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2. COST CLASSIFICATION - I

1. Direct costs are costs that

a) are carefully predetermined and usually expressed on a per-unit basis

b) relate specifically to a particular cost object
c) change in total in direct proportion to changes in a cost drive
d) are unavoidable and cannot be changed no matter what action is taken
e) differ among alternative courses

2. In the preparation of a quality cost summary or analysis, which of the following costs
would NOT be relevant?

a) Product or service failure costs which were detected before the customer
used the product or service.
b) Product or service failure costs which are incurred after the product or
service is in the hands of customer.
c) Costs associated with appraising the state of the product or service.
d) Costs associated with preventing the occurrence of a failure.
e) none of the above

3. Direct labor is an example of

a) a prime cost
b) a sunk cost
c) a conversion cost
d) both a & c

4. An example of fixed period cost is the

a) cost of direct material

b) property insurance on the corporate offices
c) factory depreciation
d) factory supervisor wages

5. Which cost varies inversely with changes in the level of business activity?

a) variable cost per unit

b) total variable cost
c) fixed cost per unit
d) total fixed cost
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6. Commissions paid to salespersons is considered

a) a fixed cost
b) a product cost
c) a period cost
d) indirect labor

7. Which of the following would NOT usually be considered a product cost?

a) property taxes on factory building

b) direct materials
c) indirect labor
d) advertising

8. Which statement describes a fixed cost?

a) it varies in total at every level of activity

b) the unit cost varies directly to the activity level
c) its unit cost varies inversely to the level of activity
d) it remains the same per unit regardless of activity level

9. Manufacturing overhead costs are allocated to individual jobs because

a) manufacturing overhead is a period cost, not a job cost

b) it is more accurate to estimate costs.
c) there is no reasonable way to trace the manufacturing overhead costs
to the jobs
d) the actual overhead costs are not determinable

10. Which of the following are considered the three manufacturing costs

a) raw materials, work in process, finished goods

b) direct materials, direct labor, and manufacturing overhead
c) raw materials, direct and indirect labor, and factory overhead costs
d) work in process, finished goods, and cost of goods sold

11. An understatement of WIP inventory at the end of a period will:

a) understate cost of goods manufactured in that period

b) overstate current assets
c) overstate gross profit from sales in that period
d) understate income for that period
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12. If the WIP has increased during the period:

a) CGS will be greater than CGM

b) CGM will be greater than CGS
c) manufacturing cost for the period will be greater than CGM
d) manufacturing cost for the period will be less than CGM

13. The costs of statistical quality control in a quality costing system are categories as

a) external failure costs.

b) internal failure costs.
c) training costs
d) prevention costs
e) appraisal costs

14. What is the outcome if the cost of goods sold is greater than the cost of goods
manufactured?

a) Work-in-process inventory has decrease during the period.

b) Finished goods inventory has increased during the period.
c) Total manufacturing cost must be greater than cost of goods
manufactured.
d) Finished goods inventory has decrease during the period.

15. Which of the following statements is not true?

I. The following costs should be considered by a law firm to be indirect

costs of defending a particular client in court; rent on the law firm’s
offices, the law firm’s receptionist’s wages, the costs of heating the law
firm’s offices, and the amortization on the personal computer in the office
of the lawyer who has been assigned the client.

II. When goods are sold, the transaction is recorded as a debit to Cost of
Goods sold and credit to Work in Process.

a) Only I
b) Only II
c) Neither I or II
d) Both I and II
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16. An outlier may represent a cost that is

a) leaked to competition and is intentionally distorted

b) incurred outside the factory but, because of the purpose for which it is
incurred, is really a product cost
c) non-representative of actual costs and is not good predictor of other
costs
d) incurred inadvertently through management error

17. Opportunity costs are:

a) not used for decision making

b) the same as variable costs
c) equal to historical costs
d) fixed costs
e) relevant to decision making

18. Which of the following is not considered a sunk cost?

a) joint production costs incurred, to be considered in a sell-at-split-off

versus a process-further decision.
b) research and development costs incurred in prior months, to be
considered in a product-introduction decision
c) the cost of obsolete inventory acquired several years ago, to be
considered in a keep-versus-disposal decision.
d) the cost of a special devise that is necessary if a special order is
accepted.

19. An example of a semi variable cost would be:

a) Electricity cost
b) The costs of material to be used for production
c) The salaries of supervisors in a department
d) The costs of issuing assets

20. A cost which remains constant per unit at various levels of activity is a

a) Variable cost
b) Fixed cost
c) Mixed cost
d) Manufacturing cost
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21. Both direct materials and indirect materials are classified as

a) Raw materials
b) Manufacturing overhead
c) Merchandise inventory
d) Non-Current assets

22. Which one of the following costs would not be included in inventory?

a) Period costs
b) Prime costs
c) Conversion costs
d) Indirect labor costs

23. Product costs are also called

a) Direct costs
b) Prime costs
c) Inventorial cost
d) Capitalized cost