Deck 2: Management Accounting: Cost Terms and Concepts

Question 1

Indirect costs:

A) cannot be traced to a particular cost object.
B) cannot be economically traced to a particular cost object.
C) are always variable costs.
D) are always fixed costs.

Answer 1

B

Question 2

Whether a cost is classified as direct or indirect will depend on:

A) the nature of the cost object.
B) whether the cost can be economically traced to the cost object.
C) whether the organisation is in a manufacturing or service industry
D) the nature of the cost object AND whether the cost can be economically traced to the cost object.

Answer 2

D

Question 3

Which of the following statements is false?

A) Costing is common to both traditional and modern management accounting.
B) Activity-based costing is common to both traditional and modern management accounting.
C) Performance measurement is common to both traditional and modern management accounting.
D) Modern performance measurement covers a range of critical success factors.

Answer 3

B

Question 4

If production increases, variable cost will:

A) remain constant on a per unit basis.
B) increase by a variable amount.
C) vary on a per unit basis.
D) remain unchanged.

Question 5

As activity level increases, total variable costs:

A) increase proportionately with activity.
B) decrease proportionately with activity.
C) increase by a fixed amount.
D) decrease by a fixed amount.

Question 6

Which of the following statements is false?
I) Qualitative information is not relevant for planning purposes.
Ii) Production costs are important for planning purposes, but selling and administration costs are not.
Iii) Information on revenues is not important for planning purposes.

A) i
B) iii
C) i and iii
D) i, ii and iii

Question 7

Which of the following costs of a manufactured product is a period cost?

A) Direct material
B) Manufacturing overhead
C) Indirect material
D) Sales commission

Question 8

Which of the following is not an example of a manufacturing overhead?

A) Assembly line workers' wages
B) Factory rent
C) Depreciation of factory machinery
D) Factory lighting

Question 9

Costs that can be traced to a particular cost object are called:

A) direct costs.
B) indirect costs.
C) product costs.
D) manufacturing costs.

Question 10

Which of the following statements is true? A cost is:

A) always an expense.
B) always an asset.
C) can be either an expense or an asset.
D) always a liability.

Question 11

Variable costs:

A) vary indirectly with changes in activity level.
B) vary directly with changes in activity level.
C) vary on a per unit basis.
D) vary indirectly with changes in activity level AND vary on a per unit basis.

Question 12

Fixed costs:

A) vary directly with changes in activity level.
B) in total remain unchanged as activity levels change.
C) vary on a per unit basis.
D) B and C

Question 13

As activity level decreases, unit variable cost:

A) increases proportionately with activity.
B) decreases proportionately with activity.
C) remains constant.
D) decreases by a fixed amount.

Question 14

Product costs are:

A) expended as they are incurred.
B) inventoriable costs.
C) period costs.
D) expended as they are incurred AND inventoriable costs.

Question 15

Costs that can be significantly influenced by a particular manager are:

A) product costs.
B) period costs.
C) controllable costs.
D) administrative costs.

Question 16

Costs that are expended during the period in which the costs are incurred are called:

A) product costs.
B) inventoriable costs.
C) period costs.
D) indirect costs.

Question 17

Which of the following statements is true?

A) The word cost has the same meaning in all situations in which it is used.
B) Cost data, once classified and recorded, can be used for any purpose.
C) Different cost concepts and classifications are used for different purposes.
D) None of the given answers

Question 18

Which is the correct order of cost incurrence in the value chain?

A) R&D, Product design, Manufacturing, Marketing, Distribution, Customer support
B) R&D, Product design, Customer support, Marketing, Distribution, Manufacturing
C) R&D, Product design, Manufacturing, Distribution, Customer support, Selling
D) R&D, Product design, Manufacturing, Distribution, Marketing, Customer support

Question 19

Which of the following is not a period cost?

A) Marketing costs
B) Administrative costs
C) Research and development
D) Factory overheads

Question 20

Which of the following is not an example of a variable cost?

A) Straight-line depreciation on a machine expected to last 5 years.
B) Wages paid to assembly line workers at a local manufacturing plant.
C) Timber used to make outdoor furniture.
D) Commissions paid to sales personnel.

Question 21

Refer to the following data.
The non-manufacturing costs are:

A) $15 000
B) $70 000
C) $182 000
D) $372 000

Question 22

The Casual Furniture Company manufactures outdoor furniture and incurred the following costs during the month of January:
The manufacturing overhead is:

A) $14 500.
B) $15 000.
C) $9500.
D) $9000.

