Deck 2: Product Costing Systems: Concepts and Design Issues

Question 1

Product costs are costs assigned to goods that were either purchased or manufactured for resale.

Answer 1

True

Question 2

Product costs become expenses in the period they are purchased.

Answer 2

False

Question 3

The product cost of merchandise inventory acquired by a retailer consists of the purchase cost of the inventory plus any shipping charges.

Answer 3

True

Question 4

Inventoriable cost is another term for product costs.

Question 5

Period costs are recognized as expenses by retailers, but are included in inventory by manufacturers.

Question 6

The difference between sales revenue and cost of goods sold is called contribution margin.

Question 7

The basic formula used to compute cost of goods sold is beginning inventory plus purchases plus ending inventory.

Question 8

Marketing costs are considered period costs for retailers and product costs for manufacturers.

Question 9

Cost of goods sold does not include the costs of selling merchandise.

Question 10

Theoretically, the cost of employer paid health insurance premiums for direct labor personnel should be considered a manufacturing overhead cost.

Question 11

Factory heating and air conditioning should be considered a product cost in a manufacturing operation.

Question 12

Depreciation of office equipment is a manufacturing overhead cost at Dell Computer, a large manufacturer of personal computers.

Question 13

Maintenance workers in the factory are considered a direct labor cost at Hewlett-Packard, a leading manufacturer of computers and computer equipment.

Question 14

Lubricants used for production machinery should be considered a direct material cost at General Motors Corporation.

Question 15

Before materials enter the production process, they are called raw materials.

Question 16

After materials enter the production process, those used in products are called direct materials.

Question 17

Employees who handle materials in the factory of a manufacturing plant are considered direct labor costs.

Question 18

Overtime premium costs should theoretically be considered part of direct labor cost.

Question 19

Prime costs include direct materials and direct labor costs.

Question 20

Conversion costs equal direct materials and manufacturing overhead costs.

Question 21

Nonmanufacturing costs include selling and adminstrative costs, which are not used to produce products.

Question 22

Work-in-process inventory refers to partially completed units.

Question 23

The cost of direct materials placed into production is computed by adding the cost of purchases to the ending inventory of raw materials.

Question 24

In a manufacturing company, cost of goods manufactured consists of direct materials put into production, direct labor and manufacturing overhead incurred plus the beginning inventory of finished goods less the ending inventory of finished goods

Question 25

A cost driver is a characteristic of an activity or event that causes that activity or event to incur cost.

Question 26

Variable costs change in total direct proportion to a change in the activity of a cost driver.

Question 27

Fixed costs per unit remain the same as volume of production increases.

Question 28

As the volume of production increases, fixed costs per unit remain unchanged, while variable costs per unit will decrease.

Question 29

The identification of a cost as fixed or variable is valid only within a specified range of output volume.

Question 30

Unit-level costs are incurred for every unit of product manufactured or service performed.

Question 31

Batch-level costs are incurred for each line of product service.

Question 32

Facility-level costs are incurred to maintain the organization's overall facility and infrastructure.

Question 33

All unit-level costs are variable costs.

Question 34

All variable costs are unit-level costs.

Question 35

Electricity and welding materials used by robotic welders would be considered unit-level costs.

Question 36

The costs of equipment, buildings, and purchased technology should be considered when making production decisions.

Question 37

Most management systems measure both opportunity costs and out of pocket costs.

Question 38

Opportunity cost is the current value of the foregone, next best alternative use of whatever is supplied or used.

Question 39

It is possible for a cost to be a direct cost of one cost object and an indirect cost of another.

Question 40

If a manager can control or heavily influence the level of a cost, then that cost is classified as a controllable cost.

Question 41

Tracing costs means attaching or assigning indirect costs by some reasonable but imprecise method of averaging.

Question 42

Tracing costs is generally considered a more accurate method of cost assignment than allocating costs.

Question 43

A committed cost may be changed quickly and easily.

Question 44

Sunk costs are past resource payments that cannot be changed by any current or future decision.

Question 45

Absorption costing uses sales less variable costs to measure the contribution to profit.

Question 46

Absorption costing measures use gross margin as the contribution to profit.

Question 47

Gross margin is sales less variable production costs.

Question 48

Throughput costing inventory contains no conversion and indirect costs.

Question 49

When inventory levels increase, absorption costing will result in a higher operating income than direct costing.
AASCB: Analytic

Question 50

When inventory levels remain constant, absorption and direct costing will result in the same operating income.
AASCB: Analytic

Question 51

When inventory levels decrease absorption costing will result in a higher operating income than direct costing.
AASCB: Analytic

Question 52

The difference in the amount of fixed overhead cost that is expensed to the income statement under absorption and variable costing is solely attributable to the difference between the number of units produced during the period and the number of units sold.
AASCB: Analytic

Question 53

Absorption costing can distort the costs to provide products and services if they represent greatly different levels of support from indirect resources.

Question 54

Throughout costing assigns only batch-level spending for direct costs of products or services.

Question 55

Throughout costing considers only unit-level spending for direct costs of products or services.

