Theories

I – Multiple Choice Theories

1. Broadly speaking, cost accounting can be defined as a(n)
a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a
company's internal operations.
c. internal reporting system that provides product costing and other information used by
managers in performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost
Accounting Standards Board pronouncements.
2. Cost accounting is directed toward the needs of
a. regulatory agencies.
b. external users.
c. internal users.
d. stockholders.
3. Cost accounting standards
a. are legal standards set by the Institute of Management Accountants for use in all
manufacturing and professional businesses.
b. are set by the Cost Accounting Standards Board and are legally binding on all
manufacturers, but not service organizations.
c. do not exist except for those legal pronouncements for companies bidding or pricing cost-
related contracts with the government.
d. are developed by the Cost Accounting Standards Board, issued by the Institute of
Management Accountants, and are legally binding on CMAs.
4. Cost accounting is necessitated by
a. the high degree of conversion found in certain businesses.
b. regulatory requirements for manufacturing companies.
c. management's need to be aware of all production activities.
d. management's need for information to be used for planning and controlling activities.
5. The process of ___________ causes the need for cost accounting.
a. conversion
b. sales
c. controlling
d. allocating
6. Financial accounting
a. is primarily concerned with internal reporting.
b. is more concerned with verifiable, historical information than is cost accounting.
c. focuses on the parts of the organization rather than the whole.
d. is specifically directed at management decision-making needs.
7. Financial accounting and cost accounting are both highly concerned with
a. preparing budgets.
b. determining product cost.
c. providing managers with information necessary for control purposes.
d. determining performance standards.
8. Which of the following topics is of more concern to management accounting than to cost accounting?
a. generally accepted accounting principles
b. inventory valuation
c. cost of goods sold valuation
d. impact of economic conditions on company operations
9. Cost and management accounting
a. require an entirely separate group of accounts than financial accounting uses.
b. focus solely on determining how much it costs to manufacture a product or provide a
service.
c. provide product/service cost information as well as information for internal decision making.
d. are required for business recordkeeping as are financial and tax accounting.
10. To effectively use employee empowerment, an organization's structure would likely reflect
a. strategic resource management.
b. centralized management.
c. decentralized management.
d. contract management.
11. An organizational structure in which all decision making is held by top managers is known as ____________
management.
a. Centralized
b. Decentralized
c. strategic resource
d. activity-based
12. An organizational structure in which decision making is spread throughout different levels of management is
known as __________ management.
a. Centralized
b. Decentralized
c. strategic resource
d. activity-based
 13.Since overhead costs are indirect costs,
a. they require some process of allocation.
b. they can be easily traced to production.
c. a predetermined overhead rate is not advantageous.
d. they cannot be allocated.
14. Which of the following replaces the retailing component "Purchases" in computing Cost of Goods Sold for a
manufacturing company?
a. direct material used
b. cost of goods manufactured
c. total prime cost
d. cost of goods available for sale
15. Which of the following would need to be allocated to a cost object?
a. direct material
b. direct labor
c. direct production costs
d. indirect production costs
16. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.
17.The formula for cost of goods sold for a manufacturer is
a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending
Finished Goods Inventory.
b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work
in Process Inventory.
c. direct material plus direct labor plus applied overhead.
d. direct material plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
18.Which of the following replaces the retailing component "Purchases" in computing Cost of Goods Sold for a
manufacturing company?
a. direct material used
b. cost of goods manufactured
c. total prime cost
d. cost of goods available for sale
19. The field of accounting that depends on generally accepted accounting principles (GAAP) is called
a. cost accounting.
b. financial accounting.
c. managerial accounting.
d. responsibility accounting.
e. international accounting.
20. Which field of accounting emphasizes relevancy over comparability?
a. cost accounting.
b. financial accounting.
c. responsibility accounting.
d. international accounting.
21.In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to Cash and
a credit to Sales. The other entry is a debit to
a. Work in Process Inventory and a credit to Finished Goods Inventory.
b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.
22.The formula to compute cost of goods manufactured is
a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in
Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
23.GSWS is a construction company that builds houses on special request. What is the proper classification of indirect
material used?
Prime Conversion Variable
a. no no no
b. no yes yes
c. yes yes yes
d. yes no no
24.The term "prime cost" refers to
a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.
25. Which of the following accounts would be a period cost rather than a product cost?
a. Depreciation on manufacturing machinery.
b. Maintenance on factory machines.
c. Production manager's salary.
d. Direct Labor.
e. Freight-out.