Question 23

Indirect material, indirect labour and other manufacturing costs that are neither direct labour nor direct material costs are classified as:

A) manufacturing overhead.
B) product costs.
C) prime costs.
D) manufacturing overhead AND product costs.

Question 24

Cost of goods purchased includes the:

A) purchase cost.
B) transportation inward cost.
C) storage cost.
D) purchase cost AND transportation inward cost.

Question 25

Depreciation of factory equipment would be classified as:

A) indirect material.
B) indirect labour.
C) manufacturing overhead.
D) a sundry expense.

Question 26

Product costs comprise:

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

Question 27

Indirect materials include:

A) materials that are incorporated into the finished product.
B) materials required for the production process, which do not become an integral part of the finished product.
C) direct materials that are so insignificant in cost that it becomes unimportant to trace their costs to specific products.
D) materials required for the production process, which do not become an integral part of the finished product AND direct materials that are so insignificant in cost that it becomes unimportant to trace their costs to specific products.

Question 28

Refer to the following data.
The prime costs are:

A) $190 000.
B) $40 000.
C) $150 000.
D) $142 000.

Question 29

The Casual Furniture Company manufactures outdoor furniture and incurred the following costs during the month of January:
The prime costs are:

A) $30 000.
B) $50 000.
C) $65 000.
D) $50 500.

Question 30

Idle time is:

A) frequently an avoidable cost.
B) classified as overhead.
C) caused by events such as equipment breakdown and new set-ups of production runs.
D) All of the given answers.

Question 31

On-costs on direct labour are classified as:

A) direct labour.
B) indirect labour.
C) manufacturing overhead.
D) either direct labour or indirect labour depending on the decision made by the firm.

Question 32

Refer to the following data.
The period costs are:

A) $15 000
B) $20 000
C) $190 000
D) $372 000

Question 33

Unless overtime and idle time are caused by a particular job, they are treated as:

A) a part of direct labour expense.
B) a part of manufacturing overhead.
C) associated with a particular product.
D) a part of manufacturing overhead AND associated with a particular product.

Question 34

The Casual Furniture Company manufactures outdoor furniture and incurred the following costs during the month of January:
The conversion costs are:

A) $34 500.
B) $29 500.
C) $20 000.
D) $35 000.

Question 35

The flow of manufacturing costs through the system is:

A) raw materials inventory; work in process inventory; finished goods inventory; cost of goods sold.
B) raw materials inventory; work in process inventory; cost of goods sold; finished goods inventory.
C) work in process inventory; raw materials inventory; finished goods inventory; cost of goods sold.
D) raw materials inventory; finished goods inventory; work in process inventory; cost of goods sold.

Question 36

Refer to the following data.
The product costs are:

A) $15 000
B) $182 000
C) $190 000
D) $332 000

Question 37

In the manufacturing firm, inventories consist of:

A) raw materials, cost of goods manufactured during the period and finished goods.
B) raw materials, work in process and finished goods.
C) raw materials, finished goods and cost of goods sold.
D) cost of goods manufactured and cost of goods sold.

Question 38

The Casual Furniture Company manufactures outdoor furniture and incurred the following costs during the month of January:
The product costs are:

A) $90 000.
B) $83 000.
C) $65 000.
D) $63 000.

Question 39

The Casual Furniture Company manufactures outdoor furniture and incurred the following costs during the month of January:
The period costs are:

A) $0.
B) $7000.
C) $25 000.
D) $30 500.

Question 40

Refer to the following data.
The conversion costs are:

A) $150 000.
B) $142 000.
C) $182 000.
D) $190 000.

Question 41

Which of the following terms accurately describes all three manufacturing costs (i.e. direct materials, direct labour and manufacturing overhead)?

A) Product costs
B) Variable costs
C) Direct costs
D) Both direct costs and product costs

Question 42

Eldervale Winery is a producer of premium wine. Which of the following is NOT an example of a downstream cost?

A) The costs associated with random quality check during the wine production process
B) The costs associated with the sales team travelling to a wine show to promote Eldervale wine
C) The costs associated with delivering wine to customers
D) The costs associated with answering customer inquiries on the differences between wine varieties

Question 43

Eldervale Winery is a producer of premium wine. Which of the following is an example of a downstream cost?

