True& False:

1) A cost object is anything for which a cost measurement is desired.

Answer: TRUE
2) An actual cost is the cost incurred–a historical or past cost.
Answer: TRUE
3) Accountants define a cost as a resource to be sacrificed to achieve a specific
objective.
Answer: TRUE
4) A cost is a resource sacrificed or forgone to achieve a specific objective.
Answer: TRUE
5) Managers use cost accumulation data to make decisions and implement
them.
Answer: TRUE
6) A cost may be direct for one cost object and indirect for another cost object.
Answer: TRUE
7) Assigning indirect costs is easier than assigning direct costs.
Answer: FALSE
8) A direct cost of one cost object can be an indirect cost of another cost object.
Answer: TRUE
9) The cost of electricity used in the production of multiple products would be
classified as a indirect cost.
Answer: TRUE
10) The broader the cost object definition, higher the proportion of direct costs
are of total costs.
Answer: TRUE
11) A fixed cost is fixed only in relation to a given wide range of total activity
or volume and only for a given time span, usually a particular budget period.
Answer: TRUE

12) Variable cost per unit reduces with an increase in production volume.
Answer: TRUE
1
13) Variable costs per unit vary with the level of production or sales volume.
Answer: FALSE
14) Wood used to manufacture chairs is considered a direct variable cost.
Answer: TRUE
15) A fixed cost remains unchanged in total for a given time period, despite
wide changes in the related level of total activity or volume of output produced.
Answer: TRUE
16) A unit cost is computed by dividing total cost by the number of units.
Answer: TRUE
17) A unit cost is also called an average cost.
Answer: TRUE
18) Work-in-process inventory are goods partially worked on but not yet
completed.
Answer: TRUE
19) All manufacturing costs are period costs.
Answer: FALSE

MCQ:
1) An actual cost is ________.
A) is the cost incurred
B) is a predicted or forecasted cost
C) is anything for which a cost measurement is desired
D) is the collection of cost data in some organized way by means of an
accounting system
Answer: A
2) Comparing budgeted costs to actual costs helps managers to improve
________.
A) coordination
B) control
C) implementation
D) planning

2
 Answer: B
3) Budgeted costs are ________.
A) the costs incurred this year
B) the costs incurred last year
C) planned or forecasted costs
D) competitor's costs
Answer: C
4) Cost assignment ________.
A) includes future and arbitrary costs
B) encompasses allocating indirect costs to a cost object
C) is the same as cost accumulation
D) is the difference between budgeted and actual costs
Answer: B
5) A cost system determines the cost of a cost object by ________.
A) accumulating and then assigning costs
B) accumulating costs
C) assigning and then accumulating costs
D) assigning costs
Answer: A
6) Which of the following factors affect the direct/indirect classification of a
cost?
A) the level of budgeted profit for the next year
B) the estimation of time required to complete the order
C) the ability to execute an order in the most cost-efficient manner
D) the design of the operation
Answer: D
7) The general term used to identify both the tracing and the allocation of
accumulated costs to a cost object is ________.
A) cost accumulation
B) cost assignment
C) cost tracing

3
 D) conversion costing
Answer: B
8) Cost accumulation is ________.
A) the collection of cost data in some organized way by means of an
accounting system
B) anything for which a cost measurement is desired
C) anything for which a profit measurement is desired
D) the collection of profit data in some organized way by means of an
accounting system
Answer: A
9) Which of the following statements about the direct/indirect cost
classification is true?
A) Indirect costs are always traced.
B) Indirect costs are always allocated.
C) The design of sales target affects the direct/indirect classification.
D) The direct/indirect classification depends on the cost control
measures.
Answer: B
10) Cost allocation is ________.
A) the process of tracking both direct and indirect costs associated with
a cost object
B) the process of determining the opportunity cost of a cost object
chosen
C) the assignment of indirect costs to the chosen cost object
D) made based on material acquisition document
Answer: C
11) Classifying a cost as either direct or indirect depends upon ________.
A) the behavior of the cost in response to volume changes
B) whether the cost is expensed in the period in which it is incurred
C) whether the cost can be easily traced with the cost object
D) whether a cost is fixed or variable

