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ch02 Student: ___________________________________________________________________________ 1. Direct material costs are generally variable costs. True False 2. Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead. True False 3. Manufacturing overhead combined with direct materials is known as conversion cost. True False 4. All costs incurred in a merchandising firm are considered to be period costs. True False 5. Depreciation is always considered a product cost for external financial reporting purposes in a manufacturing firm. True False 6. 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. True False 11. 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. 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. True False 22. 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
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