A) The costs associated with storing wine for customers
B) The costs associated with designing the labels on a wine bottle
C) The costs associated with researching a new variety of grapes
D) The costs associated with quality testing

Question 44

Which of the following statements correctly completes this sentence? 'For a firm that manufactures floor tiles, when the tiles are completed and ready for sale ....'

A) there is no change in the value of the firm's assets.
B) the firm's total assets are decreased.
C) the firm's total cost of the goods sold is increased.
D) the firm's work in process inventory is increased.

Question 45

Which of the following statements is correct in relation to determining whether a cost is direct or indirect?

A) The wider the definition of the cost object, the more costs that will be indirect costs.
B) The number of cost items that can be classified as direct costs does not depend on the definition of cost objects.
C) The narrower the definition of the cost object, the more costs that will be direct costs.
D) The wider the definition of the cost object, the more costs that will be direct costs.

Question 46

Eldervale Winery is a producer of premium wine. Which of the following is NOT an example of an upstream cost?

A) The costs associated with marketing a new range of wine in an international trade fair
B) The costs associated with researching a new variety of grapes
C) The costs associated with testing a new wine barrel
D) The costs associated with negotiating with and managing the farmers who supply the grapes

Question 47

Eldervale Winery is a producer of premium wine. Which of the following is an example of an upstream cost?

A) The costs associated with storing wine barrels.
B) The costs associated with designing the labels on a wine bottle.
C) The costs associated with delivering products to customers.
D) The costs associated with quality inspection.

Question 48

Traditional cost management systems use production volume as the measure of activity. Modern systems might use which of the following as activity measures?

A) Number of batches
B) Number of customers
C) Number of product lines
D) All of the given answers

Question 49

Work in process inventories are composed of:

A) direct materials.
B) direct labour.
C) manufacturing overhead.
D) All of the given answers

Question 50

Mydas Ltd operates a large factory which manufactures three types of motor vehicles, including family cars, sports cars and motorcycles. If the cost object is a motorcycle, which of the following is a direct cost?

A) The costs of wheels on the motorcycle
B) The salary of the factory general manager
C) The salary of the factory quality inspector
D) The windscreen wipers on a family car

Question 51

Fairchild Pty Ltd began April with a finished goods inventory of $25 000. The cost of goods manufactured during the month was $40 000 and the cost of goods sold during April was $50 000.
The inventory remaining in finished goods at the end of April was:

A) $35 000.
B) $25 000.
C) $20 000.
D) $15 000.

Question 52

Barrister and Company began July with a finished goods inventory of $10 000. The cost of goods manufactured during the month was $85 000 and the ending finished goods inventory was $20 000.
The cost of goods sold during July was:

A) $55 000.
B) $75 000.
C) $95 000.
D) $105 000.

Question 53

With respect to the flow of manufacturing costs through the accounts, what does the ending balance of work in process account show?

A) The total costs for completed jobs.
B) The total costs for incomplete jobs.
C) The amount of costs incurred for the period.
D) The amount of cost to be transferred to cost of goods sold.

Question 54

Mydas Ltd operates a large factory which manufactures three types of motor vehicles, including family sedans, sports cars and motorcycles. If the cost object is a family car, which of the following is an indirect cost?

A) The costs of wheels on the motorcycle
B) The salary of the factory general manager
C) The wages of the quality inspector whose job is to inspect each family car
D) The windscreen wipers on a family car

Question 55

To calculate the cost of goods sold during the period, you would use which of the following equations?

A) Beginning finished goods + cost of goods manufactured + ending finished goods
B) Ending finished goods + cost of goods manufactured - beginning finished goods
C) Beginning finished goods + cost of goods manufactured - ending finished goods
D) Beginning finished goods + ending finished goods - cost of goods manufactured

Question 56

As manufacturing companies become more automated, their cost structure will change so that:

A) variable costs increase, fixed costs decrease.
B) variable costs decrease, fixed costs decrease.
C) variable costs decrease, fixed costs increase.
D) there is no change in the ratio of variable to fixed costs.

Question 57

Barrett Industries began the month of June with a finished goods inventory of $15 000. The finished goods inventory at the end of June was $10 000 and the cost of goods sold during the month was $20 000.
The cost of goods manufactured during the month of June was:

A) $15 000
B) $25 000
C) $20 000
D) $5000

Question 58

Choose the statement that best completes this sentence: 'Traditional management accounting focuses on ....'

