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WorksheetsManufacturing Costs Quiz
Total questions: 98
Worksheet time: 49mins
For a manufacturing company, direct material costs may be included in ________.
direct materials inventory, work-in-process inventory, and finished goods inventory accounts
direct materials inventory only
both work-in-process inventory and finished goods inventory
merchandise inventory only
________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object.
Marketing costs incurred
Custom duties paid for the materials
Indirect manufacturing costs
Variable manufacturing costs
Which of the following statements is true?
A direct cost of one cost object will always be a direct cost of another cost object.
Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
All fixed costs are indirect costs.
All direct costs are variable costs.
The income statement of a manufacturing firm reports ________.
cost of goods sold
only manufacturing overhead costs
sales promotion costs only
inventoriable costs only
Which of the following is a fixed cost for an automobile manufacturing plant?
sales commissions
electricity used by assembly-line machines
tires
administrative salaries
Which of the following companies is part of the service sector of our economy?
Magnum
PwC
Technodom
Rahat
Indirect manufacturing costs ________.
can be traced to the product that created the costs
can be easily identified with the cost object
generally include the cost of material and the cost of labor
may include both variable and fixed costs
Product costs used for external reporting generally include ________.
research and development costs along with production costs
all costs incurred along the value chain
design costs plus manufacturing costs
manufacturing costs only
For merchandising companies, inventoriable costs include ________.
incoming freight costs
distribution costs
outgoing freight costs
sales costs
Which of the following formulas determine cost of goods sold in a manufacturing entity?
Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold
Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods sold
Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process inventory = Cost of goods sold
Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold
Which of the following is a period cost?
direct material cost
indirect manufacturing costs like plant insurance
sales promotion expenses
direct labor cost
Classifying a cost as either direct or indirect depends upon ________.
whether a cost is fixed or variable
whether the cost can be easily traced with the cost object
the behavior of the cost in response to volume changes
whether the cost is expensed in the period in which it is incurred
Which of the following factors affect the direct/indirect classification of a cost?
the estimation of time required to complete the order
the ability to execute an order in the most cost-efficient manner
the design of the operation
the level of budgeted profit for the next year
Conversion costs include ________.
direct manufacturing labor and manufacturing overhead costs
direct materials and direct manufacturing labor costs
only direct materials
direct materials and manufacturing overhead costs
Manufacturing overhead costs are also referred to as ________.
direct manufacturing costs
prime costs
indirect manufacturing costs
direct material
For external reporting ________.
costs are classified as either inventoriable or period costs
there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers
Inventoriable costs are expensed on the income statement ________.
when direct materials for the product are purchased
after the products are manufactured
when the goods move from work-in-process to finished goods account
when the products are sold
The planned operating income is calculated by ________.
dividing net income by tax rate
dividing net income by 1 − tax rate
multiplying net income by 1 − tax rate
multiplying net income by tax rate
Which of the following is the mathematical expression of contribution margin ratio?
Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
Contribution margin ratio = Contribution margin percentage × Fixed costs (in dollars)
Contribution margin ratio = Contribution margin percentage × Variable costs (in dollars)
Contribution margin ratio = Contribution margin percentage × Operating leverage
Which of the following is true of CVP analysis?
Costs may be separated into separate inventoriable and period components with respect to the level of output.
Proportion of different products will vary according to demand and supply when multiple products are sold.
Unit selling price, unit variable costs, and unit fixed costs are known and remain constant.
Total revenues and total costs are linear in relation to output units.
Contribution margin equals ________.
revenues minus fixed costs
revenues minus product costs
revenues minus variable costs
revenues minus period costs
If a company would like to increase its degree of operating leverage it should ________.
increase its variable costs relative to its fixed costs
increase its sales relative to its variable costs
increase its sales relative to its fixed costs
increase its fixed costs relative to its variable costs
At breakeven point, ________.
breakeven revenues equal fixed costs divided by the variable cost per unit
contribution margin minus fixed costs is equal to profits earned
operating income is equal to zero
revenues equal fixed costs minus variable costs
Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________.
total fixed costs increase
total variable costs increase
total revenues increase
total fixed costs decrease
Managers use cost-volume-profit (CVP) analysis to ________.
