10) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________. A) material used to make the soccer balls
B) labor to shape the leather used to make the soccer ball C) material used to manufacture the soccer studs D) salary paid to plant supervisor Answer: D
Diff: 1
Objective: 2
AACSB: Application of knowledge
11) Which one of the following items is a direct cost?
A) Customer-service costs of a multiproduct firm; Product A is the cost object.
B) Printing costs incurred for payroll check processing; payroll check processing is the cost object. C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.
D) Utility costs of the administrative offices; the accounting department is the cost object. Answer: B
Diff: 1
Objective: 2
AACSB: Application of knowledge
12) Indirect manufacturing costs ________.
A) can be traced to the product that created the costs B) can be easily identified with the cost object
C) generally include the cost of material and the cost of labor D) may include both variable and fixed costs Answer: D
Diff: 1
Objective: 2
AACSB: Application of knowledge
13) Which of the following is true of indirect costs? A) Indirect costs are always considered sunk costs.
B) All indirect costs are included in cost of goods sold.
C) Indirect costs always vary in direct proportion to the level of production.
D) Indirect costs cannot be traced to a particular cost object in an economically feasible way. Answer: D
Diff: 1
Objective: 2
AACSB: Application of knowledge
6
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14) Which of the following statements is true?
A) A direct cost of one cost object will always be a direct cost of another cost object. B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs. C) All fixed costs are indirect costs. D) All direct costs are variable costs. Answer: B
Diff: 1
Objective: 2
AACSB: Analytical thinking
15) Which of the following statements is true of direct costs?
A) A direct cost of one cost object is a true sense of the budgeted costs. B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost object. D) All fixed costs are direct costs. Answer: C
Diff: 1
Objective: 2
AACSB: Application of knowledge
16) A cost may be direct for one cost object and indirect for another cost object. Answer: TRUE
Diff: 1
Objective: 2
AACSB: Application of knowledge
17) Assigning indirect costs is easier than assigning direct costs. Answer: FALSE
Explanation: Tracing direct costs is quite straightforward, whereas assigning indirect costs to a number of different cost objects can be very challenging.
Diff: 1
Objective: 2
AACSB: Application of knowledge
18) Improvements in information-gathering technologies are making it possible to trace more costs as direct.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
19) The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.
Answer: FALSE
Explanation: The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object.
Diff: 1
Objective: 2
AACSB: Application of knowledge
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20) A direct cost of one cost object can be an indirect cost of another cost object. Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
21) The cost of electricity used in the production of multiple products would be classified as a indirect cost.
Answer: TRUE
Diff: 1
Objective: 2
AACSB: Application of knowledge
22) The broader the cost object definition, higher the proportion of direct costs are of total costs. Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
23) The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP). Answer: FALSE
Explanation: The distinction between direct and indirect costs is not set forth in GAAP. Direct costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective) way.
Diff: 1
Objective: 2
AACSB: Analytical thinking
8
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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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