ACC 505 Week Two Practice Test Chapter 2

07 Jul ACC 505 Week Two Practice Test Chapter 2

 

A decrease in production will ordinarily result in an increase in fixed production costs per unit.

 

A mixed cost is partially variable and partially fixed.

 

A variable cost is a cost whose cost per unit varies as the activity level rises and falls.

 

Advertising costs are considered product costs for external financial reports because they are incurred in order to promote specific products.

 

All costs incurred in a merchandising firm are considered to be period costs.

 

Although the contribution format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.

 

Automation results in a shift away from variable costs toward more fixed costs.

 

Committed fixed costs are fixed costs that are not controllable.

 

Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm.

 

Direct material costs are generally variable costs.

 

Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas.

 

Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any shortrun savings that might be realized.

 

In a contribution format income statement for a merchandising company, cost of goods sold is a variable cost that gets included in the “Variable expenses” portion of the income statement.

 

In a contribution format income statement, sales minus cost of goods sold equals the gross margin.

 

In a traditional format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period.

 

In any decision making situation, sunk costs are irrelevant and should be ignored.

 

In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period.

 

In order for a cost to be variable it must vary with either units produced or units sold.

 

Indirect costs, such as manufacturing overhead, are always fixed costs.

 

Manufacturing overhead combined with direct materials is known as conversion cost.

 

Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead.

 

Selling and administrative expenses are product costs under generally accepted accounting principles.

 

The concept of the relevant range does not apply to fixed costs.

 

The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, the costs of heating the law firm’s offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client.

 

The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician’s fees, and a portion of the liability insurance carried by the hospital to cover the delivery room.

 

The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager’s salary, and the cost of the General Electric jet engines installed on the aircraft.

 

The traditional format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.

 

Traditional format income statements are prepared primarily for external reporting purposes.

 

When the level of activity increases, total variable cost will increase.