Cost Terminology quiz Cost Accounting Quiz On Aug 7, 2024 Share /20 1234567891011121314151617181920 Cost Terminology 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 Rose Co.‟s fixed manufacturing overhead costs totaled $150,000 and variable selling costs totaled $75,000. How should these costs be classified under variable costing ? $0 period costs; $225,000 product costs $150,000 period costs; $75,000 product costs $75,000 period costs; $150,000 product costs $225,000 period costs; $0 product costs Product costs are incurred to produce units of output. They are expensed when the product is sold. Such costs include direct materials, direct labor, and factory (not general and administrative) overhead. Period costs are charged to expense as incurred because they are not identifiable with a product. Variable costing considers only variable manufacturing costs to be product costs. Fixed manufacturing costs are considered period costs and are expensed as incurred. Selling costs are period costs under both direct and absorption costing. Thus, the entire $225,000 ($150,000 + $75,000) is classified as period costs 2 / 20 Which one of the following best describes direct labor ? Both a product cost and a prime cost A product cost A period cost A prime cost Direct labor is both a product cost and a prime cost. Product costs are incurred to produce units of output and are deferred to future periods to the extent that output is not sold. Prime costs are defined as direct materials and direct labor 3 / 20 A firm calculates that its annual cost to hold excess goods in order to avoid any chance of running out of inventory is $50,000. This $50,000 is an example of a : Quality cost Prime cost Stockout cost Carrying cost The costs of holding or storing inventory are carrying costs. Examples include the costs of capital, insurance, warehousing, breakage, and obsolescence 4 / 20 Using absorption costing, fixed manufacturing overhead costs are best described as : Direct product costs Indirect product costs Direct period costs Indirect period costs Using absorption costing, fixed manufacturing overhead is included in inventoriable (product) costs. Fixed manufacturing overhead costs are indirect costs because they cannot be directly traced to specific units produced 5 / 20 Finley Painters Co., a painting contractor, maintains a job-order cost system. Job costs are accumulated by tracking the actual cost of paint and other materials used on each job, as well as the actual cost of wages earned by the painters on each job. In addition, overhead is applied to each job by using a predetermined rate based on the actual painters‟ wages. Leonard Wayne, painter, earned $168 today by working on Job 08-45. In computing prime cost and conversion cost for Job 08-45, how would the wages earned today by Wayne be classified ? As a component of both prime and conversion cost As a component of conversion cost but not as a component of prime cost As a component of neither prime cost nor conversion cost As a component of prime cost but not as a component of conversion cost Manufacturing costs are often grouped into the following classifications: prime cost, which equals direct materials plus direct labor (i.e., those costs directly attributable to a product), and conversion cost, which equals direct labor plus manufacturing overhead (i.e., the costs of converting raw materials into the finished product). The wages earned by a painter working for a painting contractor are thus properly classified as both a prime cost and a conversion cost. 6 / 20 Roberta Johnson is the manager of Sleep-Well Inn, one of a chain of motels located throughout the U.S. An example of an operating cost at Sleep-Well that is both direct and fixed is : Toilet tissue Johnson’s salary Water Advertising for the Sleep-Well Inn chain Direct costs are ones that can be associated with a particular cost object in an economically feasible way, that is, they can be traced to that object. Fixed costs are those that remain unchanged in total over the relevant range of production. A motel manager‟s salary is traceable to the single location she manages, and it remains fixed over a set period of time regardless of the number of guests 7 / 20 Cost drivers are : Accounting techniques used to control costs Activities that cause costs to increase as the activity increases Accounting measurements used to evaluate whether or not performance is proceeding according to plan A mechanical basis, such as machine hours, computer time, size of equipment, or square footage of factory, used to assign costs to activities A cost driver is “a measure of activity, such as direct labor hours, machine hours, beds occupied, computer time used, flight hours, miles driven, or contracts, that is a causal factor in the incurrence of cost to an entity” (IMA). It is a basis used to assign costs to cost objects 8 / 20 The allocation of costs to particular cost objects allows a firm to analyze all of the following except : Why a particular product should be purchased rather than manufactured inhouse Why the sales of a particular product have increased Whether a product line should be discontinued Whether a particular department should be expanded Cost allocation is an internal matter that does not affect demand (except to the extent it results in a change in price) 9 / 20 In cost terminology, conversion costs consist of : Direct labor and factory overhead Indirect labor and variable factory overhead Direct and indirect labor Direct labor and direct materials Conversion costs consist of direct labor and factory overhead. These are the costs of converting raw materials into a finished product 10 / 20 The term “prime costs” refers to : All costs associated with manufacturing other than direct labor costs and raw material costs The sum of raw material costs and direct labor costs Manufacturing costs incurred to produce units of output The sum of direct labor costs and all factory overhead costs Prime costs are raw material costs and direct labor costs 11 / 20 All of the following would be considered manufacturing overhead costs by a book publisher except : Fire insurance on the printing facilities Wages paid to the production supervisor Depreciation on the printing equipment Rent on the warehouse containing the finished books inventory Rent paid on the warehouse containing the finished books inventory is an example of an administrative expense, which is not part of manufacturing overhead. This is an example of a nonmanufacturing cost since the warehouse contains the finished books