Chapter 2 – Basic Managerial Accounting Concepts
1. It is beneficial to assign indirect costs to cost objects.
a.
True
b.
False
True
2. Price must be greater than cost in order for the firm to generate revenue.
a.
True
b.
False
False
3. Accumulating costs is the way that costs are measured and recorded.
a.
True
b.
False
True
4. Assigning costs involves the way that a cost is linked to some cost object.
a.
True
b.
False
True
5. Assigning costs tells the accountant who spent the money.
a.
True
b.
False
False
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
True
7. Costs are directly, not indirectly, associated with cost objects.
a.
True
b.
False
False
8. Direct costs are those costs that cannot be easily and accurately traced to a cost object.
a.
True
b.
False
False
Direct costs are those costs that can 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.
a.
True
b.
False
True
Chapter 2 – Basic Managerial Accounting Concepts
10. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method.
a.
True
b.
False
True
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
False
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
True
13. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another.
a.
True
b.
False
True
14. Cost is a dollar measure of the resources used to achieve a given benefit.
a.
True
b.
False
True
15. A cost object is something for which a company wants to know the cost.
a.
True
b.
False
True
16. The revenue per unit is called cost.
a.
True
b.
False
False
The revenue per unit is called price.
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 – Basic Managerial Accounting Concepts
b.
False
True
19. Expired costs are called assets.
a.
True
b.
False
False
20. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient.
a.
True
b.
False
False
21. Costs can be assigned to cost objects in only one way.
a.
True
b.
False
False
Costs can be assigned to cost objects in a number of ways.
22. Property taxes on a factory building would normally be classified as a fixed cost.
a.
True
b.
False
True
23. Glue used in the manufacture of cabinets would be an example of a fixed cost.
a.
True
b.
False
False
24. Industries that provide services do not normally have direct contact with their customers.
a.
True
b.
False
False
25. Research and development costs would be classified as product cost.
a.
True
b.
False
False
Research and development costs would be classified as period costs.
26. Product costs include direct materials, direct labor, and selling costs.
a.
True
b.
False
False
27. All product costs other than direct materials and indirect labor are called overhead.
a.
True
b.
False
False
28. Direct materials can be directly traced to the goods or services being produced.
a.
True
b.
False
True
29. Any costs associated with storing, selling, and delivering the product are classified as product costs.
a.
True
b.
False
False
Any costs associated with storing, selling, and delivering the product are classified as period costs.
30. Prime cost is the sum of direct materials cost and direct labor cost.
a.
True
b.
False
True
31. Product costs are carried in inventory until the goods are finished, then they are expensed.
a.
True
b.
False
False
32. Marketing costs would be classified as period costs.
a.
True
b.
False
True
33. A factory building needs to hire janitorial services. This is classified as indirect labor.
a.
True
b.
False
True
34. Period costs are all costs that are not product costs, such as office supplies.
a.
True
b.
False
True
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
False
Chapter 2 – Basic Managerial Accounting Concepts
36. All manufacturing costs are classified as overhead.
a.
True
b.
False
False
37. For external reporting purposes, costs must be classified into only three categories.
a.
True
b.
False
True
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
False
39. Cost of goods sold is the total product cost of the units sold during a period.
a.
True
b.
False
True
40. Sales revenue equals the product cost per unit times the number of units sold.
a.
True
b.
False
False
41. Gross margin is the difference between sales revenue and cost of goods sold.
a.
True
b.
False
True
42. Expired costs are called ____________.
expenses
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.
Cost
44. _____________________ is the way that a cost is linked to some cost object.
45. A(n) __________________ is any item such as a product, customer, department, project, geographic region, and so
on, for which costs are measured and assigned.
Chapter 2 – Basic Managerial Accounting Concepts
cost object
46. Costs that can be easily and accurately traced to a cost object are called __________.
direct costs
47. The process of assigning an indirect cost to a cost object by using a reasonable and convenient method is called
_____________.
48. A(n)_________________ is the benefit given up or sacrificed when one alternative is chosen over another.
opportunity cost
49. A(n) ________________ is a cost that does not increase in total as output increase and does not decrease in total as
output decreases.
fixed cost
50. Organizations that produce products are called _______________________.
manufacturing organizations
51. ________________ 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.
