Multiple Choice
Topic: Inventory Cost
LO: 1
1. Which of the following inventories results in recording an expense when its asset account is reduced in the accounting system?
A) Raw materials
B) Work in process
C) Finished goods inventory
D) Both A and B
Topic: Work-in-Process Inventory
LO: 1
2. Partially completed goods that are in the process of being converted into a finish product are defined as:
A) Work-in-process inventories
B) Conversion inventories
C) Raw materials inventories
D) Operational inventories
Topic: Product Costs in Financial Reporting
LO: 2
3. Which of the following views of product costs is consistent with financial reporting requirements?
A) Product costs are all costs incurred in the process of manufacturing products, even if they are only indirectly related to the production process.
B) Product costs are all labor and materials costs that are incurred in the process of manufacturing products.
C) Product costs are all costs directly incurred in the manufacturing and selling of the product.
D) Product costs include all costs incurred throughout the value chain
Topic: Period Costs
LO: 2
4. Which of the following statements most accurately describes financial accounting's view of period costs?
A) Period costs are all costs incurred in the current financial reporting period.
B) Period costs are all direct costs incurred in the current financial reporting period.
C) Period costs are all non-manufacturing expenses incurred in the current financial reporting period.
D) Period costs are a component of fully absorbed costs.
Topic: Manufacturing Depreciation
LO: 2
5. How is depreciation on the manufacturing building and equipment classified in financial reporting?
A) As an irrelevant cost because it has already been incurred
B) As a current expense
C) As part of the cost of the products produced
D) As a period cost
Topic: Manufacturing Expense
LO: 2
6. When is the cost of manufacturing equipment recognized as an expense?
A) When equipment depreciation is recorded
B) When inventory processing is completed and finished goods are recorded
C) When finished goods inventory is sold
D) None of the above
Topic: Product Costs
LO: 2
7. Which of the following costs are treated as part of the cost of product?
A) Wages of plant security guards
B) Insurance on the plant building and equipment
C) Depreciation on the kitchen sink in the plant cafeteria
D) All of the above are product costs
Topic: Product Costs
LO: 2
8. Which of the following is not a period cost?
A) The president's salary
B) Sales commissions
C) Depreciation on the mainframe computer in the Information Systems Department
D) Subsidy of the plant cafeteria
Topic: Absorption Costing
LO: 2
9. The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:
A) Prime costing
B) FIFO
C) The weighted average cost method
D) Absorption costing
Topic: Components of Product Cost
LO: 2
10. Which of the following is one of the three major components of product costs?
A) Research and development expenses
B) Manufacturing overhead
C) Marketing costs related to specific products
D) Selling, general and administrative expenses
Topic: Predetermined Overhead Rates
LO: 2
11. What is the purpose for using predetermined overhead rates?
A) Delays in product costing can be avoided
B) Variation in cost assignment due to seasonality can be prevented
C) Variation in cost assignment due to short-term variations in volume can be prevented
D) Use of predetermined overhead rates serves all the above purposes
Topic: Direct Materials
LO: 2
12. Which of the following is the most reasonable cost driver for direct material costs?
A) The quantity of direct materials used
B) Purchasing department activity
C) Direct labor hours
D) Square footage of the warehouse used to store raw materials