‘True or False . Financial statements, income statements, and balance sheets are used in both financial and managerial accounting. . To prepare the financial statements, accountants need not associate costs with time periods. . The least complex cost system is found in ‘manufacturing organizations. |. Most planning and control decisions are ‘made for particular time periods. . Period costs are selling or administrative costs, which by nature are usually associated with a particular product or sale . Any unconsumed or unexpired period cost is classified as an asset rather than an expense, and is referred to as a prepaid expense. /. A product cost is a cost that is incurred to acquire finished inventory for sale to customers. . For a merchandising company, the product cost is the purchase price of the goods acquired for resale. ). Product costs are used only in managerial accounting. 10. Product costs are sometimes referred to as. inventoriable costs. i. 12. 13. 14. 16. 17. 18. ‘An accountant may never treat a single cost as both product cost and period cost. In-a merchandising company, the cost of unsold inventory will not be deducted from revenues until itis sold. The distinction between product and period costs is not: relevant in service ‘companies. In a service company, indirect costs are costs that can be traced to a particular service. Instead of purchases of inventory, a manufacturing company will refer to the cost of goods manufactured, meaning the value of goods completed and transferred to the finished goods inventory during the ‘quarter or year covered by the statement. ‘A manufacturing company's balance sheet has three product (inventory) accounts. The work in process inventory account includes only the cost of direct materials that have been invested in the manufacture of'as yet unfinished products. a is less difficult than 2 le ‘merchandising company.Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 19, To make the job of accounting for product costs. more manageable, manufacturers diyide them into three subcategories: direct materials, direct labor, and manufacturing overhead. 20, Direct materials are those materials that can be physically traced to a particular product. 21. Direct labor is work that cannot be physically traced to a particular product. 22. The people who assemble automobiles, the people who cut fabric for clothing, and the laborers who ‘lay bricks on a construction site are all performing direct labor. 23. Manufacturing overhead includes all manufacturing costs other than direct materials and direct labor. 24, Overhead costs can always be traced to a particular product. 25. Prime cost is the sum of direct materials and direct labor costs. 26. Conversion cost is the sum of direct material and manufacturing overhead costs. 27. Unit cost is the average cost per unit, It is used to determine how much of the total manufacturing cost should be assigned to the cost of goods sold account and how much to the ending inventory accounts. 28.As materials are used, their cost is removed from the inventory account and placed in the work in process inventory account. 24 29. When products are sold to customers, the total cost is transferred from the work in process inventory account to the cost of goods sold account. 30.Job order costing was designed for companies whose products are produced in distinet batches. It is the major cost accounting system in home construction companies, printing, furniture and machine tool manufacturing, management consulting, and public accounting. 31. Although job order costing is useful for customized production, it is not suitable for the continuous mass production of identical products. For that type of production, process costing works much better. 32, All products are costed exclusively by job order or process procedures. 33. The most complex cost system is found in govemment organizations. 34, Selling and administrative costs are classified as period expenses. 35. Wood used in making furniture is not a period expense 36.In a manufacturing company, product costs include materials, labor, all variable costs and fixed manufacturing overhead. 37. Product costs are converted from cost to expense when units are completed. 38. The process of associating product costs with the sale of a product (and period costs with the time period in which they expire) is called matching.Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 39.On a balance sheet, product costs are shown as current assets. 40, Service companies need to classify costs as direct and indirect cost. 41. Cost of goods manufactured is not an inventory in a manufacturing organization, 42. Paper used in the manufacture of books is not classified as a direct material. 43. Prime cost is the sum of direct materials and direct labor. 44, Conversion cost is the sum of direct materials and manufacturing overhead. 45. The cost of units completed during a period is called total manufacturing costs. 46. The direct labor account is classified as temporary, and therefore has no ending balance. 47. At the end of the accounting period, the information that has passed through the ‘manufacturing accounts is summarized in a statement of cost of goods sold. 48,Some manufacturing companies expand their statement of cost of goods manufactured to include cost of goods sold. 49. Job order costing is the major cost accounting system in home eonstruction and furniture manufacturing. 50. The management consulting industry does not use process costing. ‘Multiple Choice Questions 1. ‘The measurable value of an alternative use of resources is referred to as a (an): (a) Opportunity cost; (b) Imputed cost; (¢) Differential cost; (d) Sunk cost. 2, Which of the following is a useful technique in determining the fixed and variable clements of a semi-variable expense? (a) Linear programming; (b) Queuing theory; (c) Program Evaluation and Review Technique; (d) Simple regression analysis. 