Accounting 202 - Chapter 2 Review Test Quiz

Manufacturing companies hold three types of inventory: raw materials, work in process, and finished goods. Raw materials are the basic materials used in production, work in process includes partially completed products, and finished goods are the final products ready for sale. This inventory is necessary for manufacturing companies as they are involved in the production process, unlike retailers, wholesalers, and service companies who do not typically have such inventory.

Direct materials are the raw materials or components that are directly used in the production of a finished product. These materials can be easily traced and directly associated with the final product. The cost of direct materials is an important component in determining the total inventoriable product costs, which includes all the costs incurred in manufacturing a product and can be assigned to the finished goods. Therefore, the statement "Direct materials are used to determine total inventoriable product costs" accurately describes the role of direct materials in a manufacturing setting.

Total fixed costs remain the same throughout production levels because they do not vary with the level of production. Fixed costs are expenses that do not change regardless of the level of output or sales. These costs include rent, salaries, insurance, and other fixed expenses that a company must pay regardless of how much it produces. Therefore, regardless of whether production increases or decreases, the total fixed costs will remain constant.

The beginning work in process for a manufacturer is calculated by adding the cost of goods manufactured to the ending work in process inventory and then subtracting the manufacturing costs incurred in the period. This calculation takes into account the cost of goods that were in the process of being manufactured at the beginning of the period, the additional goods that were manufactured during the period, and any costs incurred in the manufacturing process.

Intel Corporation would be classified as a manufacturing company because it is involved in the production of computer chips. Manufacturing companies are involved in the physical production of goods, such as assembling or fabricating products, and Intel fits this description as it manufactures computer chips.

The salary of the plant manager is an example of a fixed cost for a manufacturer because it remains constant regardless of the level of production or sales. Fixed costs are expenses that do not change with the volume of production or sales, such as rent, insurance, and salaries. In this case, the plant manager's salary is a fixed cost because it is a regular expense that the manufacturer incurs regardless of the amount of products being produced or sold.

Manufacturers typically produce their own inventory because they are involved in the production process of goods. They transform raw materials into finished products through various manufacturing processes. This allows them to have control over the quality, quantity, and timing of their inventory. Service companies, retailers, and wholesalers do not typically produce their own inventory as their focus is on providing services, selling products, or distributing goods respectively.

Honda classifies steel, glass, and plastic as raw materials inventory because these materials are used in the manufacturing process of its cars. Raw materials inventory refers to the materials that are yet to be transformed into finished products. Since steel, glass, and plastic are not yet processed or assembled into cars, they are considered raw materials. Once these materials are used in the production process, they will be transformed into finished goods inventory.

Indirect labor and indirect materials are classified as manufacturing overhead because they are not directly traceable to a specific product. Indirect labor refers to the labor costs that cannot be easily attributed to a particular product, such as supervisors or maintenance workers. Indirect materials are materials that are not directly used in the production process but are necessary for the overall manufacturing operations, such as lubricants or cleaning supplies. These costs are considered part of the overhead expenses incurred in the manufacturing process.

A product support hot line would be considered customer service because it is a service provided to customers to address their queries, concerns, and issues related to the product. This hot line is dedicated to assisting customers in troubleshooting problems, providing technical support, and offering guidance on product usage. By offering this service, the company aims to enhance customer satisfaction, build loyalty, and ensure a positive customer experience. Therefore, the product support hot line falls under the domain of customer service rather than distribution, production or purchases, or marketing.

The cost of the engines is not considered an indirect cost incurred in manufacturing autos because it directly relates to the production of the vehicles. Indirect costs are expenses that are not directly tied to the production process, such as machinery depreciation, plant utilities, and plant supervisor salary.

A sunk cost refers to a historical cost that has already been incurred and cannot be recovered. It is irrelevant to decision-making because it has already been spent and cannot be changed. Therefore, it should not be considered when making future decisions as it cannot be influenced or altered.

Assembly worker wages would not be found in raw materials inventory for a furniture manufacturer because raw materials inventory typically consists of the materials and components used in the production process, such as wood, fabric, and steel framing. Assembly worker wages, on the other hand, are a labor cost associated with the manufacturing process and would be categorized as a separate expense, such as direct labor or overhead costs.

The only difference in the balancing sheets of various types of businesses is the current assets. This means that the amount of assets that can be easily converted into cash within a year may vary depending on the type of business. Other items such as current liabilities, investments, and equity may be similar or consistent across different types of businesses.

Conversion costs refer to the expenses incurred in transforming raw materials into finished goods. These costs include both direct labor and manufacturing overhead. Direct labor refers to the wages and benefits paid to the workers directly involved in the production process. Manufacturing overhead includes all other indirect costs associated with production, such as factory rent, utilities, and depreciation of machinery. Therefore, the correct answer is direct labor and manufacturing overhead.

The purchase price of the dinner rolls purchased from the local bakery is relevant to the restaurant's decision because it directly affects the cost of acquiring the rolls. If the purchase price from the bakery is high, it may be more cost-effective for the restaurant to bake its own rolls instead.

