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Chapter 2–Cost Terminology and Cost Behaviors
1. A cost object is anything for which management wants to collect or accumulate costs.
True False
2. A production plant could be a cost object.
True False
3. A specific product cannot be a cost object.
True False
4. The portion of an asset’s value on the balance sheet is referred to as an expired cost.
True False
5. The portion of an asset that was consumed during a period is referred to an expired cost.
True False
6. A variable cost remains constant on a per-unit basis as production increases.
True False
7. A fixed cost remains constant on a per-unit basis as production changes.
True False
8. The relevant range is valid for all levels of activity.
True False
9. An indirect cost can be easily traced to a cost object.
True False
10. Both accountants and economists view variable costs as linear in nature.
True False
11. Fixed cost per unit varies directly with production.
True False
12. Variable cost per unit remains constant within the relevant range.
True False
13. A cost that shifts upward or downward when activity changes by a certain interval is referred to as a mixed
cost.
True False
14. A cost that shifts upward or downward when activity changes by a certain interval is referred to as a step
cost.
True False
15. If the cost of an additive is $5,000 + $0.50 for every unit of solvent produced, the cost is classified as a
mixed cost.
True False
16. If the cost of an additive is $5,000 + $0.50 for every unit of solvent produced, the cost is classified as a step
cost.
True False
17. A predictor which has an absolute cause and effect relationship to a cost is referred to a cost driver.
True False
18. A mixed cost will be an effective cost driver.
True False
19. A variable cost will be an effective cost driver.
True False
20. Unexpired costs are reflected on the balance sheet.
True False
21. Expired costs are reflected on the balance sheet.
True False
22. Distribution costs are an example of product costs.
True False
23. Distribution costs are an example of period costs.
True False
24. Retailers generally have a much higher degree of conversion than do manufacturing or professional firms.
True False
25. Retailers generally have a much lower degree of conversion than do manufacturing or professional firms.
True False
26. In a service industry, direct materials are usually insignificant in amount and can not easily be traced to a
cost object.
True False
27. In a service industry, direct materials are usually significant in amount and can be easily traced to a cost
object.
True False
28. There is typically an inverse relationship between prevention costs and failure costs.
True False
29. There is typically a direct relationship between prevention costs and failure costs.
True False
30. In an actual cost system, actual production overhead costs are typically accumulated in an Overhead Control
account and assigned to Work in Process at the end of the period.
True False
31. In a normal cost system, actual production overhead costs are typically accumulated in an Overhead Control
account and assigned to Work in Process at the end of the period.
True False
32. In a normal cost system, factory overhead is applied to Work in Process using a predetermined overhead
rate.
True False
33. In an actual cost system, factory overhead is applied to Work in Process using a predetermined overhead
rate.
True False
34. In an actual cost system, overhead is assigned to Work in Process Inventory with a debit entry to the
account.
True False
35. In an actual cost system, overhead is assigned to Work in Process Inventory with a credit entry to the
account.
True False
36. It is not necessary to prepare the Cost of Goods Manufactured statement prior to preparing the Cost of
Goods Sold statement.
True False
37. Anything for which management wants to accumulate or collect costs is known as a
_________________________.
________________________________________
38. Costs that can be conveniently traced to a cost object are referred to as ____________________ costs.
________________________________________
39. Costs that cannot be conveniently traced to a cost object are known as ____________________ costs.
________________________________________
40. A cost that remains unchanged in total within the relevant range is known as a ____________________
cost.
