Deck 2: Refresher on Cost Terms Road Map

Question 1

Which of the following is a true statement about the definition of costs?

A) An expense is the same as a cost.
B) Noncash charges are not costs since no cash is paid.
C) A cost can be an asset or an expense.
D) Costs that have future benefit are expensed on the income statement.

Answer 1

A cost can be an asset or an expense.

Question 2

Which of the following statements regarding expenses and costs is correct?

A) Costs and expenses are the same for accounting and reporting purposes.
B) Costs are reported on the income statement or the balance sheet, and expenses are reported only on the income statement.
C) Costs are reported on the income statement, and expenses are reported on the balance sheet.
D) An expense has remaining future benefit while a cost will never have future benefit.

Answer 2

Costs are reported on the income statement or the balance sheet, and expenses are reported only on the income statement.

Question 3

At the beginning of the year, Gizmo Inc. is considering whether to repair and retain an existing machine, or to replace it with a new machine. The following information is available to analyze this decision: Which of the costs being considered for this decision represents a sunk cost?

A) $6,000 of Machine overhaul costs (last year)
B) $3,000 of repair costs (current year)
C) $14,000 of annual operating costs (existing machine)
D) $10,000 of annual operating costs (new machine)

Answer 3

$6,000 of Machine overhaul costs (last year)

Question 4

CMG Construction purchased a truck 6 years ago at a cost of $68,000. Because the old truck required an overhaul of $4,000 last year, and repairs of $2,000 are needed in the current year, the company is now planning to purchase a new truck to replace the old one. The old truck has a trade-in value of $5,000. The cost of the new truck is $82,000. What amount of these costs represent sunk costs?

A) $68,000
B) $72,000
C) $77,000
D) $79,000

Question 5

Opportunity costs

A) can be found on the income statement as expenses.
B) can be found on the balance sheet as prepaid expenses.
C) relate to decision making but are not reported on the financial statements.
D) do not impact decision-making because they happened in the past.

Question 6

A resource sacrificed to bring benefit in the current period, leaving no remaining future benefit is a(n)

A) cost
B) expense
C) expenditure
D) revenue

Question 7

Which of the following is not an expense?

A) Salaries and payroll-related
B) Depreciation
C) Marketing and selling
D) Inventory

Question 8

Costs with future benefits are considered

A) expenses.
B) assets.
C) liabilities.
D) net income.

Question 9

Which of the following costs does not impact decision-making for a business?

A) Sunk cost
B) Opportunity cost
C) Product cost
D) Variable cost

Question 10

If costs do not have objective, measurable future benefit, they are

A) not reported on the financial statements.
B) reported on the balance sheet as an asset.
C) reported on the income statement as an expense.
D) reported on the income statement as an asset or the balance sheet as an expense.

Question 11

Inventory for a merchandising business is classified as a(n)

A) revenue and an expense.
B) cost and an asset.
C) cost and an expense.
D) expense and an asset.

Question 12

If an asset is consumed, used up, or has no future benefit, it

A) remains an asset and continues to be reported on the balance sheet.
B) becomes an expense and will be reported on the income statement.
C) becomes an expense but continues to be reported on the balance sheet.
D) remains an asset but will be reported on the income statement.

Question 13

Using vertical analysis for the income statement, the base, set at 100%, is

A) total operating expenses.
B) net income.
C) operating income.
D) total revenues.

Question 14

Nyco Corp. had the following financial information at the end of its first month of operations: In performing vertical analysis, the payroll and related expenses would be expressed as

A) 31%.
B) 58%.
C) 67%.
D) 100%.

Question 15

Using vertical analysis for the balance sheet, the base, set at 100%, is

A) total assets.
B) net income.
C) total stockholders' equity.
D) total liabilities.

Question 16

When comparing the financial reporting for service providers and merchandisers, which of the following statements is correct regarding these two business entities?