Product costs
52. Materials that become part of a product usually are classified as _______________.
direct materials.
53. Insurance coverage, medical care, and accounting are examples of _________________ performed for customers.
service activities or services
54. _________________ equals the sum of direct materials, direct labor, and manufacturing overhead.
Total product cost
55. All product costs other than direct materials and direct labor are put into a category called
_________________________.
manufacturing overhead.
56. ______________________ is the sum of direct labor cost and manufacturing overhead cost.
Conversion cost
57. ________________ and _________________ costs are considered period costs.
administrative, selling
58. Employees who convert direct materials into a product are classified as _____________.
direct labor.
59. ___________________ is the cost of the partially completed goods that are still on the factory floor at the end of a
time period.
Chapter 2 – Basic Managerial Accounting Concepts
Work in process
60. The difference between sales revenue and cost of goods sold is known as the ______________.
gross margin
61. The ____________________________ represents that total product cost of goods completed during the current period
and transferred to finished goods inventory.
cost of goods manufactured
62. Expired costs are called
a.
fixed.
b.
costs.
c.
expenses.
d.
profit.
c
63. 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.
64. 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.
65. 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.
a
66. Cost is:
a.
the difference between sales revenue and cost of goods sold.
b.
the benefit given up or sacrificed when one 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.
c
67. Price is not:
Chapter 2 – Basic Managerial Accounting Concepts
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.
c
68. Assigning costs
a.
involves the way that a cost is linked to some cost object.
b.
occurs in both manufacturing and service businesses.
c.
to a cost object using a reasonable and convenient method is allocation.
d.
all of these.
69. An opportunity cost is:
a.
the benefit given up or sacrificed when one alternative is chosen over another.
b.
the cost to market, distribute, and service a product or service.
c.
the total product cost of goods completed during the current period and transferred to finished goods
inventory.
d.
the difference between sales revenue and cost of goods sold.
a
70. Non-manufacturing costs include
a.
marketing and administration.
b.
direct materials.
c.
indirect materials.
d.
overhead.
a
71. Which of the following is an example of a service?
a.
motorcycle
b.
eye exam
c.
stereo
d.
television
72. Which of the following is an example of a tangible product?
a.
lawn care
b.
accounting services
c.
customer service
d.
computer
73. Costs are subdivided into what two major functional categories?
a.
opportunity and allocation
b.
fixed and variable
Chapter 2 – Basic Managerial Accounting Concepts
c.
product and non-production
d.
direct and indirect
74. Product costs
a.
are costs that are included in the determining the value of the inventory.
b.
are manufacturing costs.
c.
include direct materials, direct labor, and overhead.
d.
are all of these.
75. Which of the following would not be a period cost?
a.
research and development
b.
direct materials
c.
advertising costs
d.
office supplies
76. Which of the following would be an example of a direct materials cost?
a.
engine on an airplane
b.
lubricant used to manufacture a lighting fixture
c.
glue used to build cabinets
d.
nails used to manufacture a table
77. Product costs consist of
a.
period costs.
b.
indirect materials, indirect labor, and administrative costs.
c.
direct materials, direct labor, and selling costs.
d.
direct materials, direct labor, and overhead.
78. Which of the following is not an example of a direct materials cost?
a.
shelves on a bookcase
b.
engine in a car
c.
tires on a bicycle
d.
nails used to manufacture a desk
79. Materials in the raw materials account do not become direct materials
a.
until they are withdrawn from inventory for use in production.
b.
until the finished product is sold.
c.
until they are purchased from a vendor.
d.
none of these are correct.
80. Which of the following is an example of direct labor?
a.
vice president of marketing
b.
assembly line worker for televisions
c.
staff accountant
d.
supervisor at a manufacturing plant
81. Direct labor is a(n)
a.
product cost.
b.
opportunity cost.
c.
administrative cost.
d.
fixed cost.