Delivery expenses are charged to the distribution area because it is responsible for the transportation and delivery of goods from the production or purchases area to the customers. Distribution involves activities such as warehousing, inventory management, and logistics, which all incur costs related to the delivery of products. Therefore, it is logical to allocate the expenses of delivery to the distribution area.

Prime costs refer to the direct costs incurred in the production of goods or services. These costs are directly attributable to the production process and include direct materials and direct labor. Direct materials are the raw materials or components that are used in the manufacturing process, while direct labor refers to the wages or salaries paid to the workers who are directly involved in the production. Therefore, the correct answer is direct materials and direct labor.

When deciding to buy a new computer, several factors need to be considered. The cost of the new computer is an obvious consideration as it directly affects the budget. The games that come with the new computer may be important for some individuals, especially if they are avid gamers. The warranty on the new computer is also crucial as it provides assurance and protection for potential repairs or malfunctions. However, the cost of the old computer, also known as sunk costs, should not be a factor in the decision-making process. Sunk costs are expenses that have already been incurred and cannot be recovered, so they should not influence future decisions.

A service company typically does not have a significant amount of inventory as its primary focus is on providing services rather than selling physical products. Therefore, the balance sheet of a service company would usually show little or no inventory.

Product costs are expensed in the period the related product is sold because according to the matching principle in accounting, expenses should be recognized in the same period as the revenue they help generate. Product costs, such as direct materials, direct labor, and manufacturing overhead, are incurred to produce the goods that are eventually sold. Therefore, it is appropriate to recognize these costs as expenses when the related product is sold and the revenue is recognized. This ensures that the expenses are matched with the revenue they help generate, providing a more accurate representation of the company's financial performance.

The cost of goods sold is an expense that represents the direct costs incurred in producing or purchasing the goods that a retailer sells to customers. It includes the cost of acquiring or producing the inventory, such as the purchase price, transportation costs, and any other costs directly related to bringing the goods to the point of sale. The cost of goods sold is subtracted from the retailer's revenue to determine the gross profit, making it an important component of the income statement.

The cost of making one more unit is called the marginal cost. This term refers to the additional cost incurred in producing an extra unit of a product or service. It takes into account the increase in expenses such as materials, labor, and overhead that are required to produce the additional unit. The marginal cost is an important concept in economics as it helps businesses determine the optimal level of production and pricing strategies.

Direct labor refers to the cost of labor that can be directly traced to the production of goods or services. It includes the wages and benefits paid to employees who directly work on the assembly line or in the production process. The wages of assembly line personnel are a clear example of direct labor as they are directly involved in the manufacturing process. The salary of a production manager and the salary of the vice-president of operations are considered indirect labor costs as they are not directly involved in the production process. The wages of factory security are also indirect labor costs as they do not contribute directly to the production of goods.

A merchandising company is the correct answer because it involves buying products from suppliers and reselling them to customers. In this type of company, inventory consists of both the cost of purchasing the products (freight-in) and the cost of the products themselves. This is different from a service company, which does not sell physical products, and a manufacturing company, which produces its own products instead of buying them for resale. Therefore, a merchandising company is the only option that accurately describes the inventory components mentioned in the question.

Variable costs are costs that vary with the level of production. In this case, the answer states that variable costs are fixed per unit, meaning that the cost per unit remains constant regardless of the level of production. However, the total variable costs will vary as production levels change because the more units produced, the higher the total cost will be. This is because the fixed cost per unit is multiplied by the number of units produced, resulting in a varying total cost.

Period costs are always recorded as an expense. This means that these costs are recognized and deducted from the company's revenue in the same accounting period in which they are incurred. Unlike product costs, which are associated with the production of goods and are included in the inventory value, period costs are not directly related to the production process and are expensed immediately. Examples of period costs include administrative expenses, marketing expenses, and rent.

Assembly worker wages could be found in work in process inventory for an ice cream manufacturer because it is a direct cost associated with the production process. Work in process inventory includes the costs of direct materials, direct labor, and manufacturing overhead that are incurred during the production process. Assembly worker wages are considered a direct labor cost as they are directly related to the manufacturing of the ice cream products.

Honda would classify its partially completed vehicles as work in process. This classification is used for goods that are in the production process but not yet completed. Since the vehicles are still being worked on and are not yet finished goods, they are considered as work in process. This category helps Honda track the progress of production and the value of partially completed vehicles that are still undergoing manufacturing processes.

When a company is deciding where to locate a new store, it would be considered a marketing decision. This is because the location of a store directly impacts its target market, visibility, accessibility, and potential customer base. Marketing strategies, such as market research, customer segmentation, and competitor analysis, are essential in determining the optimal location for a new store. By strategically placing the store in a location that aligns with the target market's preferences and needs, the company can maximize its chances of success and profitability.

The correct answer is adding total fixed costs to total variable costs. This is because total costs are the sum of both fixed costs and variable costs. Fixed costs are expenses that remain constant regardless of the level of production or sales, such as rent or salaries. Variable costs, on the other hand, change in direct proportion to the level of production or sales, such as raw materials or labor costs. By adding these two components together, we can determine the total costs incurred by the company.

