CHAPTER 1
MANAGERIAL ACCOUNTING AND THE BUSINESS ORGANIZATION
Learning Objectives
1.
2.
3.
4.
5.
6.
7.
8.
Describe the manor users of accounting information
Explain the cost-benefit and behavioral issues involved in designing an accounting system.
Explain the role of budgets and performance reports in planning and control
Discuss the role accountants play in the company’s value chain functions.
Contrast the functions of controllers and treasurers.
Identify current trends in management accounting.
Explain a management accountant’s ethical responsibilities
Understand how managerial accounting is used in companies.
True/False:
1.
The primary purpose of accounting information is to help managers make decisions.
T
(L.O. 1, easy)
2.
The same information may serve the attention-getting function and the problem-solving
function.
T
(L.O. 1, easy)
3.
Scorekeeping enables internal and external parties to evaluate organizational
performance.
T
(L.O. 1, easy)
4.
The cost-benefit balance is the primary consideration in choosing among accounting
systems and methods.
T
(L.O. 2, easy)
5.
The behavioral implications of an accounting system include the effects on the firm’s
customers.
F
(L.O. 2, easy)
6.
Decisions within an organization are often divided into two types: (1) planning
decisions and (2) control decisions.
T
(L.O. 3, easy)
7.
Variances are deviations from plans.
T
(L.O. 3, easy)
8.
Management by exception is the practice of concentrating on areas that deviate from
the plan and ignoring areas that are presumed to be running smoothly.
T
(L.O. 3, easy)
1
9.
Product life cycles may range from a few months to many years.
T
(L.O. 4, easy)
10.
The value chain is the sum of all costs added to products as the products pass from
manufacturers to wholesalers to retailers.
F
(L.O. 4, easy)
11.
Most products have short development stages and long market lives.
F
(L.O. 4, easy)
12.
Staff authority is authority to advise but not command.
T
(L.O. 5, easy)
13.
Line departments are directly responsible for producing a company’s goods and services.
T
(L.O. 5, easy)
14.
The contoller is primarily concerned with a company’s financial matters, the treasurer
with operating matters.
F
(L.O. 5, easy)
15.
In English-speaking countries outside of the United States, management accountants are
known as chartered accountants.
F
(L.O. 5, easy)
16.
The essence of the just-in-time philosophy is to eliminate waste.
T
(L.O. 6, easy)
17.
Companies that have a fully installed CIM system are usually labor intensive.
F
(L.O. 6, easy)
18.
E-procurement is buying and selling products and services with digital cash.
F
(L.O. 6, easy)
19.
In the final analysis, ethical standards depend on the values of top management.
F
(L.O. 7, easy)
20.
Management accounting pays a vital role in the achievement of company goals and
objectives.
T
(L.O. 8, easy)
2
Multiple Choice:
21.
_______________ refers to accounting information developed for managers
within an organization.
a. Internal auditing
b. Managerial accounting
c. Financial accounting
d. Tax accounting
L.O. 1
22.
The primary users of management accounting information are
a. bankers.
b. governmental regulatory authorities.
c. internal decision-makers.
d. suppliers.
L.O. 1
23.
Easy
_______________ is a formal mechanism for gathering, organizing, and
communicating information about an organization's activities.
a. An accounting system
b. Scorekeeping
c. Management accounting
d. Attention directing
L.O. 1
25.
Easy
The acronym GAAP is most closely connected with
a. Management accounting.
b. Financial accounting.
c. the IRS.
d. both management accounting and financial accounting.
L.O. 1
24.
Easy
Easy
_______________ is the field of accounting that develops information for external
decision makers such as stockholders, suppliers, banks, and government regulatory
agencies.
a. Auditing
b. Tax accounting
c. Management accounting
d. Financial accounting
L.O. 1
Easy
3
26.
Which scorecard function is associated with the accumulation of data?
a. Scorekeeping
b. Attention directing
c. Problem solving
d. None of the above
L.O. 1
27.
Which scorecard function is associated with planning and control?
a. Scorekeeping
b. Attention directing
c. Problem solving
d. None of the above
L.O. 1
28.
Moderate
The greatest impact of the Foreign Corrupt Practices Act on the accounting system is that
it
a. forbids bribery.
b. prohibits unethical practices by foreign investors.
c. requires documentation of the adequacy of internal accounting controls.
d. specifies how to account for transactions with foreign countries.
L.O. 1
30.
Moderate
Which scorecard function is associated with making non-routine decisions?
a. Scorekeeping
b. Attention directing
c. Problem solving
d. None of the above
L.O. 1
29.
Moderate
Moderate
_______________ is a review to determine whether the policies and procedures
specified by top management have been implemented.
a. The Foreign Corrupt Practices Act
b. A management audit
c. GAAP
d. The Robinson-Patman Act
L.O. 1
Easy
4
31.
A clerk records a transaction in the accounting system. This activity would be classified
as
a. problem solving.
b. scorekeeping.
c. planning.
d. attention directing.
L.O. 1
32.
A management audit would be performed by all of the following EXCEPT
a. the General Accounting Office.
b. a hospital.
c. a sneaker manufacturer.
d. All of the above would perform management audits.
L.O. 1
33.
Easy
All of the following are service organizations, EXCEPT
a. a dry clearners.
b. a public accounting firm.
c. a manufacturer of sporting goods.
d. a real estate brokerage.
L.O. 2
35.