82. Overhead includes
a.
indirect labor.
b.
indirect materials.
c.
factory supplies.
d.
all of these.
83. Which of the following would not be included in overhead?
a.
marketing costs
b.
property taxes on the factory
c.
factory utility costs
d.
deprecation on factory machinery
84. Indirect labor would include
a.
salary of the vice-president of marketing.
b.
salary of CEO.
c.
salary of factory supervisor.
d.
none of these are correct.
85. The unit cost
a.
is the total product costs divided by the number of units produced.
b.
includes period costs.
c.
is the total prime costs divided by the number of units produced.
d.
is the total conversion costs divided by the number of units produced.
86. Prime cost is
a.
indirect materials cost and direct labor cost.
Chapter 2 – Basic Managerial Accounting Concepts
b.
direct materials cost and direct labor cost.
c.
direct labor cost and indirect labor cost.
d.
direct materials cost and indirect labor cost.
87. Conversion cost is the sum of
a.
product costs and period costs.
b.
selling cost and administrative costs.
c.
direct labor cost and direct materials costs.
d.
direct labor cost and overhead costs.
88. Period costs
a.
are selling costs and administrative costs.
b.
are used to compute product cost.
c.
can be included in overhead costs.
d.
are carried in inventory until the goods are sold.
89. Which of the following is an example of a period cost?
a.
research and development
b.
selling and marketing
c.
general accounting
d.
all of these
90. Cost of goods manufactured equals
a.
the cost of indirect materials used in production.
b.
the product cost of goods completed during the current period and transferred to finished goods.
c.
the period costs for the current period.
d.
the cost of direct materials and direct labor used during the current period.
91. Cost of goods manufactured equals
a.
total product costs incurred during the current period + beginning work in process − ending work in process.
b.
direct materials cost + direct labor cost + overhead cost.
c.
sales − cost of goods sold.
d.
none of these are correct.
92. The cost of the partially completed goods at the end of the period would be
a.
ending work in process inventory.
b.
cost of goods sold.
c.
beginning finished goods inventory.
d.
beginning work in process inventory.
Chapter 2 – Basic Managerial Accounting Concepts
a
93. Product costs are expensed
a.
when the product is finished.
b.
when the product unit cost is calculated.
c.
when the product is sold.
d.
all of these are correct.
c
94. 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?
a.
70,000
b.
18,000
c.
48,000
d.
30,000
95. 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?
a.
$20,000
b.
$35,000
c.
$90,000
d.
$30,000
96. 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?
a.
$37,000
b.
$43,000
c.
$40,000
d.
none of these
Direct materials used
$ 40,000
Direct labor
$ 40,000
Overhead
$ 30,000
Total manufacturing costs
$110,000
Chapter 2 – Basic Managerial Accounting Concepts
Direct materials purchased
$ 43,000
Difference in inventory balances
(3,000)
Direct materials used
$ 40,000
97. Production costs that are not attached to units that are sold are reported as:
a.
selling expenses.
b.
cost of goods sold.
c.
administrative costs.
d.
inventory.
98. Information from the records of Cain Corporation for December of the current year is as follows:
Sales
$1,230,000
Selling and administrative expenses
210,000
Direct materials used
264,000
Direct labor
300,000
Factory overhead
405,000
Inventories
Dec. 1
Dec. 31
Direct materials
$36,000
$42,000
Work in process
75,000
84,000
Finished goods
69,000
57,000
The conversion costs are:
a.
$960,000.
b.
$1,179,000.
c.
$705,000.
d.
$564,000.
SUPPORTING CALCULATIONS: $300,000 + $405,000 = $705,000
99. Information from the records of Cain Corporation for December of the current year is as follows:
Sales
$1,230,000
Selling and administrative expenses
210,000
Direct materials used
264,000
Direct labor
300,000
Factory overhead
405,000
Inventories
Dec. 1
Dec. 31
Direct materials
$36,000
$42,000
Work in process
75,000
84,000
Finished goods
69,000
57,000
The prime costs are:
a.
$960,000.
b.
$564,000.
Chapter 2 – Basic Managerial Accounting Concepts
c.
