cost accounting test bank chapter 2

24) Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item. Cost Cost Nonmanu- Item Tracing Allocation facturing

Carpenter wages ________ ________ ________ Depreciation - office building ________ ________ ________ Glue for assembly ________ ________ ________ Lathe department supervisor ________ ________ ________ Lathe depreciation ________ ________ ________ Lathe maintenance ________ ________ ________ Lathe operator wages ________ ________ ________ Lumber ________ ________ ________ Samples for trade shows ________ ________ ________ Metal brackets for drawers ________ ________ ________ Factory washroom supplies ________ ________ ________ Answer: Cost Cost Nonmanu- Item Tracing Allocation facturing

Carpenter wages X Depreciation - office building X Glue for assembly X Lathe department supervisor X Lathe depreciation X Lathe maintenance X Lathe operator wages X Lumber X Samples for trade shows X Metal brackets for drawers X Factory washroom supplies X

Diff: 2

Objective: 2

AACSB: Application of knowledge

25) What are the factors that affect the classification of a cost as direct or indirect? Answer: Several factors affect whether a cost is classified as direct or indirect:

The materiality of the cost in question. The smaller the amount of a cost–that is, the more immaterial the cost is–the less likely it is economically feasible to trace it to a particular cost object.

Available information-gathering technology. Improvements in information-gathering technology make it possible to consider more and more costs as direct costs.

Design of operations. Classifying a cost as direct is easier if a company's facility (or some part of it) is used exclusively for a specific cost object, such as a specific product or a particular customer.

Diff: 3

Objective: 2

AACSB: Analytical thinking

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26) What are the differences between direct costs and indirect costs? Give an example of each.

Answer: Direct costs are costs that can be traced easily to the product manufactured or the service rendered. Examples of direct costs include direct materials and direct manufacturing labor used in a product. Indirect costs cannot be easily identified with individual products or services rendered, and are usually assigned using allocation formulas. In a plant that manufactures multiple products, examples of indirect costs include the plant supervisor's salary and the cost of machines used to produce more than one type of product.

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 2.3

1) Which of the following is true if the volume of sales increases? A) fixed cost increases B) variable cost decreases C) variable cost increases D) fixed cost decreases Answer: C

Diff: 1

Objective: 3

AACSB: Application of knowledge

2) Which of the following is a fixed cost? A) monthly rent payment B) electricity expenses C) travel expenses

D) direct material costs Answer: A

Diff: 1

Objective: 3

AACSB: Application of knowledge

3) Cost behavior refers to ________.

A) how costs react to a change in the level of activity

B) whether a cost is incurred in a manufacturing, merchandising, or service company C) classifying costs as either perpetual or period costs

D) whether a particular expense is expensed in the same or the following period Answer: A

Diff: 1

Objective: 3

AACSB: Analytical thinking

10

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4) Which of the following is true if the production volume decreases? A) fixed cost per unit increases B) average cost per unit decreases C) variable cost per unit increases D) variable cost per unit decreases Answer: A

Diff: 1

Objective: 3

AACSB: Application of knowledge

5) At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________.

A) are considered a variable cost B) are considered a fixed cost

C) depend on the scheduling of floor workers D) depend on the scheduling of production runs Answer: B

Diff: 1

Objective: 3

AACSB: Analytical thinking

6) Variable costs ________. A) are always indirect costs

B) increase in total when the actual level of activity increases C) include most personnel costs and depreciation on machinery D) are never considered a part of prime cost Answer: B

Diff: 1

Objective: 3

AACSB: Analytical thinking

7) Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%? A) profits are reduced by $4,000 B) profits are reduced by $1,000 C) profits are reduced by $5,000 D) profits are reduced by $6,000 Answer: A

Explanation: A) Variable cost per unit = $10,000 / 50 = $200 Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000) = $10,000 Sales after 10% drop = 50 × (1 - 0.10) = 45

Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))= $6,000

Change in profit = $10,000 - $6,000 = $4,000. Hence, the profit has decreased by $4,000.

Diff: 3

Objective: 3

AACSB: Application of knowledge

11

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8) Fixed costs depend on the ________. A) amount of resources used B) amount of resources acquired C) volume of production D) total number of units sold Answer: B

Diff: 1

Objective: 3

AACSB: Analytical thinking

9) Which one of the following is a variable cost for an insurance company? A) rent of the building B) CEO's salary

C) electricity expenses D) property taxes Answer: C

Diff: 1

Objective: 3

AACSB: Application of knowledge

10) Which of the following is a fixed cost for an automobile manufacturing plant? A) administrative salaries

B) electricity used by assembly-line machines C) sales commissions D) tires

Answer: A

Diff: 1

Objective: 3

AACSB: Application of knowledge

11) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.

A) considered to be a direct fixed cost B) considered to be a direct variable cost C) considered to be an indirect fixed cost D) considered to be an indirect variable cost Answer: B

Diff: 1

Objective: 3

AACSB: Application of knowledge

12) The most likely cost driver of distribution costs is the ________. A) number of parts within the product B) number of miles driven

C) number of products manufactured D) number of production hours Answer: B

Diff: 1

Objective: 3

AACSB: Application of knowledge

12

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