forecast the cost of capital for a given period of time
estimate the risks associated with a given job
analyse a firm's profitability and help to decide wealth distribution among its stakeholders
study the behavior of and relationship among the elements such as total revenues, total costs, and income
The selling price per unit less the variable cost per unit is the ________.
margin of safety
contribution margin per unit
gross margin
fixed cost per unit
The contribution margin income statement ________.
reports gross margin
categorizes costs as either direct or indirect
can be used to predict future profits at different levels of activity
is allowed for external reporting to shareholders
Assume only the specified parameters change in a cost-volume-profit analysis. If the contribution margin increases by $6 per unit, then ________.
operating profits increases by $6 per unit
operating profits decreases by $6 per unit
fixed costs decreases by $6 per unit
fixed costs increases by $6 per unit
In CVP analysis, focusing on target net income rather than operating income ________.
will help managers construct a better capital policy
will increase the breakeven point
will not change the breakeven point
will decrease the breakeven point
Which of the following will increase a company's breakeven point?
increasing the selling price per unit
increasing variable cost per unit
reducing its total fixed costs
increasing contribution margin per unit
Which of the following is an assumption of CVP analysis?
The unit-selling price is variable as it is subject to demand and supply
Total costs can be divided into inventoriable and period costs with respect to the level of output
Total costs can be divided into a fixed component and a component that is variable with respect to the level of output
When graphed, total costs curve upward
All else being equal, a reduction in selling price will ________.
increase contribution margin
reduce fixed costs
reduce operating income
increase variable costs
Fixed costs ________.
are considered variable costs over the long run
provide less operating leverage
reduce the risk of loss
are graphed as a steeply sloped line
In a company with low operating leverage, ________.
fixed costs are more than the contribution margin
contribution margin and operating income are inversely related
less risk is assumed than in a highly leveraged firm
there is a higher possibility of net loss than a higher-leveraged firm
Which of the following is true about the assumptions underlying basic CVP analysis?
Only selling price, variable cost per unit, and total fixed costs are known and constant.
Only selling price and variable cost per unit are known and constant.
Selling price, variable cost per unit, fixed cost per unit, and total fixed costs are known and constant.
Selling price varies with demand and supply of the product.
Which of the following forms a part of decision making in CVP analysis?
selection of inventory method for financial reporting purposes
decision to form a capital policy
decision to advertise
decision to improve the efficiency of the work force
A revenue driver is defined as ________.
any factor that affects revenues
any factor that affects costs and revenues
the only factor that can influence a change in selling price
the only factor that can influence a change in demand
To apply CVP analysis in the hotel industry, which of the following is the most important measure of output ________.
number of employees
number of room-nights occupied
number of visitors
number of dishes on the menu
One of the first steps to take when using CVP analysis to help make decisions is ________.
identifying the variable and fixed cost
calculating the break-even point
estimating the volume of sales to make a good profit
calculation of the degree of operating leverage for the company
All else being equal, an increase in advertising expenditures will ________.
increase variable costs
reduce operating income
increase selling price
reduce contribution margin
Globus Autos sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. If a change is made in one parameter of CVP analysis, it is an example of ________.
multiple cost drivers
incremental budgeting
sensitivity analysis
variance analysis
Which of the following is true of net income?
Net income is operating income minus nonoperating revenues minus nonoperating costs minus sales taxes.
Net income is operating income plus operating revenues minus operating costs minus income taxes.
Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.
Net income is operating income minus operating revenues minus operating costs minus income taxes.
The margin of safety is the difference between ________.
budgeted revenues and breakeven revenues
actual sales margin and budgeted sales margin
actual operating income and budgeted operating income
budgeted expenses and breakeven expenses
Gross margin is ________.
sales revenue less variable costs
contribution margin less variable costs
sales revenue less cost of goods sold
contribution margin less fixed costs
When a greater proportion of costs are fixed costs, then ________.
a small increase in sales results in a small decrease in operating income
when demand is low the risk of loss is high
a decrease in sales reduces the cost per unit
a decrease in sales reduces the total fixed cost per unit
In the manufacturing sector, ________.
fixed overhead costs are subtracted to determine contribution margin
all operating costs are subtracted to determine contribution margin
only variable costs are subtracted to determine gross margin
fixed overhead costs are subtracted to determine gross margin
In the merchandising sector ________.
