Test Bank For Managerial Accounting, 15th Edition

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2-6Chapter 02Managerial Accounting and Cost ConceptsTrue / False Questions1.Selling costs can be either direct or indirect costs.TrueFalse2.A direct cost is a cost that cannot be easily tracedto the particular cost object underconsideration.TrueFalse3.Property taxes and insurance premiums paid on a factory building are examples of period costs.TrueFalse4.Conversion cost equals product cost less direct labor cost.TrueFalse5.Thread that is used in the production of mattresses is an indirect material that is thereforeclassified as manufacturing overhead.TrueFalse

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2-76.Direct labor is a part of prime cost, but not conversion cost.TrueFalse7.Conversion cost is the sum of direct labor cost and direct materials cost.TrueFalse8.Direct material costs are generally fixed costs.TrueFalse9.Product costs are recorded as expenses in the period in which the relatedproducts are sold.TrueFalse10.Depreciation on manufacturing equipment is a product cost.TrueFalse11.Manufacturing salaries and wages incurred in the factory are period costs.TrueFalse12.Depreciation on office equipment would be included in product costs.TrueFalse13.Rent on a factory building used in the production process would be classified as a product costand as a fixed cost.TrueFalse

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2-814.A fixed cost remains constant if expressed on a unitbasis.TrueFalse15.Total variable cost is expected to remain unchanged as activity changes within the relevantrange.TrueFalse16.Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace inthe middle of its dining area. The cost of the firewood for this fire is fixed with respect to thenumber of meals served at the restaurant.TrueFalse17.Committed fixed costs represent organizational investments with a multi-year planning horizonthat can't be significantly reduced even for short periods.TrueFalse18.Commissions paid to salespersons are a variable selling expense.TrueFalse19.Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level ofactivity.TrueFalse

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2-920.The planning horizon for a committed fixed cost usually encompasses many years.TrueFalse21.Cost behavior is considered linear whenever a straight line is a reasonable approximation for therelation between cost and activity.TrueFalse22.The high-low method uses cost and activity data from just two periods to establish the formula fora mixed cost.TrueFalse23.The engineering approach to the analysis of mixed costsinvolves a detailed analysis of what costbehavior should be, based on an industrial engineer's evaluation of the production methods to beused, the materials specifications, labor requirements, equipment usage, production efficiency,power consumption, and so on.TrueFalse24.The contribution margin is the amount remaining from sales revenues after variable expenseshave been deducted.TrueFalse25.A contribution format income statement for a merchandising company organizes costs intotwocategories—cost of goods sold and selling and administrative expenses.TrueFalse

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2-1026.The traditional format income statement provides managers with an income statement that clearlydistinguishes between fixed and variable costs and thereforeaids planning, control, and decisionmaking.TrueFalse27.In a contribution format income statement, the gross margin minus selling and administrativeexpenses equals net operating income.TrueFalse28.A traditional format income statement organizes costs on the basis of behavior.TrueFalse29.In a traditional format income statement for a merchandising company, the selling andadministrative expenses report all period costs that have been expensed as incurred.TrueFalse30.The contribution format is widely used for preparing external financial statements.TrueFalse31.Contribution margin equals revenue minus all fixed costs.TrueFalse

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2-1132.The potential benefit that is given up whenone alternative is selected over another is called anopportunity cost.TrueFalse33.A cost that differs from one month to another is known as a differential cost.TrueFalseMultiple Choice Questions34.The nursing station on thefourth floor of Central Hospital is responsible for the care of orthopedicsurgery patients. The costs of prescription drugs administered by the nursing station to patientsshould be classified as:A.direct patient costs.B.indirectpatient costs.C.overhead costs of the nursing station.D.period costs of the hospital.35.All of the following costs would be found in a company's accounting records except:A.sunk cost.B.opportunity cost.C.indirect costs.D.direct costs.