3, Which of the following quantitative techniques is used to determine the fixed and variable elements of a semivariable cost? (a) Queuing theory; (b) Linear programming; (c) Simplex method; (d) Least squares. 4, Intemal reports prepared under the responsibility-accounting approach should be limited to which of the following costs? (a) Only variable costs of production; (b) Only conversion costs; (¢) Only controllable costs; (4) Only costs properly allocable to the cost center under generally accepted accounting principles. 5, Each of the following is a method by which to allocate joint costs except: (a) Relative sales value; (b) Relative profitability; (c) Relative weight, volume, or linear measure; (¢, Average unit cost. 25Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 6. Normal spoilage is properly classified as a (an): (a) Extraordinary item; (b) Period cost; (c) Product cost; (d) Deferred charge. 7. The minimum return that a project must earn for a company in order to leave the value of the company unchanged is the: (a) Current borrowing rate; (b) Discount rate; (c) Cost of capital; (@ Capitalization rate. 8. Which of the following quantitative methods will separate a semi-variable cost into its fixed and variable components with the highest degree of precision under all circumstances? (a) High-low method. (b) Simplex method. (c) Least squares method. (d) Scattergraph method, 9. Joint costs are most frequently allocated based upon relative: (a) Profitability; (b) Conversion costs. (¢) Sales value, (d) Prime costs. 10. Which of the following components of production are allocable as joint costs when a single ‘manufacturing process produces several salable products? (a) Materials, labor, overhead; (b) Materials and labor only; (c) Labor and overhead only; (d) Overhead and materials only. 11. Which of the following items of cost would be least likely to appear in a performance report based on responsibility accounting techniques for the supervisor of an assembly line in a large manufacturing situation? (a) Supervisor's salary; (b) Materials; (c) Repairs and maintenance; (d) Direct labor. 12. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to the short-run decision is: (a) Direct labor; (b) Variable overhead; (c) Fixed overhead that will be avoided if the part is bought from an outside vendor. (d) Fixed ‘overhead that will continue even if the part is bought from an outside vendor. 13. One of the accepted methods of accounting for a by-product is to recognize the value of the by-product as it is produced. Under this method, inventory costs for the by-product would be based on: (a) an allocation of some portion of joint costs but not any subsequent processing costs; (b) neither an allocation of some portion of joint costs not any subsequent processing costs; (c) subsequent processing costs less an allocation of some portion of joint costs; (d) an allocation of some portion of joint costs plus any subsequent processing costs. 14, If the amount of spoilage in a manufacturing process is abnormal, it should be classified as a: (@) deferred charge; (b) joint cost; (c) period cost; (4) produet cost. 15. Factory overhead includes: (a) all manufacturing costs; (b) all manufacturing costs, except direct materials and direct labor; (c) indirect materials but not indirect labor; (d) indirect labor but not indirect materials. 16, Simple regression analysis involves the use of: (a) one variable; (b) two variables; (c) three variables; (4) more than three variables. 26Chapter 2 ~ Cost Concept (Cost Accounting Terminology and Overview) 17, Which is the best cost accumulation procedure to use when there is a continuous mass production of like units? (a) Actual. (b) Standard. (¢) Job order. (4) Process. 18, In job order costing, the basic document to aceumulate the cost of each order is the: (a) invoice; (b) purchase order; (c) requisition sheet; (d) job cost sheet. 19, Joint product costs generally are allocated using the: (a) relative sales value at split-off; (b) additional costs after split-off; (c) relative profitability; (4) direct labor hours. 20. In a make-or-buy decision: (a) only variable costs are relevant; (b) fixed costs that can be avoided in the future are relevant; (c) Fixed costs that will continue regardless of the decision are relevant; (d) only conversion costs are relevant. 21, Regression analysis is superior to other cost behavior analysis techniques because it: (@) produces measures of probable error; (b) examines only one variable; (¢) proves a cause and effect relationship; (d) is not a sampling technique. 20, Within a relevant range, the amount of variable cost per unit: (a) differs at each production level; (b) remains constant at each production level; (c) increases as production increases; (4) decreases as production increases. 23. The use of the graphic method as a means for solving linear programming problems: (8) can be used when there are more than two restrictions (constraints). (b) is limited to situations where there are two restrictions (constraints). (c) is limited to situations where there is one restriction (constraint). (4) cannot be used if there are any restrictions (constraints). 24, The type of costs presented to management for an equipment replacement decision should be limited to: (a) relevant costs; (b) standard costs; (c) controllable costs; (4) conversion. 25. Normal spoilage and abnormal spoilage should be classified as: ‘Normal Abnormal: a, Period cost Period cost b. Product cost Period cost c. Period cost Product cost d. Product cost Product cost 26. Which of the following methods can be used to determine the fixed and variable elements of a semivariable expense? (a) Statistical scattergraph method. (b) Linear programming; (c) Input-output analysis. (d) Program evaluation review technique, 27, The absolute minimum cost that would he possible under the best conceivable operating conditions is a description of which type of standard cost? (a) currently attainable (expected), (b) Theoretical. (c) Normal. (4) Practical.Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 28. Indirect materials are a (an): (a) prime cost; (b) fixed cost; (c) irrelevant cost; (d) factory overhead cost. 29, Factory overhead: (a) is a prime cost; (b) can be a variable cost or a fixed cost; (c) can only be a fixed cost; (4) includes all factory labor. 30. Direct materials are a Conversion cost Manufacturing cost Prime cost a > Mes Yes No be ea Yes Yes cNo! Yes ‘Yes ad No ‘No No 31. Controllable costs for responsibility accounting purposes are those costs that are directly influenced by: (a) a given manager within a given period of time; (b) a change in activity; (c) production volume; (d) sales volume. 32.In a program evaluation review technique system (PERT), reducing total time can be accomplished only by: (a) shortening a slack path; (b) shortening the critical path; (c) ‘working overtime; (d) using sensitivity analysis, 33. In job order costing, what journal entry should be made for the return to the storekeeper of direct materials previously issued to the factory for use on a particular job? (a) debit materials and credit factory overhead; (b) debit materials and credit work in process; (c) debit purchase returns and credit work in process; (d) debit work in process and credit materials. 34. When using graphic method of solving a linear-programming problem, which of the following would be depicted on the graph? (a) coefficient of correlation; (b) line of best fit; (© critical path; (€) constraint. 35. An actual cost system may be used in: (a) neither process costing nor job order costing; (b) process costing but not job order costing. (c) Job order costing but not process costing. (d) both job order costing and process costing. 36, Wages of the security guard for a small plant would be an example of: Fixed factory Indirect labor overhead a. No No b ‘Yes Yes Re Yes No a No Yes 28Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 37. Relative sales value at split-off is used to allocate: Cost beyond Fixed factory split-off overhead a ‘Yes Yes b. Yes No & No Yes d No No 38. When using @ flexible budget, what will occur to fixed costs (on a per unit basis) as production increases within the relevant range? (a) Fixed costs are not considered in flexible budgeting. (b) Fixed costs per unit will decrease; (b) Fixed costs per unit will decrease; (c) Fixed costs per unit will increase. (4) Fixed costs per unit will remain unchanged. 39. Multiple regression analysis: (a) establishes a cause and effect relationship. (b) does not produce measures of probable error. (c) Measure the change in one other variable associated ‘with the change in one other variable. (4) Measures the change in one variable associated with the change in mote than one other variable. 40. For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the cost of goods sold for: Interim Year-end Financial reporting Financial reporting a0 Yes Yes be Yes No No ‘Yes do Ne No 41. Wages paid to factory machine operators of a manufacturing plant are an element of: Prime cost ‘Conversion cost ane No bNo ‘Yes G Yes ‘No do. Ye Yes 42. Property taxes on a manufacturing plant are an element of: Conversion cost Period cost a Yes No bee vee Yes © No Yes 4 No Ne 43, Factory supplies for a manufacturing plant are generally: (a) prime costs; (b) period costs; (c) variable costs; (d) excluded from product costs. 29Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 44. Accounting for factory overhead costs involves averaging in Job order costing Process costing a Yes No bo Yes Yes c. No ‘Yes a. No No 45. Ina job order cost system, the incurrence of indirect labor costs would usually be included in the general ledger as a charge to (a) factory department overhead control; (b) factory overhead applied; (¢). work in process control; (d) accrued payroll. 46. Which of the following is an element of prime cost? Direct materials Indirect materials a Yes No b. Yes Yes e No Yes a. No No 47. Wages paid to a timekeeper in a factory are a _ Prime Cost Conversion cost a. No No b. No Yes ©. Yes No a. Yes Yes 48. The fixed portion of the semivariable cost of electricity for a manufacturing plant is a Conversion cost Product cost a No No b. No Yes c Yes Yes 4 Yes No 49. A flexible budget is appropriate for a Direct-labor budget Marketing budget a No ‘No b. No Yes & Yes No a. Yes Yes 50. A standard cost system may be used in (a) job order costing but not process costing; (b) either job order costing or process costing; (c) process costing but not job order costing; (4) neither process costing nor job order costing. 30Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 51. A company is deciding whether to exchange an old asset for a new asset. Within the context of the exchange decision, and ignoring income tax considerations, the undepreciated book balance of the old asset would be considered a (an) ‘Sunk cost Irrelevant cost a ‘No No b. Yes ‘No & No Yes a Yes ‘Yes 52. Prime cost and conversion cost share what common clement of total cost? (a) direct materials’ (b) direct labor; (c) variable overhead; (d) fixed overhead. 53. In developing a factory overhead application rate for use in a process costing system, which of the following could be used in the denominator? (a) actual factory overhead; (b) estimated factory overhead; (c) actual direct labor hours; (d) estimated direct labor hours. 