Q: Which formula correctly represents prime costs?

$$\text{Prime costs} = \text{Direct materials} + \text{Direct labor}$$

Q: Which formula correctly represents conversion costs?

$$\text{Conversion costs} = \text{Manufacturing overhead} + \text{Direct labor}$$

Question 1

Which of the following best describes a merchandising company?

Accepted Answer

A company that resells tangible products purchased from manufacturers and suppliers.

Question 2

Which of the following is NOT a type of inventory held by manufacturing companies?

Accepted Answer

Merchandise inventory

Question 3

A cost that can be traced directly and specifically to a cost object is known as:

Accepted Answer

Direct cost

Question 4

Which of the following is an example of a period cost for a manufacturing company?

Accepted Answer

Advertising expenses

Question 5

According to GAAP, which costs are included in the value of inventory for external reporting?

Accepted Answer

Only product costs

Question 6

A company incurs the following costs in a period: $$10,000 for direct materials, 8$$,000 for direct labor, and $6,000 for manufacturing overhead. What are the total product costs?

Accepted Answer

$24,000

Question 7

Which formula correctly represents prime costs?

Accepted Answer

$$	ext{Prime costs} = 	ext{Direct materials} + 	ext{Direct labor}$$

Question 8

A company pays $$2,000 for research and development, 5$$,000 for direct labor, $$3,000 for indirect materials, and 4$$,000 for direct materials. What is the total manufacturing overhead?

Accepted Answer

$$3,000$$

Question 9

Which of the following best describes the difference between tracing and allocating costs?

Accepted Answer

Tracing assigns costs very precisely to cost objects, while allocating assigns costs less precisely.

Question 10

Which of the following is a cost object?

Accepted Answer

A specific department within a company

Question 11

A merchandising company’s product costs include all of the following EXCEPT:

Accepted Answer

Advertising expenses

Question 12

Which of the following is an example of a manufacturing overhead cost?

Accepted Answer

Factory supervisor’s salary

Question 13

If a company wants to ensure its selling price covers all costs and returns a profit, which cost should it consider?

Accepted Answer

Total cost across the value chain

Question 14

Which of the following is true regarding service companies?

Accepted Answer

They sell intangible services and generally do not hold inventory.

Question 15

Which formula correctly represents conversion costs?

Accepted Answer

$$	ext{Conversion costs} = 	ext{Manufacturing overhead} + 	ext{Direct labor}$$

Question 16

A company incurs $$12,000 in direct materials, 7$$,000 in direct labor, and $5,000 in manufacturing overhead. What are the prime costs?

Accepted Answer

$$19,000$$

Question 17

Which of the following costs would be classified as a period cost for a merchandising company?

Accepted Answer

Salaries of sales staff

Question 18

Which of the following statements about product and period costs is correct?

Accepted Answer

Product costs are initially recorded as inventory and expensed as cost of goods sold when sold.

Question 19

A company’s total costs for 2023 include $$20,000 in research and development, 50$$,000 in production costs, and $10,000 in marketing. According to GAAP, what amount is included in inventory?

Accepted Answer

$$50,000$$

Question 20

Which of the following is NOT a plausible cost object for a car manufacturer like Toyota?

Accepted Answer

The company’s tax rate

Building Blocks of Managerial Accounting: Study Notes

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