A) Operating expenses are significantly different between service providers and merchandisers.
B) Merchandisers report merchandise inventory and cost of goods sold but service providers usually do not.
C) Both business entities report cost of goods sold, but only merchandisers report merchandise inventory.
D) Both business entities report merchandise inventory but only merchandisers report cost of goods sold.

Question 17

For financial statement reporting, Inventories are reported as a(n)

A) cost of goods sold on the income statement.
B) expenses on the income statement.
C) current assets on the income statement.
D) current assets on the balance sheet.

Question 18

A merchandiser shows total current assets of $59,000 and the following additional information: How much Merchandise Inventory would be reported for the merchandiser?

A) $8,000
B) $23,000
C) $39,000
D) $44,000

Question 19

The ability of a manufacturer to mark-up its product costs to selling price is reflected in its

A) gross margin (profit).
B) nonoperating expenses.
C) operating expenses.
D) inventory.

Question 20

Which of the following costs reported in the financial statements would uniquely identify the business entity as a manufacturer?

A) Rent expense
B) Work-in-process inventory
C) Merchandise inventory
D) Cost of goods sold

Question 21

Which of the following statements related to a Service Provider is incorrect?

A) A Service Provider commonly will not carry inventory or cost of goods sold accounts.
B) Occasionally, a Service Provider will carry goods for sale that complement the service provided.
C) Most costs for a Service Provider are expensed as incurred instead of going through the balance sheet.
D) A Service Provider commonly will carry inventory and cost of goods sold accounts similar to a Merchandiser.

Question 22

Shin Manufacturers reports the following information at the end of the current year: What is the gross margin at year-end for Shin Manufacturers?

A) $46,000
B) $70,000
C) $92,000
D) $158,000

Question 23

Ringold Retailers reports the following information at the end of the current year: What is Ringold's net income at year-end?

A) $135,000
B) $181,000
C) $146,000
D) $239,000

Question 24

Marcus Manufacturers reports the following information at the end of the current year: What is the amount of total current assets reported for Marcus Manufacturers at year-end?

A) $119,000
B) $216,000
C) $225,000
D) $350,000

Question 25

Micromart reports the following information at the end of the current year: What is Micormart's cost of goods sold at year-end?

A) $111,000
B) $159,000
C) $237,000
D) $285,000

Question 26

At year-end, Xenon Manufacturers had Sales Revenue of $987,000. Its Cost of Goods Sold was 30% of Sales Revenue. Operating expenses for the year included $205,000 of Selling Expenses and $56,000 of General and Administrative Expenses. The balance in the Prepaid Expenses was $22,000 at the end of the year. What was the net income for Xenon Manufacturers at the end of the year?

A) $407,900
B) $429,900
C) $451,900
D) $704,000

Question 27

At year-end, Hercules, Inc. had Sales Revenue was $1,235,000. Its Cost of Goods Sold was 45% of Sales Revenue. Operating expenses for the year included $345,000 of Selling Expense and $142,000 of General and Administrative Expenses. Hercules, Inc. also had balances in Work-In-Process Inventory of $56,000, Finished Goods Inventory of $69,000, and Prepaid Expenses of $13,000 at year-end. What was the gross margin for Hercules, Inc. at year-end?

A) $192,250
B) $679,237
C) $679,250
D) $748,000

Question 28

At year-end, KC Consulting had Service Revenue of $365,000. Other pertinent data is as follows: What is the net income for KC Consulting at year-end?

A) $132,000
B) $214,000
C) $217,000
D) $242,000

Question 29

Which of the following is a period cost?

A) Factory rent
B) Factory depreciation
C) Office depreciation
D) Factory insurance

Question 30

Direct costs include

A) direct materials and direct labor.
B) direct materials and manufacturing overhead.
C) direct labor and manufacturing overhead.
D) direct materials, direct labor, and manufacturing overhead.

Question 31

Which of the following is a non-manufacturing cost?

A) Office supplies
B) Factory rent
C) Materials used to make products
D) Wages for production workers

Question 32

Prime costs are synonymous with

A) indirect costs.
B) direct costs.
C) conversion costs.
D) total product costs.

Question 33

In computing the cost to manufacture a product, the total prime cost will always be

A) greater than the conversion cost.
B) less than the conversion cost.
C) less than the product cost.
D) greater than the product cost.

Question 34

Ferguson Fasteners, Inc. manufactures hook-and-eye closures. For the month of July, it incurred direct labor of $65,300, direct materials of $32,400, and manufacturing overhead of $44,800. Included in these costs are direct costs of $97,700 and indirect costs of $44,800. Respectively, the conversion costs and prime costs for Ferguson Fasteners, Inc. for July are

A) $77,200 and $97,700.
B) $77,200 and $110,100.
C) $97,700 and $110,100.
D) $110,100 and $97,700.

Question 35

Anwar, Inc. incurred the costs listed below for the month of May in manufacturing shoes. From this list, the total product costs are

A) $434,000.
B) $446,000.
C) $462,000.
D) $533,000.

Question 36

Magnum Manufacturing had sales revenue last year of $100,000, direct manufacturing costs of $60,000, and indirect manufacturing costs of $20,000. If Magnum expects revenues to increase by 10% for the upcoming year, with direct manufacturing costs maintaining the same percentage relationship to sales as in the previous year, and the indirect manufacturing costs remaining unchanged, what will the expected profit margin be for Magnum during the upcoming year?

A) $20,000
B) $40,000
C) $44,000
D) $24,000

Question 37

Colmar, Inc. incurred the following costs for the month of June in manufacturing gardening tools. From this information, the total manufacturing costs are

A) $331,000.
B) $340,000.
C) $377,000.
D) $391,000.

Question 38

Deng Distributors incurred the following costs for the month of April in making smartphone covers: What are the total period costs for April based on this information?

A) $85,000
B) $109,000
C) $124,200
D) $148,200

Question 39

Metluck Motor-Parts, Inc. incurred the following costs for the current month: The total conversion costs for Metluck Motor-Parts, Inc. for the current month is

A) $151,000.
B) $157,400.
C) $171,200.
D) $179,700.

Question 40

Miracle Marble, Inc. incurred the following costs for the current month to produce high-end marble countertops: Respectively, the total manufacturing and non-manufacturing costs for Miracle Marble are

A) $352,900 manufacturing costs and $58,000 non-manufacturing costs.
B) $361,000 manufacturing costs and $49,900 non-manufacturing costs.
C) $368,800 manufacturing costs and $42,100 non-manufacturing costs.
D) $373,100 manufacturing costs and $37,800 non-manufacturing costs.

Question 41

Variable costs

A) vary in total with a given change in an activity level.
B) increase per unit as activity levels increase.
C) decrease per unit as activity levels decrease.
D) do not change in total with a given change in an activity level.

Question 42

Information for Hans Gruber, Inc. for the current and prior months is provided below: How would the costs for "Rent Expense" and "Factory Labor" be classified?

A) Rent Expense is a variable cost and Factory Labor is a fixed cost.
B) Rent Expense is a fixed cost and Factory Labor is a variable cost.
C) Both Rent Expense and Factory Labor are variable costs.
D) Both Rent Expense and Factory Labor are fixed costs.

Question 43

Which of the statements regarding the relevant range for a business is true?

A) No relationship exists between the relevant range for a business and fixed costs and capacity.
B) Within the relevant range for a business, the fixed costs and capacity will always change with the change in the activity level.
C) Within the relevant range for a business, fixed costs stay fixed or constant when the activity level changes.
D) Within the relevant range for a business, variable costs stay fixed or constant when the activity level changes.

Question 44

Within the relevant range, if a company's level of production decreases, variable costs

A) will remain unchanged.
B) increase in total, but remain the same per unit.
C) decrease in total, but remain the same per unit.
D) decrease in total, but the per unit amount may increase or decrease.

