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.

True

False

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.

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.

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

True

False

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.

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.

3. 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.

True

False

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.

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.

4. 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 ________.

$319,000

$312,000

$249,000

$242,000

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

Explanation

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

5. Conversion costs include all direct manufacturing costs.

True

False

Prime costs include all direct manufacturing costs.

Explanation

Prime costs include all direct manufacturing costs.

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

True

False

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

Explanation

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

7. Operating income is sales revenue minus operating expenses.

True

False

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

Explanation

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

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.

True

False

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.

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.