Moderate
Broad concepts or guidelines and detailed practices that together make up accepted
accounting practice at a given time are referred to as
a. accounting rules and regulations.
b. accounting conventions.
c. GAAP.
d. IRS regulations.
L.O. 1
34.
Easy
Easy
All service organizations are similar in that
a. there is very little labor.
b. output is usually difficult to define.
c. major inputs and outputs can be stored.
d. they are capital intensive.
L.O. 2
Moderate
5
36.
Complexity in accounting systems
a. is desirable if it reflects the complexity of the underlying business.
b. can usually be justified on a cost-benefit basis.
c. is necessary in order to manage the behavioral implications of the accounting system.
d. frequently generates costs of gathering and interpreting data that often exceed
prospective benefits.
L.O. 2
37.
Nonprofit service organizations are similar to profit-seeking service organizations in that
a. both use labor intensively.
b. Output is usually easy to define.
c. Major inputs and outputs can be stored.
d. All of the above are characteristics.
L.O. 2
38.
Moderate
_______________ is (are) the primary consideration in choosing among accounting
systems and methods.
a. Simplicity
b. Behavioral implications
c. The cost-benefit balance
d. Computerization
L.O. 2
40.
Moderate
Which of the following items should be considered in addition to simplicity by
managers when designing accounting systems?
a. cost-benefit balances
b. behavior implications
c. both a and b
d. none of the above
L.O. 2
39.
Moderate
Easy
_______________ is (are) the accounting system's effect on the decision of
managers.
a. Simplicity
b. Behavioral implications
c. The cost-benefit balance
d. Computerization
L.O. 2
Easy
6
41.
Budgets
a. are quantitative expressions of action plans.
b. provide feedback by comparing results with plans and by highlighting deviations
from plans.
c. are deviations from a plan.
d. ignore areas that are presumed to be running smoothly.
L.O. 3
42.
Performance reports
a. are quantitative expressions of action plans.
b. provide feedback by comparing results with plans and by highlighting
deviations from plans.
c. are deviations from a plan.
d. ignore areas that are presumed to be running smoothly
L.O. 3
43.
Easy
Management by exception
a. is the quantitative expression of action plans.
b. provides feedback by comparing results with plans and by highlighting
deviations from plans.
c. is a summary report of plan results.
d. focuses on areas that are presumed to be running smoothly.
L.O. 3
45.
Easy
Variances
a. are quantitative expressions of action plans.
b. provide feedback by comparing results with plans and by highlighting deviations
from plans.
c. are deviations from a plan.
d. ignore areas that are presumed to be running smoothly
L.O. 3
44.
Easy
Easy
One advantage of the management by exception approach is that it
a. frees managers from needless concern over operations that are running
smoothly.
b. allows managers to ignore aspects of the business outside their area of expertise.
c. allows managers to ignore day-to-day concerns so they can focus on crises.
d. takes advantage of computerization.
L.O. 3
Easy
7
46.
Department performance reports can be used to help department heads determine
a. how effectively the department is operating.
b. how efficiently the department is operating.
c. how effectively and efficiently the department is operating.
d. who is primarily responsible for any deviations from plans.
L.O. 3
47.
Moderate
Launching a new product line is an example of
a. decision making.
b. planning.
c. controlling.
d. organization.
L.O. 3
48.
Organizing workers into departments and assigning activities to those departments is an
example of
a. planning.
b. controlling.
c. budgeting.
d. analyzing.
L.O. 3
49.
Moderate
Moderate
Reviewing the output of the department is an examples of
a. planning.
b. controlling.
c. budgeting.
d. analyzing.
L.O. 3
Moderate
8
50.
The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected
attendance of 200 persons and prepared the following budget:
Hotel room rental
Food
Entertainment
Decorations
Totals
$600
500
800
300
$2,200
After all bills for the party were paid, the total came to $2,315. Details are $575 for hotel
room rental; $640 for food; $750 for entertainment; and $350 for decorations. Two
hundred persons attended the party.
What is the total budget variance?
a.
b.
c.
d.
$115 unfavorable
$115 favorable
$25 favorable
$140 unfavorable
L.O. 3
51.
Moderate
The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected
attendance of 200 persons and prepared the following budget:
Hotel room rental
Food
Entertainment
Decorations
Totals
$600
500
800
300
$2,200
After all bills for the party were paid, the total came to $2,315. Details are $575 for hotel
room rental; $640 for food; $750 for entertainment; and $350 for decorations. Two
hundred persons attended the party.
What is the main reason for the unfavorable total budget variance?
a.
b.
c.
d.
Hotel room rent
Food
Entertainment
Decorations
L.O. 3
Challenging
9
52.
The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected
attendance of 200 persons and prepared the following budget:
Hotel room rental
Food
Entertainment
Decorations
Totals
$600
500
800
300
$2,200
After all bills for the party were paid, the total came to $2,315. Details are $575 for hotel
room rental; $640 for food; $750 for entertainment; and $350 for decorations. Two
hundred persons attended the party.
What is the variance in hotel room rental?
a.
b.
c.
d.
$70 unfavorable
$70 favorable
$25 favorable
$140 unfavorable
L.O. 3
53.
Moderate
The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected
attendance of 200 persons and prepared the following budget:
Hotel room rental
Food
Entertainment
Decorations
Totals
$600
500
800
300
$2,200
After all bills for the party were paid, the total came to $2,315. Details are $575 for hotel
room rental; $640 for food; $750 for entertainment; and $350 for decorations. Two
hundred persons attended the party.
