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2-1 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 02 Managerial Accounting and Cost Concepts
True / False Questions
- Selling costs can be either direct or indirect costs.
True False
- A direct cost is a cost that cannot be easily traced to the particular cost object under
consideration.
True False
- Property taxes and insurance premiums paid on a factory building are examples of period costs.
True False
- Conversion cost equals product cost less direct labor cost.
True False
- Thread that is used in the production of mattresses is an indirect material that is therefore
classified as manufacturing overhead.
True False
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2-2 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- Direct labor is a part of prime cost, but not conversion cost.
True False
- Conversion cost is the sum of direct labor cost and direct materials cost.
True False
- Direct material costs are generally fixed costs.
True False
- Product costs are recorded as expenses in the period in which the related products are sold.
True False
- Depreciation on manufacturing equipment is a product cost.
True False
- Manufacturing salaries and wages incurred in the factory are period costs.
True False
- Depreciation on office equipment would be included in product costs.
True False
- Rent on a factory building used in the production process would be classified as a product cost
and as a fixed cost.
True False
2-3 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- A fixed cost remains constant if expressed on a unit basis.
True False
- Total variable cost is expected to remain unchanged as activity changes within the relevant
range.
True False
- Country Charm Restaurant is open 24 hours a day and always has a fire going in the fireplace in
the middle of its dining area. The cost of the firewood for this fire is fixed with respect to the number of meals served at the restaurant.
True False
- Committed fixed costs represent organizational investments with a multi-year planning horizon
that can't be significantly reduced even for short periods.
True False
- Commissions paid to salespersons are a variable selling expense.
True False
- Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of
activity.
True False
- The planning horizon for a committed fixed cost usually encompasses many years.
True False
2-4 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- Cost behavior is considered linear whenever a straight line is a reasonable approximation for the
relation between cost and activity.
True False
- The high-low method uses cost and activity data from just two periods to establish the formula for
a mixed cost.
True False
- The engineering approach to the analysis of mixed costs involves a detailed analysis of what cost
behavior should be, based on an industrial engineer's evaluation of the production methods to be used, the materials specifications, labor requirements, equipment usage, production efficiency, power consumption, and so on.
True False
- The contribution margin is the amount remaining from sales revenues after variable expenses
have been deducted.
True False
- A contribution format income statement for a merchandising company organizes costs into two
categories—cost of goods sold and selling and administrative expenses.
True False
- The traditional format income statement provides managers with an income statement that clearly
distinguishes between fixed and variable costs and therefore aids planning, control, and decision making.
True False
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