Introduction to MS/ Cost Concepts

Question 1

are raw materials that can be physically and directly associated with the finished product during the manufacturing process.

Answer 1

Direct materials

Question 2

is the work of factory employees that can be physically and directly associated with converting raw materials into finished goods.

Answer 2

Direct labor

Question 3

consists of costs that are indirectly associated with the manufacture of the finished product.

Answer 3

Manufacturing overhead

Question 4

✓ Do not physically become part of the finished product.
✓ Cannot be traced because their physical association with the finished product is too small in terms of cost.
✓ Companies account for indirect materials as part of manufacturing overhead.

Answer 4

Indirect materials

Question 5

has no physical association with the finished product, or it is impractical to trace the costs to the goods produced. Companies classify indirect labor as manufacturing overhead.

Answer 5

Indirect labor

Question 6

includes indirect materials, indirect labor, depreciation on factory buildings and machines, insurance, taxes and maintenance on factory facilities.

Answer 6

Manufacturing overhead

Question 7

which shows the cost of completed goods on hand.

Answer 7

Finished Goods

Question 8

which shows the cost applicable to units that have been started into production but are only partially completed

Answer 8

Work in Process

Question 9

the monetary amount of the resources given up or sacrificed to attain some objective such as acquiring goods and services.

Answer 9

Cost

Question 10

describes how a cost behaves or changes as the amount of cost driver changes.

Answer 10

Cost behavior

Question 11

an account in which a variety of similar costs are accumulated prior to allocation to cost objects. It is a group of costs associated with an activity. Example: overhead control account.

Answer 11

Cost pool

Question 12

the intermediate and final disposition of cost pools. Example: product, job, process.

Answer 12

Cost object

Question 13

a factor that causes a change in the cost pool for a particular activity. It is used as a basis for cost allocation; any factor or activity that has a direct cause-effect relationship.

Answer 13

Cost driver

Question 14

any event, action, transaction or work sequence that incurs costs when producing a product or providing a service

Answer 14

Activity

Question 15

is the study of how specific costs respond to changes in the level of business activity.

Answer 15

Cost behavior analysis

Question 16

identifies the activity that causes changes in the behavior of costs. With an appropriate activity index, companies can classify the behavior of costs into three categories: variable, fixed, or mixed.

Answer 16

activity index

Question 17

are costs that vary in total directly and proportionately with changes in the activity level. A variable cost remains the same per unit at every level of activity.

Answer 17

Variable costs

Question 18

are costs that remain the same in total regardless of changes in the activity level.

Answer 18

Fixed costs

Question 19

are costs that contain both a variable and a fixed element.

Answer 19

Mixed costs

Question 20

is the range of activity over which a company expects to operate during the year

Answer 20

relevant range

Question 21

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 21

C. Managerial Accounting

Question 22

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 22

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

Question 23

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 23

a. Management Consultant

Question 24

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 24

a. Helps managers improve their decision

Question 25

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 25

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

Question 26

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 26

c. Has no externally imposed standards

Question 27

Managerial accounting information is generally prepared for
a. Stockholders
b. Creditors
c. Managers
d. Regulatory agencies

Answer 27

c. Managers

Question 28

Which of the following is not an internal user?
a. Creditor
b. Department manager
c. Controller
d. Treasurer

Answer 28

a. Creditor

Question 29

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 29

c. The cost principle

Question 30

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 30

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

Question 31

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 31

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

Question 32

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 32

a. Cost of goods manufactured

Question 33

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 33

a. Finished goods inventory

Question 34

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 34

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

Question 35

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 35

b. Direct materials

Question 36

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 36

c. Indirect labor

Question 37

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 37

c. Manufacturing overhead

Question 38

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 38

b. Prime costs and manufacturing overhead

Question 39

Costs that are expensed when incurred are called
a. Product costs
b. Direct costs
c. Inventoriable costs
d. Period costs

Answer 39

d. Period costs

Question 40

Which of the following are period costs?
a. Raw materials
b. Prime costs
c. Conversion costs
d. Selling expenses

Answer 40

d. Selling expenses

Question 41

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 41

a. Direct costs

Question 42

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 42

b. Cannot be traced to a particular cost object

Question 43

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 43

b. Vary directly with changes in activity

Question 44

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 44

c. Remains constant

Question 45

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 45

d. Remain constant as activity changes

Question 46

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

Answer 46

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

Question 47

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 47

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

Question 48

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 48

a. Cost relationships are valid

Question 49

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 49

b. Opportunity Cost

Question 50

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 50

b. Are relevant to decision making

Question 51

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 51

d. Differential cost

Question 52

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 52

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

Question 53

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 53

c. Breakeven method

Question 54

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 54

b. Considers more than two points.

Question 55

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 55

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

Question 56

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 56

b. Least squares

Question 57

Simple regression analysis involves the use of
Dependent variables Independent variables
a. One None
b. One One
c. One Two
d. None Two

Question 58

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 58

c. Coefficient of correlation

Question 59

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 59

c. - .89

Question 60

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 60

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