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A)A cost
B)An expense
Feedback:
A cost may be defined as sacrifice made, usually measured by the
resources given up, to achieve a particular purpose. An expense is the
consumption of assets for generating revenue. LO 1
2 CORRECT
Product costs are:
Feedback:
A product cost is a cost assigned to goods that were either purchased or
manufactured for resale. The product cost is used to value the inventory
of manufactured goods or merchandise until the goods are sold. A
product cost is an "inventoriable" cost and is initially capitalized on the
balance sheet as part of the recorded value of the inventory. In the period
of the sale, the product costs are recognized as an expense called cost of
goods sold. The product cost of merchandise inventory acquired by a
retailer or wholesaler for resale consists of the purchase cost of the
inventory plus any shipping charges. The product cost of manufactured
inventory includes all of the costs incurred in its manufacture. LO2
3
INCORRECT Which of the following statements is true?
Product costs eventually affect both the balance sheet and the income
D)statement.
Feedback:
A product cost is an "inventoriable" cost and is initially capitalized on the
balance sheet as part of the recorded value of the inventory. In the period
of the sale, the product costs are recognized as an expense called cost of
goods sold. As such product costs eventually affect both the balance
sheet (i.e. inventory) and the income statement (COGS). Period costs are
identified with the period of time in which they are incurred rather than
with units of purchased or produced goods. Period costs are recognized
as expenses during the time period in which they are incurred and are
never recorded in the inventory account on the Balance Sheet. LO2
4
INCORRECT Manufacturers, such as Caterpillar, have three broad types of inventory
accounts showing up on their Balance Sheet. Which of the following
statements correctly depicts these accounts?
Feedback:
Manufacturers such as Caterpillar, have three types of inventory. Raw-
material inventory includes all materials before they are placed into
production. Work-in-process inventory refers to manufactured products
that are only partially completed at the date when the balance sheet is
prepared. Finished-goods inventory refers to manufactured goods that
are complete and ready for sale. LO 3
5
INCORRECT Which of the following types of business would not incur a product cost?
A)Retailer
B)Wholesaler
C)Manufacturer
D)Service provider
6
INCORRECT Which of the following types of business would not incur a period cost?
A)Retailer
B)Wholesaler
C)Manufacturer
D)Service provider
Feedback: All businesses (i.e. whether or not they own inventory) can
and will incur period cost. LO2
7
INCORRECT Which of the following statements is (are) correct?
8
INCORRECT Which of the following production processes is described as a production
process with high production volume, and with many standardized
components and/or customized combination of components?
A)Batch
B)Assembly line
C)Mass customization
D)Continuous flow
E)Job shop
Feedback:
The mass customization production process can be described as
production process with high production volume, with many standardized
components and/or customized combination of components. LO 4
9
INCORRECT Which of the following production processes is described as a process with
multiple products and low volume?
A)Batch
B)Assembly line
C)Mass customization
D)Continuous flow
E)Job shop
Feedback:
The batch production process can be described as a production process
with multiple products and low volume. LO 4
10
INCORRECT Which of the following costs is a conversion cost?
A)Direct materials
Feedback:
Conversion cost is the total of direct labor cost and manufacturing
overhead costs, which includes indirect material, indirect labor, and other
manufacturing costs. Factory rent is an "other manufacturing costs."
Office management is a period cost, not a product cost. LO 5
11
INCORRECT Consider the following taken from a schedule of cost of goods manufactured:
A)$50,000
B)$82,000
C)$70,000
D)$35,000
E)$65,000
12
INCORRECT Consider the following taken from a schedule of cost of goods manufactured:
A)$55,000
B)$65,000
C)$15,000
D)$100,000
13
INCORRECT Consider the following:
A)Cost A
B)Cost B
C)Cost C
D)Cost A and C
Feedback:
A variable cost changes in total in direct proportion to a change in the
level of activity (or cost driver) and remains unchanged per unit of
activity. Cost B is a fixed cost-it remained unchanged in total at different
levels of activity and varied inversely per unit with increases in activity
levels. Cost C is neither a variable cost nor a fixed cost. LO 8
14
INCORRECT Which of the following refers to a cost that can be substantially influenced by
a manager?
A)Sunk cost.
B)Direct cost.
C)Opportunity cost.
D)Controllable cost.
E)Sunk cost
Feedback:
A cost that can be controlled or heavily influenced by a manager is called
a controllable cost. LO 9
15
CORRECT Which of the following refers to a cost that is a benefit sacrificed when the
choice of one action precludes taking an alternative course of action?
A)Out-of-pocket cost.
B)Direct cost.
C)Opportunity cost.
D)Controllable cost.
Feedback:
An opportunity cost is a benefit sacrificed when the choice of one action
precludes taking an alternative course of action. LO 10