$705,000.
d.
$969,000.
SUPPORTING CALCULATIONS: $264,000 + $300,000 = $564,000
Figure 2-1.
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.
100. Refer to Figure 2-1. The per-unit conversion cost was:
a.
$218.75.
b.
$156.25.
c.
$162.50.
d.
$100.00.
SUPPORTING CALCULATIONS: ($800,000 + $450,000) / 8,000
101. Refer to Figure 2-1. The total product costs for last month were:
a.
$1,750,000.
b.
$2,110,000.
c.
$1,300,000.
d.
$1,250,000.
SUPPORTING CALCULATIONS: $500,000 + $800,000 + $450,000
102. Refer to Figure 2-1. The total per unit prime cost was:
a.
$263.75.
b.
$62.50.
c.
$162.50.
d.
$156.25.
SUPPORTING CALCULATIONS: ($500,000 + $800,000) / 8,000
103. Refer to Figure 2-1. What was the amount of cost of goods manufactured last month?
a.
$1,750,000
b.
$1,250,000
c.
$1,300,000
d.
$2,110,000
SUPPORTING CALCULATIONS: $500,000 + $800,000 + $450,000
Figure 2-5.
In July, Econo Company purchased materials costing $21,000 and incurred direct labor cost of $18,000. Overhead totaled
$32,000 for the month. Information on inventories was as follows:
Chapter 2 – Basic Managerial Accounting Concepts
July 1
July 31
Materials
$6,200
$7,100
Work in process
700
1,200
Finished goods
3,300
2,700
104. Refer to Figure 2-5. What was the cost of direct materials used in July?
a.
$21,000
b.
$20,100
c.
$21,900
d.
$20,500
Materials 7/1
Purchases
Materials 7/31
Materials used
105. Refer to Figure 2-5. What were the total manufacturing costs in July?
a.
$71,000
b.
$50,000
c.
$69,600
d.
$70,100
Materials used
Overhead
Total manufacturing costs
106. Refer to Figure 2-5. What was the cost of goods manufactured for July?
a.
$70,500
b.
$70,700
c.
$69,600
d.
$69,100
Total manufacturing costs
Work in process 7/1
Work in process 7/31
Cost of goods manufactured
107. Refer to Figure 2-5. What was the cost of goods sold for July?
a.
$70,200
b.
$69,600
c.
$71,300
d.
$71,100
SUPPORTING CALCULATIONS:
Chapter 2 – Basic Managerial Accounting Concepts
108. Refer to Figure 2-5. If Econo Company sold 10,000 units during July and gross margin totaled $29,800, what was the
sales price per unit?
a.
$9.94
b.
$10.00
c.
$10.09
d.
$10.11
Gross margin
Cost of goods sold
Sales (10,000 × $?)
Sales price per unit
Figure 2-7.
Gateway Company produces a product with the following per-unit costs:
Direct materials
$11
Direct labor
8
Overhead
15
Last year, Gateway produced and sold 750 units at a sales price of $68 each. Total selling and administrative expense was
$22,000.
109. Refer to Figure 2-7. Prime cost per-unit was?
a.
$19
b.
$23
c.
$34
d.
$11
SUPPORTING CALCULATIONS: $11 + $8 = $19
110. Refer to Figure 2-7. Cost of goods sold last year was?
a.
$47,500
b.
$25,500
c.
$14,250
d.
$51,000
SUPPORTING CALCULATIONS: 750 × $34 ($11 + $8 + $15)
111. Refer to Figure 2-7. Total operating income last year was?
a.
$29,000
b.
$51,000
c.
$25,500
d.
$3,500
Cost of goods manufactured
Finished goods 7/1
Finished goods 7/31
Cost of goods sold
Chapter 2 – Basic Managerial Accounting Concepts
Sales
Cost of goods sold
Sell. and admin.
Figure 2-8.
Last year Quest Company incurred the following costs:
Direct materials:
$40,000
Direct labor:
60,000
Overhead
90,000
Selling expenses
24,000
Administrative expenses
22,000
Quest produced and sold 2,000 units at a sales price of $125 each. Assume that beginning and ending inventories of
materials, work in process, and finished goods were zero.
