34. Cost of goods manufactured represents the cost of direct materials, direct labor, and overhead incurred
during the current accounting period.
35. Cost of goods sold is the total product cost of the units sold during a period.
36. Sales revenue equals the product cost per unit times the number of units sold.
37. For external reporting purposes, product costs must be classified into only three categories.
38. Gross margin equals operating income.
39. Direct materials can be directly traced to the goods or services being produced.
40. The cost of janitorial services for a factory building would be classified as direct labor.
41. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient.
42. Costs are incurred to produce future benefits.
43. As costs are used up in the production of revenues, they are said to expire. Expired costs are called assets.
44. The revenue per unit is called price.
45. Price must be greater than cost in order for the firm to generate revenue.
46. Accumulating costs is the way that costs are measured and recorded.
47. Assigning costs involves the way that a cost is linked to some cost object.
48. Assigning costs tells the accountant who spent the money.
49. A cost object is any item such as products, customers, departments, regions, and so on, for which costs are
measured and assigned.
50. Costs are directly, not indirectly, associated with cost objects.
51. Direct costs are those costs that can be easily and accurately traced to a cost object.
52. Indirect costs are costs that are not easily and accurately traced to a cost object.
53. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient
method.
54. A variable cost is one that increases as output increases and decreases as output decreases.
55. A fixed cost is a cost that does not increase as output increases and does not decrease as output decreases.
56. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another.
57. Virtually all management accounting practices were developed to assist managers in maximizing profits.
58. Ethical behavior involves choosing actions that are just.
59. Financial accounting
60. Which of the following is not an objective of management accounting?
61. Which of the following is an example of management activity referred to as planning?
62. Management accounting
63. Activity-based costing
64. Which of the following would not be an example of value-added activity?
65. Which of the following would normally occupy a line position?
66. Which of the following would normally occupy a staff position?
67. Which of the following would occupy a line position in a hospital?
68. The controller of an organization participates in
69. The objective of profit maximization
70. The cost of the materials that are directly part of the final product are
71. The cost of labor that can be directly traced to the goods produced is
72. Expired costs are called
73. Non-manufacturing costs include
74. Assigning costs to cost objects
75. An indirect cost
76. A variable cost in total
77. Which of the following is an example of an intangible product?
78. Which of the following is an example of a tangible product?
79. Costs are subdivided into what two major functional categories?
80. Product costs
81. Which of the following would not be a non-production cost?
82. Which of the following would be an example of a direct materials cost?
83. Production costs consist of
84. Which of the following is not an example of a direct materials cost?
85. Materials in the raw materials account do not become direct materials
86. Which of the following is an example of direct labor?
87. Direct labor is a
88. Overhead includes
89. Which of the following would not be included in overhead?
90. Indirect labor would include
91. The unit cost
92. Prime cost is
93. Conversion cost is the sum of
94. Period costs
95. Which of the following is an example of a period cost?
96. Cost of goods manufactured equals
97. Cost of goods manufactured equals
98. The cost of the partially completed goods at the end of the period would be
99. Product costs are expensed
100. Cost of goods sold
101. Which of the following would not be found on the Income Statement of a manufacturer?
102. Which of the following would not be found on the Balance Sheet of a manufacturer?
103. Which of the following would be found on the Balance Sheet of a manufacturer?
104. Gross margin equals
105. Operating income equals
106. Gross margin percent equals
107. Which of the following would not be found on an Income Statement of a service organization?
108. Which of the following can be found on the Income Statements of both a manufacturing and service
organization?
109. A manufacturer normally has
110. An Income Statement of a manufacturer
111. On a manufacturer’s Income Statement expenses are separated into the following three categories
112. Figure 1-1.
Concam Inc. manufactures television sets. Last month direct materials (electronic components, etc.) costing
$500,000 were put into production. Direct labor of $800,000 was incurred, overhead equaled $450,000, and
selling and administrative costs totaled $360,000. The company manufactured 8,000 television sets during the
month. Assume that there were no beginning or ending work in process balances.
Refer to Figure 1-1: The per-unit conversion cost was:
113. Figure 1-1.
Concam Inc. manufactures television sets. Last month direct materials (electronic components, etc.) costing
$500,000 were put into production. Direct labor of $800,000 was incurred, overhead equaled $450,000, and
selling and administrative costs totaled $360,000. The company manufactured 8,000 television sets during the
month. Assume that there were no beginning or ending work in process balances.
Refer to Figure 1-1: The total product costs for last month were:
114. Figure 1-1.
Concam Inc. manufactures television sets. Last month direct materials (electronic components, etc.) costing
$500,000 were put into production. Direct labor of $800,000 was incurred, overhead equaled $450,000, and
selling and administrative costs totaled $360,000. The company manufactured 8,000 television sets during the
month. Assume that there were no beginning or ending work in process balances.
