Deck 3: Cost Flows and Cost Terminology

Question 1

The cost flows in merchandising firms resemble the flows for service firms.

Answer 1

True

Question 2

To comply with GAAP, an income statement must separate direct and indirect costs.

Answer 2

False

Question 3

Unlike service firms, merchandising firms maintain an inventory of goods that they buy and sell.

Answer 3

True

Question 4

As with service firms, period costs appear below the line for gross margin.

Question 5

It frequently is vital to modify accounting reports and use non-financial data to estimate the controllable costs and benefits of a decision option.

Question 6

The terms cost of goods sold and costs of goods manufactured are used interchangeably.

Question 7

Period costs are all costs that are not product costs.

Question 8

The cost of purchasing goods from suppliers does not include the cost of transportation.

Question 9

Product costs are often referred to as inventoriable costs because these are the costs that firms attach to inventories of work in process and finished goods.

Question 10

The cost of providing services might include depreciation on equipment.

Question 11

Once the production process is completed, firms transfer finished work physically from work-in-process inventory to raw materials inventory.

Question 12

GAAP provides considerable flexibility regarding reporting formats.

Question 13

Product costs always appear "below the line" for gross margin.

Question 14

For financial reporting purposes, merchandising firms expense the cost of items when they purchase them.

Question 15

Period costs are added to gross margin to arrive at profit before taxes.

Question 16

Service firms are distinguished from other firms in that the products service firms offer are not tangible or storable.

Question 17

The total of all the indirect manufacturing inputs are sometimes referred to as manufacturing allocation.

Question 18

The GAAP income statement combines controllable with non-controllable costs and fixed costs with variable costs.

Question 19

Period costs contain controllable, but not non-controllable costs.

Question 20

The sum of labor and overhead is referred to as conversion costs.

Question 21

The income statement for a service firm distinguishes between which of the following costs?

A)Cost of goods manufactured and conversion costs.
B)Costs of providing services and product costs.
C)Cost of providing service and selling and administrative costs.
D)Selling and administrative costs and period costs.
E)None of the above.

Question 22

The matching principle in GAAP requires that we separate:

A)Conversion costs and overhead.
B)Product costs and period costs.
C)Selling and administrative costs.
D)Controllable and non-controllable costs.
E)None of the above.

Question 23

C & C Power Lines is a subcontractor that works on public utilities.Which of the following is a key characteristic that makes it distinctively a service company?

A)It does not maintain inventories.
B)Its products are tangible.
C)Its product costs appear below the line in computing gross margin.
D)All of its costs are period costs.

Question 24

Which of the following is not an example of a service firm?

A)Delta Airlines.
B)Blankenship and Hobbs, Attorneys.
C)First State Bank.
D)Hilton Hotels.
E)All of the above are service firms.

Question 25

Acme Manufacturing Company's controller was classifying costs for the most recent financial statement period.Which of the following should be excluded from the calculation of gross margin?

A)Factory worker wages.
B)Materials used in assembling a product.
C)Conveyer belt maintenance for production of all products.
D)Marketing brochure for the company's new product.

Question 26

Cost objects are items or entities to which we allocate the costs from overhead.

Question 27

If a company's revenue is $530,000, profit before taxes is $98,000, and product costs are $390,000 then:

A)The company's gross margin totals $140,000.
B)The company's period costs total $140,000.
C)The company's period costs cannot be determined.
D)The company's contribution margin totals $140,000.

Question 28

Overhead costs are direct and, as such, are traceable to each product.

Question 29

Property taxes on a manufacturing plant is an example of:

Question 30

The costs associated with getting products and services ready for sale are known as:

A)Sales costs.
B)Conversion costs.
C)Opportunity costs.
D)Product costs.
E)Costs of goods sold.

Question 31

Tomba Civil Engineers' manager is attempting to calculate its cost of providing services to clients.Its profit before taxes for January is $4,000, and it's selling and administration costs are $8,000, service revenue is $20,000.How much is its cost of providing service?

A)$12,000
B)$4,000
C)$8,000
D)$20,000

Question 32

Which of the following is most likely a product cost?

A)Advertising expense
B)Sales commissions for the current month
C)Cardboard packaging for the product
D)Janitorial expense for the administrative offices

Question 33

The proportion of cost allocated to a cost object equals the proportion of driver units in that cost object.

