Introduction to
Managerial
Accounting 7th
Edition Peter
Brewer Ray
Garrison Eric Chapter 01
Noreen Test Bank Managerial Accounting and Cost Concepts
True / False Questions
1. Selling costs can be either direct or indirect costs.
True False
2. A direct cost is a cost that cannot be easily traced to the particular cost object under
consideration.
True False
1-1
,Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
3. Property taxes and insurance premiums paid on a factory building are examples of period costs. 12. Depreciation on office equipment would be included in product costs.
True False True False
4. Conversion cost equals product cost less direct labor cost. 13. Rent on a factory building used in the production process would be classified as a product cost
and as a fixed cost.
True False
True False
5. Thread that is used in the production of mattresses is an indirect material that is therefore
classified as manufacturing overhead. 14. A fixed cost remains constant if expressed on a unit basis.
True False True False
6. Direct labor is a part of prime cost, but not conversion cost. 15. Total variable cost is expected to remain unchanged as activity changes within the relevant
range.
True False
True False
7. Conversion cost is the sum of direct labor cost and direct materials cost.
16. Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in
True False the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the
number of meals served at the restaurant.
8. Direct material costs are generally fixed costs.
True False
True False
17. Committed fixed costs represent organizational investments with a multi-year planning horizon
9. Product costs are recorded as expenses in the period in which the related products are sold. that can't be significantly reduced even for short periods.
True False True False
10. Depreciation on manufacturing equipment is a product cost. 18. Commissions paid to salespersons are a variable selling expense.
True False True False
11. Manufacturing salaries and wages incurred in the factory are period costs.
True False
1-2 1-3
,Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
19. Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of 26. The traditional format income statement provides managers with an income statement that clearly
activity. distinguishes between fixed and variable costs and therefore aids planning, control, and decision
making.
True False
True False
20. The planning horizon for a committed fixed cost usually encompasses many years.
27. In a contribution format income statement, the gross margin minus selling and administrative
True False expenses equals net operating income.
21. Cost behavior is considered linear whenever a straight line is a reasonable approximation for the True False
relation between cost and activity.
28. A traditional format income statement organizes costs on the basis of behavior.
True False
True False
22. The high-low method uses cost and activity data from just two periods to establish the formula for
a mixed cost. 29. In a traditional format income statement for a merchandising company, the selling and
administrative expenses report all period costs that have been expensed as incurred.
True False
True False
23. The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost
behavior should be, based on an industrial engineer's evaluation of the production methods to be 30. The contribution format is widely used for preparing external financial statements.
used, the materials specifications, labor requirements, equipment usage, production efficiency,
power consumption, and so on. True False
True False 31. Contribution margin equals revenue minus all fixed costs.
24. The contribution margin is the amount remaining from sales revenues after variable expenses True False
have been deducted.
32. The potential benefit that is given up when one alternative is selected over another is called an
True False opportunity cost.
25. A contribution format income statement for a merchandising company organizes costs into two True False
categories—cost of goods sold and selling and administrative expenses.
33. A cost that differs from one month to another is known as a differential cost.
True False
True False
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, Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
37. Which of the following is classified as a direct labor cost?
Multiple Choice Questions Wages of assembly-
Wages of a factory supervisor
line workers
A) No No
34. The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic
B) Yes Yes
surgery patients. The costs of prescription drugs administered by the nursing station to patients
should be classified as: C) No Yes
D) Yes No
A. direct patient costs.
B. indirect patient costs.
C. overhead costs of the nursing station.
A. Option A
D. period costs of the hospital.
B. Option B
C. Option C
35. All of the following costs would be found in a company's accounting records except:
D. Option D
A. sunk cost. 38. In a manufacturing company, direct labor costs combined with direct materials costs are known
B. opportunity cost. as:
C. indirect costs.
D. direct costs.
A. period costs.
B. conversion costs.
36. The costs of the Accounting Department at Central Hospital would be considered by the Surgery
C. prime costs.
Department to be:
D. opportunity costs.
A. direct costs.
B. indirect costs.
C. incremental costs.
D. opportunity costs.
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Managerial
Accounting 7th
Edition Peter
Brewer Ray
Garrison Eric Chapter 01
Noreen Test Bank Managerial Accounting and Cost Concepts
True / False Questions
1. Selling costs can be either direct or indirect costs.
True False
2. A direct cost is a cost that cannot be easily traced to the particular cost object under
consideration.
