Cost Accounting QuizCost Terminology quiz 27/06/2026 1 min read Cost Terminology 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 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 overtime premium would be charged to manufacturing overhead, 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 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 repair and maintenance expense, 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 2 / 20 The allocation of general overhead costs to operating departments can beleastjustified in determining : Costs for making management’s decisions Income of a product or functional unit Income tax payable Costs for the federal government’s cost-plus contracts 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 3 / 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 The sum of direct labor costs and all factory overhead costs All costs associated with manufacturing other than direct labor costs and raw material costs Prime costs are raw material costs and direct labor costs 4 / 20 Using absorption costing, fixed manufacturing overhead costs arebestdescribed as : Indirect period costs Direct period costs Indirect product costs Direct product 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 A cost that always can be directly traced to a cost object is : A conversion cost A prime cost An indirect 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 6 / 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 $225,000 period costs; $0 product costs $75,000 period costs; $150,000 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 7 / 20 In cost terminology, conversion costs consist of : Direct labor and direct materials Direct and indirect labor Indirect labor and variable factory overhead Direct labor and factory overhead Conversion costs consist of direct labor and factory overhead. These are the costs of converting raw materials into a finished product 8 / 20 Cost drivers are : Accounting measurements used to evaluate whether or not performance is proceeding according to plan Activities that cause costs to increase as the activity increases Accounting techniques used to control costs 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 9 / 20 The allocation of costs to particular cost objects allows a firm to analyze all of the followingexcept : Whether a particular department should be expanded 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 Cost allocation is an internal matter that does not affect demand (except to the extent it results in a change in price) 10 / 20 Conversion costs donotinclude : Depreciation Indirect labor 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 11 / 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 12 / 20 A cost incurred for the benefit of more than one cost objective is : A common cost A conversion cost A variable cost A prime cost A cost incurred for the benefit of more than one cost objective is known as a common cost. Allocation of common costs is a persistent problem in responsibility accounting. For example, how should the costs of corporate headquarters be allocated to the segments of a conglomerate? Common cost is also a synonym for joint cost. In this sense, common costs are incurred in the production of two or more inseparable products (e.g., costs of refining petroleum into gasoline, diesel fuel, kerosene, lubricating oils, etc.) up to the point at which the products become separable (the split-off point). 13 / 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 ? Evaluating revenue center performance Budgeting cash and controlling expenditures Aiding in variable costing for internal reporting Measuring income and assets for external reporting 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 14 / 20 Which one of the following items wouldnotbe considered a manufacturing cost ? Plant property taxes for an ice cream maker Sales commissions for a car manufacturer Tires for an automobile manufacturer Cream for an ice cream maker Manufacturing costs consist of direct materials, direct labor, and manufacturing overhead. The cream, plant property taxes, and tires are all integral to the production of the final product and so are properly classified as manufacturing costs. Sales commissions, however, are not incurred until after the product has been manufactured. They are properly classified as a selling expense 15 / 20 Inventoriable costs : Include only the prime costs of manufacturing a product Are regarded as assets before the products are sold Include only the conversion costs of manufacturing a product Are expensed when products become part of finished goods inventory 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 16 / 20 Which of the following is a period cost rather than a product cost of a manufacturer ? Variable overhead Abnormal spoilage Fixed overhead Direct materials 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 All of the following would be considered manufacturing overhead costs by a book publisherexcept : Wages paid to the production supervisor Depreciation on the printing equipment Rent on the warehouse containing the finished books inventory Fire insurance on the printing facilities 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 18 / 20 Conversion costs are : Manufacturing costs incurred to produce units of output The sum of raw materials 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 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 19 / 20 Which one of the followingbestdescribes direct labor ? Both a product cost and a prime cost A prime cost A period 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 20 / 20 Conversion cost pricing : Could be used when the customer furnishes the material used in manufacturing a product Places minimal emphasis on the cost of materials used in manufacturing a product Places heavy emphasis on indirect costs and disregards consideration of direct costs Places heavy emphasis on direct costs and disregards consideration of indirect 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 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