26. A company which manufactures custom-made machinery routinely incurs sizable telephone costs in the
process of taking sales orders from customers. Which of the following is a proper classification of this cost?
a. Product cost
b. Period cost
c. Conversion cost
d. Prime cost
27. For a manufacturing company, which of the following is an example of a period rather than a product cost?
a. Wages of salespersons.
b. Salaries of machine operators.
c. Insurance on factory equipment.
d. Depreciation of factory equipment.
28. XYZ Company manufactures a single product. The product's prime costs consist of
a. direct material and direct labor.
b. direct material and factory overhead.
c. direct labor and factory overhead.
d. direct material, direct labor and factory overhead.
e. direct material, direct labor and variable factory overhead.
29. Which of the following costs is both a prime cost and a conversion cost?
a. direct materials
b. direct labor
c. manufacturing overhead
d. administrative costs
e. marketing costs
30. Marketing costs include all of the following except:
a. Advertising.
b. Shipping costs.
c. Sales commissions.
d. Legal and accounting fees.
e. Office space for sales department.
31. The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be
considered a direct cost of a manufacturing department but an indirect cost of the product produced in the
manufacturing department. Classifying a cost as either direct or indirect depends upon
a. whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.
b. whether the cost is expensed in the period in which it is incurred.
c. the behavior of the cost in response to volume changes.
d. the cost object to which the cost is being related.
32. The Cost of Goods Manufactured Statement summarizes the periodic production operations for a company.
On the face of that schedule are intermediate calculations supporting the cost of goods manufactured
figure. The beginning Work-in-Process inventory plus the total of the manufacturing costs equals
a. total finished goods during the period.
b. cost of goods sold for the period.
c. total work-in-process during the period.
d. cost of goods manufactured for the period.
33. A manufacturing company incurs direct labor costs as it transforms direct material into marketable products.
The cost of the direct labor will be treated as a period cost on the income statement when the resulting:
a. payroll costs are paid.
b. payroll costs are incurred.
c. products are completed.
d. products are sold.
34. The difference between variable costs and fixed costs is (CMA adapted)
a. Unit variable costs fluctuate and unit fixed costs remain constant.
b. Unit variable costs are fixed over the relevant range and unit fixed costs are variable.
c. Total variable costs are constant over the relevant range, while fixed costs change in the long-term.
d. Total variable costs are variable over the relevant range but fixed in the long-term, while fixed costs never
change.
e. Unit variable costs change in varying increments, while unit fixed costs change in equal increments.
35. Which one of the following costs is classified as a period cost? (CIA adapted)
a. The wages of the workers on the shipping docks who load completed products onto outgoing trucks.
b. The wages of a worker paid for idle time resulting from a machine breakdown in the molding department.
c. The payments for employee (fringe) benefits paid on behalf of the workers in the manufacturing plant.
d. The wages paid to workers for reworking defective products that failed the quality inspection upon
completion.
36. Inventoriable costs:
a. include only the prime costs of manufacturing a product.
b. include only the conversion costs of providing a service.
c. exclude fixed manufacturing costs.
d. are regarded as assets until the units are sold.
e. are regarded as expenses when the costs are incurred.
37. A product cost is deducted from revenue when
a. the finished goods are sold.
b. the expenditure is incurred.
c. the production process takes place.
d. the production process is completed.
e. the finished goods are transferred to the Finished Goods Inventory.
38. Direct materials issued to production is found by
a. subtracting ending work-in-process from total work in process during the period.
b. adding beginning direct materials inventory and the delivered cost of direct materials.
c. subtracting ending direct materials from direct materials available for production.
d. adding delivered cost of materials, labor, and manufacturing overhead.
e. subtracting purchases discounts and purchases returns and allowances from purchases of direct material
plus freight-in.
39. The Cost of Goods Manufactured Schedule summarizes the periodic production operations for a company. On
the face of that schedule are intermediate calculations supporting the cost of goods manufactured amount.
The beginning Finished Goods Inventory plus the cost of goods manufactured equals
a. total finished goods during the period.
b. cost of goods sold for the period.
c. total work-in-process during the period.
d. cost of goods manufactured for the period.
e. cost of goods available for sale for the period.
40. Direct labor would be part of the cost of the ending inventory for which of these accounts?
a. Work-in-Process.
b. Finished Goods.
c. Direct Materials and Work-in-Process.
d. Work-in-Process and Finished Goods.
e. Direct Materials, Work-in-Process, and Finished Goods.