Question 56

Use the following to answer questions:
Crowley Company has gathered the following data related to its production process of two of its products for the week ended April 30:


-If the cost behaviors exhibited in this chart continue and the company produces 90 units of product 100B during May, the expected total unit-level material cost of product 100 B would be:

A) $171,000
B) $63,000
C) $42,000
D) $114,000

Question 57

Use the following to answer questions:
Crowley Company has gathered the following data related to its production process of two of its products for the week ended April 30:


-The throughput cost per unit for Product 250C is:

A) $10,970
B) $4,000
C) $1,000
D) $6,970

Question 58

Use the following to answer questions:
Crowley Company has gathered the following data related to its production process of two of its products for the week ended April 30:


-The absorption cost per unit for product 250C was:

A) $1,900
B) $9,760
C) $6,970
D) $6,720

Question 59

Use the following to answer questions:
Crowley Company has gathered the following data related to its production process of two of its products for the week ended April 30:


-The costs above that appear to be allocated rather than traced are:

A) Unit level material costs
B) Variable conversion costs
C) Indirect production costs only
D) All indirect costs

Question 60

Use the following to answer questions:


-The throughput product cost of goods sold is:

A) $96,000
B) $120,000
C) $144,000
D) $80,000

Question 61

Use the following to answer questions:


-The variable cost of goods sold is:

A) $110,000
B) $120,000
C) $144,000
D) $40,000

Question 62

Use the following to answer questions:


-The absorption cost of goods sold is:

A) $246,667
B) $120,000
C) $180,000
D) $40,000

Question 63

Use the following to answer questions:


-The throughput operating income is:

A) $128,000
B) $120,000
C) $104,000
D) $256,000
E) ** ($20 x 4,000)

Question 64

Use the following to answer questions:


-The variable operating income is:

A) $120,000
B) $140,000
C) $104,000
D) $128,000
E) *** $30 per unit x 4,000 units sold

Question 65

Use the following to answer questions:


-The absorption operating income is:

A) $120,000
B) $140,000
C) $128,000
D) $112,000
E) ***$45 per unit x 4,000 units sold

Question 66

Use the following to answer questions:


-The throughput ending inventory is:

A) $16,000
B) $18,000
C) $20,000
D) $24,000

Question 67

Use the following to answer questions:


-The variable ending inventory is:

A) $36,000
B) $8,000
C) $40,000
D) $24,000

Question 68

Use the following to answer questions:


-The absorption ending inventory is:

A) $40,000
B) $24,000
C) $36,000
D) $8,000

Question 69

Use the following to answer questions:


-The difference between the variable ending inventory cost and the absorption ending inventory cost is:

A) 800 units times $15 per unit indirect manufacturing cost
B) 800 units times $10 per unit material cost
C) 800 units times $20 per unit variable conversion cost plus $15 per unit indirect manufacturing cost
D) 800 units times $20 per unit variable conversion cost plus $15 per unit indirect manufacturing cost plus . $16.67 per unit indirect operating costs

Question 70

Throughput costing:

A) Measures only unit-level spending for direct costs of products or services
B) Includes both committed and discretionary costs in the costs of products or services
C) Includes both direct and indirect costs in the costs of products or services
D) Includes only variable costs in the costs of products or services

Question 71

Under variable costing, operating income is measured by:

A) Gross margin minus operating expenses
B) Throughput minus operating expenses
C) Contribution margin minus indirect manufacturing and operating costs
D) Sales minus variable costs

Question 72

Oliveira''s operating income under absorption costing will be:
In its first month of operations, Oliveira Corporation produced 100,000 units. 80,000 units were sold. The manufacturing cost per unit was as follows:

A) Lower than variable costing by $1,000,000
B) Higher than variable costing by $600,000
C) Higher than variable costing by $1,000,000
D) The same as variable costing

Question 73

Which of the following statements is True?

A) Operating income under variable costing equals contribution margin less operating expenses
B) When sales exceed production, absorption costing income will be higher than variable costing income
C) Throughput costing assigns all variable costs to cost of goods sold
D) When production exceeds sales, absorption costing income will be higher than variable costing income

Question 74

If units produced are greater than units sold:

A) Variable costing will have a higher profit than absorption costing
B) Throughput costing will have a higher profit than absorption costing
C) Absorption costing will have a higher profit than throughput costing but a lower profit than variable costing
D) Absorption costing will have a higher profit than both throughput costing and variable costing

Question 75

Under throughput costing:

A) Both conversion and indirect costs are added to inventory
B) Neither conversion or indirect costs are added to inventory
C) Conversion costs are added to inventory but indirect costs are not
D) Indirect costs are added to inventory but conversion costs are not

Question 76

Which of the following is not an argument in favor of throughput costing?

A) Managers cannot hide committed costs or past resource spending by increasing production
B) Only increases in sales will increase profits
C) Increases in sales and production will increase profits
D) Base production decisions should be based on resource supply and use only

Question 77

Period costs

A) Do not become part of the value of inventory for financial or tax reporting
B) Become part of the value of inventory for financial reporting but not tax reporting
C) Become part of the value of inventory for tax reporting but not financial reporting
D) Are the same as indirect manufacturing costs

Question 78

Which of the following would be considered an indirect product cost?

A) Depreciation on sales staff automobiles
B) President's salary
C) Maintenance on factory equipment
D) Direct Materials used in production

Question 79

Wages paid to supervisors in the factory are typically classified as:

A) Direct manufacturing labor costs
B) Manufacturing overhead costs
C) Prime costs
D) Period costs

Question 80

Which of the following is a fixed cost?

A) A 5% sales commissions
B) Direct labor personnel
C) Rent
D) Both A and C are fixed costs