COST ACCOUNTING – Chapter 2 Quiz

I. Multiple Choices

1. The term used to describe the assignment of direct costs to the particular cost object is

a. cost allocation
b. cost assignment
c. cost accumulation
d. cost tracing

2. The term used to describe the assignment of indirect costs to a particular cost object would be

a. cost assignment
b. cost allocation
c. cost accumulation
d. cost tracing

3. As activity changes, a cost that is variable will

a. remain the same in total amount

b. remain the same per unit
c. vary per unit
d. vary inversely with activity per unit

4. A cost that is constant in total amount is always considered a(n)

a. variable cost.
b. direct cost.
c. indirect cost.
d. fixed cost.

5. As the quantity produced increases, fixed costs per unit are expected to

a. decrease per unit.

b. stay the same per unit.
c. increase per unit.
d. None of the above.

6. An average cost is also known as a(n)

a. unit cost.
b. total cost.
c. fixed cost.
d. variable cost.
7. A merchandising company engages in all of the following except for

a. manufacturing.
b. wholesaling.
c. retailing.
d. distributing.

8. Ford Automotive Company is considered an example of a(n)

a. merchandiser.
b. service company.
c. manufacturer.
d. wholesaler.

9. Hotels.com, a company that sells hotel reservations over the Internet is an example of a(n)

a. service company.
b. merchandiser.
c. manufacturer.
d. None of the above.

10. The cost of materials that have been started into production, but are not completely processed,
would be found in which inventory account on the balance sheet?

a. Supplies inventory
b. Work-in-process inventory
c. Direct materials inventory
d. Finished goods inventory

11. Finished goods inventory costs represent the costs of goods that are

a. already delivered to customers.

b. waiting to be worked on.
c. waiting to be sold.
d. currently being worked on.

12. An example of an inventoriable cost would be

a. advertising flyers.
b. sales commissions.
c. shipping fees.
d. direct materials.

13. Prime costs would include

a. direct material costs and indirect manufacturing costs.

b. direct material and direct labor costs.
c. direct labor costs and indirect manufacturing costs.
d. direct material costs, direct labor costs, and indirect manufacturing costs.
14. Costs at a service sector company are normally considered

a. prime costs.
b. inventoriable costs.
c. period costs.
d. None of the above.

15. Cost of incoming freight on merchandise to be sold to customers by a retail chain would be
considered by that merchandiser to be

a. prime costs.
b. inventoriable costs.
c. period costs.
d. None of the above.

II. Fill in the Blanks.

1. A cost is a resource ______ to achieve a specific objective.

a. Contributed
b. Earned
c. Sacrificed
d. Donated

2. A(n) ______ is anything for which a measurement of costs is desired.

a. actual cost
b. cost accumulation
c. cost object
d. cost assignment

3. Cost allocation assigns ______ costs to the cost object, while cost tracing assigns the ______
costs.

a. direct, direct
b. indirect, direct
c. indirect, indirect
d. direct, indirect

4. A ______ cost changes ______ as activity level changes.

a. fixed, per unit

b. fixed, in total
c. variable, per unit
d. variable, inversely
5. A cost that is traceable to a cost object, but that remains the same in total no matter what level of
activity the cost object has is a ______ and ______ cost.

a. direct, fixed
b. indirect, variable
c. direct, variable
d. indirect, fixed

6. A variable cost is one that is constant ______, and varies ______ as activity level changes.

a. in total, per unit

b. per unit, in total
c. in total, in total
d. per unit, per unit

7. A ______ is an example of a service level company.

a. Dentist
b. grocery store
c. computer builder
d. food-processing company

8. The ______ inventory account stores information about goods that are completed, but not yet
sold.

a. Work-in-process
b. Direct Material
c. Supplies
d. Finished Goods

9. ______ would be considered a product cost, while ______ would be considered a period cost.

a. Advertising flyers, sales commissions

b. Plant depreciation, sales commissions
c. Shipping (outgoing), direct labor
d. Direct labor, plant supervisor salary

10. ______ would be an inventoriable cost for a merchandiser, while ______ would be a period cost
for a merchandiser.

a. Freight-out, salary of the store supervisor

b. Salary of the store supervisor, freight-in
c. Salary of the store supervisor, freight-out
d. Freight-in, salary of the store supervisor
11. Oil for the machines used to manufacture furniture would most likely be considered a(n) ______
cost. With respect to changes in the amount of furniture produced it would be considered a
______ cost.

a. period, fixed
b. inventoriable, fixed
c. inventoriable, variable
d. period, variable

12. At a service sector company, the president's salary would normally be considered a(n) ______
cost. With respect to changes in the activity level at the service company, it would be considered
______.

a. period, fixed
b. inventoriable, variable
c. inventoriable, fixed
d. period, variable

13. When determining the conversion costs for a product, ______ costs would be included, but
______ costs would not be included.

a. direct material, indirect manufacturing

b. direct material, direct labor
c. direct labor, direct material
d. indirect manufacturing, direct labor

III. True or False.

1. Cost assignment involves only tracing accumulated costs with direct relationship to a cost
objective.
2. Cost allocation describes the assignment of direct costs to a particular cost object.
3. The cost object has no bearing on whether a cost is direct or indirect.
4. All fixed costs are considered indirect.
5. A unit cost is valid at only one level of production.
6. Service companies always have a finished goods inventory on their balance sheets.
7. Merchandising companies do not normally manufacture a product.
8. Manufacturing companies normally have three types of inventories on their balance sheets.
9. Inventoriable costs are expensed in the same period in which they are incurred
10. Electricity for a production line is considered an inventoriable cost.
Answers.

I. Multiple Choices

1. d. cost tracing
2. b. cost allocation
3. b. remain the same per unit
4. d. fixed cost.
5. a. decrease per unit.
6. a. unit cost.
7. a. manufacturing.
8. c. manufacturer.
9. a. service company.
10. b. Work-in-process inventory
11. c. waiting to be sold.
12. d. direct materials.
13. b. direct material and direct labor costs.
14. c. period costs.
15. b. inventoriable costs.

II. Fill in the Blanks

1. c. Sacrificed
2. c. cost object
3. b. indirect, direct
4. a. fixed, per unit
5. a. direct, fixed
6. b. per unit, in total
7. a. Dentist
8. d. Finished Goods
9. b. Plant depreciation, sales commissions
10. d. Freight-in, salary of the store supervisor
11. c. inventoriable, variable
12. a. period, fixed
13. c. direct labor, direct material
 III. True or False

1. False Cost assignment includes both tracing direct costs and allocating indirect costs.
2. False Cost tracing describes the assignment of direct costs to a particular cost object. Cost allocation involves
the assignment of indirect costs.
3. False A particular cost can be an indirect cost to one cost object and a direct cost to a different cost object.
4. False Some fixed costs are traceable.
5. True Unit costs have both fixed and variable components. The fixed costs per unit change as activity level
changes.
6. False Service companies normally do not have any significant inventory on their balance sheet since they do
not manufacture or sell a tangible product to their customers.
7. True The major function of a merchandising company is to purchase products from various suppliers and sell
them to customers. They do little if any manufacturing.
8. True Manufacturers normally have three types of inventory on their balance sheets: raw material, work in
process, and finished goods.
9. False An inventoriable cost becomes part of the inventory and becomes an expense only when the product is
sold.
10. True Since electricity for a production line is a cost of producing the product it would be considered
inventoriable.