Refer to Figure 1-1: The total per unit prime cost was:
115. Figure 1-1.
Concam Inc. manufactures television sets. Last month direct materials (electronic components, etc.) costing
$500,000 were put into production. Direct labor of $800,000 was incurred, overhead equaled $450,000, and
selling and administrative costs totaled $360,000. The company manufactured 8,000 television sets during the
month. Assume that there were no beginning or ending work in process balances.
Refer to Figure 1-1: What was the amount of cost of goods manufactured last month?
116. Figure 1-2.
Lonborg Co. had the following beginning and ending inventory balances for the year ended December 31, 20×8:
January 1, 20×8
December 31, 20×8
Materials
$10,000
$ 8,000
Work in Process
$18,000
$17,000
Finished Goods
$21,000
$16,500
In addition, direct labor costs of $30,000 were incurred, overhead equaled $42,000, materials purchased were $27,000 and selling and administrative
costs were $22,000. Lonborg Co. sold 25,000 units of product during the year at a sales price of $5.00 per unit.
Refer to Figure 1-2: What was the amount of Cost of Goods Manufactured for the year?
117. Figure 1-2.
Lonborg Co. had the following beginning and ending inventory balances for the year ended December 31, 20×8:
January 1, 20×8
December 31, 20×8
Materials
$10,000
$ 8,000
Work in Process
$18,000
$17,000
Finished Goods
$21,000
$16,500
In addition, direct labor costs of $30,000 were incurred, overhead equaled $42,000, materials purchased were $27,000 and selling and administrative
costs were $22,000. Lonborg Co. sold 25,000 units of product during the year at a sales price of $5.00 per unit.
Refer to Figure 1-2: What was the amount of Cost of Goods Sold for the year?
118. Figure 1-2.
Lonborg Co. had the following beginning and ending inventory balances for the year ended December 31, 20×8:
January 1, 20×8
December 31, 20×8
Materials
$10,000
$ 8,000
Work in Process
$18,000
$17,000
Finished Goods
$21,000
$16,500
In addition, direct labor costs of $30,000 were incurred, overhead equaled $42,000, materials purchased were $27,000 and selling and administrative
costs were $22,000. Lonborg Co. sold 25,000 units of product during the year at a sales price of $5.00 per unit.
Refer to Figure 1-2: What were the total manufacturing costs for the year?
119. Figure 1-2.
Lonborg Co. had the following beginning and ending inventory balances for the year ended December 31, 20×8:
January 1, 20×8
December 31, 20×8
Materials
$10,000
$ 8,000
Work in Process
$18,000
$17,000
Finished Goods
$21,000
$16,500
In addition, direct labor costs of $30,000 were incurred, overhead equaled $42,000, materials purchased were $27,000 and selling and administrative
costs were $22,000. Lonborg Co. sold 25,000 units of product during the year at a sales price of $5.00 per unit.
Refer to Figure 1-2: What was Lonborg’s operating income <loss> for the year?
120. During the month of June, Telecom Inc. had cost of goods manufactured of $112,000, direct materials cost
of $52,000, direct labor cost of $37,000 and overhead cost of $26,000. The Work in Process balance at June 30
equaled $10,000. What was the Work in Process balance on June 1?
121. Rancor, Inc. had a per-unit conversion cost of $2.50 during April and incurred direct materials cost of
$100,000, direct labor costs of $75,000, and overhead costs of $45,000 during the month. How many units did
they manufacture during the month?
122. Lakeland, Inc. manufactured 5,000 units during the month of March. They incurred direct materials cost of
$100,000 and overhead cost of $40,000. If their per-unit prime cost was $26.00 per unit how much direct labor
cost did they incur during March?
123. During the month of January, Enterprise, Inc. had total manufacturing costs of $110,000. They incurred
$40,000 of direct labor cost and $30,000 of overhead cost during the month. If the materials inventory on
January 1 was $3,000 less that the materials inventory on January 31, what was the cost of materials purchased
during the month?
124. Talcum, Inc. had materials inventory at July 1 of $12,000. The materials inventory at July 31 was $15,000
and the cost of direct materials used in production was $20,000. What was the cost of materials purchased
during the month?
125. Kutlow, Inc. had cost of goods sold of $112,000 for the year ended December 31, 20×8. The Finished
Goods Inventory on January 1, 20×8 was $28,000 and the Finished Goods Inventory on December 31, 20×8 was
$17,000. What was the amount of Cost of Goods Manufactured for the year?
126. Andover, Inc. had a gross margin for the month of February totaling $42,000. They sold 5,000 units during
the month at a sales price of $20 per unit. What was the amount of Cost of Goods Sold for the month?
127. Figure 1-3.
Bartlow, Inc. had the following Income Statement for the month of May.
Sales Revenue
Cost of Goods Sold
Gross Margin
Less:
Selling Expenses
Administrative Expenses
Operating Income
Refer to Figure 1-3: What was the sales revenue percent?
128. Figure 1-3.
Bartlow, Inc. had the following Income Statement for the month of May.
Sales Revenue
Cost of Goods Sold
Gross Margin
Less:
Selling Expenses
Administrative Expenses
Operating Income
Refer to Figure 1-3: What was the cost of goods sold percent?