A) budgeting systems, financial performance measures and cost control.
B) financial performance measures, external reporting and cost elimination.
C) non-financial performance measures, external reporting and cost control.
D) external reporting, labour-related activity measures and cost elimination.

Question 59

Lenco Industries has cost of goods manufactured of $65 000 in May. The finished goods inventory at the end of May was $20 000 and the cost of goods sold during May was $75 000.
The inventory in finished goods at the beginning of May was:

A) $5000.
B) $30 000.
C) $10 000.
D) $20 000.

Question 60

The monthly cost of renting manufacturing equipment is:

A) part of conversion cost and a period cost.
B) part of prime cost and an inventoriable cost.
C) part of prime cost and a period cost.
D) part of conversion cost and an inventoriable cost.

Question 61

Kevin Smith is the production manager of Mydas Ltd, a company that manufactures a range of motor vehicles. His role includes overseeing the entire production process of Mydas Ltd's three product lines: family cars, sports cars, and motor cycles. Once completed, all the cars are shipped within Australia and to China and Korea by the company's shipping and transportation department.
Identify two examples of controllable costs and two examples of uncontrollable costs for Kevin. Explain your answer.

Question 62

Classifying responsibility centre costs as controllable or uncontrollable can enhance:

A) performance evaluation.
B) cost accounting.
C) budget reporting.
D) financial reporting.

Question 63

Costs that managers cannot significantly influence are classified as uncontrollable costs.

Question 64

Sally Strong is the production manager of Eldervale Winery. Her role includes overseeing the production and bottling processes of Eldervale Winery's three product lines: sparkling wine, red wine and white wine. Which of the following is most likely to be an example of a controllable cost for Sally?

A) The costs associated with bottling wine
B) The costs associated with advertising Eldervale wine on national TV
C) The costs associated with liaising with distributors to export wine to China
D) The costs associated with obtaining finance from banks

Question 65

When raw materials are purchased by a manufacturer, those costs will be recorded in the general ledger as:

A) cost of goods sold.
B) manufacturing costs.
C) inventory.
D) conversion costs.

Question 66

Direct and indirect cost classification is based on cost behaviour in relation to changes in the level of activity.

Question 67

In the short term, which of the following costs would be classified as uncontrollable?

A) Raw materials
B) Stationery expenses
C) Loan interest
D) Entertainment expenses

Question 68

Components of a management accounting system
Management accounting systems are made up of four interrelated systems. Identify those four systems, explain their function and describe how they collectively assist management in their decision making.

Question 69

A courier company may view kilometres driven as a possible cost driver.

Question 70

A responsibility centre:

A) refers to a unit of business where all the associated costs are considered as 'direct costs'.
B) refers to a unit of a business where the manager is held accountable for activities and performance.
C) is another term for 'business division'.
D) is a term applicable only to manufacturing companies.

Question 71

Resources that are surrendered to achieve a particular objective in business are known as:

A) resources.
B) expenses.
C) assets.
D) costs.

Question 72

'Prime costs' is the term given to direct labour and direct materials, as they are the major costs directly associated with the manufacture of a product.

Question 73

Production costs assist management to determine:

A) sales revenue.
B) cost of goods sold.
C) gross profit.
D) net profit.

Question 74

In relation to the activities of the value chain of a manufacturing company, primary processes include accounting and legal activities.

Question 75

Describe how the value chain can help a business analyse its cost structures. What is meant by upstream costs and downstream costs? Give examples.

Question 76

Sally Strong is the production manager of Eldervale Winery. Her role includes overseeing the production and bottling processes of Eldervale Winery's three product lines: sparkling wine, red wine and white wine. Which of the following is most likely an example of an uncontrollable cost for Sally?

A) The costs associated with bottling wine
B) The costs associated with advertising Eldervale wine on national TV
C) The costs associated with moving wine from the barrels to the bottling area
D) The costs associated with quality testing

Question 77

Manufacturing costs
Manufacturing costs are costs that are incurred within the factory area. Describe the three components of manufacturing costs. Identify the costs that might be incurred in the manufacture of a Levi Strauss shirt.

Question 78

Costs that are incurred to obtain future benefits beyond 12 months are known as:

A) assets.
B) liabilities.
C) revenue.
D) expenses.

Question 79

Only long-term decisions require an understanding of costs.

Question 80

Behaviour of fixed and variable costs.
Compare and contrast the behaviour of fixed and variable costs in total and per unit.