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Exam 2: An Introduction to Cost Terms and Concepts

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Question 1

Multiple Choice

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If production volume increases from 8,000 to 10,000 units,

A) total costs will increase by 20 per cent.
B) total costs will increase by 25 per cent.
C) total variable costs will increase by 25 per cent.
D) mixed and variable costs will increase by 25 per cent.

E) A) and B)
F) A) and C)

Correct Answer

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C

Question 2

Multiple Choice

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Which of the following is a product cost?

A) advertising expenditures
B) insurance on the office buildings
C) depreciation of the salesmen's cars
D) depreciation of the production facilities

E) A) and B)
F) A) and C)

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Question 3

Multiple Choice

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Unit costs are critical for

All of the following are product costs EXCEPT

____ are expensed in the period in which they are incurred.

As the volume of activity increases within the relevant range, the variable cost per unit

Classify each of the following costs as variable, fixed, mixed, or step by writing an X under one of the following headings (Sales volume is the cost driver). $\begin{array}{|l|l|c|c|c|c|}\hline & & \text { Variable } & \text { Fixed } & \text { Mixed } & \text { Step } \\\hline 1.& \text { Total selling and administrative costs } & & & & \\\hline 2 . & \text { Salaries of supervisors of five employees } & & & & \\\hline 3 . & \text { Raw materials used in production } & & & & \\\hline 4 . & \text { Power consumption in a restaurant } & & & & \\\hline 5 . & \text { Cost of goods sold in a bookstore } & & & & \\\hline 6.& \text { Salaries of employees who handle } 20 \text { claims } \\&\text { per month } & & & & \\\hline 7 . & \text { Pulpwood in a paper mill } & & & & \\\hline 8.&\text { Salaries of two secretaries in the corporate } \\&\text { office } & & & & \\\hline 9 . & \text { Total current manufacturing costs } & & & & \\\hline 10.&\text { The cost of an automobile rented on the basis } \\&\text { of a daily charge plus E. } 30 \text { per mile } & & & & \\\hline\end{array}$

Which of the following costs would be included as part of factory overhead?

Sunk costs are

Which of the following is an example of a possible cost object?

Which of the following costs incurred by a furniture manufacturer would be a product cost?

Mulholland Company manufactures various wooden furniture products. If the cost object is a product, a chair, what costs would be considered direct?

In a traditional manufacturing company, product costs include

Which one of the following sentences about step costs is true?

Salaries paid to shift supervisors is an example of a

An equipment lease that specifies a payment of £5,000 per month plus £8 per machine hour used is an example of a

All of Jill Enterprise's operations are housed in one building with the costs of occupying the building accumulated in a separate account. The total costs incurred in May amounted to £24,000. The company allocates these costs on the basis of square feet of floor space occupied. Administrative offices, sales offices, and factory operations occupy 9,000, 6,000, and 30,000 square feet, respectively. How much will be classified as a product cost for May?

The wages of a production equipment operator would be classified as

Which item is not an example of a sunk cost?

____ are expensed in the period in which they are incurred.