54, Indirect labor is a (a) nonmanufacturing costs; (b) conversion cost; (¢) prime cost; (d) period cost. 55, When production levels are expected to decline within a relevant range, and a flexible budget is used, what effects would be anticipated with respect to each of the following? Fixed cost per unit Variable cost_per unit a Increase Increase vb. Increase No change & No change No change a ‘No change Increase 56. In a program evaluation review technique (PERT) system, activities along the critical path (2) follow the line of best fit; () have a slack of zero; (c) have a positive slack; (d) intersect at a comer point described by the feasible area. 57. In developing a factory overhead application rate for use in a process costing system, which of the following could be used in the numerator? (a) actual direct labor hours; (b) estimated direct labor hours(c) actual factory overhead costs; (d) estimated factory overhead costs, 58. The cost of rent for a manufacturing plant is a Prime cost _Product cost a No. ‘Yes b. No No ©. ‘Yes No. a Yes ‘Yes wnChapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 59. When a flexible budget is used, an increase in production levels within a relevant range would (a) not change fixed costs per unit; (b) change total fixed costs; (c) not change variable costs per unit; (d) not change total variable costs, 60. Wages paid to a timekeeper in a factory are a Prime cost _Conversion cost _ a Yes No b. ‘Yes Yes o No No a. No Yes 61. In the contribution margin approach to pricing, the price at which the income remains constant is equal to the price that covers (a) prime cost; (b) variable costs; (c) fixed costs; (4) fixed and variable costs plus the desired profit. 62. When a flexible budget is used, a decrease in production levels within a relevant range would (@) decrease variable cost per unit; (b) decrease total costs; (c) increase total fixed costs; (d) increase variable cost per unit. 63. Simple regression analysis involves the use of ; Dependent Independent variables. _variables a. ‘One’ ‘None b. One One G One Two 4. None Two 64. The fixed portion of the semivariable cost of electricity for a manufacturing plant is a Period cost Product cost a Yes ‘No b. ‘Yes Yes & No Yes a. No No 65. The sale of scrap from a manufacturing process usually would be recorded as a(an) (a) decrease in factory overhead control; (b) increase in factory overhead control; (c) decrease in finished goods control; (d) increase in finished goods control. 66. When a flexible budget is used, an increase in production levels within the relevant range would (a) not change variable costs per unit (b) not change total variable costs; (c) not change fixed costs per unit; (d) change total fixed costs, 32Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 67. A type of managerial accounting which refers to the determination of the operating cost regardless of cost behavior is (a) differential accounting (b) full cost accounting (c) responsibility accounting (4) profitability accounting. 68. Transfer pricing schemes can be based on (a) market price; (b) cost-based price (c) negotiated price; (d) all of the above. 69. A budget that identifies revenues and costs with an individual controlling their incuyrence is (a) master budget; (b) product budget; (c) responsibility budget (4) none of the above. 70. In deciding how or which costs should be assigned to a responsibility center is the degree of (a) avoidability; (b) variability; (c) controllability ; (d) correct answer not given. 71. The concept of "management by exception” refer to management's (a) consideration of only those items which vary materially from plans; (b) consideration of only rare events; () consideration of items selected at random (4) None of the above. 72. Expected future cost that will differ among altematives (a) opportunity costs; (b) relevant ‘costs; (c) sunk costs; (d) out-of-pocket costs. 73. Refers to the measurement of the average amount of change in one variable that is associated ‘with unit increases in the amount of one or more other variables (a) regression analysis; (b)coefficient of determination ; (c) standard deviation; (d) none of these. 74, "Relevant range" as used in cost accounting means the range over which (a) production may vary (b) costs may fluctuate; (¢) costs relationships are valid; (d) none of these. 75. Costs that vary in amount but not in direct proportion to the changes in volume of production (a) variable costs; (b) fixed costs; (c) mixed costs; (d) correct answer not given. 76. Which of the following terms is best identified with a system of standard costs (a) marginal costing ; (b) contribution approach (c) management by exception (4) none of these. 77. Standard costs are least useful for (a) measuring production efficiency; (b) simplifying costing procedures; (c) job order production systems; (d) determining minimum inventory levels. 78. in considering whether to replace a major item of machinery now or at the end of its useful life one should ignore (a) opportunity costs; (b) fixed costs; (c) sunk costs; (d) imputed costs. 79, The sales manager of Alpha Electronic submitted a proposal to increase its production of digital watches. As part of the data presented, he reported the total additional costs required for the proposed increase in production. The increase in total costs is known as (a) 33Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) controllable costs; (b) incremental costs; (c) opportunity costs; (d) relevant costs; (e) none of these. 80. The following costs may bé controllable at certain levels within a manufacturing concern, except: (a) monthly maintenance cost of equipment covered by an annual contract; (b) basic salary of permanent manufacturing personnel ; (c) insurance costs of plant and equipment; @ power rates imposed by government agency; (¢) all of these. 81. The following statements are all true, except: (a) as volume, increases, variable costs per unit increase; (b) as volume increases, fixed costs per unit decrease; (c) only prime costs have a positive identification with the product manufactured; (d) prime cost is the total of direct raw materials and direct labor; (e) with selling price remaining the same, the higher the variable cost, the higher the break-even volume. 82. In a make or buy decision: (a) fixed costs that can be avoided in the future are relevant; (b) fixed costs that will continue regardless of the décision are relevant; (c) irrelevant costs may be included in the analysis; (d) only variable costs are relevant; (¢) only conversion costs are relevant. 