What is the variance in food?
a.
b.
c.
d.
$70 unfavorable
$70 favorable
$25 favorable
$140 unfavorable
L.O. 3
Moderate
10
54.
The Alpha Beta Gamma Fraternity held a Christmas party. The fraternity expected
attendance of 200 persons and prepared the following budget:
Hotel room rental
Food
Entertainment
Decorations
Totals
$600
500
800
300
$2,200
After all bills for the party were paid, the total came to $2,315. Details are $575 for hotel
room rental; $640 for food; $750 for entertainment; and $350 for decorations. Two
hundred persons attended the party.
Which of the following costs deserves further examination assuming the fraternity uses
the management-by-exception rule?
a. Hotel room rent
b. Food
c. Entertainment
d. Decorations
L.O. 3
55.
Challenging
The Delta Delta Delta Sorority held a homecoming party. The sorority prepared the
following budget for 50 expected attendees:
Room rental
Food
D J entertainment
Decorations
$150
250
150
75
Totals
$625
After all bills for the party were paid, the total came to $660. Details are $140 for room
rental; $320 for food; $125 for D J entertainment; and $75 for decorations. Fifty persons
attended the party.
What is the total budget variance?
a.
b.
c.
d.
$10 unfavorable
$35 favorable
$10 favorable
$70 unfavorable
L.O. 3
Moderate
11
56.
The Delta Delta Delta Sorority held a homecoming party. The sorority prepared the
following budget for 50 expected attendees:
Room rental
Food
D J entertainment
Decorations
$150
250
150
75
Totals
$625
After all bills for the party were paid, the total came to $660. Details are $140 for room
rental; $320 for food; $125 for D J entertainment; and $75 for decorations. Fifty persons
attended the party.
What is the main reason for the unfavorable total budget variance?
a.
b.
c.
d.
Room rent
Food
D J Entertainment
Decorations
L.O. 3
57.
Challenging
The Delta Delta Delta Sorority held a homecoming party. The sorority prepared the
following budget for 50 expected attendees:
Room rental
Food
D J entertainment
Decorations
$150
250
150
75
Totals
$625
After all bills for the party were paid, the total came to $660. Details are $140 for room
rental; $320 for food; $125 for D J entertainment; and $75 for decorations. Fifty persons
attended the party.
What is the variance in hotel room rental?
a.
b.
c.
d.
$35 unfavorable
$35 favorable
$10 favorable
$70 unfavorable
L.O. 3
Moderate
12
58.
The Delta Delta Delta Sorority held a homecoming party. The sorority prepared the
following budget for 50 expected attendees:
Room rental
Food
250
D J entertainment
Decorations
Totals
$150
150
75
$625
After all bills for the party were paid, the total came to $660. Details are $140 for room
rental; $320 for food; $125 for D J entertainment; and $75 for decorations. Fifty persons
attended the party.
What is the variance in food?
a.
b.
c.
d.
$35 unfavorable
$35 favorable
$10 favorable
$70 unfavorable
L.O. 3
59.
Moderate
The Delta Delta Delta Sorority held a homecoming party. The sorority prepared the
following budget for 50 expected attendees:
Room rental
Food
D J entertainment
Decorations
$150
250
150
75
Totals
$625
After all bills for the party were paid, the total came to $660. Details are $140 for room
rental; $320 for food; $125 for D J entertainment; and $75 for decorations. Fifty persons
attended the party.
Which of the following costs deserves further examination assuming the sorority uses the
management-by-exception rule?
a.
b.
c.
d.
Room rent
Food
D J Entertainment
Decorations
L.O. 3
Challenging
13
60.
Research and development is the function of a value chain that includes
a. the generation of, and experimentation with, ideas related to new products,
services, or process.
b. the detail and engineering of products
c. the coordination and assembly of resources to produce a product or deliver a service.
d. the manner by which individuals or groups learn about the value and features of
products or services.
L.O.4
61.
Product and service process design is the function of a value chain that includes
a. the generation of, and experimentation with, ideas related to new products, services,
or process.
b. the detail and engineering of products.
c. the coordination and assembly of resources to produce a product or deliver a service.
d. the manner by which individuals or groups learn about the value and features of
products or services.
L.O.4
62.
Easy
Production is the function of a value chain that includes
a. the generation of, and experimentation with, ideas related to new products, services,
or process.
b. the detail and engineering of products
c. the coordination and assembly of resources to produce a product or deliver a
service.
d. the manner by which individuals or groups learn about the value and features of
products or services.
L.O.4
63.
Easy
Easy
Marketing is the function of a value chain that includes
a. the generation of, and experimentation with, ideas related to new products, services,
or process.
b. the detail and engineering of products
c. the coordination and assembly of resources to produce a product or deliver a service.
d. the manner by which individuals or groups learn about the value and features of
products or services.
L.O.4
Easy
14
64.
Distribution is the function of a value chain that includes
a. the mechanism by which products or services are delivered to the customer .
b. the manner by which individuals or groups learn about the value and features of
products or services.
c. the support activities provided to the customer.
d. all of the above.
L.O.4
65.
Customer service is the function of a value chain that includes
a. the mechanism by which products or services are delivered to the customer .
b. the manner by which individuals or groups learn about the value and features of
products or services.
c. the support activities provided to the customer.
d. all of the above.
L.O.4
66.