Question 34

Which of the following statements relating to period costs is not correct?

A)Period costs are all costs that are not product costs.
B)Period costs always appear below the line for gross margin.
C)Period costs are not separated from product costs in GAAP income statements.
D)Both A and B are incorrect.
E)A, B, and C are incorrect.

Question 35

Maintenance on factory equipment is a(n):

A)Period cost.
B)Overhead cost.
C)Administrative cost.
D)Product cost.
E)Both B and D are correct.

Question 36

The costs of management salaries that are not a part of the costs of providing programs or services are referred to as:

A)Period costs
B)Product costs.
C)Cost of goods sold.
D)Conversion costs.
E)None of the above.

Question 37

What distinguishes services firms from other firms?

A)Service firms do not incur depreciation costs.
B)Service firms do not use capital resources to perform their functions.
C)The products service firms offer are not tangible or storable.
D)Human capital is an important resource for service firms, but not for other firms.
E)None of the above.

Question 38

The overhead allocated to an individual unit or product line is the number of driver units contained in that unit or product line times the overhead rate per driver unit.

Question 39

Grand Rapids Rafting Company recorded the following data for the month of October: $\begin{array}{ll}\text { Cost of beginning inventory } & \$ 46,000 \\\text { Cost of ending inventory } & \$ 32,000 \\\text { Cost of goods sold } & \$ 122,000\end{array}$ Inventory purchases for the month of October total:

A)$108,000
B)$136,000
C)$200,000
D)$44,000

Question 40

A cost allocation is a procedure that allocates, or distributes, a common cost.

Question 41

In a typical production process, the physical flows for a manufacturer are:

A)Work-in-Process Inventory→Material Inventory→Finished Goods Inventory→Cost of Goods Sold.
B)Material Inventory→Cost of Goods Sold→Finished Goods.
C)Material Inventory→Work-in-Process inventory→Finished Goods Inventory→Cost of Goods Sold.
D)Finished Goods Inventory→Cost of Goods Sold→Material Inventory
E)None of the above.

Question 42

Which of the following includes all the components of conversion costs?

A)Direct materials and direct labor.
B)Prime costs plus fixed overhead.
C)Variable overhead and fixed overhead.
D)Direct labor plus capacity costs

Question 43

Product costs are also referred as:

A)Mixed cost.
B)Selling and administrative costs.
C)Inventoriable costs.
D)Volume cost.
E)Break-even cost.

Question 44

Company's controller is calculating the current month's cost of goods manufactured.Which of the following should be considered as part of the calculation?

A)Direct labor and indirect costs.
B)Indirect labor and commission expenses.
C)Manufacturing overhead and the corporate vice president's salary.
D)Cost of materials used and finished goods inventory.

Question 45

The cost of purchasing goods from suppliers includes all of the following costs except:

A)Cost of transportation.
B)Amounts paid to suppliers.
C)Sales commissions.
D)Costs of preparing goods for sale.
E)All of the above are included in the cost of purchasing goods from suppliers.

Question 46

Product costs include which of the following costs?

A)Manufacturing overhead costs and selling and administrative costs.
B)Variable manufacturing costs and manufacturing overhead costs.
C)Common costs and special costs.
D)Period costs and common costs.
E)Variable costs only.

Question 47

Prime costs are:

A)The sum of materials and labor costs.
B)The sum of labor and manufacturing overhead.
C)The sum of fixed and variable overhead costs.
D)The sum of material, labor, and overhead costs.

Question 48

Prime costs include:

A)Direct material, direct labor, and manufacturing overhead.
B)Direct material and direct labor.
C)Direct labor and manufacturing overhead.
D)Direct material and manufacturing overhead.
E)Variable overhead and fixed overhead.

Question 49

Packaging materials is an example of:

A)Fixed overhead.
B)Direct material.
C)Variable overhead.
D)Period cost.
E)Prime cost.

Question 50

Manufacturing overhead includes which of the following costs?

A)Fixed costs only.
B)Variable costs only.
C)Conversion costs and direct labor.
D)Variable overhead and fixed overhead.
E)Common costs and special costs.

