Question

TRUE OR FALSE

1. Selling and administrative costs are always period costs on any type of company’s income statement

2. Costs that a manager can influence significantly are classified as uncontrollable costs of that manager

3. When goods are sold, their costs are transferred to Finished Goods Inventory

4. Equivalent-unit calculations are necessary to allocate manufacturing costs between units sold and ending work in process

5 Engineering design costs are typically known as batch-level activities

6 Activity-based costing systems have a tendency to distort product costs

7 There are six important factors when selecting appropriate cost drivers

8 Total contribution margin is defined as total sales revenue plus total variable expenses

Answer 1

• 1. Selling and administrative costs are always period costs on any type of company’s income statement

TRUE, Selling & administrative cost are never a PRODUCT COST, they are always PERIOD COST.

• 2. Costs that a manager can influence significantly are classified as uncontrollable costs of that manager.

FALSE, since the cost can be influenced by the manager, these are termed as Controllable Costs to the manager.

• 3. When goods are sold, their costs are transferred to Finished Goods Inventory.

FALSE, when goods are “Transferred”, their costs are transferred to Finished Goods Inventory. When they are sold, the cost gets transferred to “Cost of Goods Sold”

• 4. Equivalent-unit calculations are necessary to allocate manufacturing costs between units sold and ending work in process.

FALSE, The Equivalent Unit calculation are necessary to allocate manufacturing cost between units ‘transferred’ and ‘ending WIP units’.

• 5 Engineering design costs are typically known as batch-level activities.

TRUE, under ABC methods, these are batch – level activities.

• 6 Activity-based costing systems have a tendency to distort product costs.

TRUE, because cost gets allocated base on some cost driver activities.

• 7 There are six important factors when selecting appropriate cost drivers.

FALSE, there are no fixed factors and they depend upon situation to situation.

• 8 Total contribution margin is defined as total sales revenue plus total variable expenses.

FALSE, Total contribution margin = Total sales Revenue ‘minus’ total variable expenses.