Cost Terminology quiz Cost Accounting Quiz On Mar 28, 2026 Share Cost Terminology 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 The term “prime costs” refers to : Manufacturing costs incurred to produce units of output The sum of raw material costs and direct labor costs 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 Prime costs are raw material costs and direct labor costs 2 / 20 Cost drivers are : Accounting techniques used to control costs Accounting measurements used to evaluate whether or not performance is proceeding according to plan Activities that cause costs to increase as the activity increases 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 3 / 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 conversion cost but not as a component of prime cost As a component of prime cost but not as a component of conversion cost As a component of both prime and conversion cost As a component of neither prime cost nor 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. 4 / 20 All of the following would be considered manufacturing overhead costs by a book publisher except : Wages paid to the production supervisor Depreciation on the printing equipment Fire insurance on the printing facilities 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 5 / 20 The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be considered a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing department. Classifying a cost as either direct or indirect depends upon The behavior of the cost in response to volume changes Whether an expenditure is unavoidable because it cannot be changed regardless of any action taken The cost object to which the cost is being related Whether the cost is expensed in the period in which it is incurred A direct cost can be specifically associated with a single cost object in an economically feasible way. An indirect cost cannot be specifically associated with a single cost object. Thus, the specific cost object influences whether a cost is direct or indirect. For example, a cost might be directly associated with a single plant. The same cost, however, might not be directly associated with a particular department in the plant 6 / 20 Which one of the following best describes direct labor ? Both a product cost and a prime cost A period cost A prime cost A product 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 7 / 20 A cost that always can be directly traced to a cost object is : A prime cost An indirect cost A variable cost A conversion cost Prime costs are direct materials and direct labor. They are directly identifiable elements of production costs and are directly traceable to the product 8 / 20 Using absorption costing, fixed manufacturing overhead costs are best described as : Direct product costs Indirect product costs Indirect period costs Direct 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 9 / 20 Conversion costs do not include : Indirect labor Depreciation Indirect materials Direct materials Conversion costs are necessary to convert raw materials into finished products. They include all manufacturing costs, for example, direct labor and factory overhead, other than direct materials 10 / 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 Water Johnson’s salary 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 11 / 20 The allocation of general overhead costs to operating departments can be least justified in determining : Income of a product or functional unit Income tax payable Costs for the federal government’s cost-plus contracts Costs for making management’s decisions 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 12 / 20 Many companies recognize three major categories of costs of manufacturing a product. These are direct materials, direct labor, and overhead. Which of the following is an overhead cost in the production of an automobile ? The cost of small tools used in mounting tires on each automobile The delivery costs for the tires on each automobile The cost of the laborers who place tires on each automobile The cost of the tires on each automobile The cost of small tools used in mounting tires cannot be identified solely with the manufacture of a specific automobile. This cost should be treated as factory overhead because it is identifiable with the production process 13 / 20 In cost terminology, conversion costs consist of : Direct labor and direct materials Direct labor and factory overhead Direct and indirect labor Indirect labor and variable factory overhead Conversion costs consist of direct labor and factory overhead. These are the costs of converting raw materials into a finished product 14 / 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 Period costs Direct materials Direct labor 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 15 / 20 The allocation of costs to particular cost objects allows a firm to analyze all of the following except : Whether a product line should be discontinued Why a particular product should be purchased rather than manufactured inhouse Whether a particular department should be expanded Why the sales of a particular product have increased Cost allocation is an internal matter that does not affect demand (except to the extent it results in a change in price) 16 / 20 Which of the following is a period cost rather than a product cost of a manufacturer ? Direct materials Fixed overhead Abnormal spoilage Variable 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 17 / 20 In a traditional manufacturing operation, direct costs would normally include : Commissions paid to sales personnel Machine repairs in an automobile factory Electricity in an electronics plant Wood in a furniture factory Direct costs are readily identifiable with and attributable to specific units of production. Wood is a raw material (a direct cost) of furniture 18 / 20 Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation ? Aiding in variable costing for internal reporting Evaluating revenue center performance Measuring income and assets for external reporting Budgeting cash and controlling expenditures Cost allocation is the process of assigning and reassigning costs to cost objects. It is used for those costs that cannot be directly associated with a specific cost object. Cost allocation is often used for purposes of measuring income and assets for external reporting purposes. Cost allocation is less meaningful for internal purposes because responsibility accounting systems emphasize controllability, a process often ignored in cost allocation 19 / 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 Assign prime costs and variable administrative costs to the same pool Assign all manufacturing costs related to the project to the same pool Establish a separate pool for each assembly line worker to account for wages 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 20 / 20 Conversion cost pricing : Places minimal emphasis on the cost of materials used in manufacturing a product Places heavy emphasis on direct costs and disregards consideration of indirect costs Could be used when the customer furnishes the material used in manufacturing a product Places heavy emphasis on indirect costs and disregards consideration of direct costs Conversion costs consist of direct labor and factory overhead, the costs of converting raw materials into finished goods. Normally, a company does not consider only conversion costs in making pricing decisions, but if the customer were to furnish the raw materials, conversion cost pricing would be appropriate Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback basic cost terminologycost accountingcost accounting exam