Easy
A company can best reduce the life cycle costs of product and services by managing the
revenues and costs associated with which function of the value chain?
a. production
b. design
c. customer service
d. support
L.O.4
68.
Easy
Which of the following products have a product life cycle of a few months?
a. fashion clothing
b. automobiles
c. planes
d. electric stoves
L.O.4
67.
Easy
Easy
During the product development stage of the product life cycle, companies typically
experience
a. costs without revenues
b. revenues without costs
c. both costs and revenues
d. neither costs nor revenues
L.O.4
Easy
15
69.
A company earns most product revenue during which stages of the product life cycle?
a. Product development and introduction to market
b. Introduction to market and mature market
c. Mature market and product development
d. Phase-out of product and mature market
L.O.4
70.
Stable sales level corresponds to which stage of the product life cycle?
a. Product development
b. Introduction to market
c. Mature market
d. Phase-out of product
L.O.4
71.
Easy
The various stages through which a product passes are called the
a. product life cycle.
b. production plan.
c. market analysis.
d. product initiative.
L.O.4
73.
Easy
A company should be especially concerned that revenues are balanced with costs during
which stage of the product life cycle?
a. Product development
b. Introduction to market
c. Mature market
d. Phase-out of product
L.O.4
72.
Easy
Easy
Product life cycles
a. are the same for all products.
b. must be considered to effectively plan for production.
c. are computerized bicycles.
d. have nothing to do with product profitability.
L.O.4
Moderate
16
74.
At a clothing manufacturer line authority is held by the head of which department?
a. assembly
b. receiving
c. shipping
d. all of the above
L.O.5
75.
Staff authority may be exerted
a. downward and laterally, but not upward.
b. upward and downward, but not laterally.
c. laterally and upward, but not downward
d. downward, upward, and laterally.
L.O.5
76.
Moderate
According to the Financial Executives Institute, one function of treasurership is
a. reporting and interpreting financial information.
b. short-term financing.
c. government reporting.
d. tax administration.
L.O.5
79.
Moderate
According to the Financial Executives Institute, one function of controllership is
a. investments.
b. short-term financing.
c. provision of capital.
d. reporting and interpreting financial information.
L.O.5
78.
Easy
An example of a staff department at a clothes manufacturer is the
a. pressing department.
b. cutting department.
c. sales department.
d. maintenance department.
L.O.5
77.
Easy
Moderate
Internal auditors should have as their primary responsibilities
a. attention-directing and problem-solving.
b. problem-solving and scorekeeping.
c. scorekeeping and attention-directing.
d. problem-solving only.
L.O.5
Moderate
17
80.
_______________ is mainly concerned with the company's operating matters.
a. The controller
b. The treasurer
c. The chairman of the board
d. The CEO
L.O.5
81.
An accountant earns the designation of certified public accountant (CPA) by
a. meeting an education requirement.
b. meeting a qualifying experience requirement.
c. passing an examination.
d. meeting all of the above.
L.O.5
82.
Easy
Certified public accountants are
a. internal auditors.
b. management accountants.
c. external auditors.
d. government employees.
L.O.5
85.
Easy
The benefits of e-procurement are realized through
a. reduced transaction cost.
b. reduced transaction time from request to delivery.
c. reduced transaction time from delivery to sale.
d. both a and b.
L.O.5
84.
Easy
Buying manufacturing or operating inputs electronically is a type of
a. A2B transaction.
b. B2B transaction.
c. B2C transaction.
d. C2B transaction.
L.O.5
83.
Moderate
Easy
The largest U.S. association of professional accountants whose major interest is
management accounting is the
a. American Institute of CPA's.
b. American Accounting Association.
c. Government Accounting Institute.
d. Institute of Management Accountants.
L.O.5
Easy
18
86.
Which of the following is NOT a major factor causing changes in management
accounting today?
a. declining work ethic
b. increased global competition
c. e-commerce
d. increasing importance of the service sector of the economy
L.O.6
87.
The just-in-time philosophy attempts to reduce cost by reducing
a. value-added activities.
b. manufacturing time.
c. the number of products manufactured.
d. all of the above.
L.O.6
88.
Easy
According to the Standards of Ethical Conduct for Management Accountants, the
standard of competence includes
a. the ongoing development of the accountant’s knowledge and skills.
b. avoiding actual or apparent conflicts of interest.
c. disclosing all relevant information.
d. all of the above.
L.O.7
90.
Easy
Systems that use computer-aided design and computer-aided manufacturing, together
with robots and computer-controlled machines are called
a. just-in-time systems.
b. robotic-computer systems.
c. computer-integrated manufacturing systems.
d. manufacturing-robotic systems.
L.O.6
89.
Moderate
Easy
Below is a statement from the Standards of Ethical Conduct for Management
Accountants.
Refrain from disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so.
It is an example of
a. Competence.
b. Confidentiality.
c. Integrity.
d. Objectivity.
L.O.7
Easy
19
91.
According to the Standards of Ethical Conduct for Management Accountants, the
standard of objectivity includes
a. the ongoing development of the accountant’s knowledge and skills.
b. avoiding actual or apparent conflicts of interest.
c. disclosing all relevant information.
d. all of the above.
L.O.7
92.
Easy
Below is a statement from the Standards of Ethical Conduct for Management
Accountants.
Communicate information fairly and objectively.
It is an example of
a. Competence.
b. Confidentiality.
c. Integrity.
d. Objectivity.