Wal-Mart classifies its clothing held for sale as merchandise inventory because it is the inventory that is purchased or manufactured by the company with the intention of selling it to customers. Merchandise inventory includes finished goods that are ready for sale and does not include raw materials or work in process inventory, which are used in the production process. Therefore, merchandise inventory is the appropriate classification for Wal-Mart's clothing held for sale.

Indirect materials are materials used in a manufacturing plant that cannot be traced to a specific unit. Unlike direct materials, which can be easily identified and allocated to a specific product or unit, indirect materials are used for various purposes and cannot be directly linked to a specific unit or product. These materials include items such as lubricants, cleaning supplies, or maintenance tools that are necessary for the manufacturing process but do not become part of the final product.

Merchandising companies are businesses that buy products from manufacturers and sell them to customers. Retailers and wholesalers are both examples of merchandising companies. Retailers sell products directly to consumers, while wholesalers sell products in bulk to retailers. Both types of companies are involved in the process of buying and selling merchandise, making them merchandising companies.

Rent on a factory building would be considered a product cost because it is directly associated with the production of goods. Product costs are expenses that are incurred during the manufacturing process and are directly attributable to the production of a specific product. Rent on a factory building is necessary for the production process and is therefore considered a product cost rather than a period cost, which are expenses that are not directly tied to the production process.

The term "differential cost" refers to the difference in costs between two alternatives. In this context, subtracting the costs of one alternative from the costs of the other alternative helps identify this difference. Therefore, the correct answer is "differential."

Selling and administrative costs are considered to be period costs. Period costs are expenses that are not directly related to the production process, but rather incurred over a specific period of time. These costs are expensed in the period they are incurred and are not included in the cost of inventory. Selling and administrative costs include expenses such as marketing, advertising, salaries of sales staff, rent for office space, and utilities. These costs are necessary for the overall operation of the business but do not directly contribute to the production of goods.

Period costs are expenses that are not directly tied to the production of goods or services and are incurred over a specific period of time, such as rent, utilities, and salaries. These costs are expensed immediately and are not included in the cost of goods sold. As operating expenses, period costs are reported on the income statement in the period they are incurred. This allows for proper matching of expenses with the revenues generated during that period, providing a more accurate representation of the company's financial performance.

The correct answer is that average variable costs remain the same no matter if production increases or decreases. This means that the cost of producing each unit of output does not change regardless of the level of production. This could be due to various factors such as fixed costs being spread out over a larger or smaller number of units, or economies of scale being fully realized at all levels of production. Regardless of the reason, it implies that the cost efficiency of production does not change with the level of output.

All of the above is the correct answer because all three options - merchandise, retailer, and wholesaler - involve the resale of products that have been purchased ready-made from suppliers. A merchandise company buys products from suppliers and resells them to customers. A retailer purchases products from suppliers and sells them directly to consumers. A wholesaler buys products in bulk from suppliers and resells them to retailers or other businesses. Therefore, all three types of companies engage in the resale of products they have purchased from suppliers.

To determine operating income for a manufacturer, all of the mentioned costs need to be calculated. The cost of goods available for sale refers to the total cost of inventory that is available to be sold. The cost of goods manufactured is the total cost of producing the goods that are ready for sale. The cost of goods sold is the total cost of the goods that have been sold during a particular period. All of these costs are essential in calculating the operating income for a manufacturer.

Operating expenses would appear on the income statements for both a merchandiser and manufacturer because they are incurred in the normal course of business operations. These expenses include rent, utilities, salaries, advertising, and other costs that are not directly related to the production of goods. Both merchandisers and manufacturers need to account for these expenses to calculate their net income or loss for a specific period.

To compute the cost of goods sold for a manufacturer, in addition to the cost of goods manufactured, the beginning finished goods inventory needs to be subtracted from the ending finished goods inventory. This is because the cost of goods sold represents the value of the finished goods that were sold during a specific period, and the beginning and ending finished goods inventories are used to calculate this value. By subtracting the ending finished goods inventory from the beginning finished goods inventory, we can determine the change in value of the finished goods and, ultimately, the cost of goods sold.

Direct labor and direct materials are classified as product costs because they are directly associated with the production of goods. These costs are incurred during the manufacturing process and are considered part of the cost of producing the goods. However, they are not expensed immediately when incurred. Instead, they are expensed when the goods are sold, as they are considered part of the cost of goods sold. This means that these costs are matched with the revenue generated from the sale of the goods, following the matching principle in accounting.

Full product costs include all costs of the value chain, which means they encompass not only the direct materials, direct labor, and manufacturing overhead, but also all other costs associated with the production and distribution of the product. This includes costs such as marketing expenses, research and development costs, and administrative costs. Therefore, option C is the correct answer as it accurately describes full product costs. Option A is incorrect because full product costs are not narrower in scope than inventoriable product costs, and option B is incorrect because it does not include all costs of the value chain.

Fixed costs per unit refer to the costs that do not change regardless of the level of production. These costs include expenses such as rent, insurance, and salaries. As production decreases, the total fixed costs remain the same but are spread over a smaller number of units. Therefore, the fixed costs per unit increase. This is because the same amount of fixed costs is being allocated to a smaller number of units, resulting in a higher cost per unit.