Inventoriable product costs are best described by which of the following statements?

114) Use the correct number to designate each item below. Assume a manufacturer.
   
1.    direct materials
2.    selling and general expenses
3.     manufacturing overhead
4.    direct labor

A)    ____    rent expense on factory building
B)    ____    sales supplies used
C)    ____    factory supplies used
D)    ____    indirect materials used
E)    ____    wages of assembly line personnel
F)    ____    cost of primary material used to make product
G)    ____    depreciation expense on office equipment
H)    ____    rent expense on office facilities
I)    ____    insurance expired on factory equipment
J)    ____    utilities incurred in the office
K)    ____    advertising expense
L)    ____    taxes paid on factory building
Answer:  A) 3, B) 2, C) 3, D) 3, E) 4, F) 1, G) 2, H) 2, I) 3, J) 2, K) 2, L) 3
Diff: 2
LO:  2-3
EOC:  E2-17A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


115) Differentiate between:
A. direct materials versus indirect materials
B. direct labor versus indirect labor
Answer:  Student responses will vary but should include the following points:
A. Direct materials must become a physical part of the finished product and their costs must be separately and conveniently traceable through the manufacturing process to specific units of the finished product. Examples for a furniture manufacturer include wood, leather, steel, etc. Indirect materials become part of the finished product, but their minor costs cannot conveniently be traced directly to individual units of the finished products. They are included as part of manufacturing overhead. Examples for a furniture manufacturer include thread, glue, snaps, etc.
B. Direct labor cost is the compensation of employees who physically convert raw materials into the company's products and whose efforts can be traced directly to specific units of finished goods. Examples for a furniture manufacturer include machine operators and assemblers. Indirect labor is factory labor that is difficult to trace to individual units of specific products. Instead, the cost is included in manufacturing overhead. Examples for a furniture manufacturer include costs for forklift operators, janitors, and plant managers.
Diff: 2
LO:  2-3
EOC:  E2-21A
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
116) Indirect manufacturing costs should be included in manufacturing overhead.
Answer:  TRUE
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

117) An inventoriable cost could be the cost of the marketing and distribution of a product.
Answer:  FALSE
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


118) Inventoriable product costs consist of manufacturing overhead, direct labor and direct materials.
Answer:  TRUE
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

119) Indirect materials, indirect labor, and indirect manufacturing costs are what type of manufacturing cost?
A) Direct labor
B) Direct materials
C) Manufacturing overhead
D) Prime costs
Answer:  C
Diff: 2
LO:  2-4
EOC:  S2-6
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
120) Which of the following would not be considered a product cost for a manufacturer?
A) Direct labor
B) Direct materials
C) Manufacturing overhead
D) Freight out
Answer:  D
Diff: 2
LO:  2-4
EOC:  S2-6
AACSB:  Reflective Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

121) Period costs are
A) always recorded as an expense.
B) always considered part of the inventory.
C) expensed only when the inventory is sold.
D) none of the above.
Answer:  A
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
122) All of the following are period costs except
A) distribution expenses.
B) direct labor expenses.
C) marketing expenses.
D) research and development expenses.
Answer:  B
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
123) Inventoriable product costs for a product are described by which of the following?
A) Inventoriable product costs are narrower in scope than total costs.
B) Inventoriable product costs include all costs of the value chain.
C) Inventoriable product costs consist of direct materials, direct labor and manufacturing overhead.
D) Both A and C are correct.
Answer:  B
Diff: 2
LO:  2-4
EOC:  S2-7
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

124) Inventoriable product costs for a manufactured product include
A) the costs of direct materials, direct labor and manufacturing overhead.
B) marketing and research and development costs.
C) the costs of direct materials and direct labor only.
D) none of the above.
Answer:  A
Diff: 2
LO:  2-4
EOC:  S2-3
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


125) Inventoriable product costs are best described by which of the following statements?
A) They are expensed on the income statement when incurred.
B) They include marketing and distribution costs.
C) They are used for external reporting purposes.
D) Both A and C are correct.
Answer:  C
Diff: 2
LO:  2-4
EOC:  E2-22A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
126) Where would period costs be found on the financial statements?
A) Under current assets on the balance sheet
B) Under current liabilities on the balance sheet
C) As operating expenses on the income statement in the period incurred
D) As operating expenses on the income statement for a previous period
Answer:  C
Diff: 2
LO:  2-4
EOC:  E2-22A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

127) Which of the following statements is correct concerning product costs?
A) Product costs are expensed in the period the related product is sold.
B) Product costs are expensed in the period incurred.
C) Product costs are shown with operating expenses on the income statement.
D) Product costs are shown with current liabilities on the balance sheet.
Answer:  A
Diff: 2
LO:  2-4
EOC:  E2-22A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits


128) Which of the following costs include all of the costs associated with production of a product?
A) Inventoriable
B) Direct
C) Mixed
D) Overhead
Answer:  A
Diff: 2
LO:  2-4
EOC:  E2-22A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits

129) Manufacturing overhead costs for a product include
A) direct material.
B) operating expenses.
C) indirect manufacturing costs.
D) prime costs.
Answer:  C
Diff: 2
LO:  2-4
EOC:  E2-21A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits
130) When do inventoriable costs become expenses?
A) When direct materials are purchased
B) When the manufacturing process begins
C) When the manufacturing process is completed
D) None of the above
Answer:  D
Diff: 2
LO:  2-4
EOC:  E2-22A
AACSB:  Analytical Thinking
Learning Outcome:  Define and use cost-volume-profit analysis to analyze the effects of changes
in costs and volume on a company's profits