1.

The term prime cost refers to

a. All costs associated with manufacturing other than direct labor costs and raw materials costs.
b. Costs that are predetermined and should be attained.
c. The sum of direct labor costs and all factory overhead costs.
d. The sum of raw materials and direct labor costs.

2. In cost terminology, conversion costs consist of

a. Direct and indirect labor.
b. Direct labor and direct materials
c. Direct labor and factory overhead.
d. Indirect labor and variable factory overhead.

3. Many companies recognize three major categories of costs of manufacturing a product. These are direct
materials, direct labor, and overhead. Which of the following is an overhead cost in the production of an
automobile?
a. The cost of small tools used in mounting tires on each automobile.
b. The cost of the tires on each automobile.
c. The cost of the laborers who place tires on each automobile.
d. The delivery costs for the tires on each automobile.

4. A fixed cost that would be considered a direct cost is

a. A cost accountant’s salary when the cost objective is a unit of product.
b. The rental cost of a warehouse to store inventory when the cost objective is the purchasing department.
c. A production supervisor’s salary when the cost objective is the production department.
d. Board of director’s fees when the cost objective is the marketing department.

5. The term that refers to costs incurred in the past that are not relevant to a future decision is
a. Discretionary cost
b. Full absorption cost.
c. Under allocated indirect cost
d. Sunk cost.

6. The allocation of general overhead costs to operating departments can be least justified in determining
a. Income of a product or functional unit.
b. Costs for making management’s decisions.
c. Costs for the federal government’s costs-plus contracts.
d. Income tax payable.

7. The term direct cost and indirect cost are commonly used in accounting. A particular cost might be considered
a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing
department. Classifying a cost as either direct or indirect depends upon
a. The behavior of the cost in response to volume changes.
b. Whether the cost is expenses in the period in which it is incurred.
c. The cost objective to which the cost is being related.
d. Whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.

8. The information contained in a cost of goods manufactured budget most directly relates to the
a. Materials used, direct labor, overhead applied, and ending work in process budgets.
b. Materials used, direct labor, overhead applied, and ending work in process inventories budgets.
c. Materials used, direct labor, overhead applied, work-in-process inventories, and finished goods inventories
budgets.
d. Materials used, direct labor, overhead applied, and finished goods inventories budgets.

9. Which one of the following considers the impact of fixed overhead costs?
a. Full absorption costing.
b. Marginal costing.
c. Direct costing.
d. Variable costing.

10. Management accountants are concerned with incremental unit costs. These costs are similar to the following
except:
a. The economic marginal cost.
b. The variable cost.
 c. The cost to produce an additional unit
d. The manufacturing unit cost.

11. Cost of goods sold is a component of the income statement. In a merchandising establishment, this refers to
purchases adjusted for changes in inventory. In a manufacturing company, what replaces purchases to arrive
at cost of goods sold?
a. Finished goods.
b. Fixed manufacturing overhead.
c. Work in process inventory.
d. Cost of good manufacture.

12. The salaries you could be earning by working rather than attending college are an example of
a. Outlay costs.
b. Misplaced costs.
c. Sunk costs.
d. Opportunity costs.
13. In analyzing whether to build another regional service office, the salary of the Chief Executive Officer (CEO) at
the corporate headquarters is:
a. Relevant because salaries are always relevant.
b. Relevant because this will probably change if the regional service office is built.
c. Irrelevant because it is future cost that will not differ between the alternatives under consideration.
d. Irrelevant since another imputed costs for the same will be considered.

14. Sunk costs

a. Are substitutes for opportunity costs.
b. Are relevant to long-term decisions but not to short-term decisions.
c. Are relevant to decision making.
d. In the themselves are not relevant to decision making.

15. Inventoriable (product) costs are

a. Manufacturing costs incurred to produce units of output.
b. All costs associated with manufacturing other than direct labor costs and raw materials costs.
c. Costs that are associated with marketing, shipping, warehousing, and billing activities.
d. The costs of direct labor and all factory overhead costs.