True False
1-1
,Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
3. Property taxes and insurance premiums paid on a factory building are examples of period costs. 12. Depreciation on office equipment would be included in product costs.
True False True False
4. Conversion cost equals product cost less direct labor cost. 13. Rent on a factory building used in the production process would be classified as a product cost
and as a fixed cost.
True False
True False
5. Thread that is used in the production of mattresses is an indirect material that is therefore
classified as manufacturing overhead. 14. A fixed cost remains constant if expressed on a unit basis.
True False True False
6. Direct labor is a part of prime cost, but not conversion cost. 15. Total variable cost is expected to remain unchanged as activity changes within the relevant
range.
True False
True False
7. Conversion cost is the sum of direct labor cost and direct materials cost.
16. Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in
True False the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the
number of meals served at the restaurant.
8. Direct material costs are generally fixed costs.
True False
True False
17. Committed fixed costs represent organizational investments with a multi-year planning horizon
9. Product costs are recorded as expenses in the period in which the related products are sold. that can't be significantly reduced even for short periods.
True False True False
10. Depreciation on manufacturing equipment is a product cost. 18. Commissions paid to salespersons are a variable selling expense.
True False True False
11. Manufacturing salaries and wages incurred in the factory are period costs.
True False
1-2 1-3
,Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
19. Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of 26. The traditional format income statement provides managers with an income statement that clearly
activity. distinguishes between fixed and variable costs and therefore aids planning, control, and decision
making.
True False
True False
20. The planning horizon for a committed fixed cost usually encompasses many years.
27. In a contribution format income statement, the gross margin minus selling and administrative
True False expenses equals net operating income.
21. Cost behavior is considered linear whenever a straight line is a reasonable approximation for the True False
relation between cost and activity.
28. A traditional format income statement organizes costs on the basis of behavior.
True False
True False
22. The high-low method uses cost and activity data from just two periods to establish the formula for
a mixed cost. 29. In a traditional format income statement for a merchandising company, the selling and
administrative expenses report all period costs that have been expensed as incurred.
True False
True False
23. The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost
behavior should be, based on an industrial engineer's evaluation of the production methods to be 30. The contribution format is widely used for preparing external financial statements.
used, the materials specifications, labor requirements, equipment usage, production efficiency,
power consumption, and so on. True False
True False 31. Contribution margin equals revenue minus all fixed costs.
24. The contribution margin is the amount remaining from sales revenues after variable expenses True False
have been deducted.
32. The potential benefit that is given up when one alternative is selected over another is called an
True False opportunity cost.
25. A contribution format income statement for a merchandising company organizes costs into two True False
categories—cost of goods sold and selling and administrative expenses.
33. A cost that differs from one month to another is known as a differential cost.
True False
True False
1-4 1-5
, Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray Introduction To Managerial Accounting 7th Edition Test Bank by Peter Brewer, Ray
Garrison, Eric Noreen Garrison, Eric Noreen
37. Which of the following is classified as a direct labor cost?
Multiple Choice Questions Wages of assembly-
Wages of a factory supervisor
line workers
A) No No
34. The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic
B) Yes Yes
surgery patients. The costs of prescription drugs administered by the nursing station to patients
should be classified as: C) No Yes
D) Yes No
A. direct patient costs.
B. indirect patient costs.
C. overhead costs of the nursing station.
A. Option A
D. period costs of the hospital.
B. Option B
C. Option C
35. All of the following costs would be found in a company's accounting records except:
D. Option D
A. sunk cost. 38. In a manufacturing company, direct labor costs combined with direct materials costs are known
B. opportunity cost. as:
C. indirect costs.
D. direct costs.
A. period costs.
B. conversion costs.
36. The costs of the Accounting Department at Central Hospital would be considered by the Surgery
C. prime costs.
Department to be:
D. opportunity costs.
A. direct costs.
B. indirect costs.
C. incremental costs.
D. opportunity costs.
1-6 1-7
