Medium to Hard Practice Test
Product vs Period Costs

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1. Indirect materials are manufacturing overhead because
     a. it is easy to determine how much is used to make one productIncorrect
     b. they are so insignificant that you don’t have to use them to make the productIncorrect
     c. they are difficult to track and a necessary cost to make the productIt is much too costly to track how much of indirect materials is used to make one product, so company's do not track it, and (a.) they are necessary to make the product (b.). They are a product cost and are not expensed as incurred. (d.)
     d. they are expensed as incurredIncorrect

2. Manufacturing overhead can be summarized as follows:
     a. direct costs to make the productsIncorrect
     b. costs of the facilities and management at the manufacturing plantManufacturing overhead by definition is all the other costs that must be incurred to make the product other than direct materials and direct labor, which is mostly related to the facility and management to operate the facility. Direct costs of material and labor is not correct because all manufacturing overhead is indirect (a). (c) covers only part of manufacturing overhead costs and leaves out the facility related costs. Costs incurred at corporate headquarters are period costs and not manufacturing overhead. (d)
     c. all the people working to make the product with the exception of
          workers touching the productIncorrect

     d. all costs incurred at corporate headquartersIncorrect

3. Low cost materials used to make the product that are not traceable are called
     a. direct materialsIncorrect
     b. indirect materialsIncorrect
     c. manufacturing overheadIncorrect
     d. both b. and c.The difference in direct and indirect materials is how easy it is to determine and track the amount that is used to make the product. Both direct and indirect materials can be low cost. Indirect material are not traceable and they are part of manufacturing overhead.

4. Accounting and human resource personnel working at the plant
     a. are considered period costsIncorrect
     b. are considered administrative costsIncorrect
     c. are considered manufacturing overhead costsAll other costs at the manufacturing plant that are not direct materials or direct labor are manufacturing overhead. Since the people are working at the plant they are part of manufacturing overhead. If they were working at the corporate office, they would be considered period, administrative costs a. or b. They are not direct labor since they do not touch the product to make it. d.
     d. are considered direct labor costsIncorrect

5. Indirect labor is
     a. directly involved in all products made at the plantIncorrect
     b. involved in making the product, but don’t touch it to make itIndirect labor by definition is b. Indirect labor is not directly involved in the products made as they do not touch the product to make it. (a.) Inspectors are considered indirect labor (d.) Indirect labor may or may not cost more than direct labor, depending on the manufacturing process and what is required. (c.)
     c. always a higher total cost to the company than direct laborIncorrect
     d. not someone who would inspect the productIncorrect

6. The cost of windows to a homebuilder would be what type of cost?
     a. period, direct materialsIncorrect
     b. period, indirect materialsIncorrect
     c. product, direct materialsThe windows become part of the house that is sold to the customer, therefore, they are direct materials which are a product cost. It is easy to determine how many windows are put in the house, so it is not indirect (d.). All materials used to make the product are product costs and not period costs (a. & b.).
     d. product, indirect materialsIncorrect

7. Costs that are incurred to move inventory around are
     a. period, manufacturing overheadIncorrect
     b. product, manufacturing overheadIncorrect
     c. period, indirect costsWarehouse and inventory movement costs are period costs. It is difficult to tell how much cost is incurred to support one product, therefore they are indirect. They are not product costs and are not part of inventory or manufacturing overhead.
     d. period, direct costsIncorrect

8. The plant manager’s salary is considered
     a. an administrative expense because they are an executiveIncorrect
     b. a period cost that is indirectIncorrect
     c. a product cost that is directIncorrect
     d. a product cost that is indirectThe plant manager does not touch the product to make it and is a necessary cost to manufacture the product, therefore it is a product cost. It is indirect, and is part of manufacturing overhead, because it is difficult to determine how much of the cost must be incurred to make one product. Costs that occur at the plant are not administrative costs or period costs. (a. & b.)

9. Manufacturing overhead is
     a. an indirect cost that can be directly traced to the productsIncorrect
     b. a direct cost that can not be directly traced to one productIncorrect
     c. a product cost that can be traced easily to the productsIncorrect
     d. a product cost that can not be directly traced to one productBy definition, manufacturing overhead occurs at the plant and is a product cost. It is costs incurred to support the overall operations at the plant and can not be traced or easily identified to one product.(c). Direct costs can be traced to one product.(b.) Indirect cost can not be directly traced to products. (a.)

