EXTRA TUTORIAL QUESTIONS (MCQ) ON CHAPTER 1

1) Which of the following statements are true?

1. Wages paid to production supervisors would be classified as manufacturing overhead.
2. Indirect costs, such as manufacturing overhead, are variable costs.
3. Selling costs are indirect costs.
4. Administrative costs are indirect costs.
A) Only statement I is true.
B) Statements I and III are true.
C) All statements are true.
D) None of the statements are true.

2) Which of the following statements are true?

1. The sum of all manufacturing costs except for direct materials and direct labor is called
manufacturing overhead.
2. The three cost elements ordinarily included in product costs are direct materials, direct labor, and
manufacturing overhead.
A) Only statement I is true.
B) Only statement II is true.
C) Both of the statements are true.
D) Neither of the statements are true.

3) Which of the following statements are true?

1. Conversion cost is the sum of direct labor cost and manufacturing overhead cost.
2. Conversion cost is the same thing as manufacturing overhead.
3. Conversion cost equals product cost less direct materials cost.
A) Only statement I is true.
B) Statements I and III are true.
C) All statements are true.
D) None of the statements are true.

4) Which of the following statements are true?

1. In a manufacturing company, all costs are period costs.
2. Selling and administrative expenses are period costs under generally accepted accounting principles.
3. The cost of shipping parts from a supplier is considered a period cost.
A) Only statement 1 is true.
B) Only statement 2 is true.
C) Statements 1 and 2 are true.
D) Statements 1 and 3 are true.

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5) Which of the following statements are true?
1. Advertising is not a considered a product cost even if it promotes a specific product.
2. Product costs are also known as inventoriable costs.
3. Prime cost is the sum of direct materials cost and direct labor cost.
4. Prime cost equals manufacturing overhead cost.
A) Only statement 1 is true.
B) Both statements 1 and 4 are true.
C) Statements 1, 2, and 3 are true.
D) None of the statements are true.

6) Which of the following statements are true?

1. If the activity level increases, then one would expect the fixed cost per unit to increase as well.
2. A fixed cost is a cost whose cost per unit varies as the activity level rises and falls.
3. A decrease in production will ordinarily result in a decrease in fixed production costs per unit.
A) Only statement 2 is true.
B) Only statement 3 is true.
C) Statements 1 and 2 are true.
D) Statements 1 and 3 are true.

7) Which of the following statements are true?

1. A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as the
number of units increases or decreases.
2. Fixed costs expressed on a per unit basis do not change with changes in activity.
3. Committed fixed costs remain largely unchanged in the short run.
A) Only statement 1 is true.
B) Only statement 2 is true.
C) Only statement 3 is true.
D) All statements are true.

8) Which of the following statements are true?

1. Variable costs per unit are not affected by changes in activity.
2. The relevant range concept is applicable to mixed costs.
3. A variable cost remains constant if expressed on a unit basis.
4. A fixed cost is not constant per unit of product.
A) Only statement 3 is true.
B) Both statement 1 and 2 are true.
C) Both statement 2 and 4 are true.
D) All statements are true.

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9) Which of the following statements are true?
1. Differential costs can only be variable.
2. The potential benefit that is given up when one alternative is selected over another is called a sunk
cost.
3. The amount that a manufacturing company could earn by renting unused portions of its warehouse is
an example of an opportunity cost.
A) Only statement 1 is true.
B) Only statement 2 is true.
C) Only statement 3 is true.
D) All statements are true.

10) Which of the following statements are true?

1. In a contribution format income statement for a merchandising company, the cost of goods sold
reports the product costs attached to the merchandise sold during the period.
2. Contribution format income statements are prepared primarily for external reporting purposes.
3. Most companies use the contribution approach in preparing financial statements for external
reporting purposes.
A) Only statement 1 is true.
B) Both statements 1 and 3 are true.
C) All of the statements are true.
D) None of the statements are true.

11) Which of the following statements are true?

1. Contribution margin and gross margin mean the same thing.
2. The contribution format income statement is used as an internal planning and decision-making tool.
Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals,
and budgeting.
3. A contribution format income statement separates costs into fixed and variable categories, first
deducting variable expenses from sales to obtain the contribution margin.
A) Only statement 1 is true.
B) Both statements 2 and 3 are true.
C) All of the statements are true.
D) None of the statements are true.

12) Direct costs:

A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.

