Cost Concepts

Question 1

The kind of accounting concerned with providing information to management in making decisions about the operations of the business

a. Responsibility accounting
b. Cost accounting
c. Management accounting
d. None of the above

Answer 1

c. Management accounting

Question 2

Which of the following is not a characteristic of Management Services?

a. MS is broad in scope
b. MS involves problem-solving affecting the future operations of the client
c. Beneficiary of service is management
d. MS is repetitive as far as the same client is concerned

Answer 2

d. MS is repetitive as far as the same client is concerned

Question 3

A person who is qualified by education, experience, technical ability, and temperament to advise or assist businessmen on a professional basis in identifying, defining, and solving specific management problems involving the organization, planning, direction, control, and operation of a firm is called a

a. Management Consultant
b. Certified Public Accountant
c. Accounting Technician
d. Management Accountant

Answer 3

a. Management Consultant

Question 4

Management accounting is considered successful when it

a. Helps managers improve their decision
b. Is in accordance with GAAP
c. Is relevant
d. Is accurate

Answer 4

a. Helps managers improve their decision

Question 5

The major difference(s) between financial and management accounting is that

a. Financial accounting reports are prepared primarily for users external to the company
b. Management accounting is not under the jurisdiction of the Securities and Exchange Commission
c. Government regulations do not apply to management accounting
d. All of the above are differences between financial and management accounting

Answer 5

d. All of the above are differences between financial and management accounting

Question 6

The following characteristics refer to Financial Accounting except

a. Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generates general purpose financial statements

Answer 6

c. Has no externally imposed standards

Question 7

Managerial accounting information is generally prepared for

a. Stockholders
b. Creditors
c. Managers
d. Regulatory agencie

Answer 7

c. Managers

Question 8

Which of the following is not an internal user?

a. Creditor
b. Department manager
c. Controller
d. Treasurer

Answer 8

a. Creditor

Question 9

The major reporting standard for presenting managerial accounting information is

a. Relevance
b. Generally accepted accounting principles
c. The cost principle
d. The current tax law

Answer 9

a. Relevance

Question 10

The term “prime costs” refers to

a. The sum of direct labor costs and all factory overhead costs
b. The sum of direct materials costs and direct labor costs
c. Manufacturing costs incurred to produce units of output
d. All costs associated with manufacturing other than direct labor and direct materials costs

Answer 10

b. The sum of direct materials costs and direct labor costs

Question 11

The term “conversion costs” refers to

a. Costs that are associated with marketing, shipping, warehousing, and billing activities
b. The sum of direct labor costs and all factory overhead costs
c. The sum of direct materials costs and direct labor costs
d. Manufacturing costs incurred to produce units of output

Answer 11

b. The sum of direct labor costs and all factory overhead costs

Question 12

The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred in the current year is the

a. Cost of goods manufactured
b. Cost of goods available for sale
c. Total cost of work in process
d. Total manufacturing cost

Answer 12

d. Total manufacturing cost

Question 13

Which one of the following does not appear on the balance sheet of a manufacturing company?

a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory

Answer 13

c. Cost of goods manufactured

Question 14

Cost of goods manufactured is calculated as follows

a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP
b. Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP
c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP
d. Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP

Answer 14

c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP

Question 15

Which one of the following would not be classified as manufacturing overhead?

a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect materials

Answer 15

b. Direct materials

Question 16

The wages of a timekeeper in the factory would be classified as

a. A prime cost
b. Direct labor
c. Indirect labor
d. Compliance costs

Answer 16

c. Indirect labor

Question 17

The product cost that is most difficult to associate with a product is

a. Direct materials
b. Direct labor
c. Manufacturing overhead
d. Advertising

Answer 17

c. Manufacturing overhead

Question 18

Product costs consist of

a. Conversion costs and unexpired expense
b. Prime costs and manufacturing overhead
c. Selling and administrative expenses
d. Period costs

Answer 18

b. Prime costs and manufacturing overhead

Question 19

Costs that are expensed when incurred are called

a. Product costs
b. Direct costs
c. Inventoriable costs
d. Period costs

Answer 19

d. Period costs

Question 20

Which of the following are period costs?

a. Raw materials
b. Prime costs
c. Conversion costs
d. Selling expenses

Answer 20

d. Selling expenses

Question 21

Costs that can be easily traced to a specific department are called

a. Direct costs
b. Indirect costs
c. Product costs
d. Manufacturing costs

Answer 21

a. Direct costs

Question 22

Indirect costs

a. Can be traced to a cost object
b. Cannot be traced to a particular cost object
c. Are not important
d. Are always variable costs

