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Chapter 2—Basic Managerial Accounting Concepts
TRUE/FALSE
1. It is beneficial to assign indirect costs to cost objects.
2. Price must be greater than cost in order for the firm to generate revenue.
3. Accumulating costs is the way that costs are measured and recorded.
4. Assigning costs involves the way that a cost is linked to some cost object.
5. Assigning costs tells the accountant who spent the money.
6. A cost object is any item such as products, customers, departments, regions, and so on, for which costs
are measured and assigned.
7. Costs are directly, not indirectly, associated with cost objects.
8. Direct costs are those costs that cannot be easily and accurately traced to a cost object.
9. Indirect costs are costs that are not easily and accurately traced to a cost object.
10. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient
method.
11. A variable cost is one that does not increase in total as output increase and does not decrease in total as
output decreases.
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.
13. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another.
14. Cost is a dollar measure of the resources used to achieve a given benefit.
15. A cost object is something for which a company wants to know the cost.
16. The revenue per unit is called cost.
17. As costs are used up in the production of revenues, they are said to expire. Expired costs are called
expenses.
18. Costs are incurred to produce future benefits.
19. Expired costs are called assets.
20. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient.
21. Costs can be assigned to cost objects in only one way.
22. Property taxes on a factory building would normally be classified as a fixed cost.
23. Glue used in the manufacture of cabinets would be an example of a fixed cost.
24. Industries that provide intangible services do not normally have direct contact with their customers.
25. Research and development costs would be classified as product cost.
26. Product costs include direct materials, direct labor, and selling costs.
27. All product costs other than direct materials and indirect labor are called overhead.
28. Direct materials can be directly traced to the goods or services being produced.
29. Any costs associated with storing, selling, and delivering the product are classified as product costs.
30. Prime cost is the sum of direct materials cost and direct labor cost.
31. Product costs are carried in inventory until the goods are finished.
32. Marketing costs would be classified as period costs.
33. The cost of janitorial services for a factory building would be classified as indirect labor.
34. Period costs are all costs that are not product costs, such as office supplies.
35. Employees who convert direct materials into a product or who provide a service to customers are
classified as indirect labor.
36. All manufacturing costs are classified as overhead.
37. For external reporting purposes, costs must be classified into only three categories.
38. Cost of goods manufactured represents the cost of direct materials, direct labor, and overhead incurred
during the current accounting period.
39. Cost of goods sold is the total product cost of the units sold during a period.
40. Sales revenue equals the product cost per unit times the number of units sold.
41. Gross margin is the difference between sales revenue and cost of goods sold.
MATCHING
Select the appropriate classification for each of the following costs.
a.
Period
b.
Product
1. Advertising costs
2. Cost accountant's salary
3. Factory supervisor's salary
4. Research and development costs
5. Marketing costs
6. Cost of shipping products to customers
7. Supplies for factory washroom
8. Assembly line worker's wages
Select the appropriate classification for each of the costs incurred by a manufacturer of automobiles.
a.
direct materials
b.
direct labor
c.
overhead
d.
selling expense
e.
administrative expense
9. cost of tires
10. factory supplies
11. general accounting costs
12. factory security costs
13. factory janitorial costs
14. salary of chief executive officer
15. depreciation of vehicles used by sales personnel
16. cost of windshields used in the production process
Select the appropriate classification for each of the items listed below.
a.
Product cost
b.
Period cost
17. Cost of nails used by a home builder
18. Fees paid to an advertising firm
19. Sugar used in soft drink production
20. Rental cost of executive Lear jet
21. Cost of conference for sales team
22. Factory supervisor's salary
23. Fees paid to outside auditing firm
24. Factory security costs
Select the appropriate definition for each of the items listed below.
a.
per-unit prime cost
b.
per-unit conversion cost
c.
per-unit cost of goods manufactured
25. (direct labor + overhead)/units produced
26. (total manufacturing costs + work in process beginning − work in process ending)/units produced
27. (direct materials + direct labor)/units produced
Select the appropriate definition for each of the items listed below.
a.
period cost
b.
direct cost
c.
opportunity cost
d.
variable cost
e.
indirect cost
f.
fixed cost
g.
product cost
28. A benefit given up when one alternative is chosen over another
29. A cost that stays the same in total regardless of changes in output
30. A cost that is difficult to trace to a cost object
31. A manufacturing cost
32. A cost that is not inventoried
33. A cost that can be easily traced to a cost object
34. A cost that increases in total as output increases
Select the appropriate classification of the items listed below.
a.
selling expense
b.
administrative expense
c.
direct materials
d.
direct labor
e.
overhead
35. Chief of surgery's salary at a hospital
36. Wages of assembly line workers in an automobile plant
37. Cost of lubricating factory machinery
38. Cost of shipping goods to customers
39. Glue used in the manufacture of furniture
40. Cost of engines in the manufacture of airplanes
41. Salary of chief executive officer
42. A professor's salary at a university
Select the appropriate classification of the output generated by each of the following industries.
a.