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13) Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers.
Which of the following terms correctly describes the monthly lease payments made on the delivery
vehicle?
Direct Cost Fixed Cost

A) Yes Yes
B) Yes No
C) No Yes
D) No No
A) Choice A
B) Choice B
C) Choice C
D) Choice D

14) The costs of direct materials are classified as:

Conversion cost Manufacturing cost Prime cost

A) Yes Yes Yes

B) No No No
C) Yes Yes No
D) No Yes Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D

15) Manufacturing overhead includes:

A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.

16) Materials used in a factory that are not an integral part of the final product, such as cleaning supplies,
should be classified as:
A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.

17) The salary paid to the president of a company would be classified on the income statement as a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.

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18) Which of the following is NOT a period cost?
A) Depreciation of factory maintenance equipment.
B) Salary of a clerk who handles customer billing.
C) Insurance on a company showroom where customers can view new products.
D) Cost of a seminar concerning tax law updates that was attended by the company’s controller.

19) The cost of electricity for running production equipment is classified as:
Conversion cost Period cost

A) Yes No
B) Yes Yes
C) No Yes
D) No No
A) Choice A
B) Choice B
C) Choice C
D) Choice D

20) The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) opportunity cost.

21) A factory supervisor’s wages are classified as:

Indirect labor Fixed manufacturing
overhead
A) No No
B) Yes Yes
C) Yes No
D) No Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D

22) Product costs that have become expenses can be found in:
A) period costs.
B) selling expenses.
C) cost of goods sold.
D) administrative expenses.

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23) The cost of direct materials is classified as a:
Conversion cost Prime cost

A) No No
B) Yes No
C) No Yes
D) Yes Yes
A) Choice A
B) Choice B
C) Choice C
D) Choice D

24) Which of the following costs is classified as both a prime cost and a conversion cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
25) Which of the following is an example of a period cost in a company that makes clothing?
A) Fabric used to produce men’s pants.
B) Advertising cost for a new line of clothing.
C) Factory supervisor’s salary.
D) Monthly depreciation on production equipment.

26) All of the following are examples of product costs except:

A) depreciation on the company’s retail outlets.
B) salary of the plant manager.
C) insurance on the factory equipment.
D) rental costs of factory equipment.

27) which of the following statements is correct in describing manufacturing overhead?

A) Manufacturing overhead when combined with direct materials cost forms conversion cost.
B) Manufacturing overhead consists of all manufacturing cost except for prime cost.
C) Manufacturing overhead is a period cost.
D) Manufacturing overhead when combined with direct labor cost forms prime cost.

28) Direct labor cost is classified as:

Conversion cost Prime Cost

A) Yes Yes
B) No No
C) No Yes
D) Yes No
A) Choice A
B) Choice B
C) Choice C
D) Choice D

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29) Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.

30) Depreciation on a personal computer used in the marketing department of a manufacturing company
would be classified as:
A) a product cost that is fixed with respect to the company’s output.
B) a period cost that is fixed with respect to the company’s output.
C) a product cost that is variable with respect to the company’s output.
D) a period cost that is variable with respect to the company’s output.

31) Factory overhead is typically a(n):

A) mixed cost.
B) fixed cost.
C) variable cost.
D) irrelevant cost.

32) As the level of activity increases, how will a mixed cost in total and per unit behave?
In Total Per Unit

A) Increase Decrease
B) Increase Increase
C) Increase No effect
D) Decrease Increase
E) Decrease No effect
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

33) Within the relevant range, variable costs can be expected to:
A) vary in total in direct proportion to changes in the activity level.
B) remain constant in total as the activity level changes.
C) increase on a per unit basis as the activity level increases.
D) increase on a per unit basis as the activity level decreases.

34) For the past 8 months, Jinan Corporation has experienced a steady increase in its cost per unit even
though total costs have remained stable. This cost per unit increase may be due to_____________ costs
if the level of activity at Jinan is_____________.
A) fixed, decreasing
B) fixed, increasing
C) variable, decreasing
D) variable, increasing

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35) Which of the following statements is true when referring to fixed costs?
A) Committed fixed costs arise from the annual decisions by management.
B) As volume increases, unit fixed cost and total fixed cost will change.
C) Fixed costs increase in total throughout the relevant range.
D) Discretionary fixed costs can often be reduced to zero for short periods of time without seriously
impairing the long-run goals of the company.

36) Which costs will change with a decrease in activity within the relevant range?
A) Total fixed costs and total variable cost.
B) Unit fixed costs and total variable cost.
C) Unit variable cost and unit fixed cost.
D) Unit fixed cost and total fixed cost.
37) For an automobile manufacturer, the cost of a driver’s side air bag purchased from a supplier and
installed in every automobile would best be described as a:
A) fixed cost.
B) mixed cost.
C) step-variable cost.
D) variable cost.

38) Fixed costs expressed on a per unit basis:

A) increase with increases in activity.
B) decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.

39) When the level of activity decreases within the relevant range, the fixed cost per unit will:
A) decrease.
B) increase.
C) remain the same.
D) The effect cannot be predicted.

40) Which of the following production costs, if expressed on a per unit basis, would be most likely to
change significantly as the production level varies?
A) Direct materials.
B) Direct labor.
C) Fixed manufacturing overhead.
D) Variable costs.

41) A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.

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42) All of the following can be differential costs except:
A) variable costs.
B) sunk costs.
C) opportunity costs.
D) fixed costs.

43) Contribution margin is:

A) Sales less cost of goods sold.
B) Sales less variable production, variable selling, and variable administrative expenses.
C) Sales less variable production expense.
D) Sales less all variable and fixed expenses.

44) Perkey Corporation has provided the following information:

Cost per Cost per
Unit Period
Direct materials $ 5.00

Direct labor $ 2.90

Variable manufacturing overhead $ 1.25

Fixed manufacturing overhead $ 21,000

Sales commissions $ 1.00

Variable administrative expense $ 0.55

Fixed selling and administrative expense $ 7,500

If 4,000 units are produced, the total amount of direct manufacturing cost incurred is closest to:
A) $53,400
B) $35,600
C) $36,600
D) $31,600

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45) Norred Corporation has provided the following information:
Cost per Cost per
Unit Period
Direct materials $ 7.05

Direct labor $ 3.70

Variable manufacturing overhead $ 1.60

Fixed manufacturing overhead $ 121,500

Sales commissions $ 1.50

Variable administrative expense $ 0.45

Fixed selling and administrative expense $ 44,550

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If 8,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:
A) $120,800
B) $134,300
C) $12,800
D) $121,500

46) Haack Incorporated is a merchandising company. Last month the company's cost of goods sold was
$84,000. The company's beginning merchandise inventory was $20,000 and its ending merchandise
inventory was $18,000. What was the total amount of the company's merchandise purchases for the
month?
A) $86,000
B) $82,000
C) $84,000
D) $122,000

47) Pedregon Corporation has provided the following information:

Cost per Cost per
Unit Period
Direct materials $ 6.35

Direct labor $ 3.75

Variable manufacturing overhead $ 1.50

Fixed manufacturing overhead $ 15,000

Sales commissions $ 0.50

Variable administrative expense $ 0.55

Fixed selling and administrative expense $ 4,500

If the selling price is $20.60 per unit, the contribution margin per unit sold is closest to:
A) $4.05
B) $6.00
C) $7.95
D) $10.50

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48) Fassino Corporation reported the following data for the month of November:
Direct materials $ 51,000
Direct labor cost $ 54,000
Manufacturing overhead $ 82,000
Selling expense $ 18,000
Administrative expense $ 42,000
The conversion cost for November was:
A) $187,000
B) $112,000
C) $136,000
D) $140,000

49) Fassino Corporation reported the following data for the month of November:
Direct materials $ 51,000
Direct labor cost $ 54,000
Manufacturing overhead $ 82,000
Selling expense $ 18,000
Administrative expense $ 42,000
The prime cost for November was:
A) $136,000
B) $60,000
C) $105,000
D) $112,000

50) Management of Mcgibboney Corporation has asked your help as an intern in preparing some key
reports for November. Direct materials cost was $42,000, direct labor cost was $25,000, and
manufacturing overhead was $62,000. Selling expense was $21,000 and administrative expense was
$38,000.
The conversion cost for November was:
A) $116,000
B) $79,000
C) $87,000
D) $129,000

51) 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 salary that Mark earns at his present employ is:
A) a variable cost
B) a fixed cost
C) a product cost
D) an opportunity cost

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52) 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) an opportunity cost
B) a sunk cost
C) a differential cost
D) a period cost

53) 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) a sunk cost
B) a fixed cost
C) a period cost
D) a variable cost

54) 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.
Rent on the administrative office space is:
A) a variable cost
B) an opportunity cost
C) a period cost
D) a product cost

55) 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.
Property taxes on the building that will be purchased to house the manufacturing facility are:
A) a product cost
B) a variable cost
C) an opportunity cost
D) a period cost

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