only variable costs are subtracted to determine gross margin
fixed overhead costs are subtracted to determine contribution margin
all operating costs are subtracted to determine contribution margin
fixed overhead costs are subtracted to determine gross margin
The breakeven point revenues is calculated by dividing ________.
total revenues by fixed costs
fixed costs by total revenues
fixed costs by contribution margin percentage
contribution margin percentage by fixed costs
The breakeven point decreases if ________.
the variable cost per unit increases
the total fixed costs decrease
the contribution margin per unit decreases
the selling price per unit decreases
If unit outputs exceed the breakeven point ________.
there will be a profit
there will be an increase in fixed costs
total sales revenue will exceed variable costs
total sales revenue will exceed fixed costs
The breakeven point is the activity level where ________.
revenues equal the sum of variable and fixed costs
revenues equal variable costs
revenues equal fixed costs
contribution margin equals total costs
Breakeven point in units is ________.
total costs divided by profit margin per unit
contribution margin per unit divided by total cost per unit
the sum of fixed and variable costs divided by contribution margin per unit
fixed costs divided by contribution margin per unit
Multiple cost drivers ________.
can utilize the simple CVP formula
have only one revenue driver
are the result of multiple products
have no unique breakeven point
In multiproduct situations, when sales mix shifts toward the product with the lowest contribution margin then ________.
total revenues will increase
operating income will decrease
interest cost will decrease
total contribution margin will increase
The only factor that can influence a change in demand is ________.
contribution margins and fixed costs
income tax expense and net income
net income and dividends
nonoperating revenues and nonoperating expenses
Which of the following is true of cost-volume-profit analysis?
The theory states that total variable costs remain the same over a relevant range
The theory assumes that all costs are variable
The theory assumes that units manufactured equal units sold
The theory states that total costs remain the same over the relevant range
For a given job, the direct costs associated with the job are ________.
sunk costs
actual overhead
raw materials
fixed costs
An increase in direct labor cost per unit ________.
increases profits
increases the fixed cost
increases the variable cost
increases overhead costs
The budgeted indirect-cost rate is calculated ________.
at the end of the year
at the beginning of the year
at the end of each quarter
during the year
The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods sold is called ________.
the proration approach
the write-off of cost of goods sold approach
the weighted-average cost approach
the adjusted allocation rate approach
Job costing is ________.
used to calculate equivalent units
used by businesses to price identical products
used by businesses to price unique products for different jobs
used to calculate the percentage of work completed
Assigning direct costs to a cost object is called ________.
cost pooling
cost tracing
cost absorption
cost allocation
cost assignment
The actual indirect-cost rate is calculated by ________.
multiplying actual total indirect costs by the actual total quantity of the cost-allocation base
multiplying the actual total quantity of the cost allocation base by actual total indirect costs
dividing the actual total quantity of the cost allocation base by actual total indirect costs
dividing actual total indirect costs by the actual total quantity of the cost-allocation base
A job that shows low profitability may be the result of ________.
overpricing the job
insurance claim of the damaged goods
excessive usage of direct materials
inefficient direct manufacturing labor
Which of the following statements about actual costing is true?
Corrective actions can be implemented sooner under actual costing.
Manufacturing costs of a job are available earlier under actual costing.
Actual costing uses actual indirect-cost rates calculated annually.
Actual costing uses budgeted indirect-cost rates calculated annually.
When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.
actual; actual
actual; budgeted
budgeted; actual
budgeted; budgeted
Product costing information will include ________.
for efficient human resource management
to increase profits
to increase sales and image of the company
to increase sales and image of the company
In a costing system, ________.
a cost-allocation base can be either financial or nonfinancial
cost tracing allocates indirect costs
cost allocation assigns direct costs
a cost object should be a product and not a department or a geographic territory
The difference between actual costing and normal costing is ________.
normal costing uses actual quantities of direct-costs
normal costing uses budgeted indirect-costs
actual costing uses actual quantities of cost-allocation bases
actual costing uses actual quantities of direct-costs
The ________ adjusts individual job-cost records to account for underallocated or overallocated overhead.
write-off to cost of goods sold approach
weighted-average cost approach
proration approach
proration approach
The adjusted allocation approach yields the benefits of ________.
the proration approach
timeliness and convenience of normal costing
allocating budgeted manufacturing overhead costs at the end of the year
write-off to the cost of goods sold approach
The Materials Control account is increased when ________.
