HBC 611: Managerial Accounting

QUIZ 2 Week 1

Name: __________________________________ Student No: _______________

True or False: State whether the following sentences are TRUE or FALSE. 1. 2. Actual costs and budgeted costs are two different terms referring to the same thing. Accountants define a cost as a resource to be sacrificed to achieve a specific objective. A cost object is always either a product or a service. The same cost may be direct for one cost object and indirect for another cost object. Assigning direct costs poses more problems than assigning indirect costs. Improvements in information-gathering technologies are making it possible to trace more costs as direct. The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP). Misallocated indirect costs may lead to promoting products that are not profitable. Fixed costs depend on the resources used, not the resources acquired. The variable cost per unit of a product should stay the same throughout the relevant range of production. Merchandising companies only hold two types of inventories: merchandise inventory, and direct material.

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12. Cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period. 13. Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory. Inventoriable costs are reported as an asset when incurred and expensed on the income statement when the product is sold. Operating income is sales revenue minus cost of goods manufactured.

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All manufacturing costs are inventoriable costs. All costs reported on the income statement of a service-sector company are period costs.

18. Conversion costs include all direct manufacturing costs. 19. If a worker is paid for 8 hours, but is idle for 1 of those 8 hours, the 1 hour of idle time would be considered a component of direct labor. 20. 21. Period costs are never included as part of inventory. Inventory of a manufacturing firm includes goods partially worked on but not yet fully completed called work-in-progress.. The wages of a plant supervisor would be classified as a period cost. Depreciation can be classified as either an inventoriable cost or a period cost, depending on what is being depreciated. For external reporting, GAAP requires that costs be classified as either variable or fixed. Management accountants help managers identify which information is relevant to a particular decision.

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