1-3: FS for Manufacturers and Cost Concepts

Question 1

______ are materials used in the production process and that are economically traceable to a cost object.

Answer 1

Direct materials.

Question 2

The depreciation of an equipment used to create the product is considered an [direct / indirect] cost and is reported as a [product / period] cost.

Answer 2

indirect, period

Question 3

These represent all other costs incurred in the production process other than direct materials and direct labor.

Answer 3

Manufacturing overhead costs / indirect factory costs.

Question 4

This is a non-inventoriable cost and can be classified as either sales & distribution or administrative expense.

Answer 4

Period cost.

Question 5

What are the three types of inventory in a manufacturing concern?

Answer 5

Raw materials, Work-in-Process, Finished goods inventory.

Question 6

This refers to cost which, when expressed as a total amount, changes in direct proportion to changes in activity level.

Answer 6

Variable cost.

Question 7

Between fixed and variable cost, which is more relevant in decision-making?

Answer 7

Variable cost.

Question 8

The sum of direct materials and direct labor is known as ________, while the sum of direct labor and manufacturing overhead is known as _________.

Answer 8

Prime costs, conversion costs.

Question 9

T/F. Manufacturers have a longer accounting cycle than merchandisers.

Answer 9

False.

Question 10

T/F. Manufacturers have a longer operating cycle than merchandisers.

Answer 10

True.

Question 11

Overproduction usually occurs in a make-to-order type of manufacturing.

Answer 11

False.

Question 12

Generally, companies which perform substantial alteration of goods are considered as manufacturing.

Answer 12

True.

Question 13

Which of the following is NOT into manufacturing?

A. Furniture maker
B. Pharmacy
C. A company which prints business forms
D. Car manufacturer

Answer 13

B. Pharmacy

Question 14

A sandwich shop which prepares in advance all ingredients and allows customers to select the type of bread, vegetables, and dressing for the sandwich is employing which of the following strategy?

A. Make-to-order
B. Make-to-stock
C. Make-to-assemble
D. Stock-to-order

Answer 14

C. Make-to-assemble

Question 15

_______ is a measure of efficiency of a person, machine, or manufacturing unit completing the task in converting inputs to outputs.

Answer 15

Productivity.

Question 16

_______ is defined as doing things right the first time at the lowest possible cost, while ________ is simply defined as doing the right things.

Answer 16

Efficiency, effectiveness

Question 17

T/F. One advantage of a manufacturing concern is their assurance of product quality.

Answer 17

True.

Question 18

T/F. A manufacturer would be involved in the selling of the outputs which it had processed.

Answer 18

True.

Question 19

What are the four key characteristics of a manufacturing concern?

Answer 19

Productivity, quality control, good design, and cost effectiveness.

Question 20

Variable costs:
A. vary inversely with changes in activity level when expressed in total
B. vary directly with changes in activity level when expressed in total
C. vary inversely with changes in activity level when expressed per unit
D. vary inversely with changes in activity level when expressed per unit

Answer 20

B. Vary directly with changes in activity level when expressed in total

Question 21

Finished goods refer to the cost of goods that is:
A. partially complete and awaiting further instruction from management
B. partially complete and awaiting further delivery of additional materials from supplier
C. fully complete and awaiting delivery of packaging materials from supplier
D. fully complete and awaiting sale to customers

Answer 21

D. fully complete and awaiting sale to customers

Question 22

T/F. Depreciation on store furniture is an example of an indirect product cost.

Answer 22

False; indirect period cost

Question 23

T/F. A material can be classified as indirect even if the said material can be traced to the final product.

Answer 23

True.

Question 24

T/F. A company cannot sell partially-completed goods.

Answer 24

False.

Question 25

T/F. Labor costs may be part of manufacturing overhead costs.

Answer 25

True.

Question 26

T/F. All operating expenses are classified as period costs.

Answer 26

True.

Question 27

Based on definition, cost should be stated in: A. monetary terms and paid only in cash B. monetary terms and paid in cash or on credit C. monetary or nonmonetary terms and paid only in cash D. monetary or nonmonetary terms and paid in cash or on credit

Answer 27

B. monetary terms anhttps://www.brainscape.com/companiesd paid in cash or on credit

Question 28

T/F. As cost objects expand in scope, more costs become direct than indirect.

Answer 28

True.

Question 29

T/F. In order to improve the accuracy of unit costs, most companies recompute the predetermined manufacturing overhead rate each month.

Answer 29

False.

Question 30

T/F. When the predetermined manufacturing overhead rate is based on direct labor-hours, the amount of overhead applied to production is proportional to the amount of direct labor-hours incurred on the production.

Answer 30

True.

Question 31

T/F. In manufacturing, depreciation and rent can be product cost or period cost.

Answer 31

True.

Question 32

T/F. The term "cost" is narrower in scope since it does not include the expired portion of assets (e.g., rent expense).

Answer 32

False. The exact opposite is true. (p22)

Question 33

T/F. Unlike a service concern, the revenues line item for a manufacturing concern includes only the primary sources of income and its related deductions.

Answer 33

True. The additional sources of income for manufacturers is included in the "other income" line item, as per the multi-step IS format.

Question 34

The ______ expenses line item includes all costs pertaining to activities other than production.

Answer 34

Operating expenses.

Question 35

T/F. Instead of Merchandise Inventory, the related account for manufacturers is "Finished Goods Inventory".

Answer 35

True.

Question 36

T/F. Direct labor cost is a variable cost.

Answer 36

True. DL cost varies directly with changes in units and remains constant when expressed as a cost per unit of output. (p28)

Question 37

In a normal cost system, [applied / actual] overhead costs are used.

Answer 37

[Applied] overhead costs. Only in actual cost systems are actual OH costs used.

Question 38

T/F. A contribution-format IS, rather than a traditional (functional) format IS, is more useful for external users than internal users.

Answer 38

True.

Question 39

Manufacturing overhead: A. can be either a variable cost or a fixed cost B. includes the cost of shipping finished goods C. includes all factory costs D. includes all fixed costs

Answer 39

A. can be either a variable cost or a fixed cost.

Question 40

``` The cost of fire insurance for a manufacturing plant is generally considered to be a: A. product cost B. period cost C. MOH cost D. Both A and C. ```

Answer 40

D. Both product and MOH cost.

Question 41

Within the relevant range, the difference between variable costs and fixed costs is: A. variable costs per unit fluctuate and fixed costs per unit remain constant B. variable costs per unit are constant and fixed costs per unit fluctuate.

Answer 41

B. variable costs per unit are constant and fixed costs per unit fluctuate.

Question 42

``` When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? A. Work in process will decrease. B. COGS will increase. C. Net income will decrease. D. Gross profit will increase. ```

Answer 42

D. Gross profit will increase.