ACCT 302: A Quiz On Cost Accounting! Knowledge Test

1.

Inventoriable costs and period costs flow through the income statement at a merchandising company similar to the way costs flow at a manufacturing company.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Inventoriable costs are the costs associated with producing or acquiring goods that are held as inventory and are later sold. Period costs, on the other hand, are expenses that are not directly related to the production of goods, such as administrative expenses. In both a merchandising company and a manufacturing company, these costs flow through the income statement. This means that both types of costs are recognized as expenses and affect the company's net income. Therefore, the statement that inventoriable costs and period costs flow through the income statement at a merchandising company similar to the way costs flow at a manufacturing company is true.

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2.

The cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Cost of goods manufactured refers to the products brought to completion, whether they were started before or during the current accounting period.

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3.

For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured at $101,000, and total operating costs of $70,000. Operating income for that year was ________.
- A.
  
  $319,000
- B.
  
  $312,000
- C.
  
  $249,000
- D.
  
  $242,000
Correct Answer
D. $242,000

Explanation
$420,000 - $108,000 - $70,000 = $242,000

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4.

Operating income is sales revenue minus operating expenses.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Operating income = sales revenue - cost of goods sold - operating expenses

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5.

Conversion costs include all direct manufacturing costs.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
Prime costs include all direct manufacturing costs.

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6.

Designing, marketing, customer services, research and development expenses are operating costs.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Designing, marketing, customer services, and research and development expenses are all considered operating costs because they are directly related to the day-to-day operations of a business. These costs are incurred in order to generate revenue and maintain the business's operations. They are typically ongoing expenses that are necessary for the business to function and serve its customers. Therefore, the statement is true.

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7.

Because costs that are inventoried are not expensed until the units associated with them are sold, a manager can produce more units than are expected to be sold in a period without reducing a firm's net income.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The explanation for the given correct answer is that when costs are inventoried, they are not immediately expensed. Instead, they are only expensed when the units associated with those costs are sold. This means that a manager can produce more units than are expected to be sold in a period without reducing the firm's net income because the costs associated with the additional units are not expensed until they are sold. Therefore, the statement is true.

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8.

Indirect costs such as rent, telephone, and depreciation are always costs of the period in which they are incurred and are not associated with inventories.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
When indirect costs are incurred in marketing or in corporate headquarters, they are period costs. However, when these costs are incurred in manufacturing, they are manufacturing overhead costs and are inventoriable.

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ACCT 302: A Quiz On Cost Accounting! Knowledge Test

Inventoriable costs and period costs flow through the income statement at a merchandising company similar to the way costs flow at a manufacturing company.

The cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.

For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured at $101,000, and total operating costs of $70,000. Operating income for that year was ________.

Operating income is sales revenue minus operating expenses.

Conversion costs include all direct manufacturing costs.

Designing, marketing, customer services, research and development expenses are operating costs.

Because costs that are inventoried are not expensed until the units associated with them are sold, a manager can produce more units than are expected to be sold in a period without reducing a firm's net income.

Indirect costs such as rent, telephone, and depreciation are always costs of the period in which they are incurred and are not associated with inventories.