41. Which of the following is not a product cost under full-absorption costing?
a. Direct materials used in the current period
b. Rent for the warehouse used to store direct materials
c. Salaries paid to the top management in the company
d. Vacation pay accrued for the production workers
42. The term "gross margin" for a manufacturing firm refers to the excess of sales over:
a. cost of goods sold, excluding fixed indirect manufacturing costs.
b. all variable costs, including variable marketing and administrative costs.
c. cost of goods sold, including fixed indirect manufacturing costs.
d. variable costs, excluding variable marketing and administrative costs.
e. total manufacturing costs, including fixed indirect manufacturing costs.
43. How would property taxes paid on a factory building be classified in a manufacturing company?
a. Fixed, period cost.
b. Fixed, product cost.
c. Variable, period cost.
d. Variable, product cost.
44. How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?
a. Fixed, period cost.
b. Fixed, product cost.
c. Variable, period cost.
d. Variable, product cost.
45. The term “relevant range” as used in cost accounting means the range over which
a. costs may fluctuate.
b. cost relationships are valid.
c. production may vary.
d. relevant costs are incurred.
46. How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?
a. Fixed, period cost.
b. Fixed, product cost.
c. Variable, period cost.
d. Variable, product cost.
47. Theoretically, cash discounts permitted on direct materials purchased should be (CPA adapted)
a. Added to other income, whether or not they are taken.
b. Added to other income, but only if taken.
c. Deducted from inventory, whether or not they are taken.
d. Deducted from inventory, but only if taken.
48. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n)
a. expired cost.
b. fixed cost.
c. variable cost.
d. mixed cost.
49. A(n) ________ cost increases or decreases in intervals as activity changes.
a. historical cost
b. fixed cost
c. step cost
d. budgeted cost
 50. When the number of units manufactured increases, the most significant change in unit cost will be reflected as
a(n)
a. increase in the fixed element.
b. decrease in the variable element.
c. increase in the mixed element.
d. decrease in the fixed element.
51. A cost driver
a. causes fixed costs to rise because of production changes.
b. has a direct cause-effect relationship to a cost.
c. can predict the cost behavior of a variable, but not a fixed, cost.
d. is an overhead cost that causes distribution costs to change in distinct increments with
changes in production volume.
52. Product costs are deducted from revenue
a. as expenditures are made.
b. when production is completed.
c. as goods are sold.
d. to minimize taxable income.
53. A selling cost is a(n)
product cost period cost inventoriable cost
a. yes yes no
b. yes no no
c. no yes no
d. no yes yes
54. Which of the following is not a product cost component?
a. rent on a factory building
b. indirect production labor wages
c. janitorial supplies used in a factory
d. commission on the sale of a product
55. Period costs
a. are generally expensed in the same period in which they are incurred.
b. are always variable costs.
c. remain unchanged over a given period of time.
d. are associated with the periodic inventory method.

56.Period costs include

distribution costs outside processing costs sales commissions
a. yes no yes
b. no yes yes
c. no no no
d. yes yes yes
57. The three primary inventory accounts in a manufacturing company are
a. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
b. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory.
c. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
d. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.
58. Cost of Goods Sold is an
a. unexpired product cost.
b. expired product cost.
c. unexpired period cost.
d. expired period cost.
59 The indirect costs of converting raw material into finished goods are called
a. period costs.
b. prime costs.
c. overhead costs.
d. conversion costs.
60. Conversion cost does not include
a. direct labor.
b. direct material.
c. factory depreciation.
d. supervisors' salaries.
61. GSWS is a construction company that builds houses on special request. What is the proper classification of the
carpenters' wages?
Product Period Direct
a. yes yes no
b. yes no yes
c. no no no
d. no yes yes

62. GSWS is a construction company that builds houses on special request. What is the proper classification of the
cost of the cement building slab used?
Direct Fixed
a. no no
b. no yes
c. yes yes
d. yes no
63. Plastic used to manufacture dolls is a
prime cost product cost direct cost fixed cost
a. no yes yes yes
b. yes no yes no
c. yes yes no yes
d. yes yes yes no
64. The formula to compute cost of goods manufactured is
a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in
Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
65. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.
