Chapter 2 MC

Question 1

What is the general definition of “cost”?
a) A resource gained to achieve a specific objective
b) A resource sacrificed or foregone to achieve a specific objective, usually measured monetarily
c) A product’s market value
d) A resource used to increase profits

Answer 1

b) A resource sacrificed or foregone to achieve a specific objective, usually measured monetarily

Question 2

What is a “cost object”?
a) A machine used in the production process
b) An “object” such as a product, machine, service, or process for which cost information is accumulated
c) The total amount spent on wages
d) A type of indirect cost

Question 3

Which of the following is an example of a direct cost?
a) Factory rent
b) Wages of assembly line workers
c) Supervisors’ salaries
d) Depreciation of equipment

Answer 3

b) Wages of assembly line workers

Question 4

What is cost accumulation?
a) The method of distributing total costs across different products
b) The collection of cost data that is organized into cost pools
c) The tracking of direct costs
d) The calculation of unit costs only

Answer 4

b) The collection of cost data that is organized into cost pools

Question 5

Which of the following costs is typically classified as indirect costs?
a) Direct materials used in production
b) Cost of tires in automobile manufacturing
c) Electricity to run the factory
d) Wages of production workers

Answer 5

c) Electricity to run the factory

Question 6

What are prime costs?
a) Direct materials and direct manufacturing labor
b) All manufacturing costs excluding direct costs
c) Indirect manufacturing costs
d) Costs that remain constant with changes in production volume

Answer 6

a) Direct materials and direct manufacturing labor

Question 7

Conversion costs include:
a) Direct materials and direct labor
b) Direct labor and manufacturing overhead
c) Direct materials and indirect labor
d) Manufacturing overhead and variable costs

Answer 7

b) Direct labor and manufacturing overhead

Question 8

Which of the following describes variable costs?
a) Costs that do not change with the level of production
b) Costs that vary with production levels within a relevant range
c) Costs that remain the same per unit produced
d) Costs that remain constant in total

Answer 8

b) Costs that vary with production levels within a relevant range

Question 9

What happens to fixed costs as the production volume increases?
a) They decrease per unit of output
b) They remain constant per unit of output
c) They increase in total
d) They stay constant in total, but increase per unit

Answer 9

a) They decrease per unit of output

Question 10

How should decision makers focus on relevant costs when making decisions?
a) They should focus on fixed costs regardless of the decision
b) They should consider all costs equally
c) They should focus only on costs that will change depending on the decision
d) They should focus on unit costs for all decisions

Answer 10

c) They should focus only on costs that will change depending on the decision

Question 11

What are period costs?
a) Costs that are included in the cost of goods sold
b) Costs that are expensed in the period incurred
c) Costs that are inventoried until the product is sold
d) Costs that remain constant regardless of production volume

Answer 11

b) Costs that are expensed in the period incurred

Question 12

Inventoriable (product) costs become what on the statement of comprehensive income (SCI)?
a) Period costs
b) Assets
c) Cost of Goods Sold (COGS)
d) Revenues

Answer 12

c) Cost of Goods Sold (COGS)

Question 13

Which of the following is not considered a period cost?
a) Office salaries
b) Marketing expenses
c) Cost of raw materials used in production
d) Research and development costs

Answer 13

c) Cost of raw materials used in production

Question 14

Which of the following is an example of indirect labor?
a) Wages of factory supervisors
b) Wages of assembly line workers
c) Wages of workers directly making the product
d) Compensation for product designers

Answer 14

a) Wages of factory supervisors

Question 15

What is idle time in manufacturing?
a) Time workers spend resting during shifts
b) Time workers are paid for unproductive hours due to reasons like machine breakdowns or lack of orders
c) Time workers are engaged in administrative tasks
d) Time spent on overtime work

Answer 15

b) Time workers are paid for unproductive hours due to reasons like machine breakdowns or lack of orders

Question 16

Different cost classifications include all of the following except:
a) Business function
b) Behavioural pattern
c) Asset or expense
d) Product vs. period classification

Answer 16

d) Product vs. period classification

Question 17

In cost accounting, why is it important to distinguish between direct and indirect costs?
a) To allocate costs effectively to products or services
b) To increase the total cost of production
c) To calculate unit costs without considering production volume
d) To ignore certain expenses when calculating profitability

Answer 17

a) To allocate costs effectively to products or services

Question 18

When calculating conversion costs, which of the following costs are included?
a) Direct materials and direct labor
b) Direct materials and manufacturing overhead
c) Direct labor and manufacturing overhead
d) Only direct labor costs

Answer 18

c) Direct labor and manufacturing overhead

Question 19

Which of the following scenarios best represents a relevant cost for decision-making purposes?
a) Fixed manufacturing overhead that does not change with production levels
b) Historical cost of equipment that has already been purchased
c) The cost of additional raw materials needed for a new product line
d) Depreciation of machinery used in past production