16. Direct materials are a

Conversion Cost Manufacturing Cost Prime Cost

a. Yes Yes No

b. Yes Yes Yes

c. No Yes Yes

d. No No No

17. Prime cost and conversion cost share what common element of total cost?
a. Variable overhead
b. Fixed overhead
c. Direct materials
d. Direct labor
18. Wages of the security guard for a small plant are an example of

Indirect Labor Fixed Factory Overhead

a. No No

b. Yes Yes

c. Yes No

d. No Yes
19. Wages paid to factory machine operators of a manufacturing plant are an element of

Prime Cost Conversion Cost

a. No No

b. No Yes

c. Yes No

d. Yes Yes

20. Indirect materials are a(n)

a. Prime cost
b. Fixed Cost
c. Irrelevant cost
d. Factory overhead cost

21. Which of the following is not a characteristic of product cost?

a. Product costs include costs of the factors of production identified with the product.
b. Product costs do not include any fixed costs.
c. Product costs are expenses when the product is sold.
d. Product costs include direct materials, direct labor, and factory overhead.

22. The costs presented to management for an equipment replacement decision should be limited to
a. Relevant costs.
b. Standard costs.
c. Controllable costs.
d. Conversion costs.

23. As part of the data presented in support of a proposal to increase the production of DVD, the sales manager of
Laguna Suppliers reported the total additional cost required for the proposed increased production level. The
increase in total cost is known as
a. Controllable cost
b. Incremental cost
c. Opportunity cost
d. Out-of-pocked cost

24. An opportunity cost is

a. The difference in total costs which results from selecting one choice instead of another.
b. The profit foregone by selecting one choice instead of another.
c. A cost that may be sabed by not adopting an alternative.
d. A cost that may be shifted to the future with little or no effect on current operations.

25. Which of the following best describes an opportunity cost?

a. It is usually relevant, but is not part of the traditional accounting records.
b. It is usually not relevant, but is part of the traditional accounting records.
c. It is usually relevant, and is part of the traditional accounting records.
d. It is usually not relevant, and is not part of the traditional accounting records.

26. Committed costs are

a. Those management decides to incur in the current period to enable the company to achieve objectives
other than the filling of orders placed by customers.
b. Likely to respond to the amount of attention devoted to them by a specified manager.
c. Governed mainly by past decisions that established the current levels of operating and organizational
capacity and that only change slowly in response to small changes in capacity.
d. Those that fluctuate in total in response to small hanges in the rate of use of capacity.

27. Controllable costs are

a. Those management decides to incur in the current period to enable the company to achieve objectives
other than the filling of orders placed by customers.
b. Likely to respond to the amount of attention devoted to them by a specified manager.
 c. Governed mainly by past decisions that established the current levels of operating and organizational
capacity and that only change slowly in response to small changes in capacity.
d. Those that fluctuate in total in response to small hanges in the rate of use of capacity.

28. Controllable costs for responsibility accounting purposes are directly influenced only b
a. A given manager within a given period.
b. A change in activity.
c. Production volume.
d. Sales volume.

29. An avoidable cost is

a. A cost that may be sabed by not adopting an alternative.
b. The profit foregone by selecting one choice instead of another.
c. A cost that does not entail any peso outlay but is relevant in the decision-making process.
d. A cost common to all choices in question and not clearly or practically allocable to all of them.

30. The term “discretionary costs” refers to

a. Costs that management decides to incur in the current period to enable the company to achieve objectives
other than the filling of orders placed by customers.
b. Costs that are likely to respond to the amount of attention devoted to them by a specified manager.
c. Costs that are governed mainly by past decisions to establish the present levels of operating and
organizational capacity and the only change slowly in response to small changes in capacity.
d. Amortization of costs that were capitalized in previous period.

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