Tangible
b.
Intangible
43. CPA firm
44. Car manufacturer
45. Law firm
46. Medical clinic
47. Bowling alley
48. Fast food restaurant
49. Video rental
50. Professional sports franchise
Select the appropriate definition for each of the items listed below.
a.
Work in process inventory
b.
Finished goods inventory
c.
Cost of goods sold
d.
Cost of goods manufactured
e.
Total manufacturing costs
51. The cost of units finished but not sold at the end of the current period
52. Direct materials + direct labor + overhead
53. The cost of units unfinished at the end of the current period
54. Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
55. (direct materials + direct labor + overhead) +/− the change in work in process inventory from the
beginning to the end of the current period
Select the appropriate item for each of the definitions listed below.
a.
gross margin
b.
selling expenses
c.
sales revenue
d.
cost of goods sold
e.
operating income
56. gross margin − selling and administrative expenses
57. marketing and distributing costs
58. price x units sold
59. sales revenue − cost of goods sold
60. Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
Select the appropriate definition of each of the items listed below.
a.
Income Statement
b.
Cost of goods manufactured
c.
Work in process
d.
Gross margin
e.
Operating income
61. Gross margin − selling and administrative expenses
62. The difference between sales revenue and cost of goods sold
63. The total cost of goods completed during the current period
64. Covers a particular period of time
65. Cost of partially completed goods
COMPLETION
1. Expired costs are called ____________.
2. ______________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.
3. _____________________ is the way that a cost is linked to some cost object.
4. A __________________ is any item such as a product, customer, department, project, geographic
region, plan and so on, for which costs are measured and assigned.
5. Costs that can be easily and accurately traced to a cost object are called __________.
6. The process of assigning an indirect cost to a cost object by using a reasonable and convenient method
is called _____________.
7. A(n)_________________ is the benefit given up or sacrificed when one alternative is chosen over
another.
8. A(n) ________________ is a cost that does not increase in total as output increase and does not
decrease in total as output decreases.
9. Organizations that produce products are called _______________________.
10. ________________ are those costs, both direct and indirect, of producing a product in a
manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale.
11. Materials that become part of a product usually are classified as _______________.
12. Insurance coverage, medical care, and accounting are examples of _________________ performed for
customers.
13. _________________ equals the sum of direct materials, direct labor, and manufacturing overhead.
14. All product costs other than direct materials and direct labor are put into a category called
_________________________.
15. ______________________ is the sum of direct labor cost and manufacturing overhead cost.
16. ________________ and _________________ costs are considered period costs.
17. Employees who convert direct materials into a product are classified as _____________.
18. ___________________ is the cost of the partially completed goods that are still on the factory floor at
the end of a time period.
19. The difference between sales revenue and cost of goods sold is known as the ______________.
20. The ____________________________ represents that total product cost of goods completed during
the current period and transferred to finished goods inventory.
MULTIPLE CHOICE
1. Expired costs are called
a.
fixed.
b.
costs.
c.
expenses.
d.
profit.
2. Assigning costs to cost objects
a.
provides information for decision making.
b.
can be accomplished in a number of ways.
c.
can be a simple or complex process.
d.
do all of these.
3. An indirect cost
a.
can be easily and accurately traced to a cost object.
b.
is hard to trace.
c.
should never be assigned to a cost object.
d.
do none of these.
4. A variable cost in total
a.
increases as output increases and decreases as output decreases.
b.
increases as output increases and/or decreases.
c.
remains constant no matter the level of output.
d.
increases as output decreases and decreases as output increases.
5. Cost is:
a.
the difference between sales revenue and cost of goods sold.
b.
the benefit given up or sacrificed when on alternative is chosen over another.
c.
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.
d.
the revenue per unit.
6. Price is not:
a.
the revenue per unit.
b.
greater than cost in order for the firm to earn income.
c.
the same as cost.
d.
the same as cost per unit plus the income per unit.
