Question

Indicate whether each of the following statements is true or false.

1. Product costs are independent of the particular overhead vehicle selected.

2. Cost drivers in activity-based costing are similar to overhead vehicles.

3. Manufacturing companies need cost accounting systems because they convert materials into other states.

4. When we speak of products absorbing overhead, we mean that the manufacturing process has eliminated a portion of the overhead costs.

5. By-products are a special category of joint products.

6. Prime costs are defined as the sum of direct material and direct labor costs only.

7. An auto repair shop generally uses labor hours as its overhead vehicle.

8. Marketing managers are very dependent on cost accounting data in determining the price that should be charged for products.

9. A make-or-buy decision involves the choice between producing a particular part or service within the company, or subcontracting the work to another firm.

10. While some gray area exists between direct and indirect labor, the differentiation between direct and indirect material is unambiguous.

11. The sole reason that an overhead volume variance exists in full absorption costing is because fixed overhead costs are being absorbed.

12. Variable costing provides more useful information for make-or-buy decisions than does full-absorption costing.

13. Overhead volume variances occur frequently in manufacturing environments but seldom in service environments, where full-absorption costing is used.

14. The contribution margin is defined as the difference between revenue and variable manufacturing costs.

15. An argument against the use of variable costing is that it does not comply with generally accepted accounting methods.

16. When manufactured inventory grows during an accounting period, full-absorption costing reports slightly lower earnings than does variable costing.

17. Product standard cost data are often utilized by managers and analysts in departments other than the accounting department.

18. Standard cost accounting systems are expensive to operate.

19. Wage rate variance information is less useful to a production manager than labor efficiency variance information.

20. When standard costs are set tight and inventories are growing, a standard cost accounting system tends to report lower operating profits than does an actual cost accounting system.

21. A company could have a zero balance for total material variance for an accounting period while at the same time report credit variances for both the Material Price and Material Usage Variances accounts.

22. Material price variance information is more useful to the purchasing department than is material usage variance data.

Answer 1

1. Product costs are independent of the particular overhead vehicle selected.- False

2. Cost drivers in activity-based costing are similar to overhead vehicles. False

3. Manufacturing companies need cost accounting systems because they convert materials into other states. – True

4. When we speak of products absorbing overhead, we mean that the manufacturing process has eliminated a portion of the overhead costs. – False

5. By-products are a special category of joint products- False

6. Prime costs are defined as the sum of direct material and direct labor costs only. – True

7. An auto repair shop generally uses labor hours as its overhead vehicle. – True

8. Marketing managers are very dependent on cost accounting data in determining the price that should be charged for products. – True

9. A make-or-buy decision involves the choice between producing a particular part or service within the company, or subcontracting the work to another firm. – True

10. While some gray area exists between direct and indirect labor, the differentiation between direct and indirect material is unambiguous. - True

11. The sole reason that an overhead volume variance exists in full absorption costing is because fixed overhead costs are being absorbed. True

12. Variable costing provides more useful information for make-or-buy decisions than does full-absorption costing – True

13. Overhead volume variances occur frequently in manufacturing environments but seldom in service environments, where full-absorption costing is used. - True