66. The formula for cost of goods sold for a manufacturer is
a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending
Finished Goods Inventory.
b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work
in Process Inventory.
c. direct material plus direct labor plus applied overhead.
d. direct material plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
67. The three broad objectives of financial accounting information systems are to provide information for costing
out services and products, planning and control, and decision making. False
68. Preparing reports for division managers is an activity associated with the cost management information system.
True
69. The cost management information system has two major subsystems: the cost accounting information system
and the operational control information system. True
70. The cost management subsystem designed to assign costs to individual products and services is called the
_________ information system. Cost Accounting
71. The role of _________ accountants is to assist and support those responsible for carrying out an organization's
basic objectives. Cost and Management Accountants
72. Which of the following activities is NOT associated with the cost management information system?
a. preparing a cost of quality report
b. preparing a performance report that compares actual costs to budgeted costs
c. determining the cost of a customer
d. using future expected earnings to estimate the price of a share of common stock
73. Which of the following costing activities is associated with the financial accounting system?
a. determining the cost of a department
b. determining the cost of goods sold for financial statements
c. preparing budgets
d. determining the cost of a customer
74. Which of the following activities is associated with the cost management information system?
a. preparing reports for division managers
b. preparing reports for the BIR
c. preparing reports for the SEC
d. preparing financial statements that conform to GAAP
75. The cost management information system is primarily concerned with producing outputs for internal users using
inputs and processes needed to satisfy management objectives. True
76. An accounting information system collects, records, summarizes, analyzes, and manages data to transform
inputs into information that is provided to users. True
77. The two major subsystems of the accounting information system are the financial accounting information
system and the cost management accounting information system. True
78. The cost management information system is primarily concerned with producing outputs for external users. False
79. Cost management information benefits production, marketing, and customer service systems as well as being
a crucial part of managerial decision making. True
80. The Financial accounting information system provides information for three broad objectives: costing services
and products, planning and control, and decision making. False
81. Cost assignment is one of the key processes of the cost accounting system. True
82. Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current
or future loss to the company. False
83. The three methods of cost assignment are direct tracing, driver tracing, and allocation. True
84. Assigning costs accurately to cost objects is of low priority. Accuracy is not evaluated based on knowledge of
some underlying "true cost". False
85. The most precise of the three methods of cost assignment is direct tracing since it relies on observable causal
relationships. True
86. Services differ from tangible products on three dimension: intangibility, perishability, and inseparability. True
 87. Intangible products are goods produced by converting raw material into finished products through the use of
labor and capital inputs. False
88. Production costs are costs associated with manufacturing goods or providing services and are classified as
direct materials, direct labor, and overhead. True
89. Conversion cost is the sum of direct materials and direct labor cost and prime cost is the sum of direct labor and
overhead cost. False
90. Product costs include production, marketing, and customer service, and are used for strategic design decisions
and tactical profitability analysis. True
91. The income statement prepared for external parties is frequently referred to as absorption-costing income, or
full costing income. True
92. Cost management systems can be broadly classified as traditional or activity based. True
93. A traditional cost accounting system assumes that all costs can be classified as fixed with respect to changes in
the units or volume produced. False
94. The overall objective of an activity-based cost management system is to manage activities to reduce costs and
improve customer value. True
95. Error costs are costs associated with measurements required by the cost management system and
measurement costs are the costs associated with making poor decisions. False
96. The cost accounting system that emphasizes tracing over allocation is called an activity-based accounting
system. True
97. A subsystem of the accounting information system designed to satisfy costing, controlling and decision making
objectives is called the __________ system. Cost Management
98. The cost management subsystem designed to provide accurate and timely feedback concerning the
performance of managers relative to their control of activities is the __________ information system.
Operational
99.The overall objective of accounting information is to provide information to __________. Users
100. The resources given up that are expected to bring a current or future benefit to the organization are called
__________. Costs
101. The least accurate but easiest to apply method of cost assignment is the __________ method. Allocation
102. __________ means the consumer cannot see, hear, feel, or taste a service before it is bought. Intangibility
103. __________ are generally materials necessary for production that do not become part of the finished product or
are not used to provide a service. Supplies
104. Costs necessary to market and distribute a product or service are often referred to as order- __________ and
order- __________ costs. Filling
105. In preparing an income statement, __________ and __________ costs are separated. Production and Non-
production
106. Cost management systems are made up of two subsystems: the __________ accounting system and the
__________ control system. Cost; operational
107. Generally, more managerial objectives can be met with an activity-based system than with a ___________
system. Traditional
108. In deciding whether to implement a(n) __________ cost management system, managers must evaluate the
trade-off between costs of measurement and cost of errors. Activity-based
109. The set of interrelated parts that performs one or more processes to accomplish specific objectives is called
a(n): a. cost objective b. system c. activity d. cost driver
110. The overall objective of accounting information systems is to a. provide information to users. b. manage the
organization. c. prepare financial reports. d. report to the government.