83. An increase or decrease in cost between alternatives is called: (a) variable cost; (b) sunk costs; (c) differential costs; (d) controllable costs; (¢) none of these. 84. Ifa company uses a predetermined rate for application of manufacturing overhead, the Volume variance is the (a) under or overapplied fixed cost element of overhead; (b) under or overapplied variable cost element of overhead; (c) difference in budgeted costs and actual costs of fixed overhead items; (d) difference in budgeted costs and actual costs of variable overhead items () none of these. 85, In analysis of standard cost variances, the item which receives the most diverse treatment in accounting is: (a) direct labor cost; (b) manufacturing overhead costs; (c) direct material costs; (d) fixed costs. 86. A company employing very tight (high) standards in a standard cost system should expect that (a) costs will be controlled better than it lower standard were used; (b) employees will be strongly motivated to attain the standards; (c) no incentive bonus will be paid; (d) most. variances will be unfavorable. 87. Standard costing will produce the same results as actual or conventional costing when standard cost variances are distributed to (a) cost of goods sold (b) an income or expense account; (c) cost of goods sold and inventories; (4) a balance sheet account, 88. The concept of the "ideal capacity " of a plant as used in cost accounting is the (a) theoretical ‘maximum capacity; (b) best capacity for normal production; (c) capacity used for standard costing; (4) capacity below which production should not fallChapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 89. The difference over a period of time between actual overhead and applied overhead will usually be minimal when the determined overhead rate is based on (a) normal (or practical) capacity; (b) designed capacity; (c) direct labor hours; (d) direct machine hours. 90. Sunk costs is measured by (a) the difference in total costs between the two alternatives; (b) actual cash outlays or their equivalent: (c) the value of the item in some alternative use; (d) present book value based on historical costs, (c) none of these, 91. Inthe development of accounting data for decision-making purposes relevant costs are defined as: (a) future costs which will differ under each alternative course of action; (b)the change in total costs under each alternative course of action ; (c) standard costs which are developed by motion and time study techniques because of their relevance to managerial control; (d) historical costs which are the best available basis for estimating future costs 92. In considering whether to replace a major item of machinery now or at the end of its useful life one should ignore (a) opportunity costs; (b) fixed costs; (c) sunk costs; (4) imputed costs, * 93. Costs that do no appear in conventional accounting records and do not require peso outlays but do involve a foregone opportunity by the entity whose costs are being measured are: (a) sunk costs; (b) differential costs (c) imputed costs; (d) prime costs. 94, An example of an item the entire amount of which is usually an incremental costs is : (@) ‘manufacturing overhead; (b) direct cost; (c) conversion costs; (4) period costs, 95. Out-of-pocket costs are : (a) costs which requires cash outlay or an equivalent use of current resources during the period under consideration; (b) costs which are irrelevant in a decision regarding equipment replacement since they have already been incurred; (c) synonymous with variable costs; (d) synonymous with sum costs. 96. Incremental or marginal costs are useful to management in making which of the following decisions? (a) make or buy decisions; (b) capital outlay decisions; (c) decisions as to whether to eliminate or to continue a particular product or department ; (4) decisions as to whether to account or reject special orders at lower than regular prices; (e) all of the above. 97. The term refers to relating, reporting performance directly with the person who has responsibility for its control and is useful in assessing the performance of said person controlling the cost is (a) cost accounting; (b) responsibility accounting; (c) accounting system; (d) stabilized accounting. 98. Depreciation based on number of units produced would be classified as what type of cost? (a) out-of-pocket costs; (b) marginal cost; (c) variable costs; (d) fixed costs. 35Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 99, 100, 101. 102. 104. Which type of costs is vital part of decision making but omitted from conventional accounting records; (a) out-of-pocket cost; (b) sunk costs; (c) opportunity costs; (d) direct costs. Listed below are four names of different kinds of standard associated with a standard costs system. Which of these describes the labor costs that should be incurred under forth coming efficient operating conditions: (a) ideal ; (b) basic; (c) maximum- efficiency; (4) currently attainable. Managerial accounting differs from financial accounting in that financial accounting is: (a) more oriented toward the future; (b) primarily concerned with external financial reporting; (©) concerned with non quantitative information; (4) heavily involved with decision analysis and implementation of decisions; (e) none of the above. In a broad sense, cost accounting can be defined within the accounting system as: (a) internal and external reporting that may be used in making nonroutine decisions and in developing plans and policies; (b) external reporting to government, various outside parties, and stockholders; (¢) internal reporting for use in management planning and control, and external reporting to the extent its product-costing function satisfies external reporting requirements; (4) internal reporting for use in planning and controlling routine operations. 