ADMS 2510 Managerial Accounting Chapter 2 Cost Terms, Concepts, and Classifications - All Answers are Correct
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Course
ADMS 2510 Managerial Accounting
Institution
York University (Ebor
)
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 15
True/False Questions
1. Manufacturing overhead is an indirect cost with respect to units of product.
Answer: True Level: Medium LO: 1
2. Depreciation on office equipment would not be included...
Chapter 2 Cost Terms, Concepts, and Classifications
True/False Questions
1. Manufacturing overhead is an indirect cost with respect to units of product.
Answer: True Level: Medium LO: 1
2. Depreciation on office equipment would not be included in the cost of goods
manufactured.
Answer: True Level: Easy LO: 2,4
3. Rent on a factory building used in the production process would be classified as a
period cost and as a fixed cost.
Answer: False Level: Medium LO: 2,5
4. Period costs are found only in manufacturing companies, not in merchandising
companies.
Answer: False Level: Medium LO: 2
5. Depreciation on equipment a company uses in its selling and administrative activities
would be classified as a product cost.
Answer: False Level: Medium LO: 2
6. If the finished goods inventory increases between the beginning and the end of a
period, then the cost of goods manufactured is smaller than the cost of goods sold.
Answer: False Level: Hard LO: 3,4
7. The cost of goods manufactured is calculated by adding the amount of work in process
at the end of the year to the cost of raw materials used, direct labor worked, and
manufacturing overhead incurred for the year and then subtracting work in process at
the beginning of the year.
Answer: False Level: Medium LO: 4
8. A publisher that sells its books through agents who are paid a constant percentage
commission on each book sold would classify the commissions as a fixed cost.
Answer: False Level: Medium LO: 5
Garrison, Managerial Accounting, 12th Edition 15
,Chapter 2 Cost Terms, Concepts, and Classifications
9. Variable costs per unit are affected by changes in activity.
Answer: False Level: Easy LO: 5
10. A cost is either direct or indirect. The classification will not change if the cost object
changes.
Answer: False Level: Medium LO: 6
11. The amount that a manufacturing company could earn by renting unused portions of
its warehouse is an example of an opportunity cost.
Answer: True Level: Easy LO: 7
12. Labor fringe benefits may be charged to direct labor or manufacturing overhead while
overtime premiums paid usually are considered a part of manufacturing overhead.
Answer: True Level: Easy LO: 8 Appendix: 2A
13. The cost of idle time should be charged as direct labor of the job that is in process
when the breakdown occurs.
Answer: False Level: Medium LO: 8 Appendix: 2A
14. Internal failure costs result from identification of defects during the appraisal process.
Such costs may include scrap, rejected products, rework, and downtime.
Answer: True Level: Easy LO: 9 Appendix: 2B
15. ISO 9000 certification is relatively easy to achieve because little documentation on
quality control procedures is needed.
Answer: False Level: Easy LO: 11 Appendix: 2B
16 Garrison, Managerial Accounting, 12th Edition
,Chapter 2 Cost Terms, Concepts, and Classifications
Multiple Choice Questions
16. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.
Answer: B Level: Medium LO: 1,2 Source: CPA, adapted
17. The cost of lubricants used to grease a production machine in a manufacturing
company is an example of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
Answer: C Level: Easy LO: 1,2
18. The salary paid to the president of King Company would be classified on the income
statement as a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
Answer: A Level: Easy LO: 1
19. Direct labor cost is a part of:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: C Level: Easy LO: 1 Source: CPA, adapted
Garrison, Managerial Accounting, 12th Edition 17
, Chapter 2 Cost Terms, Concepts, and Classifications
20. Direct material cost is a:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: B Level: Medium LO: 1 Source: CPA, adapted
21. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Answer: B Level: Easy LO: 1 Source: CPA, adapted
22. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.
Answer: C Level: Easy LO: 1
23. Wages paid to a timekeeper in a factory are a:
Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes
Answer: D Level: Medium LO: 1 Source: CPA, adapted
24. Property taxes on a company's factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.
Answer: A Level: Easy LO: 2,5,7
18 Garrison, Managerial Accounting, 12th Edition
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