Question 51

The Peterson Company incurred the following costs in the month of May: $$\begin{array} { l l } \text { Direct materials purchased } & \$ 12,000 \\\text { Commissions paid to salespeople } & \$ 5,000 \\\text { Direct labor paid } & \$ 9,000 \\\text { Manufacturing plant utility costs } & \$ 19,000 \\\text { Advertising costs } & \$ 2,000\end{array}$$ The company's product costs total:

A)$45,000
B)$47,000
C)$40,000
D)$42,000

Question 52

Gate Grocery's most popular candy bars cost $0.50 each and sell for $0.75.Management determined that it had purchased 3,000 candy bars in February.It began February with 200 bars and had 150 remaining at the end of February.How much is cost of goods sold for February?

A)$1,475
B)$2,287.50
C)$3,050
D)$1,525

Question 53

The following costs were incurred in November: $$\begin{array} { l l } \text { Direct materials } \quad \$ 16,000 \\\text { Direct labor } & 8,000 \\\text { Manufacturing overhead } & 10,000 \\\text { Selling expenses } & 4,000 \\\text { Administrative expenses } & 5,000\end{array}$$ Prime costs during the month totaled:

A)$34,000
B)$24,000
C)$43,000
D)$9,000

Question 54

Which of the following are the inputs manufacturers use to make their product?

A)Direct material, direct labor, and manufacturing overhead.
B)Period costs and product costs.
C)Conversion costs and direct labor.
D)Common costs and special costs.
E)Direct material, direct labor, and period costs.

Question 55

Billings Company's plant manager is trying to better understand his plant's inventory workflow.He determined that $10 million was spent on raw materials, $2 million on direct labor and $3 million on manufacturing overhead.If raw materials beginning and ending inventories are $2 million and $1 million, respectively, and work-in-process beginning and ending inventories are $6 million and $4 million respectively, how much is cost of goods manufactured?

A)$17 million.
B)$16 million.
C)$15 million.
D)$18 million.

Question 56

Which of the following inventory equations produces the Cost of Goods Sold?

A)Cost of beginning inventory + cost of goods purchased during period - cost of ending inventory.
B)Cost of ending inventory + cost of goods purchased during period - cost of beginning inventory.
C)Cost of beginning inventory - cost of goods purchased during the period.
D)Cost of ending inventory - cost of goods purchased during the period.
E)Cost of ending inventory + cost of goods purchased during the period.

Question 57

Office rent is an example of a (an):

A)Administrative cost.
B)Product cost.
C)Conversion Cost.
D)Costs of providing product or service.
E)Direct cost.

Question 58

Which of the following is the best example of prime costs for Sharp Edge Mowers?

A)Sales commissions and maintenance on the machine that tightens bolts on lawn mowers during production.
B)Assembly line wages and the cost of tires to be installed on newly assembled lawnmowers.
C)The general manager's salary and the janitorial expense for executives' offices.
D)The interest cost on the manufacturing building and the wages paid for the quality control inspector for the assembly line

Question 59

The cost of direct labor in a manufacturing plant is an example of:

Question 60

Product costs are also known as:

A)Prime costs.
B)Conversion costs.
C)Period costs.
D)Inventoriable costs

Question 61

Which of the following would most likely not be included as manufacturing overhead in a plant which produces cars?

A)Glass used to make windshields.
B)Salary paid to manufacturing plant custodians.
C)Manufacturing plant utility expenses.
D)Real estate taxes on the manufacturing plant

Question 62

Harms Shoe Company applies manufacturing overhead based on the number of units as the cost driver.Information concerning costs for July follows:
$\begin{array}{ll}\text { Direct labor costs } & 800 \text { hours @ \$14 } \\\text { Manufacturing overhead } & \$ 8,000 \\\text { Direct materials } & \$ 45,000\end{array}$
How much is the unit product cost if 1,000 units are produced?