Answer 22

b. Cannot be traced to a particular cost object

Question 23

Variable costs are those costs that

a. Vary inversely with changes in activity
b. Vary directly with changes in activity
c. Decrease on a per-unit basis as activity increases d. Increase on a per-unit basis as activity increases

Answer 23

b. Vary directly with changes in activity

Question 24

As activity decreases, unit variable cost

a. Increases proportionately with activity
b. Decreases proportionately with activity
c. Remains constant
d. Increases by a fixed amount

Answer 24

c. Remains constant

Question 25

Fixed costs are those costs that a. Vary directly with changes in activity b. Vary inversely with changes in activity c. Increase on a per-unit basis as activity increases d. Remain constant as activity changes

Answer 25

d. Remain constant as activity changes

Question 26

The fixed cost per unit a. Will increase as activity increases b. Will increase as activity decreases c. Will decrease as activity increases d. Will exhibit the behavior described in choices "b" and "c"

Answer 26

d. Will exhibit the behavior described in choices "b" and "c"

Question 27

Which of the following statements is false? a. At zero production level, fixed costs are also zero b. At zero production level, fixed costs are usually positive c. At zero production level, variable costs are usually zero d. At zero production level, total costs equal total fixed costs

Answer 27

a. At zero production level, fixed costs are also zero

Question 28

The term "relevant range" as used in cost accounting means the range over which a. Cost relationships are valid b. Production may vary c. Relevant costs are incurred d. Costs may fluctuate

Answer 28

a. Cost relationships are valid

Question 29

The salaries you could be earning by working rather than attending college are an example of a. Misplaced Cost b. Opportunity Cost c. Sunk Cost d. Outlay Cost

Answer 29

b. Opportunity Cost

Question 30

Sunk costs a. Are relevant to long-term decisions but not to short-term decisions b. Are relevant to decision making c. Are subtitles for opportunity costs d. In themselves are not relevant to decision making

Answer 30

d. In themselves are not relevant to decision making

Question 31

If the total cost of alternative A is P50,000 and the total cost of alternative B is P34,000, then P16,000 is termed the: a. Opportunity cost b. Sunk cost c. Out-of-pocket cost d. Differential cost

Answer 31

d. Differential cost

Question 32

The term incremental cost refers to a. The profit foregone by selecting one choice instead of another b. The additional cost of producing or selling another product or service c. A cost that continues to be incurred in the absence of activity d. A cost common to all choices in question and not clearly or feasibly allocable to any of them

Answer 32

b. The additional cost of producing or selling another product or service

Question 33

These are among the methods of segregating fixed cost and variable costs except a. Simple regression analysis b. Scattergraph c. Breakeven method d. High-low method

Answer 33

c. Breakeven method

Question 34

The principal advantage of the scatter-diagram method over the high-low method of cost estimation is that the scatter-diagram method a. Includes costs outside the relevant range. b. Considers more than two points. c. Can be used with more types of costs than the high-low method d. Gives a precise mathematical fit of the points to the line.

Answer 34

b. Considers more than two points.

Question 35

Which of the following statements is true when referring to the high-low method of cost analysis? a. The high-low method has no major weaknesses b. The high-low method is very hard to apply c. In essence, the high-low method draws a straight line through two data points d. None of the above is true

Answer 35

c. In essence, the high-low method draws a straight line through two data points

Question 36

The quantitative method that will separate a semi-variable cost into its fixed and variable components with the highest degree of precision is a. Simplex method b. Least squares method/Regression Analysis c. Scattergraph method d. High-low method

Answer 36

b. Least squares method/Regression Analysis

Question 37

Simple regression analysis involves the use of how many dependent and independent variables?

Answer 37

One dependent variable and One independent variable

Question 38

A measure of the extent to which two variables are related linearly is referred to as a. Sensitivity analysis b. Input-output analysis c. Coefficient of correlation d. Cause-effect ratio

Answer 38

c. Coefficient of correlation

Question 39

In regression analysis, which of the following correlation coefficients represents the strongest relationship between the independent and dependent variable? a. 1.03 b. -.02 c. -.89 d. .75

Answer 39

c. -.89

Question 40

In regression analysis, coefficient of determination is a measure of a. The amount of variation in the dependent variable explained by the independent variables b. The amount of variation in the dependent variable unexplained by the independent variables c. The slope of the regression line d. The predicted value of the independent variable

Answer 40

a. The amount of variation in the dependent variable explained by the independent variables