4
 Answer: C
12) Which of the following is true of indirect costs?
A) Indirect costs are always considered sunk costs.
B) All indirect costs are included in cost of goods sold.
C) Indirect costs always vary in direct proportion to the level of
production.
D) Indirect costs cannot be traced to a particular cost object in an
economically feasible way.
Answer: D
13) Which of the following statements is true of direct costs?
A) A direct cost of one cost object is a true sense of the budgeted costs.
B) All variable costs are direct costs.
C) A direct cost of one cost object can be an indirect cost of another cost
object.
D) All fixed costs are direct costs.
Answer: C
14) Which of the following is a fixed cost?
A) monthly rent payment
B) electricity expenses
C) travel expenses
D) direct material costs
Answer: A
15) Cost behavior refers to ________.
A) how costs react to a change in the level of activity
B) whether a cost is incurred in a manufacturing, merchandising, or
service company
C) classifying costs as either perpetual or period costs
D) whether a particular expense is expensed in the same or the following
period
Answer: A
16) Variable costs ________.

5
 A) are always indirect costs
B) increase in total when the actual level of activity increases
C) include most personnel costs and depreciation on machinery
D) are never considered a part of prime cost
Answer: B
17) Which of the following is a fixed cost for an automobile manufacturing
plant?
A) administrative salaries
B) electricity used by assembly-line machines
C) sales commissions
D) tires
Answer: A
18) Within the relevant range, if there is a change in the level of the cost driver,
then ________.
A) total fixed costs and total variable costs will change
B) total fixed costs and total variable costs will remain the same
C) total fixed costs will remain the same and total variable costs will
change
D) total fixed costs will change and total variable costs will remain the
same
Answer: C

 Answer the following questions using the information below:

AL-Zahran Apparels is a clothing retailer. Unit costs associated with one of its
products, Product DCT121, are as follows:
Direct materials $ 70
Direct manufacturing labor 20
Variable manufacturing overhead15
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 5
Administrative salaries 16
Total $158

6
19) What are the variable manufacturing costs per unit associated with Product
DCT121?
A) $142
B) $90
C) $105
D) $110
Answer: C

Answer the following questions using the information below:

 The East Company manufactures several different products. Unit costs
associated with Product ORD210 are as follows:
Direct materials $54
Direct manufacturing labor 8
Variable manufacturing overhead11
Fixed manufacturing overhead 25
Sales commissions (2% of sales) 5
Administrative salaries 12
Total $115
20) What is the percentage of the total variable costs per unit associated with
Product ORD105 with respect to total cost?
A) 72%
B) 68%
C) 75%
D) 70%
Answer: B
Explanation: B) $54+$8+$11+$5 = $78/115 = 68%
21) What is the percentage of the total fixed costs per unit associated with
Product ORD105 with respect to total cost?
A) 32%
B) 28%
C) 26%

7
 D) 20%
Answer: A
Explanation: A) $25+$12 = $37/115 = 32%
22) A unit cost is computed by ________.
A) multiplying total cost by the number of units produced
B) dividing total cost by the number of units produced
C) dividing variable cost by the number of units produced
D) dividing fixed cost by the number of units produced
Answer: B
23) When 20,000 units are produced, fixed costs are $16 per unit. Therefore,
when 16,000 units are produced, fixed costs will ________.
A) increase to $20 per unit
B) remain at $16 per unit
C) decrease to $10 per unit
D) total $160,000
Answer: A
24) When 20,000 units are produced, variable costs are $8 per unit. Therefore,
when 10,000 units are produced ________.
A) variable costs will remain at $8 per unit
B) variable costs will total $60,000
C) variable unit costs will increase to $12 per unit
D) variable unit costs will decrease to $3 per unit
Answer: A

25) Genosis Metals provided the following information for last month:
Sales $20,000
Variable costs 8,000
Fixed costs 4,000
Operating income $8,000
If sales reduce to half the amount in the next month, what is the projected
operating income?
A) $0