3. If a distinction made between costs accounting and managerial accounting, managerial accounting is more oriented toward; (a) valuation of inventory; (b) analysis of variances including spoilage; (c) financial reporting to third parties; (4) the planning and controlling aspects of the management process. ‘Management accountants help develop and maintain reporting systems that are aligned with onganizational structures and that provide useful information on an organization's performance, Management decision processes fall into three categories. These three categories are (a) nonrepetitive, nonprogrammed, and nonstrategic; (b) repetitive, nonprogrammed, and strategic; (c) repetitive, nonprogramnmed and nonstrategic (d) nonrepetitive, nonprogrammed, and strategic; (e) repetitive, programmed, and strategic. . The basic management process does not include; (a) planning; (b) organizing; (c) rationalizing; (d) directing; (e) controlling. . The control loop in a management system contains four sequential steps, including (1) implementing a program of corrective action;(2) analyzing and comparing actual performance with the standards; (3) measuring actual performance; (4) Establishing standards of performance. The proper sequence of these activities is (a) 3, 4, 1, 2; (b)4, 3, 2,1; ()4,2,3,1; (€)3,4,2,1.Chapter 2 - Cost Concept (Cost Accounting Terminology und Overview) 107, Budgeting is which step in the control loop process: (a) constructing. and implementing a program of corrective ‘action; (b) analyzing and comparing actual performance with standards; (c) measuring the actual performance; (4) establishing standards of performance. 108. In a management control system, feedback is critical. Feedback (a) compares actual performance with standard results; (b) is based on historical data; (c) is a process of reviewing and revising the standards; (d) is the program of corrective action 109. What is meant by management by exception; (a) management: emphasizes activities responsible for production and sale of goods and/or services; (b) management emphasizes providing other units of the enterprise with specialized service including advice and ‘assistance; (c) management attention is devoted primarily to activities that do not meet expectations; (d) each manager cannot supervise more than six to eight people efficiently; (©) the less management involvement in activities, the more efficient the organization, 110. When should management implement a different and/or more expensive accounting system (@) only when the cost of the system exceeds the benefits, (b) only when management thinks it appropriate: (c) only when the board of directors dictates a change; (d) only when. the benefits of the system exceed the cost. 111, Costmanagerial accounting systems are goods in the economic sense and, as such, their benefits must exceed their costs. When managerial accounting systems change, which cost is frequently ignored (a) educating users; (b) gathering data; (c) analyzing data; (d) training accounting staff; (¢) preparing reports. 112, Management accountants generally exercise which type of authority (a) company; (b) functional; (c) line; (d) staff. 113. What kind of authority is exercised over subordinates (a) functional; (b) line ; (c) company: (d) staff. 114, Controllers are generally not concerned with (a) preparation of tax returns; (b) reporting to government; (c) protection of assets; (d) investor relations; (¢) planning and control 115. The treasurer function is usually not coucerned with (a) investor relations; (b) financial reports; (c) short-term financing; (d) cash custody and banking; (e) eredit extension and collection of bad debts. 116, For which the following purposes is feedback least likely to be used in control system (a) modifying goal; (b) altering predictions; (c) allocating costs to finished products; (4) changing the operating process; (e) changing the reward system for performance.Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 117, 118. 119. 120. 121 122, 123 124, . In a retailing enterprise the income statement includes cost of goods sold. Cost of goods sold is, in effect, purchases adjusted for changes in inventory. In a manufacturing company, the purchases account is replaced by which account (a) inventory; (b) cost of goods manufactured; (c) finished goods; (d) cost of sales, ‘The formula for cost of goods manufactured is (a) beginning inventory plus purchases minus ending inventory; (b) beginning work-in-process plus direct labor plus materials plus overhead minus ending work-in-process; (c) direct materials plus direct labor plus overhead applied; (d) direct materials plus direct labor plus overhead incurred plus beginning work- in-process. Which is the best explanation of traditional "cost accounting” (a) the entire general ledger and subsidiary ledger and related journals, etc. of a manufacturer, (b) the general ledger and subsidiary accounts and related records, etc. used to accumulate the cost of goods or services provided by an entity; (c) the accounts used to determine the costs of goods sold by ‘an entity; (4) all of the journals, ledgers records, and financial statements utilized by an enterprise to record, classify, summarize, and report economic activity of an enterprise. The cost of goods manufactured statement is (a) a summarized presentation of the details of transactions recorded in the manufacturing (work-in-process) account (b) a reconciliation of the income statement and balance sheet of a manufacturing company; (c) a report of standard costs, variance analysis, and allocation of variances to inventory and cost of goods sold accounts; (4) the cost of goods sold for a manufacturing company. ‘Theoretically, cash discounts permitted on purchased raw materials should be (a) added to other income, whether taken or not; (b) added to other income , only if taken; (c) deducted from inventory, whether taken or not; (4) deducted from inventory, only if taken When cost relationships are linear, total variable costs will vary in proportion to changes in (a) direct labor hours; (b) total materials cost; (c) total overhead cost; (d) volume of production; (e) machine hours. Which of the following best describes a fixed cost (a) it may change in total when such change is unrelated to changes in production; (b) it may change in total when such change is related to changes in production; (c) it is constant per unit of change in production; (d) it may change in total when such change depends on production within the relevant range. A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the’ demand for the company's only product, the Widget , have never been predictable. Lately, the company's market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is (a) the variable cost component of the full cost; (b) the unstable contribution 38Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) margin; (c) the fixed cost component of the full cost; (d) the drop in the incremental cost of the units in the increased sales volume. 