Question

Please indicate whether the following statements are true or false by circling a T or an F (true or false)

1. Direct and indirect materials may both come from the same source              [ ]      [ ]             

2. Factory overhead includes the cost of selling and advertising the product    [ ]      [ ]

3. Fixed costs remain constant in total, the average fixed costs becomes progressively       

    smaller as the level of activity increases                                                              [ ]      [ ]                   

4. Work in process represent goods that have some or all raw materials, some lab-

     our and some overhead                                                                                        [ ]      [ ]                

5. Because managerial accounting is not bound by GAAP, it has nothing to do with

    the accounting system relied on by financial accounting                                   [ ]      [ ]             

6. The purpose of any managerial costing system should be to provide accounting

       information to assist management in carrying out its job.                             [ ]      [ ]

7. A variable cost is one whose total dollar amount varies in direct proportion to changes

    in the activity level                                                                                                [ ]      [ ]

8. Mixed costs are based on what management decides may be necessary to operate effic-

    iently at different times                                                                                         [ ]      [ ]

9. The Contribution Margin Ratio shows how the Contribution Margin is affected by a

    change in total sales                                                                                               [ ]     [ ]

10 It is impossible, or difficult to trace Manufacturing Overhead costs to a particular to a

     particular product or job                                                                                     [ ]     [ ]               

Answer 1

1. True

When same inventory account is maintained for direct material and indirect material both will come from same source. Both materials are issued to production based on material requisition slip. Direct material is accounted in work in process and indirect material in manufacturing overheads

2. False

Factory overheads are the overheads incurred in factories and they facilitate the manufacture and production of the products. They are product cost. The cost of selling and advertising the product is period cost and not part of factory overheads. They are part of selling expenses

3. True

Fixed cost is a cost which is fixed in nature. For example: Rent, depreciation, insurance, etc. The cost per unit will decrease when the output or level of activity increases

4. True

Work in process represent direct material, direct labor and manufacturing overheads applied to production based on predetermined overhead rate. Hence it represents all manufacturing cost

5. True

Managerial accounting is not bound by GAAP and it is not related with accounting system relied on by financial accounting .Cost accounting is distinct and has separate books of accounting.

6. True

The purpose of managerial accounting is to help the managers in taking decisions required for carrying out their jobs. The techniques of managerial accounting like ABC costing, standard costing, budgeting, etc are widely used for effective and reliable decision making by management

7. True

Variable cost is a cost which is variable directly with output. For example: Direct material, direct labor, etc. They change in total based on activity levels. When activity level increases total variable cost will increase

8. False

Mixed costs are the cost which has components of variable and fixed cost in it. A certain portion of cost is variable and certain portion is fixed. For example: Factory electricity, Factory consumables, etc

9. True

Contribution margin ratio is the ratio of contribution margin to total sales. It is constant ratio based on fixed selling price and fixed variable cost. It helps in understanding how contribution margin changes based on changes in total sales.

10. True

Manufacturing overheads are the overheads incurred to facilitate the production of goods .They are not incurred for a specific product unlike direct material and direct labor. Examples of manufacturing overheads include factory rent, factory taxes, factory depreciation on equipment, etc