________________________________________
41. A cost that varies in total in direct proportion to changes in activity is known as a ____________________
cost
________________________________________
42. The assumed range of activity that reflects the company’s normal operating range is referred to as the
______________________________.
________________________________________
43. A cost that remains constant on a per unit basis within the relevant range is a ____________________ cost.
________________________________________
44. A cost that varies inversely with the level of production is known as a ____________________ cost.
________________________________________
45. A cost that has both fixed and variable components is known as a ____________________ cost.
________________________________________
46. A cost that shifts upward or downward when activity changes by a certain interval is referred to as a
____________________ cost.
________________________________________
47. Another name for inventoriable costs is ____________________ costs.
________________________________________
48. The three stages of production for a manufacturing firm are _________________________,
______________________________, and _________________________.
________________________________________
49. Costs that are incurred to improve quality by precluding defects and improper processing are referred to as
____________________ costs.
________________________________________
50. Costs incurred for monitoring or inspecting products are known as ____________________ costs.
________________________________________
51. Costs that result from defective units, product returns, and complaints are referred to as
____________________ costs.
________________________________________
52. The term “relevant range” as used in cost accounting means the range over which
A. costs may fluctuate.
B. cost relationships are valid.
C. production may vary.
D. relevant costs are incurred.
53. Which of the following defines variable cost behavior?
Total cost reaction
to increase in activity
Cost per unit reaction
to increase in activity
A. remains constant remains constant
B. remains constant increases
C. increases increases
D. increases remains constant
54. When cost relationships are linear, total variable prime costs will vary in proportion to changes in
A. direct labor hours.
B. total material cost.
C. total overhead cost.
D. production volume.
55. Which of the following would generally be considered a fixed factory overhead cost?
Straight-line Factory Units-of-production
depreciation insurance depreciation
A. no no no
B. yes no yes
C. yes yes no
D. no yes no
56. An example of a fixed cost is
A. total indirect material cost.
B. total hourly wages.
C. cost of electricity.
D. straight-line depreciation.
57. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n)
A. expired cost.
B. fixed cost.
C. variable cost.
D. mixed cost.
58. A(n) ____ cost increases or decreases in intervals as activity changes.
A. historical cost
B. fixed cost
C. step cost
D. budgeted cost
59. When the number of units manufactured increases, the most significant change in unit cost will be reflected
as a(n)
A. increase in the fixed element.
B. decrease in the variable element.
C. increase in the mixed element.
D. decrease in the fixed element.
60. Which of the following always has a direct cause-effect relationship to a cost?
Predictor Cost driver
A. yes yes
B. yes no
C. no yes
D. no no
61. A cost driver
A. causes fixed costs to rise because of production changes.
B. has a direct cause-effect relationship to a cost.
C. can predict the cost behavior of a variable, but not a fixed, cost.
D. is an overhead cost that causes distribution costs to change in distinct increments with changes in production
volume.
62. Product costs are deducted from revenue
A. as expenditures are made.
B. when production is completed.
C. as goods are sold.
D. to minimize taxable income.
63. A selling cost is a(n)
product cost period cost inventoriable cost
A. yes yes no
B. yes no no
C. no yes no
D. no yes yes
64. Which of the following is not a product cost component?
A. rent on a factory building
B. indirect production labor wages
C. janitorial supplies used in a factory
D. commission on the sale of a product
65. Period costs
A. are expensed in the same period in which they are incurred.
B. are always variable costs.
C. remain unchanged over a given period of time.
D. are associated with the periodic inventory method.
66. Period costs include
distribution costs outside processing costs sales commissions
A. yes no yes
B. no yes yes
C. no no no
D. yes yes yes
67. The three primary inventory accounts in a manufacturing company are
A. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
B. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory.
C. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
D. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.
68. Cost of Goods Sold is an
A. unexpired product cost.
B. expired product cost.
C. unexpired period cost.
D. expired period cost.
69. The indirect costs of converting raw material into finished goods are called
A. period costs.
B. prime costs.
C. overhead costs.
D. conversion costs.
70. Which of the following would need to be allocated to a cost object?
A. direct material
B. direct labor
C. direct production costs
D. indirect production costs
71. Conversion cost does not include
A. direct labor.
B. direct material.
C. factory depreciation.
D. supervisors’ salaries.
72. The distinction between direct and indirect costs depends on whether a cost
A. is controllable or non-controllable.
B. is variable or fixed.
C. can be conveniently and physically traced to a cost object under consideration.
D. will increase with changes in levels of activity.
73. Moore Company is a construction company that builds greenhouses on special request. What is the proper
classification of the carpenters’ wages?
Product Period Direct
A. yes yes no
B. yes no yes
C. no no no
D. no yes yes
74. Moore Company is a construction company that builds greenhouses on special request. What is the proper
classification of the cost of the cement building slab used?
Direct Fixed
A. no no
B. no yes
C. yes yes
D. yes no
75. Moore Company is a construction company that builds greenhouses on special request. What is the proper
classification of indirect material used?
Prime Conversion Variable
A. no no no
B. no yes yes
C. yes yes yes
D. yes no no
76. Which of the following costs would be considered overhead in the production of chocolate chip cookies?
A. flour
B. chocolate chips
C. sugar
D. oven electricity
77. All costs related to the manufacturing function in a company are
A. prime costs.
B. direct costs.
C. product costs.
D. conversion costs.
78. Prime cost consists of
direct material direct labor overhead
A. no yes no
B. yes yes no
C. yes no yes
D. no yes yes
79. Plastic used to manufacture dolls is a
prime cost product cost direct cost fixed cost
A. no yes yes yes
B. yes no yes no
C. yes yes no yes
D. yes yes yes no
80. The term “prime cost” refers to
A. all manufacturing costs incurred to produce units of output.
B. all manufacturing costs other than direct labor and raw material costs.
C. raw material purchased and direct labor costs.
D. the raw material used and direct labor costs.
81. Conversion of inputs to outputs is recorded in the
A. Work in Process Inventory account.
B. Finished Goods Inventory account.
C. Raw Material Inventory account.
D. both a and b.
82. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to
Cash and a credit to Sales. The other entry is a debit to
A. Work in Process Inventory and a credit to Finished Goods Inventory.
B. Finished Goods Inventory and a credit to Cost of Goods Sold.
C. Cost of Goods Sold and a credit to Finished Goods Inventory.
D. Finished Goods Inventory and a credit to Work in Process Inventory.
83. The formula to compute cost of goods manufactured is
A. beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process
Inventory.
B. beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred
minus ending Work in Process Inventory.
C. direct material used plus direct labor plus overhead incurred.
D. direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory.
84. The final figure in the Schedule of Cost of Goods Manufactured represents the
A. cost of goods sold for the period.
B. total cost of manufacturing for the period.
C. total cost of goods started and completed this period.
D. total cost of goods completed for the period.
85. The formula for cost of goods sold for a manufacturer is
A. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished Goods
Inventory.
B. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work in Process
Inventory.
C. direct material plus direct labor plus applied overhead.
D. direct material plus direct labor plus overhead incurred plus beginning Work in Process Inventory.
86. Which of the following replaces the retailing component “Purchases” in computing Cost of Goods Sold for a
manufacturing company?
A. direct material used
B. cost of goods manufactured
C. total prime cost
D. cost of goods available for sale
87. Costs that are incurred to preclude defects and improper processing are:
A. prevention costs
B. detection costs
C. appraisal costs
D. failure costs
88. Costs that are incurred for monitoring and inspecting are:
A. prevention costs
B. detection costs
C. appraisal costs
D. failure costs
89. Costs that are incurred when customers complain are:
A. prevention costs
B. detection costs
C. appraisal costs
D. failure costs
90. Jordan Company
The following information has been taken from the cost records of Jordan Company for the past year:
Raw material used in production $326
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
60% of direct labor cost)
686
Cost of goods available for sale 826
Selling and Administrative expenses 25
Inventories Beginning Ending
Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110
Refer to Jordan Company. The cost of raw material purchased during the year was
A. $316.
B. $336.
C. $360.
D. $411.
91. Jordan Company
The following information has been taken from the cost records of Jordan Company for the past year:
Raw material used in production $326
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
60% of direct labor cost)
686
Cost of goods available for sale 826
Selling and Administrative expenses 25
Inventories Beginning Ending
Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110
Refer to Jordan Company. Direct labor cost charged to production during the year was
A. $135.
B. $216.
C. $225.
D. $360.
92. Jordan Company
The following information has been taken from the cost records of Jordan Company for the past year:
Raw material used in production $326
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
60% of direct labor cost)
686
Cost of goods available for sale 826
Selling and Administrative expenses 25
Inventories Beginning Ending
Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110
Refer to Jordan Company. Cost of Goods Manufactured was
A. $636.
B. $716.
C. $736.
D. $766.
93. Jordan Company
The following information has been taken from the cost records of Jordan Company for the past year:
Raw material used in production $326
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
60% of direct labor cost)
686
Cost of goods available for sale 826
Selling and Administrative expenses 25
Inventories Beginning Ending
Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110
Refer to Jordan Company. Cost of Goods Sold was
A. $691.
B. $716.
C. $736.
D. $801.
94. Horner Corporation
The following information has been taken from the cost records of Horner Corporation for the past year:
Raw material used in production $336
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
50% of direct labor cost)
711
Cost of goods available for sale 851
Selling and Administrative expenses 35
Inventories Beginning Ending
Raw Material $80 $ 90
Work in Process 85 25
Finished Goods 80 105
Refer to Horner Corporation. The cost of raw material purchased during the year was
A. $326.
B. $346
C. $375
D. $426
95. Horner Corporation
The following information has been taken from the cost records of Horner Corporation for the past year:
Raw material used in production $336
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
50% of direct labor cost)
711
Cost of goods available for sale 851
Selling and Administrative expenses 35
Inventories Beginning Ending
Raw Material $80 $ 90
Work in Process 85 25
Finished Goods 80 105
Refer to Horner Company. Direct labor cost charged to production during the year was
A. $125
B. $188
C. $250
D. $375.
96. Horner Corporation
The following information has been taken from the cost records of Horner Corporation for the past year:
Raw material used in production $336
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
50% of direct labor cost)
711
Cost of goods available for sale 851
Selling and Administrative expenses 35
Inventories Beginning Ending
Raw Material $80 $ 90
Work in Process 85 25
Finished Goods 80 105
Refer to Horner Company. Cost of Goods Manufactured was
A. $651
B. $736
C. $771
D. $796
97. Horner Corporation
The following information has been taken from the cost records of Horner Corporation for the past year:
Raw material used in production $336
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to
50% of direct labor cost)
711
Cost of goods available for sale 851
Selling and Administrative expenses 35
Inventories Beginning Ending
Raw Material $80 $ 90
Work in Process 85 25
Finished Goods 80 105
Refer to Horner Company. Cost of Goods Sold was
A. $711
B. $746
C. $796
D. $816
98. Perry Company.
Perry Company manufactures wood file cabinets. The following information is available for June of the current
year.
Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
The direct labor rate is $9.60 per hour and overhead for the month was $9,600.
Refer to Perry Company. Compute total manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw material was
purchased.
A. $58,500
B. $46,500
C. $43,500
D. $43,100
99. Perry Company.
Perry Company manufactures wood file cabinets. The following information is available for June of the current
year.
Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
The direct labor rate is $9.60 per hour and overhead for the month was $9,600.
Refer to Perry Company. What are prime costs and conversion costs, respectively if there were 1,500 direct labor hours and $21,000 of raw material
was purchased?
A. $29,100 and $33,900
B. $33,900 and $24,000
C. $33,900 and $29,100
D. $24,000 and $33,900
100. Perry Company.
Perry Company manufactures wood file cabinets. The following information is available for June of the current
year.
Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