L.O.7
93.
According to the Standards of Ethical Conduct for Management Accountants, the
standard of confidentiality includes
a. the ongoing development of the accountant’s knowledge and skills.
b. avoiding actual or apparent conflicts of interest.
c. disclosing all relevant information.
d. all of the above.
L.O.7
94.
Easy
Easy
Your close friend is a shareholder of the company that employs you, a management
accountant. The friend asks you for information that is typically available only to
company management. Sharing this information with your friend violates the ethical
standard of
a. Competence.
b. Confidentiality.
c. Integrity.
d. Objectivity.
L.O.7
Easy
20
95.
A supplier to your company offers to let you, a management accountant, use the
supplier’s condo in Cancun for your vacation. Accepting the supplier’s offer violates the
ethical standard of
a. Competence.
b. Confidentiality.
c. Integrity.
d. Objectivity.
L.O.7
96.
Management accountants are similar to CPA's in that they
a. give opinions on financial statements.
b. are licensed by the state board of public accountancy.
c. adhere to codes of conduct.
d. are independent of the company they work for.
L.O.7
97.
Easy
Easy
The Institute of Management Accountants has adopted a set of standards of ethical
conduct which includes codes of conduct regarding all of the following except
a. competence.
b. independence.
c. integrity.
d. confidentiality.
L.O.8
98.
The codes of conduct for integrity include all of the following except
a. avoiding actual or apparent conflicts of interest.
b. refusing any gift that would influence the accountant's actions.
c. recognizing and communicating professional limitations.
d. communicating information subjectively.
L.O.8
99.
Easy
Easy
Which of the following statements is NOT TRUE?
a. Management accounting does not play a vital role in the achievement of
company’s goals and objectives.
b. Management accounting information is used across the entire value chain of
activities.
c. Management accounting information is use throughout the life cycle of products and
services.
d. External accountants are expected to adhere to standards of ethical conduct.
L.O.8
Moderate
21
100.
Which of the following statements is TRUE?
a. Management accounting plays a vital role in the achievement of company goals and
objectives.
b. Management accounting information is used by organization managers at various
levels.
c. Management accounting information tends to be more detailed than financial
accounting.
d. All of the above are true statements.
L.O.8
Challenging
Short Answer:
101.
Broad concepts or guidelines and detailed practices, including all conventions, rules,
and procedures that together make up accepted accounting practice at a given time
Generally accepted accounting principles
(L.O. 1, easy)
102.
Reporting and interpreting information that helps managers focus on operating problems
Attention directing
(L.O. 1, easy)
103
Effect of the system on the behavior of managers, a consideration in choosing
among accounting systems and methods
Behavioral implications
(L.O. 2, easy)
104.
Feedback provided by comparing results with plans and by highlighting variances.
Performance reports
(L.O. 3, easy)
105.
Deviations from plans
Variances
(L.O. 3, easy)
106.
Concentrating on areas that deserve attention and ignoring areas that are presumed to
be running smoothly
Management by exception
(L.O.3, easy)
107.
The set of business functions that add value to the products or services of an
organization.
The value chain
(L.O. 4, easy)
108.
The time period that refers to the various stages through which a product passes, from
conception and development through introduction into the market through maturation
and, finally, withdrawal from the market.
Product life cycle
(L.O. 4, easy)
109.
Authority exerted downward over subordinates
Line authority
(L.O. 5, easy)
22
110.
Authority to advise but not to command. It may be exerted downward, laterally, or
upward.
Staff authority
(L.O. 5, easy)
111
The management accountant’s counterpart to the CPA designation
Certified Management Accountant (CMA)
(L.O. 5, easy)
112.
The top accounting officer of an organization, concerned primarily with company's
operating matters.
Controlller
(L.O. 5, easy)
113.
Electronic commerce from one business to another business
B2B
(L.O. 6, easy)
114.
The Standard of Ethical Conduct for Management Accountants that pertains to the
responsibility to communicate information fairly
Objectivity
(L.O. 7, easy)
115.
Codes of conduct developed by the Institute of Management Accountants for
management accountants
Standards of Ethical Conduct for Practitioners of Management Accounting and
Financial Management
(L.O. 7, easy)
23
l Accounting, 16e (Garrison)
Chapter 1 Managerial Accounting and Cost Concepts
1) A factory supervisor's salary would be classified as an indirect cost with respect to a unit of
product.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
2) A direct cost is a cost that can be easily traced to the particular cost object under
consideration.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
3) A cost can be direct or indirect. The classification can change if the cost object changes.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
24
4) Wages paid to production supervisors would be classified as manufacturing overhead.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
5) Selling costs are indirect costs.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
6) The sum of all manufacturing costs except for direct materials and direct labor is called
manufacturing overhead.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
25
7) The three cost elements ordinarily included in product costs are direct materials, direct labor,
and manufacturing overhead.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
8) Administrative costs are indirect costs.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
9) Depreciation is always considered a period cost for external financial reporting purposes in a
manufacturing company.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies; Cost Classifications for Preparing
Financial Statements
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
26
10) Opportunity costs at a manufacturing company are not part of manufacturing overhead.
Answer: TRUE
Difficulty: 3 Hard
Topic: Cost Classifications for Decision Making
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
11) Conversion cost is the sum of direct labor cost and manufacturing overhead cost.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
12) In a manufacturing company, all costs are period costs.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
13) Advertising is not considered a product cost even if it promotes a specific product.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
14) Selling and administrative expenses are period costs under generally accepted accounting
27
principles.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
15) Conversion cost equals product cost less direct materials cost.