125. A cost that remains unchanged on a per unit basis in a given time period despite changes in the level of activity should be considered (a) a prime costs; (b) an overhead cost; (c) a fixed cost; (d) a variable cost, 126, The term ‘relevant range’ as used in cost accounting means the range over which (a) costs ‘may fluctuate; (b) cost relationship are valid; (c) production may vary; (d) relevant costs are incurred. 127. Depreciation based on the number of units produced is classified as what type of cost (a) ‘out-of-pocket; (b) marginal; (c) variable; (d) fixed. 128. When the number of units manufactured increases, the most significant change in average nit cost will be reflected as (a) an increase in the nonvariable element; (b) a decrease in the variable element; (c) a decrease in the nonvariable element; (d) an increase in the semivariable element; (¢) an increase in the variable element. 129. Depreciation based on the straight-line method is classified as what type of cost (a) out-of- pocket; (b) marginal; (c) variable; (d) fixed. 130. ‘The term incremental cost refers to (a) the difference in total costs that results from selecting one choice instead of another; (b) the profit forgone by selecting one choice instead of another; (c) a cost which does not entail any peso outlay but which is relevant to the decision-making process: (d) a cost which continues to be incurred even though there is no activity; (€) a cost common to all choices in question and not clearly or practically allocable to any of them. 131. Ifa predetermined overhead rate is not employed and the volume of production is increased over the level planned, the cost per unit would be expected to (a) decrease for fixed costs and remain unchanged for variable costs; (b) remain unchanged for fixed costs and increase for variable costs; (c) decrease for fixed costs and increase for variable costs (d) increase for fixed costs and increase for variable costs. 132. Within a relevant range, the amount of variable cost per unit (a) differs at each production level; (b) remains constant at each production level; (ec) inereases as production increase; (@ decreases as production increase. 133. Unit fixed costs (a) are constant per unit regardless of units produced or sold; (b) are determined by dividing total fixed costs by denominator such as production or sales volume; (c) vary directly with the activity level when stated on a per unit basis; (d) include both fixed and variable elements; 39Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 134. When production levels are expected to decline within a relevant range, and a flexible 135, budget is used, what effects would be anticipated with respect to each of the following? Fixed Costs Variable Costs per unit per unit a. increase ‘No change b. increase Increase ¢. No change No change d. No change Increase When production increases, variable manufacturing costs react in which of the following ways? Unit Variable Cost Total Variable Cost a. Decrease Decrease b. Remain same Increase c. Remain same Decrease d. Increase Increase 136. Costs that increase as the volume of activity decrease within the relevant range are (a) 137. average costs per unit; (b) average variable costs per unit; (c) total fixed costs; (d) total variable costs. : ‘The accountants concept of marginal cost is similar to (a) average costs; (6) total costs; (c) production cost; (4) incremental unit costs. 138. The marginal cost of the economist is most closely associated with the accountant's (a) 139, unit fixed cost; (b) unit variable cost; (c) unit total cost; (d) unit manufacturing costs. ‘Assuming all manufacturing costs for finished goods are known, which of the following statements explains why the accountants unit cost use in inventory valuation for the annual financial statements would differ from the economist's marginal unit cost; (a) the company used LIFO or FIFO assumptions to compute inventory cost; (b) accounting information that is based on historical manufacturing costs ignores current cost trends; (c) the economists definition of marginal cost excludes a provision for profit per unit; (d) the manufacturing costs per unit reflected in financial statements includes an allocation of fixed costs; (e) the inventory cost per unit reflected in financial statements is only an approximation of the marginal manufacturing cost per unit. 140. Inventoriable (product) costs are (a) manufacturing costs incurred to produce units of output; (b) all costs associated with manufacturing other than direct labor costs and raw material costs; (c) costs that are associated with marketing, shipping, warchousing, and billing activities; (d) the sum of direct labor costs and all factory overhead costs; (e) the sum of raw material costs and direct labor costs. 40Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 141, Which of the following is normally considered to be a product cost when using absorption costing: (a) insurance on a factory building; (b) selling expenses; (¢) presidents salary; (@) miscellaneous expense. 