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Accounting Fix, Variable, Direct and Indirect Cos.

1. Which of the following statements concerning direct and indirect costs are NOT true?
Whether a particular cost is classified as direct or indirect does not depend on the cost object.
A direct cost is one that can be easily traced to the particular cost object.
The factor manager's salary would be classified as an indirect cost of producing one unit of product.
A particular cost may be direct or indirect, depending on the cost object.

2. An example of a cost object is:
a product
a customer
a department
All of these are correct.

3. Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is:
an opportunity cost
a sunk cost
a differential cost
a period cost

4. The potential benefit that is given up when one alternative is selected over another is called:
A sunk cost.
An opportunity cost.
Both a sunk cost and an opportunity cost.
Neither a sunk cost nor an opportunity cost.

5. A manufacturing plant for Vanguard produces two product lines: Optimist sailboats and 420 sailboats. An indirect cost for the Optimist line is the:
cloth used to make Optimist sails
labor to pour 420 hull molds
shift supervisor for the Optimist line
plant supervisor

6. At a sales volume of 20,000 units, Choice Corporation's sales commmissions (a cost that is variable with respect to sales volume) total $132,000.
To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.)
$6.60
$6.87
$7.17
$7.14

7. The cost of the cushions that are used to manufacture sofas is best described as a:
manufacturing overhead cost.
period cost.
variable cost.
conversion cost.

8. The opportunity cost(s):
of a resource with excess capacity is zero
should be maximized by organizations
are recorded as an expense in the accounting records
are most important to financial accountants

9. Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500.
To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.)
$18.93
$18.00
$17.89
$18.10

10. The terms "direct cost" and "indirect cost" are commonly used in cost accounting. Classifying a cost as either direct or indirect depends upon:
the behavior of the cost in response to volume changes
whether the cost is expended in the period in which it is incurred
whether the cost can be related readily to resources consumed for a cost object
whether an expenditure is unavoidable because it cannot be changed regardless of any action taken

11. A recent college graduate has the choice of buying a new auto for $20,000 or to invest the money for four years with a 12% expected rate of return. If the graduate decides to purchase the auto, the BEST estimate of the opportunity cost of that decision is:
$2,400
$11,470
$20,000
There is no opportunity cost for this decision.

12. A manufacturing plant produces two product lines: football equipment and hockey equipment. Direct costs for the football equipment line are the:
beverages provided daily in the plant break room
monthly lease payments for a specialized piece of equipment needed to manufacture the football helmet
salaries of the clerical staff that work in the company administrative offices
utilities paid for the manufacturing plant

13. When the level of activity decreases within the relevant range, the fixed cost per unit will:
decrease.
increase.
remain the same.
The effect cannot be predicted.

14. Depreciation of plant facilities is classified as a(n):
direct material cost
direct labor cost
indirect manufacturing cost
general and administrative cost

15. The fixed portion of the cost of electricity for a manufacturing plant is:
a. Period cost
b. Product cost

a. Yes, b. No
a. Yes, b. Yes
a. No, b. Yes
a. No, b. No

16. Cost distortion is common in conventional costing systems because:
of the recent change in cost structure
the number of products being manufactured is increasing
fixed costs are allocated using a volume measure
fixed costs create higher risks for a company

17. All of the cost categories listed below are usually found in a company's accounting records, except for:
Sunk costs
inventoriable costs
opportunity costs
marketing costs

18. Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
The cost of the raw materials that will be used in manufacturing the computer board is:
a sunk cost
a fixed cost
a period cost
a variable cost

19. Direct costs:
are incurred to benefit a particular accounting period.
are incurred due to a specific decision.
can be easily traced to a particular cost object.
are the variable costs of producing a product.

20. The following cost data pertains to the operations of Ladwig Department Stores, Inc., for the month of December.
Corporate legal office salaries: $68,000
Shoe Department cost of sales, Brentwood Store: $66,000
Corporate headquarters building lease: $86,000
Store manager's salary, Brentwood Store: $10,000
Shoe Department sales commissions, Brentwood Store: $5,000
Store utilities, Brentwood Store: $11,000
Shoe Department manager's salary, Brentwood Store: $3,000
Central warehouse lease cost: $3,000
Janitorial costs, Brentwood Store: $11,000

The Brentwood store is just one of many stores owned and operated by the company. The Shoe department is one of the many departments at the Brentwood store. The central warehouse serves all of the company's stores.
What is the total amount of the costs listed above that are NOT direct costs of the Brentwood store?
$74,000
$32,000
$157,000
$86,000

Solution Preview

1. Which of the following statements concerning direct and indirect costs are NOT true?

Whether a particular cost is classified as direct or indirect does not depend on the cost object.

Coaching tip: Direct costs are easily traceable and depend of what you are tracing it to (cost object) whether it is direct or indirect

2. An example of a cost object is:

All of these are correct.

Coaching tip: All!

3. Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is:

a sunk cost

Coaching tip: can?t change it!

4. The potential benefit that is given up when one alternative is selected over another is called:

An opportunity cost.

5. A manufacturing plant for Vanguard produces two product lines: Optimist sailboats and 420 sailboats. An indirect cost for the Optimist line is the:

shift supervisor for the Optimist line

Coaching tip: Plant supervisor is indirect for all products, not just optimist line

6. At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is variable with respect to sales volume) total $132,000.
To the nearest whole cent, what ...

Solution Summary

Rationale and computations to support choice.

$2.19