Answer: TRUE
Difficulty: 3 Hard
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
16) Prime cost is the sum of direct materials cost and direct labor cost.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
17) Product costs are also known as inventoriable costs.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
18) Prime cost equals manufacturing overhead cost.
28
Answer: FALSE
Difficulty: 3 Hard
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
19) Conversion cost is the same thing as manufacturing overhead.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
20) The cost of shipping parts from a supplier is considered a period cost.
Answer: FALSE
Difficulty: 3 Hard
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
21) Depreciation on equipment a company uses in its selling and administrative activities would
be classified as a period cost.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
22) Indirect costs, such as manufacturing overhead, are variable costs.
Answer: FALSE
29
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
23) If the activity level increases, then one would expect the fixed cost per unit to increase as
well.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
24) A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
25) Cost behavior is considered curvilinear whenever a straight line is a reasonable
approximation for the relation between cost and activity.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
26) A decrease in production will ordinarily result in a decrease in fixed production costs per
unit.
30
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
27) As activity decreases within the relevant range, fixed costs remain constant on a per unit
basis.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
28) The variable cost per unit depends on how many units are produced.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
31
29) In account analysis, an account is classified as either variable or fixed based on an analyst's
prior knowledge of how the cost in the account behaves.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
30) A step-variable cost is a cost that is obtained in large chunks and that increases or decreases
only in response to fairly wide changes in activity.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
31) Committed fixed costs remain largely unchanged in the short run.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
32) Fixed costs expressed on a per unit basis do not change with changes in activity.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
32
33) A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as
the number of units increases or decreases.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
34) If managers are reluctant to lay off direct labor employees when activity declines leads to a
decrease in the ratio of variable to fixed costs.
Answer: TRUE
Difficulty: 3 Hard
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
35) Within the relevant range, a change in activity results in a change in variable cost per unit
and total fixed cost.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
33
36) When operations are interrupted or cut back, committed fixed costs are cut in the short term
because the costs of restoring them later are likely to be far less than the short-run savings that
are realized
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
37) The concept of the relevant range does not apply to variable costs.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
38) The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with
respect to how many persons are served.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
34
39) A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis
over the relevant range.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
40) The relevant range is the range of activity within which the assumption that cost behavior is
strictly linear is reasonably valid.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
41) Variable costs per unit are not affected by changes in activity.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
42) The relevant range concept is applicable to mixed costs.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
35
43) A variable cost remains constant if expressed on a unit basis.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
44) Committed fixed costs represent organizational investments with a one-year planning
horizon.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
45) The following costs are all examples of committed fixed costs: depreciation on buildings,
salaries of highly trained engineers, real estate taxes, and insurance expenses.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
46) A fixed cost is not constant per unit of product.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
36
47) Differential costs can only be variable.
Answer: FALSE
Difficulty: 2 Medium
Topic: Cost Classifications for Decision Making; Cost Classifications for Predicting Cost
Behavior
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.; 01-04 Understand cost classifications used to predict
cost behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
48) The potential benefit that is given up when one alternative is selected over another is called a
sunk cost.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
49) The amount that a manufacturing company could earn by renting unused portions of its
warehouse is an example of an opportunity cost.
Answer: TRUE
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
37
50) A cost that differs from one month to another is known as a sunk cost.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
51) In a traditional format income statement, the gross margin is sales minus cost of goods sold.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
52) In a traditional format income statement for a merchandising company, cost of goods sold is
a variable cost that is included in the "Variable expenses" portion of the income statement.
Answer: FALSE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
53) In a contribution format income statement for a merchandising company, the cost of goods
sold reports the product costs attached to the merchandise sold during the period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
38
54) Contribution format income statements are prepared primarily for external reporting
purposes
Answer: FALSE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
55) Contribution margin and gross margin mean the same thing.
Answer: FALSE
Difficulty: 2 Medium
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
56) In a traditional format income statement, the gross margin minus selling and administrative
expenses equals net operating income.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
39
57) Most companies use the contribution approach in preparing financial statements for external
reporting purposes.
Answer: FALSE
Difficulty: 2 Medium
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
58) Although the traditional format income statement is useful for external reporting purposes, it
has serious limitations when used for internal purposes because it does not distinguish between
fixed and variable costs.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
59) The contribution format income statement is used as an internal planning and decisionmaking tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management
performance appraisals, and budgeting.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
40
60) A contribution format income statement separates costs into fixed and variable categories,
first deducting variable expenses from sales to obtain the contribution margin.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
61) Traditional format income statements are widely used for preparing external financial
statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the
traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
62) Which of the following statements concerning direct and indirect costs is NOT true?
A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.
B) A direct cost is one that can be easily traced to the particular cost object.
C) The factory manager's salary would be classified as an indirect cost of producing one unit of
product.
D) A particular cost may be direct or indirect, depending on the cost object.
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
41
63) Direct costs:
A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
64) Which of the following would most likely NOT be included as manufacturing overhead in a
furniture factory?
A) The cost of the glue in a chair.
B) The amount paid to the individual who stains a chair.
C) The workman's compensation insurance of the supervisor who oversees production.
