Cost Accounting QuizCost Terminology quiz 28/05/2026 1 min read 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 : The sum of direct labor costs and all factory overhead costs The sum of raw material costs and direct labor costs All costs associated with manufacturing other than direct labor costs and raw material costs Manufacturing costs incurred to produce units of output Prime costs are raw material costs and direct labor costs 2 / 20 All of the following would be considered manufacturing overhead costs by a book publisherexcept : Fire insurance on the printing facilities Rent on the warehouse containing the finished books inventory Wages paid to the production supervisor Depreciation on the printing equipment 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 3 / 20 Which one of the following items wouldnotbe considered a manufacturing cost ? Tires for an automobile manufacturer Cream for an ice cream maker Sales commissions for a car manufacturer Plant property taxes 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 4 / 20 In a traditional manufacturing operation, direct costs would normally include : Electricity in an electronics plant Wood in a furniture factory Machine repairs in an automobile factory Commissions paid to sales personnel Direct costs are readily identifiable with and attributable to specific units of production. Wood is a raw material (a direct cost) of furniture 5 / 20 Management accounting differs from financial accounting in that financial accounting is : Heavily involved with decision analysis and implementation of decisions More oriented toward the future Primarily concerned with external financial reporting Primarily concerned with nonquantitative information 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 6 / 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 Whether the cost is expensed in the period in which it is incurred The cost object to which the cost is being related 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 7 / 20 Using absorption costing, fixed manufacturing overhead costs arebestdescribed as : Indirect product costs Direct period costs Direct product 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 8 / 20 The allocation of general overhead costs to operating departments can beleastjustified in determining : Costs for making management’s decisions Income tax payable Income of a product or functional unit 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 9 / 20 A cost that always can be directly traced to a cost object is : A conversion cost A variable cost A prime cost An indirect cost Prime costs are direct materials and direct labor. They are directly identifiable elements of production costs and are directly traceable to the product 10 / 20 Conversion costs donotinclude : Direct materials Depreciation Indirect materials Indirect labor 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 In practice, items such as wood screws and glue used in the production of school desks and chairs wouldmostlikely be classified as : Direct materials Direct labor Factory overhead 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 12 / 20 In cost terminology, conversion costs consist of : Direct labor and factory overhead Direct and indirect labor Indirect labor and variable factory overhead 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 13 / 20 Which one of the followingbestdescribes direct labor ? Both a product cost and a prime cost A period cost A product 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 14 / 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 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 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 15 / 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 Aiding in variable costing for internal reporting 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 16 / 20 Cost drivers are : 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 Accounting measurements used to evaluate whether or not performance is proceeding according to plan Accounting techniques used to control costs 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 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 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 Establish separate pools for variable and fixed costs 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 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 : Prime cost Quality cost Carrying cost Stockout cost The costs of holding or storing inventory are carrying costs. Examples include the costs of capital, insurance, warehousing, breakage, and obsolescence 19 / 20 Conversion cost pricing : Places heavy emphasis on indirect costs and disregards consideration of direct costs 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 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 20 / 20 Conversion costs are : 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 All costs associated with manufacturing other than direct labor costs and raw material 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