materials are converted to finished goods
materials are written off as obsolete
indirect materials are sold
direct materials are purchased
materials are requisitioned for production
The cost allocation base ________.
are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way
is a grouping of individual indirect cost items
is anything for which a measurement of costs is desired
is a systematic way to link an indirect cost or group of indirect costs to cost objects
Costs that are subject to short-run fluctuations for given jobs are ________.
budgeted direct costs
actual costs
budgeted indirect costs
normal costs
When the allocated amount of indirect costs are less than the actual amount, indirect costs have been ________.
within budget
overallocated
underallocated
perfectly allocated
Job-costing is likely to be used by ________.
beverage production companies
advertising agencies
oil refining companies
postal service companies
Job costing information is used ________.
to determine tax rates
to enhance public relations
to calculate the percentage of completion
to set government policy
for internal financial reporting
Which of the following includes both traced direct costs and allocated indirect costs?
cost allocations
cost assignments
cost pools
cost tracing
The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called _______.
the adjusted allocation rate approach
the write-off of cost of goods sold approach
the weighted-average cost approach
the proration approach
Job costing _______.
cannot be used by the service industry
is used when each unit of output is identical
records the flow of costs for each product or service
allocates an equal amount of cost to each unit made during a time period
The basic source document for direct manufacturing labor is the _______.
labor-time record
materials-requisition record
labor-requisition record
job-cost record
Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates?
shorter the period, the greater is the influence of seasonal patterns on the amount of costs
longer the period, the greater is the influence of seasonal patterns on the amount of costs
shorter the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs
longer the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs
Which of the following companies will use a process costing system?
a manufacturer of ships
a custom watch manufacturer
an oil refining company
an advertising firm
In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the _______ allocated to a job.
manufacturing overhead costs
total costs
direct labor
direct materials
A _______ is a grouping of individual indirect cost items.
cost allocations
cost pools
cost tracing
cost assignments
Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs: A. Identify indirect costs; B. Compute the total cost of the job; C. Select cost-allocation bases; D. Compute the indirect cost rate.
CADB
ACDB
DCAB
BACD
The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.
adjusted write-off approach
adjusted allocation-rate approach
proration approach
write-off to cost of goods sold approach
A ________ links an indirect cost to a cost object.
cost tracing
cost assignment
cost-allocation base
cost pool
Actual costing is a costing system that traces direct costs to a cost object by ________.
using the budgeted direct cost rates times the actual quantities of the direct-cost inputs
using the actual direct cost rates times the actual quantities of the direct-cost inputs
using the actual direct cost rates times the budgeted quantities of the direct-cost inputs
using the budgeted direct cost rates times the budgeted quantities of direct-cost inputs
Management accountants use the cost hierarchy to first calculate the ________.
labor costs of each product and then they compute material costs
overhead costs of each product and then they compute prime costs
total costs of each product and then they compute per-unit costs
factory costs of each product and then they compute labor costs
It is usually difficult to find good cause-and-effect relationships between ________ and a cost allocation base.
product-sustaining costs
facility-sustaining costs
batch-level costs
unit-level costs
A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is ________.
number of parts used
direct labor hours
machine hours
total production volume
Activity-based costing information can be used for ________.
Pricing decisions
Weather forecasting
Space exploration
Cooking recipes
Which of the following statements is true of ABC systems?
ABC system will always result in higher product costs.
ABC system is least suited for service companies.
ABC system is simpler compared to traditional systems.
ABC system is best suited for manufacturing companies.
Which of the following is true of refinement of a costing system?
A homogeneous cost pool will use multiple cost drivers to allocate costs.
It reduces the use of broad averages for assigning the cost of resources to cost objects.
While refining a costing system, companies should identify as many indirect costs as is economically feasible.
It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs.
It only makes sense to implement an ABC system when ________.
A single product is produced in bulk.
It traces more costs as direct costs.
The company has unlimited resources.
Production process is labor-intensive.
Its benefits exceed its implementation costs.
Activity-based costing system differs from traditional costing systems in the treatment of ________.
Indirect costs
Direct material costs
Prime costs
Direct labor costs
Which of the following statements is true of ABC systems?
ABC systems assume all costs are variable costs.
Which of the following statements is true of ABC systems?
ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs.
ABC systems are time-driven cost systems.