D) The factory utilities of the department in which production takes place.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects; Cost Classifications for
Manufacturing Companies
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.; 01-02 Identify and give examples of each of the three
basic manufacturing cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
42
65) Rotonga Manufacturing Company leases a vehicle to deliver its finished products to
customers. Which of the following terms correctly describes the monthly lease payments made
on the delivery vehicle?
Direct Cost
Fixed Cost
A) Yes
B) Yes
C) No
D) No
Yes
No
Yes
No
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects; Cost Classifications for
Predicting Cost Behavior
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost
objects: direct costs and indirect costs.; 01-04 Understand cost classifications used to predict cost
behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
66) The costs of direct materials are classified as:
A)
B)
C)
D)
Conversion cost
Yes
No
Yes
No
Manufacturing cost
Yes
No
Yes
Yes
Prime cost
Yes
No
No
Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: D
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
67) Manufacturing overhead includes:
43
A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
68) Materials used in a factory that are not an integral part of the final product, such as cleaning
supplies, should be classified as:
A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
44
69) The salary paid to the president of a 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
Difficulty: 1 Easy
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
70) Which of the following is NOT a period cost?
A) Depreciation of factory maintenance equipment.
B) Salary of a clerk who handles customer billing.
C) Insurance on a company showroom where customers can view new products.
D) Cost of a seminar concerning tax law updates that was attended by the company's controller.
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
45
71) The cost of electricity for running production equipment is classified as:
A)
B)
C)
D)
Conversion cost
Yes
Yes
No
No
Period cost
No
Yes
Yes
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies; Cost Classifications for Preparing
Financial Statements
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
72) 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) opportunity cost.
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies; Cost Classifications for Preparing
Financial Statements
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
46
73) Wages paid to the factory warehouse foreman are considered an example of:
A)
B)
C)
D)
Direct Labor
Yes
Yes
No
No
Period Cost
Yes
No
Yes
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: D
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies; Cost Classifications for Preparing
Financial Statements
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
47
74) A factory supervisor's wages are classified as:
A)
B)
C)
D)
Indirect labor
No
Yes
Yes
No
Fixed manufacturing
overhead
No
Yes
No
Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Manufacturing Companies; Cost Classifications for Preparing
Financial Statements
Learning Objective: 01-02 Identify and give examples of each of the three basic manufacturing
cost categories.; 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
75) Product costs that have become expenses can be found in:
A) period costs.
B) selling expenses.
C) cost of goods sold.
D) administrative expenses.
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
48
76) The cost of direct materials is classified as a:
A)
B)
C)
D)
Conversion cost
No
Yes
No
Yes
Prime cost
No
No
Yes
Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
77) Which of the following costs is classified as both a prime cost and a conversion cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
49
78) Which of the following is an example of a period cost in a company that makes clothing?
A) Fabric used to produce men's pants.
B) Advertising cost for a new line of clothing.
C) Factory supervisor's salary.
D) Monthly depreciation on production equipment.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
79) All of the following are examples of product costs except:
A) depreciation on the company's retail outlets.
B) salary of the plant manager.
C) insurance on the factory equipment.
D) rental costs of factory equipment.
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
80) Which of the following statements about product costs is true?
A) Product costs are deducted from revenue when the production process is completed.
B) Product costs are deducted from revenue as expenditures are made.
C) Product costs associated with unsold finished goods and work in process appear on the
balance sheet as assets.
D) Product costs appear on financial statements only when products are sold.
Answer: C
Difficulty: 3 Hard
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
50
81) Which of the following statements is correct in describing manufacturing overhead?
A) Manufacturing overhead when combined with direct materials cost forms conversion cost.
B) Manufacturing overhead consists of all manufacturing cost except for prime cost.
C) Manufacturing overhead is a period cost.
D) Manufacturing overhead when combined with direct labor cost forms prime cost.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
82) Direct labor cost is classified as:
A)
B)
C)
D)
Conversion cost
Yes
No
No
Yes
Prime Cost
Yes
No
Yes
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
51
83) The fixed portion of the cost of electricity for a manufacturing facility is classified as a:
A)
B)
C)
D)
Period cost
Yes
No
No
Yes
Product Cost
Yes
No
Yes
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
84) 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
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
52
85) Depreciation on a personal computer used in the marketing department of a manufacturing
company would be classified as:
A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is variable with respect to the company's output.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Preparing Financial Statements; Cost Classifications for
Predicting Cost Behavior
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.; 01-04 Understand cost classifications used to predict cost
behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
86) 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
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements; Cost Classifications for Decision
Making; Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements:
product costs and period costs.; 01-05 Understand cost classifications used in making decisions:
differential costs, sunk costs, and opportunity costs.; 01-04 Understand cost classifications used
to predict cost behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
53
87) Factory overhead is typically a(n):
A) mixed cost.
B) fixed cost.
C) variable cost.
D) irrelevant cost.
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
88) As the level of activity increases, how will a mixed cost in total and per unit behave?
A)
B)
C)
D)
E)
In Total
Increase
Increase
Increase
Decrease
Decrease
Per Unit
Decrease
Increase
No effect
Increase
No effect
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
54
89) The following data have been collected for four different cost items.
Cost at
100 units
$
8,000
$
5,000
$
6,500
$
6,700
Cost Item
W
X
Y
Z
$
$
$
$
Cost at
140 units
10,560
5,000
9,100
8,580
Which of the following classifications of these cost items by cost behavior is correct?
