Multiple Choice Answers

An example of a cost object is:
a bicycle
an individual fast food franchise
the produce department of a grocery store
All of the above are correct.

2. Nonmanufacturing costs:
include only fixed costs
seldom influence financial success or failure
include the cost of selling, distribution, and after-sales costs for customers
are considered by GAAP to be an element of product costs

3. Product costs for a wool carpet:
include the cost of television advertising
include only direct materials such as the wool and direct labor such as the wages paid to the workers who run the machines that weave the carpets
Include indirect costs such as depreciation on the manufacturing facility
include nonmanufacturing costs such as sales commissions

4. For external reporting:
costs are classified as either product or period costs
costs reflect current values
there are no prescribed rules since no one is exactly sure how the investors and creditors will use these numbers
expenses include amounts that reflect current and future benefits

5. Product costs are expensed on the income statement when:
raw materials for the product are purchased
raw materials are requisitioned for the product
the product completes the manufacturing process
the product is sold

6. A plant manufactures several different products. The wages of the maintenance staff in the plant can be classified as a (an):
direct cost
product cost
opportunity cost
nonmanufacturing cost

7. The terms “direct cost” and “indirect cost” are commonly used in cost accounting. Classifying a cost as either direct or indirect depends upon:
the behavior of the cost in response to volume changes
whether the cost is expended in the period in which it is incurred
whether the cost can be related readily to resources consumed for a cost object
whether an expenditure is unavoidable because it cannot be changed regardless of any action taken

8. Indirect manufacturing costs:
can be traced to the product that created the costs
may have a cause-and-effect relationship with capacity rather than with individual units of production
generally include the cost of material and the cost of labor
are included in period costs

9. A manufacturing plant for Vanguard produces two product lines: Optimist sailboats and 420 sailboats. An indirect cost for the Optimist line is the:
cloth used to make Optimist sails
labor to pour 420 hull molds
shift supervisor for the Optimist line
plant supervisor

10. Cost behavior refers to:
how costs react to a change in the level of activity
whether a cost is incurred in a manufacturing, merchandising, or service company
classifying costs as either product or period costs
whether a particular expense has been ethically incurred
11. Cost-volume-profit analysis is used PRIMARILY by management:
as a planning tool
for control purposes
to establish a target net income for next year
to attain extremely accurate financial results

12. Contribution margin equals revenues minus:
product costs
period costs
variable costs
fixed costs

13. THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 13 THROUGH 16. Sammy’s Salsa, Inc. sells a single product. This year, 10,000 units were sold resulting in $65,000 of sales revenue, $30,000 of variable costs, and $17,500 of fixed costs. The contribution margin per unit is:

14. The break-even point in units for a year is:
2,000 units
3,000 units
5,000 units
10,000 units

15. The number of units that must be sold annually to achieve $52,500 of profits is:
20,000 units
15,000 units
10,000 units
5,000 units

16. If sales increase by $19,500 in a year (from $65,000), profits will increase by:
17. The opportunity cost(s):
of a resource with excess capacity is zero
should be maximized by organizations
are recorded as an expense in the accounting records
are most important to financial accountants

18. In recent years, the manufacturing cost structure has changed as a result of:
greater automation
better customer service
the proliferation of multiple products
All of the above are correct.

19. Cost distortion is common in conventional costing systems because: (Not sure on this one-seems the best amongst available choices )
of the recent change in cost structure
the number of products being manufactured is increasing
fixed costs are allocated using a volume measure
fixed costs create higher risks for a company

20. Costs that must be allocated to products for external reporting purposes include:
selling and marketing costs
direct material and direct labor costs
the cost of equipment used to manufacture several different products
All of the above are correct.