46 Cost Accounting TRUE-FALSE QUESTIONS Indicate whether the following statements are true or false by inserting in the blank space provided a capital “T” for true or “F” for false. 1, The materials, labor, and overhead costs incurred to produce a product are called period costs. ___.2. Marketing, Selling, and Administrative Costs are the three broad classifications of costs incurred by a manufacturing company. 3. Lumber can be both a finished product and a material. 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. _ 6. Period costs are found in both merchandising and manufacturing firms. 7. The three cost clements of manufactured goods are direct materials, direct labor, and marketing costs 8. A cost that is present under one alternative but absent in whole or part under another alternative is known as a differential cost. 9. Like product costs, period costs are not necessarily treated as expenses in the period in which they are incurred. _10. Variable costs are costs that change, in total, in direct proportion to changes in the level of activity ____I1. The salary paid to the manager in charge of a warehouse is probably a variable cost. _— 12. Indirect materials/factory supplies are classified as administrative expense. _..13, The salary paid to a factory foreman is classified as factory overhead. ___14. Ina manufacturing setting, prime costs are fixed 13. Fixed cost remains constant if expressed on a unit basis. _...16. Differential costs can be either fixed or variable _.17. A fixed cost is constant per unit of product. . A decrease in production will ordinarily result in an increase in fixed production cost per unit. 19. A factory supervisor's salary would be classified as a direct cost of a unit of product. 20. Factory rent is included in manufacturing overhead, but office rent is a period cost.Chapter 2 Cost - Concepts and Classification 47 MULTIPLE CHOICE Direct materials cost is a Conversion cost Prime cost a. No No b. No Yes c. Yes Yes d. Yes No 2. Direct labor cost is a Conversion cost Prime cost a. No No b. No Yes: c. Yes Yes d. Yes, No 3. Indirect labor is a a. Prime cost. b. Conversion cost. c. Period cost. d. Non-manufacturing cost. 4. Ina job cost system, manufacturing overhead is ‘An indirect cost ofjobs A necessary element of production a. No Yes b. No No c. ‘Yes Yes d. Yes No uw Prime cost and conversion cost share what common element of total cost? a. Variable overhead. b. Fixed overhead. ¢. Direct materials. d. Direct labor.48 Cost Accounting 6. Which of the following is an element of prime cost? t materials Direct labor a Yes Yes b. Yes No c. No Yes d No No 7. Wages paid to factory machine operators of a manufacturing plant are an element of Conversion cost No Yes No Yes with changes in volume include 8. Costs that vary inversely a. Total variable costs. b. Total variable costs divided by volume. c. Total fixed costs. d. Total fixed costs divided by volume. 9. When a unit of product is the cost object, factory overhead generally is: a. A direct manufacturing cost. b. An indirect manufacturing cost. c. Both of the above. d. None of the above. 10. Factory rent is a. A prime cost and an inyentoriable cost. b. A prime cost and a period cost c. A conversion cost and an inventoriable cost. d. A conversion cost and a period cost.Chapter 2 Cost — Concepts and Classification 49 11. Examples of factory overhead costs are a. Lubricants for factory machinery. b. Depreciation of factory machinery. c. Both of the above d. None of the above 12. In general, the cost that could usually be most reliably predicted is: a. Variable cost per unit. b. Fixed cost per unit c. Total variable cost. d. Total fixed cost. 13. Factory supplies used would be an example of which of the following? Prime cost Conversion cost a Yes ‘Yes b Yes No c. No Yes d. No No 14. Fora manufacturing company, which of the following is an example of a period rather than a product cost? a. Depreciation of factory equipment. b. Wages of a salesperson. c, Wages of machine operators. d._ Insurance on factory equipment. 15, The variable portion of the semi-variable cost of electricity fora manufacturing plant is a: Conversion cost Period cost a Yes No b. Yes Yes ¢. No Yes d No No50 Cost Accounting 16. Indirect costs are also known as a. Differential costs b. Common costs ¢. Opportunity costs d. Sunk costs 17. Variable cost @. increases on a per unit basis as the number of units produced increases. b. is constant if expressed on a per unit basis. ©. remains the same in total as production increases. 4. is not affected by changes in activity from period to period. 18. 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 the factory facility. 19. The distinction between indirect and direct costs depends on a. whether a cost is controllable or non-controllable. b. whether a cost is variable or fixed. ¢. whether a cost is a product or a period cost. d. whetheracost can be conveniently and physically traced to a unit under consideration. 20. Which of the following should not be included as manufacturing overhead in the manufacture of a wooden chair? a. Glue in the chair b. The amount paid to the in ial who stains the chair ¢. The workman's compensation insurance of the supervisor who oversees production f d. The factory utilities of the department in which production takes placeChapter 2 Costs — Concepts and Classification 51 21. The following costs relate to Antonio Industries for the last quarter: Conversion cost P-435,000 Direct materials 215,000 Manufacturing overhead 190,000, Selling and administrative expense 185,000 What is Antonio's prime cost for last quarter? a. P 460,000 b. P410,000 c. P 405,000 d. P375,000 22. Antonio’s total manufacturing cost is a. P 460,000 b. P 645,000 c. P650,000 dP. 840,000 23. Antonio's total period cost is a. P 185,000 b. P. 275,000 c. P-400,000 dP. 620,000 24. Transportation costs incurred to get the finished product to the customer would be: a. amarketing or selling expense b. aconversion cost ¢. aperiod cost d. both A and C 25. Three costs, one variable, onc fixed, and one mixed (semi-variable), were at the health spa working out. One of the costs complained, “It seems like the more I work out, the bigger my total cost gets.” Which cost is talking? a. the fixed cost b. the variable cost c. the mixed cost d. either the mixed or the variable cost52 Cost Accounting Milktopia, Inc. produces and sells milk flavored bubble gum. Over the last five months Milktopia had the following production costs and production volume... Month Cost Volume (in March P 6,000 12 April 6,659 14 May 8,370 18 June 8,800 19 July 8,050 17 26: Using the high-low method, what is the fixed cost per month for bubble gum. production? aP 400 c. 4,800 6. P 1,200 d. P 7,600 27. The variable cost per case is aP 400 ¢. P 1,200 bP 600 d. P2,800 Justine Co. produced 5,500 outdoor chairs for Job Order No. 610. Total material cost was P 51,700. Each chair required 2.2 hours of direct labor at P8.90/ hour. A total of P 53,845 of factory overhead was traced to Order 610. 28. What is the prime cost per unit of this order? a. P1958 c. P 29.37 b. P 28.98 d. P 38.77 29. Whaat is the conversion cost per unit of this order? a P1958 c. P29.37 b. P2898 d. P38.77 30. What is the unit cost of this order? a P3788 c. P 28.09 b. P3877 d. P 36.99