142, Which of the following is not a characteristic of product cost; (a) product costs include costs of the factors of production identifiable with the product; (b) product cost do not include any fixed costs; (c) product costs are expensed when the product is sold; (d) product costs include direct materials, direct labor, and factory overhead. 143, Which of the following is a characteristic of period costs (a) period costs are not identifiable with a product and are not inventoried; (b) period costs may be classified as revenue expenditures; they are charged to the income statement in the period when the costs are incurred; (c) period costs may be classified as capital expenditures; they are initially recorded as assets and then charged to expense as used; (4) all of these. 144, ‘The Gray Company has a staff of five clerks in its general accounting department. The three clerks who work during the day perform sundry accounting tasks; the two clerks who work in the evening are responsible for (1) collecting the costs data for the various jobs in process (2) verifying manufacturing materials and labor reports, and (3) supplying production reports to the supervisors by the next morning. ‘The salaries of these two clerks ‘who work at nigh should be classified as (a) period costs; () opportunity costs; (c) product costs; (d) direct cost. 145, The term "prime costs" refers to (a) manufacturing costs incurred to produce units of output; (b) all costs associated with manufacturing other than direct labor costs and raw ‘material costs; (c) cost standards that are predetermined and should be attained; (d) the sum of direct labor costs and all factory overhead costs; (e) the sum of raw materials costs and direct labor costs. 146. Which of the following is an element of prime cost? Direct Materials Indirect Materials a Yes No b. Yes Yes ei No ‘Yes a. No No - 147.-A manufacturer of machinery currently . produces equipment for a single client. The client supplies all requires raw material on a no-cost basis. The manufacturer contracts 10 complete the desired units from. this raw material. The total production costs incurred by the manufacturer are correctly identified as (a) prime costs; (b) conversion costs; (¢) variable production costs; (d) factory overhead. 41Chapter 2- Cost Concept (Cost Accounting Terminology and Overview) 148. Certain workers are assigned the task of unpacking production materials received from suppliers. These workers place the material in a storage area pending subsequent use in the production process. The labor cost’of such workers is normally classified as (a) direct labor; (b) direct material; (c) indirect labor; (d) indirect materials. 149. Factory overhead (a) is a prime cost; (b) can be a variable cost or a fixed costs; (c) can only be a fixed cost; (d) includes all factory labor. 150. Direct materials are a Conversion — Manufacturing Prime Cost Cost Cost a Yes Yes No b. Yes Yes ‘Yes c No Yes ‘Yes a No No No 151, Indirect materials are a Conversion Manufacturing Prime Cost Cost Cost a Yes Yes Yes b. Yes Yes No c. No Yes Yes d No No No 152, Prime cost and conversion cost share with common element of total cost; (a) direct labor; (©) direct materials; (c) variable overhead; (d) fixed overhead. 153, Factory overhead includes (a) all manufacturing costs; (b) all manufacturing costs, except direct materials and direct labor; (c) indirect materials but not indirect labor; (4) indirect labor but not indirect materials. 154, The cost of fire insurance for a manufacturing plant is generally ¢ (a) nonmanufacturing costs; (b) period costs; (c) semivariable costs; (d) conversion cost. 155. Wages ot the security guard for a small plant are an example of Indirect Fixed Factory Labor _Overhead a No No b Yes Yes & Yes No a No Yes 2Chapter 2 - Cost Concept (Cost Accounting Terminology and Overview) 156. The fixed portion of the semivariable cost of electricity for a manufacturing plant is a Conversion Produet Cost Cost a No ‘No b. No Yes c Yes ‘Yes a. Yes No 157. Which of the following are usually considered period costs? ACE: 2 Direct labor xo Direct material x x Sales materials Pe dans ‘Advertising costs eo Indirect factory materials x Indirect labor x Sales commissions oe Factory utilities x x ‘Administrative supplies expense Ree Administrative labor ge a Depreciation on administration building = x xX xX Xx Cost of research on customer x xX =X demographics @ A®MBOC @D 158. Wages paid to a timekeeper in a factory are a Prime Conversion Cost Cost a ‘Yes No b. Yes Yes Ge No No a. No Yes 159. What is the term that means that all manufacturing cost (direct and indirect , variable and fixed) that contribute to the production of the product are assigned to output and inventories; (a) job order costing; (b) process costing; (c) fully or absorption costing; (d) variable or direct costing. 160. What is the basic difference between direct costing and absorption costing: (a) direct costing always produces less taxable earnings that absorption costing; (b) direct costing recognizes fixed costs as period costs and absorption costing recognizes fixed costs as product costs; (c) direct costing cannot use standards and absorption costing can; (d) , resulting in an increase in operating income of List A List B a Product Line 2 13,000 b. Product Line 2 P 5,000 e Product Line 3 P 1,400 a Product Line 3 P 1,120 78. One company executive has expressed concer about the operating loss that has occurred in Product Line 2 and has suggested that Produet Line 2 be distributed, If Product Line 2 is dropped, the manager of the line would be retained and assigned other duties with the company, but the other employees would not be retained. Management has indicated that the nature of the company’s advertising might change with the elimination of Product Line2, but the total peso amount would not change. If Product Line 2 were to be dropped, the operating income of the company would ‘a. Increase by P50,000 —c._—Decrease by P234,000 b. Decrease by P94,000 —d._Increase by P416,000 65