inventory and no manufacturing is occurring in that warehouse. Administrative expenses are those costs incurred by a company not directly related to producing or marketing the product 12 / 20 The allocation of general overhead costs to operating departments can be least justified in determining : Costs for making management’s decisions Costs for the federal government’s cost-plus contracts Income of a product or functional unit Income tax payable In the short run, management decisions are made in reference to incremental costs without regard to fixed overhead costs because fixed overhead cannot be changed in the short run. Thus, the emphasis in the short run should be on controllable costs. For example, service department costs allocated as a part of overhead may not be controllable in the short run 13 / 20 A cost that always can be directly traced to a cost object is : An indirect cost A prime cost A conversion cost A variable cost Prime costs are direct materials and direct labor. They are directly identifiable elements of production costs and are directly traceable to the product 14 / 20 Inventoriable costs : Are expensed when products become part of finished goods inventory Include only the conversion costs of manufacturing a product Include only the prime costs of manufacturing a product Are regarded as assets before the products are sold Under an absorption costing system, inventoriable (product) costs include all costs necessary for good production. These include direct materials and conversion costs (direct labor and overhead). Both fixed and variable overhead is included in inventory under an absorption costing system. Inventoriable costs are treated as assets until the products are sold because they represent future economic benefits. These costs are expensed at the time of sale 15 / 20 Management accounting differs from financial accounting in that financial accounting is : Primarily concerned with nonquantitative information Primarily concerned with external financial reporting More oriented toward the future Heavily involved with decision analysis and implementation of decisions Financial accounting is primarily concerned with historical accounting, i.e., traditional financial statements, and with external financial reporting to creditors and shareholders. Management accounting applies primarily to the planning and control of organizational operations, considers nonquantitative information, and is usually less precise 16 / 20 A company experienced a machinery breakdown on one of its production lines. As a consequence of the breakdown, manufacturing fell behind schedule, and a decision was made to schedule overtime to return manufacturing to schedule. Which one of the following methods is the proper way to account for the overtime paid to the direct laborers ? The overtime hours times the sum of the straight-time wages and overtime premium would be treated as direct labor The overtime hours times the overtime premium would be charged to repair and maintenance expense, and the overtime hours times the straight-time wages would be treated as direct labor The overtime hours times the sum of the straight-time wages and overtime premium would be charged entirely to manufacturing overhead The overtime hours times the overtime premium would be charged to manufacturing overhead, and the overtime hours times the straight-time wages would be treated as direct labor Direct labor costs are wages paid to labor that can feasibly be specifically identified with the production of finished goods. Factory overhead consists of all costs, other than direct materials and direct labor, that are associated with the manufacturing process. Thus, straight-time wages would be treated as direct labor; however, because the overtime premium cost is a cost that should be borne by all production, the overtime hours times the overtime premium should be charged to manufacturing overhead 17 / 20 A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool ? Establish separate pools for variable and fixed costs Establish a separate pool for each assembly line worker to account for wages Assign all manufacturing costs related to the project to the same pool Assign prime costs and variable administrative costs to the same pool Cost pools are accounts in which a variety of similar costs are accumulated prior to allocation to cost objectives. The overhead account is a cost pool into which various types of overhead are accumulated prior to their allocation. Indirect manufacturing costs are an element of overhead allocated to a cost pool. Ordinarily, different allocation methods are applied to variable and fixed costs, thus requiring them to be separated. Establishing separate pools allows the determination of dual overhead rates. As a result, the assessment of capacity costs, the charging of appropriate rates to user departments, and the isolation of variances are facilitated 18 / 20 Which of the following is a period cost rather than a product cost of a manufacturer ? Direct materials Variable overhead Abnormal spoilage Fixed overhead Materials, labor, and overhead (both fixed and variable) are examples of product costs. Abnormal spoilage is an example of a period cost. Abnormal spoilage is not inherent in a production process and should not be categorized as a product cost. Abnormal spoilage should be charged to a loss account in the period that detection of the spoilage occurs 19 / 20 In practice, items such as wood screws and glue used in the production of school desks and chairs would most likely be classified as : Factory overhead Direct labor Direct materials Period costs Those tangible inputs to the manufacturing process that cannot practicably be traced to the product, such as wood screws and glue used in the production of school desks and chairs, are referred to as indirect costs. Indirect costs are one of the three components of manufacturing overhead, the other two being indirect labor and factory operating costs 20 / 20 Conversion costs are : All costs associated with manufacturing other than direct labor costs and raw material costs The sum of direct labor costs and all factory overhead costs The sum of raw materials costs and direct labor costs Manufacturing costs incurred to produce units of output Conversion costs are the direct labor, indirect materials, and factory overhead incurred to convert raw materials and transferred-in goods in a cost center to finished goods Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback basic cost terminologycost accountingcost accounting exam