Question 45

Within the relevant range, as a company's level of production increases, fixed costs

A) will remain the same in total and the per unit amount will decrease.
B) increase in total, but decrease the per unit amount.
C) increase in total, but remain the same per unit.
D) decrease in total, but the per unit amount may increase or decrease.

Question 46

Which of the following costs is a variable cost?

A) Factory insurance
B) Factory production labor costs
C) Factory rent
D) Factory equipment depreciation

Question 47

Which of the following statements is correct regarding the management of costs for businesses when activity levels may change rapidly?

A) Fixed costs are more manageable than variable costs.
B) Both fixed costs and variable costs are easily managed.
C) Variable costs are more manageable than fixed costs.
D) Both variable costs and fixed costs are difficult to manage.

Question 48

The following contribution margin income statement represents the operations of Peroux Company, a small manufacturer, at a level of production of 10,000 units (assuming all units produced are sold): The relevant rage for Peroux Company is 4,000 to 12,000 units. If production and sales were to decrease to 5,000 units, which of the following would likely occur?

A) Unit variable cost would increase but unit fixed cost would not change.
B) Unit variable cost would not change, but unit fixed cost would decrease.
C) Unit variable cost and unit fixed cost would not change.
D) Unit variable cost would not change, but unit fixed cost would increase.

Question 49

Janus Manufacturing had sales revenue last year of $200,000, variable manufacturing costs of $120,000, and fixed manufacturing costs of $40,000. If Janus expects sales revenue to increase by 10% for the upcoming year, with variable manufacturing costs maintaining the same percentage relationship to sales revenue as in the previous year, and fixed manufacturing costs remaining the same, what will the expected profit be for Janus in the upcoming year?

A) $40,000
B) $44,000
C) $48,000
D) $88,000

Question 50

Copper Creek Nursery purchases annual and perennial plants from Commercial Landscapers. If the nursery purchases at least 3,000 plants, the cost per annual plant is $1.50 and the cost per perennial plant is $2.00. If 3,001 or more plants are purchased, then a bulk discount of 20% is given for the entire purchase. If Copper Creek purchases 3,000 annual plants and 2,000 perennial plants, what will be the total variable cost of the plants purchased?

A) $6,800
B) $7,000
C) $7,600
D) $8,500

Question 51

MCG Industries has the following sales and cost data per unit at current production of 10,000 units: If MCG Industries was able to increase production to 20,000 units without having to add extra capacity, what will the total costs be for the company?

A) $145,000
B) $196,000
C) $239,000
D) $290,000

Question 52

Retro Rockers makes vintage rocking chairs. It has the following sales and cost data per unit at current production of 100,000 units: If Retro Rockers was able to increase production by 20% without having to add extra capacity, what amount of profit will the company recognize?

A) $4,920,000
B) $5,904,000
C) $6,450,000
D) $8,374,000

Question 53

Palm Furniture makes beach-themed furniture. In the prior-year, the unit selling price for a dining set was $1,000 with a unit variable cost of $400 and a unit fixed cost of $200 based on prior production and sales of 5,000 dining sets. For the current year, Palm Furniture is planning to increase the unit selling price to $1,100 since the unit variable cost is increasing 20%. Assuming that at the higher selling price, the company feels that sales may decrease to 4,500 dining sets, what profit will Palm Furniture expect to recognize in the current year?

A) $1,790,000
B) $1,890,000
C) $2,790,000
D) $3,160,000

Question 54

Franconia Florist makes custom floral arrangements. Sales and cost data is available for the current year below. If Franconia Florist were able to increase production and sales by 2,000 units while remaining within its relevant range (not adding extra fixed costs), what would the unit variable cost and unit fixed cost be at 5,000 units?

A) unit variable cost, $20.00, and unit fixed cost, $26.67
B) unit variable cost, $20.00, and unit fixed cost, $16.00
C) unit variable cost, $16.00, and unit fixed cost, $33.33
D) unit variable cost, $26.67, and unit fixed cost,$33.33

Question 55

Manufacturing costs incurred during production are

A) expensed when incurred.
B) inventoriable costs when the units are sold.
C) inventoriable costs, and only expensed when the units are sold.
D) inventoriable costs throughout the production and sales cycle.

