Walsh College ACC 505 FA 2014 Week Two Practice Test Chapter 2

A decrease in production will ordinarily result in an increase in fixed production costs per unit.Select one:TrueFalseA mixed cost is partially variable and partially fixed.Select one:TrueFalseA variable cost is a cost whose cost per unit varies as the activity level rises and falls.Select one:TrueFalseAdvertising costs are considered product costs for external financial reports because they areincurred in order to promote specific products.Select one:TrueFalseAll costs incurred in a merchandising firm are considered to be period costs.Select one:TrueFalseAlthough the contribution format income statement is useful for external reporting purposes, it hasserious limitations when used for internal purposes because it does not distinguish between fixedand variable costs.Select one:TrueFalseAutomation results in a shift away from variable costs toward more fixed costs.Select one:TrueFalseCommitted fixed costs are fixed costs that are not controllable.Select one:TrueFalseDepreciation is always considered a product cost for external financial reporting purposes in amanufacturing firm.Select one:TrueFalseDirect material costs are generally variable costs.Select one:TrueFalseDiscretionary fixed costs arise from annual decisions by management to spend in certain fixedcost areas.TrueFalseEven if operations are interrupted or cut back, committed fixed costs remain largely unchanged inthe short term because the costs of restoring them later are likely to be far greater than any shortrunsavings that might be realized.Select one:TrueFalseIn a contribution format income statement for a merchandising company, cost of goods sold is avariable cost that gets included in the “Variable expenses” portion of the income statement.Select one:TrueFalseIn a contribution format income statement, sales minus cost of goods sold equals the grossmargin.Select one:TrueFalseIn a traditional format income statement for a merchandising company, the cost of goods soldreports the product costs attached to the merchandise sold during the period.Select one:TrueFalseIn any decision making situation, sunk costs are irrelevant and should be ignored.Select one:TrueFalseIn external financial reports, factory utilities costs may be included in an asset account on thebalance sheet at the end of the period.Select one:TrueFalseIn order for a cost to be variable it must vary with either units produced or units sold.Select one:TrueFalseIndirect costs, such as manufacturing overhead, are always fixed costs.Select one:TrueFalseManufacturing overhead combined with direct materials is known as conversion cost.Select one:TrueFalseProperty taxes and insurance premiums paid on a factory building are examples of manufacturingoverhead.Select one:TrueFalseSelling and administrative expenses are product costs under generally accepted accountingprinciples.Select one:TrueFalseThe concept of the relevant range does not apply to fixed costs.Select one:TrueFalseThe following costs should be considered by a law firm to be indirect costs of defending aparticular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, thecosts of heating the law firm’s offices, and the depreciation on the personal computer in the officeof the attorney who has been assigned the client.Select one:TrueFalseThe following costs should be considered direct costs of providing delivery room services to aparticular mother and her baby: the costs of drugs administered in the operating room, theattending physician’s fees, and a portion of the liability insurance carried by the hospital to coverthe delivery room.Select one:TrueFalseThe following would typically be considered indirect costs of manufacturing a particular Boeing747 to be delivered to Singapore Airlines: electricity to run production equipment, the factorymanager’s salary, and the cost of the General Electric jet engines installed on the aircraft.Select one:TrueFalseThe traditional format income statement is used as an internal planning and decision-making tool.Its emphasis on cost behavior aids cost-volume-profit analysis, management performanceappraisals, and budgeting.Select one:TrueFalseTraditional format income statements are prepared primarily for external reporting purposes.Select one:TrueFalseWhen the level of activity increases, total variable cost will increase.Select one:TrueFalse