111. The outputs of an accounting information system includes: a. economic events. b. financial statements. c.
bill of lading report. d. value chain information.
112. Which of the following is a cost management subsystem designed to assign costs to individual products and
services and other objects, as specified by management? a. financial accounting information system b.
operational control information system c. cost accounting information system d. all of the above
113. In a company that supplies muffins to bakeries, which of the following would be considered an input? a.
delivered muffins b. flour c. baking d. none of these
114. In a company that supplies muffins to bakeries, which of the following would NOT be considered an input? a.
delivered muffins b. flour c. egg d. oil
115. In an accounting information system, the inputs are usually a. financial statements. b. analyzing data. c.
economic events. d. performance reports.
116. The accounting information subsystem that is primarily concerned with producing outputs for external users is
called: a. cost management information system b. computer system c. internal accounting system d.
financial accounting information system
117. High quality cost management systems should have an organization-wide perspective. Which of the following
would NOT be a benefit of a cost management system? a. increases speed by ignoring non-financial
information b. reduces duplicate data storage and use of data c. improves timeliness of reports d.
increases the efficiency of generating reliable and accurate information
118. A cost management subsystem designed to provide accurate and timely feedback concerning the
performance of managers and others relative to their planning and control activities is called the: a. cost
accounting information system b. financial accounting system c. operational control information system
d. tax reporting system
119. _____ is concerned with determining what activities should be performed and assessing how well they are
performed. a. The financial accounting system b. The value chain c. Operational control d. Traditional
costing
120. Which of the following is an objective of the operational control system? a. Providing information to external
users b. Facilitating stewardship evaluation c. Increasing value to customers d. Increasing post-purchase
costs
121. Which of the following is an example of an expense? a. the cost of a proposed advertising campaign b.
the cost of a product delivered to a customer c. the cost of the purchase of equipment d. the write-off of
an obsolete product
122. A(n) _____ is a basic unit of work performed within an organization. a. allocation b. object c. driver d.
activity
123. Which of the following statements is true of traceability? a. It uses well-specified economic events as inputs,
and its processes follow certain rules and conventions. b. It is used for investment decisions, stewardship
evaluation, activity monitoring, and regulatory measures. c. It is the ability to assign a cost directly to a cost
object in an economically feasible way by means of a causal relationship. d. It is concerned with
determining what activities should be performed by managers and assessing how well they are performed.
124. Factors that cause changes in resource usage, activity usage, costs and revenues are called a. indirect
costs. b. drivers. c. assignments. d. cost objects.
125. The most likely method to assign the cost of an assembly-line supervisor when the assembly line is the cost
object is the: a. driver tracing method b. arbitration method c. allocation method d. direct tracing
method
126. Which cost assignment method would likely assign the cost of heating in a plant that makes beds and dressers
when the bed product line is the cost object? a. driver tracing b. direct tracing c. allocation d.
arbitration
127. Which cost assignment method would likely assign the cost of maintenance for machines in a department
that does cutting when the cutting activity is the cost object? a. driver tracing b. direct tracing c.
allocation d. arbitration
128. Which of the following expenses incurred by a department store is a direct cost for the women's shoe
department? a. the salespersons' commissions in the women's shoe department b. the salaries for
individuals working in the accounting department c. the advertising expense for the service department d.
the allocated rent expense for the clothing department
129. Which of the following costs incurred by a chair manufacturer would be traced to the product cost through
direct tracing? a. the depreciation on factory equipment b. the supervisor's salary c. the insurance on
the factory building d. the woodworker's salary
130. The direct costs of operating a college computer center would NOT include a. rent paid for computers.
b. fair share of college utilities. c. paper used by the center. d. computer consultants' salaries.
