Question

Determine whether each statement is true or false.

A. Freight costs incurred in shipping products to customers is properly referred to as a product rather than period cost of the selling company.

B. Period costs include all selling and administrative costs, both variable and fixed.

C. The salary of a manufacturing quality control inspector would typically be accounted for as manufacturing overhead.

D. A retail merchandising company's cost of goods sold typically includes part of store utility costs.

E. A manufacturing company's cost of goods sold includes only product costs.

F. The basis used to apply manufacturing overhead in a job order cost system based on a predetermined overhead rate should be a measurable activity which correlates with or drives overhead costs.

G. Managerial accounting is governed by rules issued by the AICPA

H. If sales price and fixed costs remain constant while variable costs per unit increase, the number of units needed to be sold to reach the break-even point increases.

I. Unrecoverable past costs are always irrelevant in evaluating future business decision alternatives.

Answer 1

1. True (Reason: Shipping cost are directly relating to product, hence It is treated product cost)
2. False (Reason: Some of the cost might be product costs. Product costs are that cost which is included in the cost of the product. Period costs are charged to profit and loss account or income statement. Some selling and distribution costs may be related directly to the products)
3. True (Reason: It is related to manufacturing activity. Manufacturing overhead is all of the costs that a factory incurs, other than the variable costs required to build products, such as direct materials and direct labor. Manufacturing overhead is also known as factory overhead, production overhead, and factory burden)
4. True (Reason: Directly relating to the merchandizing business)
5. True (Reason: Only product cost are direct cost, hence only product cost are included in cost of goods sold)
6. True (Reason: Pre-determined overhead rate should be standardized one, hence should be pre-determined)
7. True
8. True (Reason: Increases, because contribution per unit decreases resulting into increasing of break even quantity)
9. True (Reason: All past cost are irrelevant for decision making, the only relevant cost are considered for decision making)