112. Refer to Figure 2-8. Total period expense was?
a.
$24,000
b.
$190,000
c.
$46,000
d.
$250,000
SUPPORTING CALCULATIONS: $24,000 + $22,000 = $46,000
113. Refer to Figure 2-8. Gross margin per-unit was?
a.
$125
b.
$7
c.
$95
d.
$30
Sales (2000 × $125)
$250,000
Cost of goods sold
190,000
Gross margin
$ 60,000 / 2,000 units = $30
114. Refer to Figure 2-8. Total product costs were?
a.
$190,000
b.
$100,000
c.
$150,000
d.
$236,000
SUPPORTING CALCULATIONS: $40,000 + $60,000 + $90,000 = $190,000
115. Refer to Figure 2-8. Conversion cost per unit was?
a.
$50
b.
$75
Chapter 2 – Basic Managerial Accounting Concepts
c.
$95
d.
$125
SUPPORTING CALCULATIONS: ($60,000 + $90,000) / 2,000 = $75
116. Cost of goods sold
a.
represents all costs associated with research, development, and general administration of the organization.
b.
is found on the Balance Sheet.
c.
is the cost of the partially completed goods that are still on the factory floor at the end of the period.
d.
is the total product cost for the units sold during a period.
117. Which of the following would not be found on the income statement of a manufacturer?
a.
cost of goods sold
b.
work in process
c.
sales revenue
d.
operating income
118. Which of the following would be found on the balance sheet of a manufacturer?
a.
work in process
b.
raw materials
c.
finished goods
d.
All of the these are correct
119. Which of the following would be found on the balance sheet of a manufacturer?
a.
sales revenue
b.
selling expenses
c.
factory equipment
d.
all of these are correct
120. Gross margin equals
a.
cost of goods sold − selling and administrative expenses.
b.
direct materials + direct labor + manufacturing overhead.
c.
sales revenue − cost of goods sold.
d.
cost of goods manufactured + selling and administrative expenses.
121. Operating income equals
a.
sales revenue − cost of goods sold − selling and administrative expense
b.
gross margin − selling expenses
c.
sales revenue − cost of goods sold
d.
sales revenue − selling and administrative expenses
Chapter 2 – Basic Managerial Accounting Concepts
a
122. Gross margin percent equals
a.
gross margin/cost of goods sold.
b.
operating income/sales revenue.
c.
gross margin/sales revenue.
d.
sales revenue/gross margin.
c
123. Which of the following would not be found on an income statement of a service organization?
a.
selling expenses
b.
cost of goods sold
c.
operating income
d.
sales revenue
124. Which of the following can be found on the income statements of both a manufacturing and service organization?
a.
revenues
b.
operating income
c.
administrative expenses
d.
all of these can be found on both.
125. A manufacturer normally has
a.
one inventory account.
b.
four inventory accounts.
c.
three inventory accounts.
d.
none of these are correct.
c
126. An income statement of a manufacturer
a.
will show the ending balance of work in process.
b.
contains only manufacturing costs.
c.
will show the ending balance of materials inventory.
d.
covers a certain period of time.
127. On a manufacturer’s income statement expenses are separated into the following three categories:
a.
production, period, and indirect
b.
materials, work in process, and finished goods
c.
production, selling, and administrative
d.
variable, fixed, and direct
Figure 2-2.
Lonborg Co. had the following beginning and ending inventory balances for the current year ended December 31:
Chapter 2 – Basic Managerial Accounting Concepts
Materials
128. Refer to Figure 2-2. What was the amount of cost of goods manufactured for the year?
a.
$101,000
b.
$124,000
c.
$100,000
d.
$102,000
Purchases
Overhead
129. Refer to Figure 2-2. What was the amount of cost of goods sold for the year?
a.
$102,000
b.
$97,500
c.
$106,500
d.
$128,500
130. Refer to Figure 2-2. What were the total manufacturing costs for the year?
a.
$101,000
b.
$102,000
c.
$123,000
d.
$106,500