Answer 19

c) The cost of additional raw materials needed for a new product line

Question 20

If a manufacturing company incurs a total fixed cost (TFC) of $100,000 and increases its production volume, which of the following is the likely outcome for average fixed cost per unit?
a) It will increase due to higher production levels
b) It will decrease because the fixed cost is spread over more units
c) It will remain unchanged regardless of the volume produced
d) It will fluctuate based on variable costs

Answer 20

b) It will decrease because the fixed cost is spread over more units

Question 21

Which of the following is not a typical example of indirect manufacturing costs (MOH)?
a) Factory rent
b) Raw materials used in production
c) Depreciation on production equipment
d) Wages of factory supervisors

Answer 21

b) Raw materials used in production

Question 22

Which of the following is a key distinction between product costs and period costs?
a) Product costs are expensed when incurred, while period costs are capitalized as inventory
b) Product costs are capitalized as inventory and expensed when sold, while period costs are expensed in the period incurred
c) Product costs are allocated to periods, while period costs are related to specific products
d) Product costs are fixed, while period costs are variable

Answer 22

b) Product costs are capitalized as inventory and expensed when sold, while period costs are expensed in the period incurred

Question 23

What is the primary purpose of allocating indirect costs (overhead) to cost objects?
a) To determine the profit margin of individual products
b) To calculate the total cost of manufacturing a product
c) To accurately calculate direct materials used
d) To simplify the decision-making process for managers

Answer 23

b) To calculate the total cost of manufacturing a product

Question 24

When a company experiences idle time, which of the following is the most accurate statement?
a) Idle time is always a fixed cost and cannot be influenced by production levels
b) Idle time is a direct cost that can be traced to specific products
c) Idle time costs are typically classified as indirect costs and are not directly tied to production output
d) Idle time is an indirect cost that must always be capitalized as part of product cost

Answer 24

c) Idle time costs are typically classified as indirect costs and are not directly tied to production output

Question 26

If a company is using a cost-volume-profit (CVP) analysis, what would be considered a relevant cost when determining the break-even point?

Answer 26

a) The historical cost of manufacturing equipment
b) Fixed costs that do not change with production volume
c) Future costs that will increase due to scaling production
d) Sunk costs from previous periods

Answer: c) Future costs that will increase due to scaling production

Question 27

How would a variable cost behave if production volume increases within the relevant range?
a) The total variable cost will remain constant, but the cost per unit will decrease
b) The total variable cost will increase proportionally, but the cost per unit will stay constant
c) The total variable cost will decrease, and the cost per unit will stay the same
d) The total variable cost will increase, but the cost per unit will also increase

Answer 27

b) The total variable cost will increase proportionally, but the cost per unit will stay constant

Question 28

What is the main difference between prime costs and conversion costs?
a) Prime costs include only direct materials, while conversion costs include only direct labor
b) Prime costs are associated with converting raw materials into finished goods, while conversion costs focus on the direct material cost
c) Prime costs consist of direct materials and direct labor, while conversion costs include direct labor and manufacturing overhead
d) Prime costs are associated with overhead, while conversion costs focus on direct materials

Answer 28

c) Prime costs consist of direct materials and direct labor, while conversion costs include direct labor and manufacturing overhead

Question 29

Which of the following is a key characteristic of relevant costs in decision-making?
a) They are always fixed and unchangeable
b) They are future costs that will be incurred depending on the decision made
c) They are costs that have already been incurred and cannot be changed
d) They include all costs, both fixed and variable, regardless of the decision

Answer 29

b) They are future costs that will be incurred depending on the decision made

Question 30

In cost classification, which of the following is the most accurate description of a variable cost?
a) A cost that remains constant per unit but changes in total based on production volume
b) A cost that does not change with production volume
c) A cost that changes per unit depending on the level of output
d) A cost that varies with production volume but remains constant in total

Answer 30

a) A cost that remains constant per unit but changes in total based on production volume

Question 31

When measuring and classifying labor costs, direct labor is typically:
a) Paid to factory supervisors and included in manufacturing overhead
b) The compensation for labor directly traceable to a specific product
c) Any labor costs incurred during idle time
d) The wages of office staff working on administrative tasks

Answer 31

b) The compensation for labor directly traceable to a specific product

Question 32

If a company uses the cost-benefit approach in its cost management system, which of the following is the most likely outcome?
a) The company will focus only on reducing variable costs and ignore fixed costs
b) The company will weigh the benefits of using resources against their costs to ensure efficient use of resources
c) The company will focus on maximizing profit without regard to resource usage
d) The company will increase overhead costs to improve resource utilization

Answer 32

b) The company will weigh the benefits of using resources against their costs to ensure efficient use of resources