Question 56

When determining the ending balances in the inventory accounts, the ending balance the Work-In-Process Inventory account represents the manufacturing costs of

A) units that are completed.
B) units that are sold.
C) units not yet started into production.
D) units started into production but not finished.

Question 57

When goods are completed in the production process, they are transferred from

A) Work-In-Process Inventory to Finished Goods Inventory.
B) Raw Materials Inventory to Work-In-Process Inventory.
C) Finished Goods inventory to Cost of Goods Sold.
D) Finished goods Inventory to Work-In-Process Inventory.

Question 58

Which account will appear on a company's income statement?

A) Raw materials inventory
B) Cost of goods sold
C) Cash
D) Accounts payable

Question 59

When assigning manufacturing costs to production, which account will be debited?

A) Finished goods inventory
B) Cost of goods sold
C) Work-in-process inventory
D) Manufacturing overhead

Question 60

Vision-Right Eyewear manufactures discount eyeglasses. The company is trying to determine the amount of plastic material used in production during the current year. The inventory manager has in his records that the beginning inventory for the plastic material was $28,000 and that the ending inventory for the plastic material is $33,000, both based on a physical count. After contacting the purchasing department, it was determined that three separate purchases were made during the year as follows: How much of the plastic material was used to produce glasses during the current year?

A) $73,000
B) $129,000
C) $139,000
D) $195,000

Question 61

Zoom Robotics produces robotic vacuum cleaners. For the current month, Zoom has the following information and business transactions:
Beginning Balances: Raw Materials Inventory, $13,500; Work-In-Process Inventory, $16,000; and Finished Goods Inventory, $22,000.
Production data for the month: Direct materials, direct labor and manufacturing overhead costs totaling $73,000 were incurred in producing 4,000 robotic vacuums.
Ending Balances: Raw Materials Inventory, $15,000; Work-In-Process Inventory, $34,000; and Finished Goods Inventory, $13,000. What is the cost of the goods completed and transferred to the Finished Goods Inventory at the end of the current month?

A) $21,000
B) $39,000
C) $55,000
D) $77,000

Question 62

Millville Menagerie has a beginning balance in its Work-in-Process Inventory of $33,000 and an ending balance in its Work-in-Process Inventory of $25,000. If Millville's Cost of Goods Manufactured is $114,000, and it incurred costs for direct materials, $42,000, and direct labor, $38,000, how much manufacturing overhead was assigned (applied) to production?

A) $26,000
B) $34,000
C) $42,000
D) $104,000

Question 63

Lennox Manufacturing had the following production data for the week ended January 31,20XX, with no beginning balance in the Work-In-Process Inventory account:
Monday: Requisitioned $22,000 of direct materials into production and assigned $39,000 of direct labor to production.
Wednesday: Added $17,000 of manufacturing overhead to production.
Friday: Completed production on 60% of the production and transferred the completed units to finished goods inventory. The balance in the Work-in-Process Inventory at the end of the week would be

A) $24,400
B) $31,200
C) $46,800
D) $78,000

Question 64

Mannix Manufacturing had the following production data for the month ended April 30, 20XX, with a beginning balances in the Work-In-Process Inventory of $0 and Finished Goods Inventory account of $13,000:

April 9: Requisitioned $54,000 of direct materials into production and assigned $58,000 of direct labor to production.
April 17: Added $32,000 of manufacturing overhead to production.
April 27: Completed production on 80% of the production and transferred the completed units to finished goods inventory.
April 30: Sold 40% of the products in finished goods inventory.

The balance in the Finished Goods inventory at the end of the month would be

A) $56,120
B) $69,120
C) $75,360
D) $76,920

Question 65

The account balances are show below for Deshields Industries at the end of the current month: The cost of goods manufactured for Deshields Industries at the end of the month is

A) $104,000
B) $107,900
C) $117,100
D) $164,000

Question 66

If Johnson Manufacturing has the following information, what is the cost of goods sold?