Which of the following methods of assigning costs is based on convenience or some assumed linkage, and
reduces the overall accuracy of the cost assignments? a. direct tracing b. driver tracing c. allocation d.
all of the above
131. Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished
product? a. the wages paid to assembly-line production workers b. the tires for buses c. the windshields
for buses d. the depreciation on factory building
132. The assignment of indirect costs to cost objects is referred to as: a. Allocation b. Direct tracing c. Physical
observation d. Cost management
133. What is a disadvantage of assigning costs evenly over all cost objects? a. not all costs will be assigned b.
total costs will be distorted c. costs may be distorted by consumption patterns of other cost objects d. none
of these
134. The three methods of assigning costs to cost objects are direct tracing, driver tracing, and _____.
a. observation b. arbitration c. assignment d. allocation
135. Which of the following would NOT be a cost that could be directly traced to a custom piece of furniture based
upon physical observation? a. the wood and upholstery materials that are in the final piece
b. the depreciation paid on factory equipment c. the labor of the worker assembling the piece of furniture
d. the labor of the woodworker who finishes the wood of the piece
136. The precision of driver tracing depends upon a. physically observable relationships. b. the strength of
causal relationships described by the driver. c. allocation estimations. d. both b and c.
137. If physical observation can NOT be used to identify the exact amount of resources consumed by a cost
object, the next best approach is a. driver tracing. b. allocation. c. estimation. d. none of these.
138. With regard to services, inseparability means that a. products cannot be stored. b. direct contact must take
place for an exchange. c. products have a physical presence. d. none of the above apply to
inseparability
139. Which of the following will be included in traditional product costs? a. Customer service costs b. Marketing
costs c. Research and development costs d. Production costs
140. Which of the following managerial objectives is served by traditional product costs? a. Product mix decisions
b. External financial reporting c. Strategic design decisions d. Tactical profitability analysis
141. Which of the following costs is a product cost? a. lease payments on cars used by salespersons b.
president's salary c. property taxes on factory building d. depreciation on office equipment
142. Which of the following costs would be included as part of direct materials in the production of an automobile?
a. glue for a sticker applied to the automobile b. steel c. gasoline used to fuel machines in production d.
none of these
143. Which of the following costs would be included as part of direct labor? a. a materials handler b. a cutter in
the production of shelving c. an assembly-line supervisor d. a janitor
144. Which of the following costs would be included as part of factory overhead? a. depreciation of plant
equipment b. direct labor c. depreciation on the corporation's office building d. paper used in the
production of books
145. Which of the following items would NOT be classified as part of factory overhead of a firm that makes
 sailboats? a. factory supplies used b. depreciation of factory buildings c. canvas used in sail d. indirect
materials
146. Which of the following costs are expensed in the period in which they are incurred? a. Direct materials costs
b. Product costs c. Factory overhead costs d. Nonproduction costs
147. Period costs do NOT include a. order-getting costs. b. order-filling costs. c. order-making costs. d. all of
the above are period costs.
148. Which of the following would NOT be included in the conversion cost of an automobile? a. screws used in
assembly b. assembly worker wages c. depreciation on machinery d. steel
149. Costs that are expensed in the period in which they are incurred are called: a. Direct materials costs b.
Product costs c. Noninventoriable costs d. Inventoriable costs
150. Product costs are converted from cost to expense when a. units are completed. b. materials are
purchased. c. units are sold. d. materials are requisitioned
151. A company has purchased some steel to use in the production of steel railings. If this steel has NOT been put
into production, it would be classified as a. finished goods inventory. b. factory supplies. c. work-in-
process inventory. d. direct materials inventory.
152. The income statement prepared for external reporting is a. based on a functional classification. b. referred
to as absorption-costing income. c. called full-costing income. d. all of the above.
153. Which of the following costs would NOT be included in calculating inventory values under the absorption-
costing basis? a. direct materials b. fixed overhead c. selling and administrative expenses d. direct
labor
154. When calculating the absorption-costing income for external reporting, all a. manufacturing costs ultimately
become nonmanufacturing costs. b. manufacturing costs are product costs and product costs are never
expensed. c. costs of selling manufactured products are classified as product costs. d. selling and
administrative costs are classified as nonmanufacturing costs.
155. Which type of inventory is normally sold to other organizations? a. direct materials b. factory supplies c.
work in process d. finished goods
156. Which of the following items would NOT appear on an income statement of a service organization?
a. selling expenses b. cost of goods sold c. administrative expenses d. gross margin
157. Which of the following items is NEVER relevant to the cost flows of a service organization? a. finished goods
inventory b. materials inventory c. work-in-process inventory d. all of the above are always relevant.
158. In a cost management system, the cost view does NOT include a. resources. b. activities. c. driver
analysis. d. products and customers