10. Which of the following would not generally be considered a manufacturing
overhead cost?
     a. supervisors for the production lineIncorrect
     b. inspectors that inspect in the middle of the production lineIncorrect
     c. shipping the productShipping the product to customers is a period, selling expense and is not manufacturing overhead. All a., b, and d, are manufacturing overhead.
     d. materials that cost a very small amountIncorrect

11. Inventory is reported on the balance sheet until
     a. the materials are taken to the production lineIncorrect
     b. the inventory is sold to the customerInventory is reported on the balance sheet as a current asset until it is sold to the customer and then the cost is reported on the income statement as cost of goods sold. Materials on the production line are inventory - work in process. Inventory ready to ship to the customer is finished goods. The company should always be able to estimate the cost of inventory and it is not moved to the income statement when the cost is determined, it is moved to the income statement when sold.
     c. the inventory is stored in the warehouse ready to ship to the customerIncorrect
     d. the cost of the inventory is determinedIncorrect

12. The difference in administrative costs and selling costs is that generally
     a. administrative has to do with attracting the customer and selling
          has to do with shipping to the customerIncorrect

     b. administrative is related to operating the organization and
          selling is related to identifying the customer and getting the product
          to the customerGives the distinction between selling and administrative costs. Both are period costs but are incurred for very different activities (c.) Selling costs also include the costs of direct marketing, advertising, and shipping. (d.)

     c. there is no real differenceIncorrect
     d. selling is related to the salaries of the sales force onlyIncorrect

13. Conversion costs would consist of
     a. wood in a table and the worker that makes the tableIncorrect
     b. wood in a table and the cost of utilities at the plantIncorrect
     c. the supervisors salary and the worker that makes the tableConversion costs are direct labor and manufacturing overhead. (c.) is the only answer that consists of direct labor and manufacturing overhead. (a.) is direct material and direct labor, which are prime costs. (b.) is direct material and manufacturing overhead. (d.) is direct material and direct labor.
     d. the traceable nails in the chair and the worker that makes the tableIncorrect

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14. A manufacturing company makes cell phones.
Materials that became part of the finished products cost $869,000. Insurance
at the manufacturing plant cost $56,000. Plant management were paid $202,000.
Rent on corporate headquarters was $48,000. Salespeople were paid $250,000
in salary and $62,000 in commissions. The screws used in the phone that are
hard to keep track of costs $7,500. The workers on the production line were
paid $1,250,000. Depreciation on the manufacturing equipment cost $155,000.
Utilities at the manufacturing plant cost $132,000. Advertising of the products
cost $37,000. Supplies for the corporate office cost $12,000. Glue used to
put the back and front of the cell phone together cost $3,900.

Compute the total amount of each of the following costs:



15. Zachery Surf Shop produces and sells beach clothing. Costs incurred were:

Cost of material used to make clothing
Wages paid to the workers using sewing machines
Salaries of clothing designer
Salaries/commission paid to salespersons
Wages paid to workers who maintain sewing machines
Cost of electricity used for the production area
Cost of advertising nationally
Cost of health insurance for production employees
Cost of health insurance for corporate employees
Cost of rent for the manufacturing building
Depreciation expense on the corporate office building
Salary to the chief executive officer
Cost of thread that is not tracked by use
Cost of oil for sewing machines

Put the amounts in the proper categories:



16. For each of the following types of costs, identify them first as Product (PR)
or Period (PD), then as Direct Labor (DL), Direct Material (DM), Manufacturing
Overhead (OH), Selling (S), Administrative (A), or Warehouse (W). State the
abbreviation for each one on the line below

Type, Name
1. ____, _____ rubber that becomes part of the product
2. ____, _____ labor that touches the product to make the product
3. ____, _____ labor that operates the machine that makes the product
4. ____, _____ screws that become part of the product, too small to track
5. ____, _____ electricity used at the factory
6. ____, _____ property taxes at the corporate headquarters
7. ____, _____ wages of those who handle inventory
8. ____, _____ quality inspector salaries
9. ____, _____ depreciation on salespersons automobiles
10.____, _____ accounting office personnel at the corporate office
11.____, _____ product design salaries at corporate headquarters
12.____, _____ plant management salaries
13.____, _____ janitor wages at the manufacturing facility
14.____, _____ cost to ship to the customers
15.____, _____ cost of tracking inventory in the warehouse
16.____, _____ advertising expenses
17.____, _____ insurance for the manufacturing plant
18.____, _____ wages for those who pack individual products
19.____, _____ equipment maintenance at the factory
20.____, _____ wire used in the products, a traceable part

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