Test Bank for Introduction to Managerial Accounting 7th Edition (2022)

Chapter 2 Cost Terms, Concepts, and Classifications


True/False Questions

1. The sum of all costs of manufacturing costs except direct materials is called
manufacturing overhead.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

2. Conversion cost is the sum of direct labor and manufacturing overhead.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

3. Prime cost is the sum of direct labor and manufacturing overhead.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

4. Thread used in the production of mattresses, an indirect material, is classified as
manufacturing overhead.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

5. Period costs are also known as inventoriable costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy

6. All costs in a merchandising company are period costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy

7. The cost of goods sold of a manufacturing company equals beginning finished goods
inventory + cost of goods manufactured - ending finished goods inventory.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy




Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-7

,Chapter 2 Cost Terms, Concepts, and Classifications


8. A variable cost is constant if expressed on a per unit basis but the total dollar amount
changes as the number of units increases or decreases.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy

9. As activity increases within the relevant range, fixed costs remain constant on a per
unit basis.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy

10. Direct costs are often difficult to trace to the specific cost object under consideration.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy

11. All of the following are examples of opportunity costs: salary given up to start a
business; rental income given up when you live in a house you own; interest income
that could be earned on money spent for a car.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium

12. The amount that was paid by a company for a building to house its operations is an
example of a sunk cost.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy

13. The most effective way to minimize quality costs while maintaining high quality is to
avoid having quality problems in the first place. This is the reason for incurring
appraisal costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium

14. External failure costs are limited to the costs of repairing defective products that are
under warranty.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard




2-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

,Chapter 2 Cost Terms, Concepts, and Classifications


15. The costs of lost sales arising from poor quality are always included in quality cost
reports.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium


Multiple Choice Questions

16. The cost of the cushions that are used to manufacture sofas is best described as a:
A) manufacturing overhead cost.
B) period cost.
C) variable cost.
D) conversion cost.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5 Level: Medium

17. Chezpere Company manufactures and sells washing machines. In order to make
assembly of the machines faster and easier, some of the metal parts in the machines
are coated with grease. How should the cost of this grease be classified?

Direct Material Cost Fixed Cost
A) Yes Yes
B) Yes No
C) No Yes
D) No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,5,6 Level: Hard




Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-9

, Chapter 2 Cost Terms, Concepts, and Classifications


18. A security guard's wages at a factory would be an example of:

Indirect labor Fixed manufacturing overhead
A) No No
B) Yes Yes
C) Yes No
D) No Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted

19. Manufacturing overhead includes:
A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

20. Materials used in the operation of a factory, such as cleaning supplies, that are not an
integral part of the final product should be classified as:
A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

21. The one cost that would be classified as part of both prime cost and conversion cost
would be:
A) indirect material.
B) direct labor.
C) direct material.
D) indirect labor.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy




2-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition