In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period. True False 7. Advertising costs are considered product costs for external financial reports because they are incurred in order to promote specific products. True False 8. Selling and administrative expenses are product costs under generally accepted accounting principles. True False 9. A variable cost is a cost whose cost per unit varies as the activity level rises and falls. True False 10. When the level of activity increases, total variable cost will increase.
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A decrease in production will ordinarily result in an increase in fixed production costs per unit. True False 12. Automation results in a shift away from variable costs toward more fixed costs. True False 13. In order for a cost to be variable it must vary with either units produced or units sold. True False 14. The concept of the relevant range does not apply to fixed costs. True False 15. Indirect costs, such as manufacturing overhead, are always fixed costs. True False 16. Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas. True False 17.
Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any short-run savings that might be realized. True False 18. Committed fixed costs are fixed costs that are not controllable. True False 19. A mixed cost is partially variable and partially fixed. Page 2 of 73 True False 20. Traditional format income statements are prepared primarily for external reporting purposes. True False 21. In a contribution format income statement, sales minus cost of goods sold equals the gross margin.
In a traditional format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period. True False 23. Although the contribution format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs. True False 24. In a contribution format income statement for a merchandising company, cost of goods sold is a variable cost that gets included in the “Variable expenses” portion of the income statement.
True False 25. The traditional format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids costvolume-profit analysis, management performance appraisals, and budgeting. True False 26. The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager’s salary, and the cost of the General Electric jet engines installed on the aircraft. True False 27.
The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician’s fees, and a portion of the liability insurance carried by the hospital to cover the delivery room. True False 28. The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, the costs of heating the law firm’s offices, and the depreciation on the ersonal computer in the office of the attorney who has been assigned the client. True False 29. In any decision making situation, sunk costs are irrelevant and should be ignored.
The salary paid to the production manager in a factory is: A. B. C. D. a variable cost. part of prime cost. part of conversion cost. both a variable cost and a prime cost. 48. Within the relevant range, variable cost per unit will: A. B. C. D. increase as the level of activity increases. remain constant. decrease as the level of activity increases. none of these. 49. The term “relevant range” means the range of activity over which: A. B. C. D. relevant costs are incurred. costs may fluctuate. production may vary. the assumptions about fixed and variable cost behavior are reasonably valid.
