COST CONCEPTS

THEORY

10. The term "prime costs" refers to

a. The sum of direct labor costs and all factory overhead costs
b. The sum of direct materials costs and direct labor costs
c. Manufacturing costs incurred to produce units of output
d. All costs associated with manufacturing other than direct labor and direct materials costs

11. The term "conversion costs" refers to

a. Costs that are associated with marketing, shipping, warehousing, and billing activities
b. The sum of direct labor costs and all factory overhead costs
c. The sum of direct materials costs and direct labor costs
d. Manufacturing costs incurred to produce units of output

12. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred in the
current year is the
a. Cost of goods manufactured
b. Cost of goods available for sale
c. Total cost of work in process
d. Total manufacturing cost

13. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory

14. Cost of goods manufactured is calculated as follows

a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP
b. Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP
c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP
d. Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP

15. Which one of the following would not be classified as manufacturing overhead?
a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect materials

16. The wages of a timekeeper in the factory would be classified as

a. A prime cost
b. Direct labor
c. Indirect labor
d. Compliance costs

17. The product cost that is most difficult to associate with a product is
a. Direct materials
b. Direct labor
c. Manufacturing overhead
d. Advertising
 18. Product costs consist of
a. Conversion costs and unexpired expense
b. Prime costs and manufacturing overhead
c. Selling and administrative expenses
d. Period costs

19. Costs that are expensed when incurred are called

a. Product costs
b. Direct costs
c. Inventoriable costs
d. Period costs

20. Which of the following are period costs?

a. Raw materials
b. Prime costs
c. Conversion costs
d. Selling expenses

21. Costs that can be easily traced to a specific department are called
a. Direct costs
b. Indirect costs
c. Product costs
d. Manufacturing costs

22. Indirect costs

a. Can be traced to a cost object
b. Cannot be traced to a particular cost object
c. Are not important
d. Are always variable costs

ILLUSTRATIVE EXAMPLES:

1. The accounting records of Romel Company revealed the following costs: direct materials used,
P170,000; direct labor, P350,000; manufacturing overhead, P400,000; and selling and administrative
expenses, P220,000. The product costs total:
a. P 520,000
b. P 750,000
c. P 920,000
d. P 1,140,000

2. The accounting records of Harris Corporation revealed the following selected costs: Sales commissions,
P40,000; plant supervision, P94,000; and administrative expenses, P185,000. The period costs total:
a. P 40,000
b. P 94,000
c. P 185,000
d. P 225,000