True or False
Indicate whether the following statements are true or false by writing capital “T” for true
or “F” for false. Put your answer beside the number.
F
1. The materials, labor, and overhead costs incurred to produce a product are called period
costs.
F
2. Marketing, Selling, and Administrative Costs are the three broad classifications of costs
incurred by a manufacturing company.
T 3. Lumber can be both a finished product and a material.
F
F
4. Product cost consists of the sum of prime cost and conversion cost.
5. Total fixed costs decrease with increase in the number of units produced and increase
with decrease in output.
T 6. Period costs are found in both merchandising and manufacturing firms.
F
7. The three cost elements of manufactured goods are direct materials, direct
labor, and marketing costs.
T 8. A cost that is present under one alternative but absent in whole or part under
another alternative is known as a differential cost.
F
9. Like product costs, period costs are not necessarily treated as expenses in the period
in which they are incurred.
T
10. Variable costs are costs that change, in total, in direct proportion to changes in
the level of activity.
F
11. The salary paid to the manager in charge of a warehouse is probably a variable cost.
F
12. Indirect materials/factory supplies are classified as administrative expense.
T 13. The salary paid to a factory foreman is classified as factory overhead.
F
14. In a manufacturing setting, prime costs are fixed.
F
15. Fixed cost remains constant if expressed on a unit basis.
T 16. Differential costs can be cither fixed or variable
F
T
17. A fixed cost is constant per unit of product.
18. A decrease in production will ordinarily result in an increase in fixed production cost
per unit.
F
19. A factory supervisor's salary would be classified as a direct cost of a unit of product.
T 20. Factory rent is included in manufacturing overhead, but office rent is a period cost.
Classify the following selected costs by completing the table below, (a) Variable or fixed (b)
Product or Period costs (c) Direct or indirect in relation to units of product.
1 Wood is used in the manufacture of the tables, at a cost P 100 per table.
2 The tables are assembled by workers, at a cost of P 40 per table.
3 Workers assembling the tables are supervised by a factory supervisor who is P25,000 per
month.
4 Electrical costs of P 20 per machine hour are incurred in the factory in the manufacture
of the tables. (4 machine hours per table)
5 The depreciation cost of the machines used in the manufacture of the tables is P 40,000 a
year.
6 The salary of the president of the company is P100,000 a month.
7 The company spends P 250,000 per year to advertise its products
8 Salespersons arc paid a commission of P300 for each table sold
9 Rent paid for the factory building is P 20,000 a month.
10 Insurance premiums paid for the general office is P15,000 a year.
1. Wood
2. Salary - workers
3. Supervisor's salary
4. Electrical costs
5. Depreciation-machines
6. President' salary'
7. Advertising expense
8. Sales commission
9. Rent expense
10. Insurance premiums
(a) V or F
V
F
F
V
F
F
F
V
F
F
(b) Product or Period
Product
Product
Product
Product
Product
Period
Period
Period
Product
Period
(c) D or I
D
D
I
I
I
I
I
I
I
I