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 Which one of the followingbestdescribes direct labor ? A prime cost A period cost Both a product cost and 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 2 / 20 A cost that always can be directly traced to a cost object is : An indirect cost A variable cost A conversion cost A prime cost Prime costs are direct materials and direct labor. They are directly identifiable elements of production costs and are directly traceable to the product 3 / 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 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 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 4 / 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 Measuring income and assets for external reporting Evaluating revenue center performance 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 5 / 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 Whether a product line should be discontinued 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) 6 / 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. 7 / 20 All of the following would be considered manufacturing overhead costs by a book publisherexcept : Rent on the warehouse containing the finished books inventory Depreciation on the printing equipment Wages paid to the production supervisor 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 8 / 20 Conversion costs are : All costs associated with manufacturing other than direct labor costs and raw material costs The sum of raw materials costs and direct labor costs The sum of direct labor costs and all factory overhead 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 9 / 20 Management accounting differs from financial accounting in that financial accounting is : Primarily concerned with external financial reporting Heavily involved with decision analysis and implementation of decisions Primarily concerned with nonquantitative information More oriented toward the future 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 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 : Johnson’s salary Water Toilet tissue 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 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 12 / 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 : Carrying cost Prime cost Stockout cost Quality cost The costs of holding or storing inventory are carrying costs. Examples include the costs of capital, insurance, warehousing, breakage, and obsolescence 13 / 20 Inventoriable costs : Are regarded as assets before the products are sold 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 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 14 / 20 The term “prime costs” refers to : 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 The sum of raw material costs and direct labor costs Manufacturing costs incurred to produce units of output Prime costs are raw material costs and direct labor costs 15 / 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 the tires on each automobile The cost of the laborers who place tires on each automobile The delivery costs for the tires on each automobile The cost of small tools used in mounting 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 16 / 20 Conversion costs donotinclude : Indirect labor Direct materials Depreciation Indirect 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 17 / 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 ? $225,000 period costs; $0 product costs $150,000 period costs; $75,000 product costs $0 period costs; $225,000 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 18 / 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 ? Assign all manufacturing costs related to the project to the same pool Establish separate pools for variable and fixed costs Assign prime costs and variable administrative costs 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 19 / 20 In a traditional manufacturing operation, direct costs would normally include : Electricity in an electronics plant Commissions paid to sales personnel Wood in a furniture factory Machine repairs in an automobile factory Direct costs are readily identifiable with and attributable to specific units of production. Wood is a raw material (a direct cost) of furniture 20 / 20 Which of the following is a period cost rather than a product cost of a manufacturer ? Direct materials Abnormal spoilage Fixed overhead 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 🚀 Join Telegram Group 📢 Telegram Channel 📘 Facebook Group 👍 Facebook Page 📌 Pinterest