A)$8.00
B)$64.20
C)$53.00
D)$45.00

Question 63

The SurferDude Company manufactures long and short surfboards.The company incurred manufacturing overhead costs of $210,000 in March.They have decided to allocate these costs based on units produced.In March the company produced 8,000 longboards and 6,000 shortboards.The amount of overhead allocated to each product, respectively, would be:

Question 64

The Merchant Tire Company provided the following information for the month of February: $$\begin{array} { l c } \text { Cost of goods manufactured } & \$ 147,000 \\\text { Beginning finished goods inventory } & \$ 23,000 \\\text { Cost of goods sold } & \$ 129,000\end{array}$$ The company's balance in their finished goods inventory account at the end of February is:

A)$23,000
B)$18,000
C)$5,000
D)$41,000

Question 65

Bass Boss Manufacturing Company manufactures two types of bass boats.Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: $\begin{array}{lcc}\hline \text { Bass Boss Product } & \text { Boss } & \text { Boss } \\& \text { Hog } & \text { Bear } \\\text { Units per year } & 15,000 & 20,000 \\\text { Machine hours/unit } & 3.0 & 5.0\\\hline\text { Materials cost/unit } & \$ 1,500 & \$ 2,000 \\\text { Labor cost/unit } & \$ 800 & \$ 1,000\\\hline\end{array}$ What are the cost objects?

A)Annual overhead costs.
B)Boss Hog and Boss Bear.
C)Units per year.
D)Machine hours/unit.
E)Material and Labor costs/unit.

Question 66

The Clarke Company provided the following information for the month of December: $$\begin{array} { l l } \text { Beginning work-in-process } & \$ 12,000 \\\text { Ending work-in-process } & \$ 9,000 \\\text { Direct labor/materials used } & \$ 14,000 \\\text { Manufacturing overhead } & \$ 7,000\end{array}$$ The company's cost of goods manufactured for December is:

A)$42,000
B)$24,000
C)$33,000
D)$28,000

Question 67

Which of the following is a cost pool?

A)Items that have costs allocated to them.
B)Attributes that are measured for each cost object.
C)The total costs to allocate
D)The rate used to allocate costs

Question 68

Bass Boss Manufacturing Company manufactures two types of bass boats.Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: $\begin{array}{lcc}\hline\text { Bass Boss Product } & \text { Boss } & \text { Boss } \\& \text { Hog } & \text { Bear } \\\text { Units per year } & 15,000 & 20,000 \\\text { Machine hours/unit } & 3.0 & 5.0\\\hline\text { Materials cost/unit } & \$ 1,500 & \$ 2,000 \\\text { Labor cost/unit } & \$ 800 & \$ 1,000\\\hline\end{array}$ What are the cost drivers?

A)Overhead costs; Units per year.
B)Boss Hog; Boss Bear.
C)Overhead costs; Machine hours/unit.
D)Machine hours/unit; Material cost/unit; Labor cost/unit
E)Units per year.

Question 69

Bass Boss Manufacturing Company manufactures two types of bass boats.Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: $\begin{array}{lcc}\hline\text { Bass Boss Product } & \text { Boss } & \text { Boss } \\& \text { Hog } & \text { Bear } \\\text { Units per year } & 15,000 & 20,000 \\\text { Machine hours/unit } & 3.0 & 5.0\\\hline\text { Materials cost/unit } & \$ 1,500 & \$ 2,000 \\\text { Labor cost/unit } & \$ 800 & \$ 1,000\\\hline\end{array}$ What is the cost pool for Bass Boss?

A)Annual overhead costs.
B)Units per year.
C)Machine hours/unit.
D)Material costs/unit.
E)Labor costs/unit.

Question 70

Bass Boss Manufacturing Company manufactures two types of bass boats.Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: $\begin{array}{lcc}\hline \text { Bass Boss Product } & \text { Boss } & \text { Boss } \\& \text { Hog } & \text { Bear } \\\text { Units per year } & 15,000 & 20,000 \\\text { Machine hours/unit } & 3.0 & 5.0\\\hline\text { Materials cost/unit } & \$ 1,500 & \$ 2,000 \\\text { Labor cost/unit } & \$ 800 & \$ 1,000\\\hline\end{array}$ What is the amount of manufacturing overhead allocated to Boss Bear?

A)$435,000
B)$217,500
C)$100,000
D)$300,000
E)$135,000

Question 71

The Flynn Company began the period with $15,000 worth of raw materials.During the period they purchased an additional $17,000 worth of materials and issued $24,000 of materials for production.In addition, the company paid $8,000 for direct labor costs and $6,000 in manufacturing overhead costs.The balance in the company's Work-in Process inventory account at the end of the period was:

A)$38,000
B)$46,000
C)$32,000
D)$40,000