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2-1236.The costs of the Accounting Department at Central Hospital would be considered by the SurgeryDepartment to be:A.direct costs.B.indirect costs.C.incremental costs.D.opportunity costs.37.Which of thefollowing is classified as a direct labor cost?A.Option AB.Option BC.Option CD.Option D38.In a manufacturing company, direct labor costs combined with direct materials costs are knownas:A.period costs.B.conversion costs.C.prime costs.D.opportunity costs.

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2-1339.The property taxes on a factory building would be an example of:A.Option AB.Option BC.Option CD.Option D40.Which of the following would most likely beincluded as part of manufacturing overhead in theproduction of a wooden table?A.The amount paid to the individual who stains the table.B.The commission paid to the salesperson who sold the table.C.The cost of glue used in the table.D.The cost of the wood used in the table.

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2-1441.Property taxes on a manufacturing facility are classified as:A.Option AB.Option BC.Option CD.Option D42.Indirect labor is a(n):A.Prime cost.B.Conversion cost.C.Period cost.D.Opportunity cost.43.The salary paid to the maintenance supervisor in a manufacturing plant is an example of:A.Option AB.Option BC.Option CD.Option D

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2-1544.All of the following would be classifiedas product costs except:A.property taxes on production equipment.B.insurance on factory machinery.C.salaries of the marketing staff.D.wages of machine operators.45.The cost of direct materials cost is classified as a:A.Option AB.Option BC.Option CD.Option D46.Which of the following costs is classified as a prime cost?A.Option AB.Option BC.Option CD.Option D

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2-1647.Inventoriable costs are also known as:A.variable costs.B.conversion costs.C.product costs.D.fixed costs.48.Fresh Wreath Corporation manufactures wreaths according to customer specifications and shipsthem to customers using United Parcel Service (UPS). Which two terms belowdescribe the costof shipping these wreaths?A.variable cost and product costB.variable cost and period costC.fixed cost and product costD.fixed cost and period cost49.If the level of activity increases within the relevantrange:A.variable cost per unit and total fixed costs also increase.B.fixed cost per unit and total variable cost also increase.C.total cost will increase and fixed cost per unit will decrease.D.variablecost per unit and total cost also increase.

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2-1750.Within the relevant range:A.variable cost per unit decreases as production decreases.B.fixed cost per unit increases as production decreases.C.fixedcost per unit decreases as production decreases.D.variable cost per unit increases as production decreases.51.Discretionary fixed costs:A.have a planning horizon that covers many years.B.maybe reduced for short periods of time with minimal damage to the long-run goals of theorganization.C.cannot be reduced for even short periods of time without making fundamental changes.D.aremost effectively controlled through the effective utilization of facilities and organization.52.When the activity level declines within the relevant range, what should happen with respect to thefollowing?A.Option AB.Option BC.Option CD.Option D

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2-1853.Stott Company requires one full-time dock hand for every 500 packages loaded daily. The wagesfor these dock hands would be:A.variable.B.mixed.C.step-variable.D.curvilinear.54.When the level ofactivity decreases, variable costs will:A.increase per unit.B.increase in total.C.decrease in total.D.decrease per unit.

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2-1955.Data for Cost A and Cost B appear below:Which of the above best describes the behavior of CostsA and B?A.Cost A is fixed, Cost B is variable.B.Cost A is variable, Cost B is fixed.C.Both Cost A and Cost B are variable.D.Both Cost A and Cost B are fixed.56.Which of the following companies would have the highest proportionof variable costs in its coststructure?A.Public utility.B.Airline.C.Fast food outlet.D.Architectural firm.

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2-2057.An example of a discretionary fixed cost would be:A.taxes on the factory.B.depreciationon manufacturing equipment.C.insurance.D.research and development.58.For planning, control, and decision-making purposes:A.fixed costs should be converted to a per unit basis.B.discretionary fixed costs should be eliminated.C.variable costs should be ignored.D.mixed costs should be separated into their variable and fixed components.59.Which of the following costs, if expressed on a per unit basis, would be expected to decrease asthe level of production andsales increases?A.Sales commissions.B.Fixed manufacturing overhead.C.Variable manufacturing overhead.D.Direct materials.

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