A) $34,000
B) $37,000
C) $51,000
D) $54,000

Question 67

Which of the following journal entries is correct to account for the cost of goods completed at the end of a period?

A) Debit Work-in-Process Inventory and credit Finished Goods Inventory
B) Debit Cost of Goods Sold and credit Finished Goods Inventory
C) Debit Finished Goods Inventory and credit Work-in-Process Inventory
D) Debit Finished Goods Inventory and credit Sales

Question 68

When accounting for the sale of completed goods, which of the following entries would be correct in recording the sale?

A) Debit Finished Goods Inventory
B) Debit Cost of Goods Sold
C) Credit Cost of Goods Sold
D) Debit Sales

Question 69

Assuming all units produced are sold for a business, then the operating income computed in a contribution income statement as compared to a gross margin income statement is

A) greater.
B) lower.
C) the same amount.
D) undeterminable without action amounts.

Question 70

Which of the following statements is true regarding the use of different types of income statements?

A) Traditional GAAP income statements are used for internal financial reporting purposes only.
B) Contribution margin income statements are used for external financial reporting purposed only.
C) Traditional GAAP income statements separate variable and fixed costs, which help in internal decision making.
D) Contribution margin income statements separate variable and fixed costs, which help in internal decision-making.

Question 71

Full cost is

A) the same as product cost.
B) made up of both product costs and period costs.
C) made up of variable costs and period costs.
D) made up of fixed costs and period costs.

Question 72

Gross margin equals

A) variable costs plus fixed costs.
B) sales less variable costs.
C) sales less cost of goods sold.
D) sales less cost of goods sold and selling and administrative costs.

Question 73

If all units produced are sold during a period for a business, then the total expenses on a traditional income statement compared to those presented on a contribution margin income statement

A) are equal.
B) are greater.
C) are lower.
D) vary with the amount of sales.

Question 74

A contribution margin income statement is organized by

A) function.
B) cost behavior.
C) product vs. period costs.
D) operating vs. nonoperating costs.

Question 75

Which of the following business activities would not be considered a value-added activity in the value chain of a business?

A) Research & Development
B) Distribution
C) Inspection and Rework
D) Design

Question 76

At a sales level of $300,000, Ben's Burgers' gross margin is $50,000 less than its contribution margin. If its operating income is $75,000, and total SG&A expenses are $30,000, what is the contribution margin of Ben's Burgers?

A) $145,000
B) $155,000
C) $195,000
D) $245,000

Question 77

At a sales level of $100,000, Bonita's Baskets' gross margin of $55,000 is $20,000 less than its contribution margin. If its operating income is $25,000, and total SG&A expenses are $30,000, what are the variable and fixed costs for Bonita's Baskets?

A) Variable,$25,000 and Fixed, $50,000
B) Variable,$50,000 and Fixed, $25,000
C) Variable,$35,000 and Fixed, $40,000
D) Variable,$40,000 and Fixed, $35,000

Question 78

Zenco Machine and Tools currently prices its hammers at $12 per unit. The corresponding unit variable cost is $7 and the unit fixed cost is $2 per when 10,000 hammers are produced and sold. Zenco is considering increasing the price of its hammers to $15 since its suppliers have increased the cost of the materials used in production which has caused the unit variable cost to increase to $8. What is Zenco's projected operating income with the new unit selling price and new unit variable cost if it is only able to produce and sell 8,000 hammers?

A) $30,000
B) $36,000
C) $40,000
D) $56,000

Question 79

Yum Yum Bakery Shop has the following information for the current fiscal year: The contribution margin for Yum Yum Bakery Shop is

A) $128,000
B) $150,000
C) $178,000
D) $315,000

Question 80

Creative Crafts, Inc. has the following information for the current fiscal year: The gross margin for Creative Crafts, Inc. is

A) $171,000
B) $187,000
C) $215,000
D) $267,000