The costs of direct materials are classified as:
A)
B)
C)
D)
Cost W
variable
mixed
variable
mixed
Cost X
fixed
fixed
fixed
fixed
Cost Y
mixed
variable
variable
mixed
Cost Z
variable
mixed
variable
mixed
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: B
Difficulty: 3 Hard
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
55
90) Within the relevant range, variable costs can be expected to:
A) vary in total in direct proportion to changes in the activity level.
B) remain constant in total as the activity level changes.
C) increase on a per unit basis as the activity level increases.
D) increase on a per unit basis as the activity level decreases.
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
91) The relative proportion of variable, fixed, and mixed costs in a company is known as the
company's:
A) contribution margin.
B) cost structure.
C) product mix.
D) relevant range.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
92) An example of a committed fixed cost is:
A) management training seminars.
B) a long-term equipment lease.
C) research and development.
D) advertising.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
56
93) For the past 8 months, Jinan Corporation has experienced a steady increase in its cost per
unit even though total costs have remained stable. This cost per unit increase may be due to
________ costs if the level of activity at Jinan is ________.
A) fixed, decreasing
B) fixed, increasing
C) variable, decreasing
D) variable, increasing
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
94) Which of the following statements is true when referring to fixed costs?
A) Committed fixed costs arise from the annual decisions by management.
B) As volume increases, unit fixed cost and total fixed cost will change.
C) Fixed costs increase in total throughout the relevant range.
D) Discretionary fixed costs can often be reduced to zero for short periods of time without
seriously impairing the long-run goals of the company.
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
57
95) Which costs will change with a decrease in activity within the relevant range?
A) Total fixed costs and total variable cost.
B) Unit fixed costs and total variable cost.
C) Unit variable cost and unit fixed cost.
D) Unit fixed cost and total fixed cost.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
96) Which of the following is correct concerning reactions to INCREASES in activity?
A)
B)
C)
D)
Total Variable Cost
Increase
Constant
Decrease
Increase
Variable Cost Per Unit
Decrease
Decrease
Constant
Constant
A) Choice A
B) Choice B
C) Choice C
D) Choice D
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
58
97) For an automobile manufacturer, the cost of a driver's side air bag purchased from a supplier
and installed in every automobile would best be described as a:
A) fixed cost.
B) mixed cost.
C) step-variable cost.
D) variable cost.
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
98) Fixed costs expressed on a per unit basis:
A) increase with increases in activity.
B) decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
99) Within the relevant range, a difference between variable costs and fixed costs is:
A) variable costs per unit fluctuate and fixed costs per unit remain constant.
B) variable costs per unit are constant and fixed costs per unit fluctuate.
C) both total variable costs and total fixed costs are constant.
D) both total variable costs and total fixed costs fluctuate.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
100) A merchandising company typically will have a high proportion of which type of cost in its
59
cost structure?
A) Variable.
B) Fixed.
C) Mixed.
D) Step-variable.
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
101) When the level of activity decreases within the relevant range, the fixed cost per unit will:
A) decrease.
B) increase.
C) remain the same.
D) The effect cannot be predicted.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
60
102) Which of the following production costs, if expressed on a per unit basis, would be most
likely to change significantly as the production level varies?
A) Direct materials.
B) Direct labor.
C) Fixed manufacturing overhead.
D) Variable costs.
Answer: C
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
103) In the standard cost formula Y = a + bX, what does the "Y" represent?
A) total cost
B) total fixed cost
C) total variable cost
D) variable cost per unit
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
104) An example of a committed fixed cost would be:
A) taxes on real estate.
B) management development programs.
C) public relations costs.
D) advertising programs.
Answer: A
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
61
105) In the standard cost formula Y = a + bX, what does the "X" represent?
A) total cost
B) total fixed cost
C) the level of activity
D) variable cost per unit
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
106) One full-time clerical worker is needed for every 750 accounts receivable. The total wages
of the accounts receivable clerks is an example of a:
A) fixed cost.
B) step-variable cost.
C) mixed cost.
D) curvilinear cost.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
62
107) Which of the following is unlikely to be classified as a fixed cost with respect to the number
of units produced and sold?
A) Property taxes on a headquarters building.
B) Legal department salaries.
C) Cost of leasing the company's mainframe computer.
D) Production supplies.
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
108) Which of the following costs could contain both variable and fixed cost elements with
respect to the total output of the company?
A) Sales commissions.
B) Manufacturing overhead.
C) Direct materials.
D) Administrative salaries.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable
costs, fixed costs, and mixed costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
63
109) A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making; Cost Classifications for Predicting Cost
Behavior
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Decision Making
110) The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost.
B) indirect cost.
C) period cost.
D) sunk cost.
Answer: D
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making; Cost Classifications for Predicting Cost
Behavior
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Decision Making
64
111) Differential costs can:
A) only be fixed costs.
B) only be variable costs.
C) be either fixed or variable.
D) be sunk costs.
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making; Cost Classifications for Predicting Cost
Behavior
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Decision Making
112) All of the following can be differential costs except:
A) variable costs.
B) sunk costs.
C) opportunity costs.
D) fixed costs.
Answer: B
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making; Cost Classifications for Predicting Cost
Behavior
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential
costs, sunk costs, and opportunity costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Decision Making
65
113) Contribution margin is:
A) Sales less cost of goods sold.
B) Sales less variable production, variable selling, and variable administrative expenses.
C) Sales less variable production expense.
D) Sales less all variable and fixed expenses.
Answer: B
66