1. an example of a cost object is:

1.  An example of a cost object is: 


a bicycle 

an individual fast food franchise

the produce department of a grocery store 

All of the above are correct. 


2.  Cost behavior refers to: 


how costs react to a change in the level of activity 

whether a cost is incurred in a manufacturing, merchandising, or service company 

classifying costs as either product or period costs 

whether a particular expense has been ethically incurred


3.  Depreciation of plant facilities is classified as a(n): 


direct material cost 

direct labor cost 

indirect manufacturing cost 

general and administrative cost 


4.  A manufacturing plant produces two product lines: football equipment and hockey equipment. An indirect cost for the hockey equipment line is the: 


material used to make the hockey sticks 

labor to bind the shaft to the blade of the hockey stick 

shift supervisor for the hockey line 

plant supervisor 


5.  The cost of the cushions that are used to manufacture sofas is best described as a: 


manufacturing overhead cost.

period cost. 

variable cost. 

conversion cost. 


6.  Direct costs: 


are incurred to benefit a particular accounting period. 

are incurred due to a specific decision. 

can be easily traced to a particular cost object. 

are the variable costs of producing a product. 


7.  Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle? 

a. Direct Cost   b. Fixed Cost 


a. Yes, b. Yes 

a. Yes, b. No 

a. No, b. Yes 

a. No, b. No 


8.  Within the relevant range, as the number of units produced increases: 


the variable cost per unit remains the same. 

fixed costs in total remain the same. 

variable costs increase in total. 

all of these. 


9.  An example of a fixed cost that would be considered a direct cost is: 


a cost accountant’s salary when the cost object is a unit of product. 

the rental cost of a warehouse to store a finished goods when the cost object is the Purchasing Department. 

a production supervisor’s salary when the cost objective is the Production department. 

Board of Director’s fees when the cost object is the Marketing Department. 


10.  A sunk cost is: 


a cost that is planned to be incurred in the near future.

irrelevant for decision making. 

a cost connected with drilling for oil 

affected by changes in the level of activity. 


11.  Cobra Mining Company spent $200 million five years ago to develop underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is: 


sunk cost. 

variable cost. 

differential cost. 

opportunity cost. 


12.  Haala Inc. is a merchandising company. Last month the company’s cost of goods sold was $68,000. The company’s beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company’s merchandise purchases for the month? 







13.  How much sunk cost is represented in the following list? Annual operating cost $80,000 Fixed operating costs other than depreciation $14,000 Resale value, if sold now $25,000 Original cost of current machine $68,000 







14.  Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine? 


variable cost 

indirect cost 

manufacturing overhead cost 

All of these 


15.  At a sales volume of 20,000 units, Choice Corporation’s sales commissions (a cost that is variable with respect to sales volume) total $132,000. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 18,400 units? (Assume that this sales volume is within the relevant range.) 







16.  At a sales volume of 38,000 units, Tirri Corporation’s property taxes (a cost that is fixed with respect to sales volume) total $733,400. To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) 







17.  Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.) 







18.  The following cost data pertain to the operations of Quinonez Department Store, Inc. for the month of September: Corporate headquarters building lease $77,000 Cosmetics Department sales commissios-Northridge Store $4,000 Corporate legal office salaries $59,000 Store manager’s salary-Northridge Store $11,000 Heating-Northridge Store $10,000 Cosmetics Department cost of sales-Northridge Store $37,000 Central warehouse lease cost $16,000 Store security-Northridge Store $12,000 Cosmetics Department manager’s salary-Northridge Store $4,000 The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company’s stores. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store?  







19.  A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations. In this decision, the lost income from the local delivery routes given up can best be described as a(n): 


opportunity cost. 

conversion cost. 

sunk cost. 

differential (incremental) cost 


20.  Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. In making the decision to invest in the model 240 machine, the opportunity cost was: 







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