8
 B) $4,000
C) $(2,000)
D) $6,000
Answer: C

26) Grip Manufacturing currently produces 1,000 tires per month. The
following per unit data for 1,000 tires apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead8
Fixed manufacturing overhead 12
Total manufacturing costs $55
The plant has capacity for 3,000 tires and is considering expanding production
to 2,000 tires. What is the total cost of producing 2,000 tires?
A) $110,000
B) $98,000
C) $68,000
D) $88,000
Answer: B
Explanation: B) Total cost of producing 2,000 tires = [($30 + $5 + $8) × 2,000
units] + ($12 × 1,000 units) = $98,000
27) The following information pertains to Alleigh's Mannequins:
Manufacturing costs $1,500,000
Units manufactured 30,000
Units sold 29,500 units sold for $85 per unit
Beginning inventory 0 units
What is the amount of gross margin?
A) $1,475,000
B) $1,500,000
C) $2,507,500
D) $1,032,500
Answer: D

9
Explanation: D) 29,500 × ($85 - ($1,500,000 / $30,000)) = $1,032,500
28) Which of the following formulas determine cost of goods sold in a
merchandising entity?
A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold
B) Beginning inventory + Purchases - Ending inventory = Costs of goods sold
C) Beginning inventory - Purchases + Ending inventory = Cost of goods sold
D) Beginning inventory - Ending inventory - Purchases = Cost of goods sold
Answer: B
29) A company reported revenues of $375,000, cost of goods sold of $118,000,
selling expenses of $11,000, and total operating costs of $70,000. Gross margin
for the year is ________.
A) $257,000
B) $246,000
C) $176,000
D) $252,000
Answer: A
Explanation: A) $375,000 − $118,000 = $257,000

30. Net income is $132,000, accounts payable increased $10,000 during the
year, inventory decreased $6,000 during the year, and accounts receivable
increased $12,000 during the year. Under the indirect method, what is net cash
provided
by operating activities?
a. $102,000.
c. $124,000.
b. $112,000.
d. $136,000.
31. The following data are available for Allam Corporation.
Net income $200,000
Depreciation expense 40,000
Dividends paid 60,000

10
 Gain on sale of land 10,000
Decrease in accounts receivable 20,000
Decrease in accounts payable 30,000
Net cash provided by operating activities is:
a. $160,000.
b. $220,000.
c. $240,000.
d. $280,000.

32. The following data are available for Something Strange!

Increase in accounts payable $40,000
Increase in bonds payable 100,000
Sale of investment 50,000
Issuance of common stock 60,000
Payment of cash dividends 30,000
Net cash provided by financing activities is:
a. $90,000.
b. $130,000.
c. $160,000.
d. $170,000.

33. Free cash flow provides an indication of a company’s ability to:

a. generate net income.
b. generate cash to pay dividends.
c. generate cash to invest in new capital expenditures.
d. both (b) and (c).
34. The financial statement which summarizes operating, investing, and
financing activities of
an entity for a period of time is the
a. retained earnings statement.
b. income statement.
c. statement of cash flows.

11
 d. statement of financial position.
35. The statement of cash flows provides answers to all of the following
questions except
a. where did the cash come from during the period?
b. what was the cash used for during the period?
c. what is the impact of inflation on the cash balance at the end of the year?
d. what was the change in the cash balance during the period?
36. Comparisons of data within a company are an example of the following
comparative basis:
a. Industry averages.
b. Intracompany.
c. Intercompany.
d. Both (b) and (c).
37. In horizontal analysis, each item is expressed as a percentage of the:
a. net income amount.
b. stockholders’ equity amount.
c. total assets amount.
d. base year amount.
38. In vertical analysis, the base amount for depreciation expense is generally:
a. net sales.
b. depreciation expense in a previous year.
c. gross profit.
d. fixed assets.
39. The following schedule is a display of what type of analysis?
Amount Percent

Current asset $200,000 25%

Property, plant, 600,000 75%

and equipment
Total assets $800,000 100%

12
 a. Horizontal analysis.
b. Differential analysis.
c. Vertical analysis.
d. Ratio analysis.
40. Which of the following measures is an evaluation of a firm’s ability to pay
current liabilities?
a. Acid-test ratio.
b. Current ratio.
c. Both (a) and (b).
d. None of the above.

41. A measure useful in evaluating the efficiency in managing inventories is:

a. inventory turnover.
b. average days to sell inventory.
c. Both (a) and (b).
d. None of the above.

13