Chap 01 1e - Warren
Indicate whether the statement is true or false.
1. Conversion cost is the combination of direct labor cost and manufacturing overhead cost.
a. True
b. False
ANSWER: True
2. Product costs are not expensed until the product is sold.
a. True
b. False
ANSWER: True
3. On the balance sheet for a manufacturing business, the costs of direct materials, direct labor, and manufacturing
overhead are categorized as either materials inventory, work in process inventory, or finished goods inventory.
a. True
b. False
ANSWER: True
4. Direct costs are identified with and can be traced to a cost object.
a. True
b. False
ANSWER: True
5. While no two company structures are identical, most large companies are organized in terms of verticals and
diagonals.
a. True
b. False
ANSWER: False
6. Only the value of the inventory that is sold will appear on the income statement.
a. True
b. False
ANSWER: True
7. A report analyzing the dollar savings of purchasing new equipment to speed up the production process is a
managerial accounting report.
a. True
b. False
ANSWER: True
Page 1
,Name: Class: Date:
Chap 01 1e - Warren
8. The cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost.
a. True
b. False
ANSWER: False
9. Prime costs are the combination of direct materials and direct labor costs.
a. True
b. False
ANSWER: True
10. A cost object can be anything to which costs are assigned and will vary depending upon the decision-making
needs of management.
a. True
b. False
ANSWER: True
11. Operational planning is the process of developing the company’s short-term objectives and actions needed to
achieve the company’s long-term, strategic objectives.
a. True
b. False
ANSWER: True
12. Managerial accounting uses only past data in reports to aid management in the decision-making process.
a. True
b. False
ANSWER: False
13. Strategic planning is the process of monitoring operating results and comparing actual results with the expected
results.
a. True
b. False
ANSWER: False
14. Direct labor costs are included in the conversion costs of a product.
a. True
b. False
ANSWER: True
Page 2
,Name: Class: Date:
Chap 01 1e - Warren
15. Manufacturing overhead is an example of a product cost.
a. True
b. False
ANSWER: True
16. The role of horizontals is to provide services, assistance, and advice to the various verticals and other horizontal
departments.
a. True
b. False
ANSWER: True
17. The costs of materials and labor that cannot be traced directly to the finished product are classified as cost of
goods sold.
a. True
b. False
ANSWER: False
18. The cost of materials entering directly into the manufacturing process is classified as manufacturing overhead
cost.
a. True
b. False
ANSWER: False
19. Indirect costs are identified with and can be traced to a cost object.
a. True
b. False
ANSWER: False
20. The cost of wages paid to employees directly involved in converting materials to finished product is classified as
direct labor cost.
a. True
b. False
ANSWER: True
21. Prime costs consist of direct materials, indirect materials, and direct labor.
a. True
b. False
ANSWER: False
Page 3
, Name: Class: Date:
Chap 01 1e - Warren
22. Operating expenses are product costs and are expensed when the product is sold.
a. True
b. False
ANSWER: False
23. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and
manufacturing overhead cost.
a. True
b. False
ANSWER: True
24. Product costs include direct labor and advertising expense.
a. True
b. False
ANSWER: False
25. The costs of materials and labor that cannot be traced directly to the finished product are classified as
manufacturing overhead.
a. True
b. False
ANSWER: True
26. In a service company, the cost of services is accumulated and reported as inventory.
a. True
b. False
ANSWER: False
27. Managerial accounting information is for external users as well as company managers.
a. True
b. False
ANSWER: False
28. Conversion costs consist of product costs and period costs.
a. True
b. False
ANSWER: False
Page 4
Indicate whether the statement is true or false.
1. Conversion cost is the combination of direct labor cost and manufacturing overhead cost.
a. True
b. False
ANSWER: True
2. Product costs are not expensed until the product is sold.
a. True
b. False
ANSWER: True
3. On the balance sheet for a manufacturing business, the costs of direct materials, direct labor, and manufacturing
overhead are categorized as either materials inventory, work in process inventory, or finished goods inventory.
a. True
b. False
ANSWER: True
4. Direct costs are identified with and can be traced to a cost object.
a. True
b. False
ANSWER: True
5. While no two company structures are identical, most large companies are organized in terms of verticals and
diagonals.
a. True
b. False
ANSWER: False
6. Only the value of the inventory that is sold will appear on the income statement.
a. True
b. False
ANSWER: True
7. A report analyzing the dollar savings of purchasing new equipment to speed up the production process is a
managerial accounting report.
a. True
b. False
ANSWER: True
Page 1
,Name: Class: Date:
Chap 01 1e - Warren
8. The cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost.
a. True
b. False
ANSWER: False
9. Prime costs are the combination of direct materials and direct labor costs.
a. True
b. False
ANSWER: True
10. A cost object can be anything to which costs are assigned and will vary depending upon the decision-making
needs of management.
a. True
b. False
ANSWER: True
11. Operational planning is the process of developing the company’s short-term objectives and actions needed to
achieve the company’s long-term, strategic objectives.
a. True
b. False
ANSWER: True
12. Managerial accounting uses only past data in reports to aid management in the decision-making process.
a. True
b. False
ANSWER: False
13. Strategic planning is the process of monitoring operating results and comparing actual results with the expected
results.
a. True
b. False
ANSWER: False
14. Direct labor costs are included in the conversion costs of a product.
a. True
b. False
ANSWER: True
Page 2
,Name: Class: Date:
Chap 01 1e - Warren
15. Manufacturing overhead is an example of a product cost.
a. True
b. False
ANSWER: True
16. The role of horizontals is to provide services, assistance, and advice to the various verticals and other horizontal
departments.
a. True
b. False
ANSWER: True
17. The costs of materials and labor that cannot be traced directly to the finished product are classified as cost of
goods sold.
a. True
b. False
ANSWER: False
18. The cost of materials entering directly into the manufacturing process is classified as manufacturing overhead
cost.
a. True
b. False
ANSWER: False
19. Indirect costs are identified with and can be traced to a cost object.
a. True
b. False
ANSWER: False
20. The cost of wages paid to employees directly involved in converting materials to finished product is classified as
direct labor cost.
a. True
b. False
ANSWER: True
21. Prime costs consist of direct materials, indirect materials, and direct labor.
a. True
b. False
ANSWER: False
Page 3
, Name: Class: Date:
Chap 01 1e - Warren
22. Operating expenses are product costs and are expensed when the product is sold.
a. True
b. False
ANSWER: False
23. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and
manufacturing overhead cost.
a. True
b. False
ANSWER: True
24. Product costs include direct labor and advertising expense.
a. True
b. False
ANSWER: False
25. The costs of materials and labor that cannot be traced directly to the finished product are classified as
manufacturing overhead.
a. True
b. False
ANSWER: True
26. In a service company, the cost of services is accumulated and reported as inventory.
a. True
b. False
ANSWER: False
27. Managerial accounting information is for external users as well as company managers.
a. True
b. False
ANSWER: False
28. Conversion costs consist of product costs and period costs.
a. True
b. False
ANSWER: False
Page 4
