ACC 222 EXAM #1 QUESTIONS & ANSWERS
T/F Cost objects do not need to be considered for all business and personal decisions. -
Answer -False
T/F When providing cost estimates, it is essential to know the decision to which the cost
object is related. - Answer -True b/c when asking for a cost estimate or providing one,
an insightful dialogue must be had by all involved so everyone knows the exact decision
to which the cost object is related. Then individual assumptions and estimates will not
differ and useful follow-up questions can be asked.
What is a cost object? - Answer -A cost object is any item such as a product, customer,
department, project, geographic region, plant, and so on, for which costs are measured
and assigned. Determining cost objects is essential for all business and personal
decisions
T/F Product costs are recorded in inventory as an asset on the balance sheet and then
are recorded on the income statement in the form of cost of goods sold as inventory is
sold. - Answer -True
T/F Some period costs are immediately recorded on the income statement as expenses
as incurred, while other period costs are capitalized as assets and are recorded on the
income statement as depreciation expense as the asset is used up or generates
revenue over time. - Answer -True
What is a product cost? - Answer -A product cost is any cost that is necessary in the
production of a product. **necessary + production
Examples of product costs include materials, labor, depreciation of equipment, utilities,
and plant manager salaries.
What is a period cost? - Answer -A period cost is any cost that is not a product cost.
Examples of period costs include research and design, development, distribution, and
customer service, shipping. To capitalize a cost means to record it as an asset and
allocate it to expense over time.
T/F Direct Materials Used in Production equals Beginning Materials Inventory plus
Purchases minus Ending Materials Inventory. - Answer -True
T/F Assume at the beginning of this period, there was $45,000 worth of materials in
Beginning Materials Inventory. $150,000 of raw material are purchased, and the Ending
Materials Inventory contains $20,000 worth of materials. The Direct Materials Used in
Production would be $125,000. - Answer -False b/c
, Beginning Materials Inventory + Purchases - Ending Materials Inventory = Direct
Materials Used in Production
T/F The cost of goods manufactured represents the total product cost of goods
completed during the current period and transferred to work in process inventory. -
Answer -False
T/F The Cost of Goods Manufactured equals the Total Manufacturing Cost for the
Period plus the Beginning WIP (Work in Process Inventory) minus the Ending WIP. -
Answer -True
What is the cost of goods manufactured? - Answer -The cost of goods manufactured
represents the total product cost of goods completed during the current period and
transferred to *finished goods* inventory. The only costs assigned to goods completed
are the manufacturing costs of direct materials, direct labor, and manufacturing
overhead.
What is total manufacturing cost? - Answer -Total Manufacturing Cost for the Period
equals the Direct Materials Used in Production plus Direct Labor plus Manufacturing
Overhead.
T/F Cost of goods sold represents the cost of goods that were sold during the period
and, therefore, transferred from finished goods inventory on the balance sheet to cost of
goods sold on the income statement (i.e., as an inventory expense). - Answer -True
T/F The Cost of Goods Sold equals the Cost of Goods Manufactured plus the Beginning
Finished Goods Inventory minus the Ending Finished Goods Inventory. - Answer -True
What is the primary use of cost of goods sold? - Answer -The primary use for the
statement of cost of goods sold is for external financial reporting. It is a critical input to
the income statement.
T/F Variable costing is useful for internal decision making. - Answer -True
T/F Absorption costs are always lower than variable costs. - Answer -False
What is variable costing? - Answer -Variable costing assigns only variable
manufacturing costs to the product; these costs include direct materials, direct labor,
and variable overhead. Because variable costing focuses on the variable costs of
production, managers can use it to more easily determine whether certain actions can
be taken profitably.
What is absorption costs? - Answer -Absorption costs are the sum of variable costs and
fixed overhead. Absorptions costs are always higher than variable costs due to the
presence of the fixed overhead component.
T/F Cost objects do not need to be considered for all business and personal decisions. -
Answer -False
T/F When providing cost estimates, it is essential to know the decision to which the cost
object is related. - Answer -True b/c when asking for a cost estimate or providing one,
an insightful dialogue must be had by all involved so everyone knows the exact decision
to which the cost object is related. Then individual assumptions and estimates will not
differ and useful follow-up questions can be asked.
What is a cost object? - Answer -A cost object is any item such as a product, customer,
department, project, geographic region, plant, and so on, for which costs are measured
and assigned. Determining cost objects is essential for all business and personal
decisions
T/F Product costs are recorded in inventory as an asset on the balance sheet and then
are recorded on the income statement in the form of cost of goods sold as inventory is
sold. - Answer -True
T/F Some period costs are immediately recorded on the income statement as expenses
as incurred, while other period costs are capitalized as assets and are recorded on the
income statement as depreciation expense as the asset is used up or generates
revenue over time. - Answer -True
What is a product cost? - Answer -A product cost is any cost that is necessary in the
production of a product. **necessary + production
Examples of product costs include materials, labor, depreciation of equipment, utilities,
and plant manager salaries.
What is a period cost? - Answer -A period cost is any cost that is not a product cost.
Examples of period costs include research and design, development, distribution, and
customer service, shipping. To capitalize a cost means to record it as an asset and
allocate it to expense over time.
T/F Direct Materials Used in Production equals Beginning Materials Inventory plus
Purchases minus Ending Materials Inventory. - Answer -True
T/F Assume at the beginning of this period, there was $45,000 worth of materials in
Beginning Materials Inventory. $150,000 of raw material are purchased, and the Ending
Materials Inventory contains $20,000 worth of materials. The Direct Materials Used in
Production would be $125,000. - Answer -False b/c
, Beginning Materials Inventory + Purchases - Ending Materials Inventory = Direct
Materials Used in Production
T/F The cost of goods manufactured represents the total product cost of goods
completed during the current period and transferred to work in process inventory. -
Answer -False
T/F The Cost of Goods Manufactured equals the Total Manufacturing Cost for the
Period plus the Beginning WIP (Work in Process Inventory) minus the Ending WIP. -
Answer -True
What is the cost of goods manufactured? - Answer -The cost of goods manufactured
represents the total product cost of goods completed during the current period and
transferred to *finished goods* inventory. The only costs assigned to goods completed
are the manufacturing costs of direct materials, direct labor, and manufacturing
overhead.
What is total manufacturing cost? - Answer -Total Manufacturing Cost for the Period
equals the Direct Materials Used in Production plus Direct Labor plus Manufacturing
Overhead.
T/F Cost of goods sold represents the cost of goods that were sold during the period
and, therefore, transferred from finished goods inventory on the balance sheet to cost of
goods sold on the income statement (i.e., as an inventory expense). - Answer -True
T/F The Cost of Goods Sold equals the Cost of Goods Manufactured plus the Beginning
Finished Goods Inventory minus the Ending Finished Goods Inventory. - Answer -True
What is the primary use of cost of goods sold? - Answer -The primary use for the
statement of cost of goods sold is for external financial reporting. It is a critical input to
the income statement.
T/F Variable costing is useful for internal decision making. - Answer -True
T/F Absorption costs are always lower than variable costs. - Answer -False
What is variable costing? - Answer -Variable costing assigns only variable
manufacturing costs to the product; these costs include direct materials, direct labor,
and variable overhead. Because variable costing focuses on the variable costs of
production, managers can use it to more easily determine whether certain actions can
be taken profitably.
What is absorption costs? - Answer -Absorption costs are the sum of variable costs and
fixed overhead. Absorptions costs are always higher than variable costs due to the
presence of the fixed overhead component.
