PE 1-8 Fixed Costs and Variable Costs

Which of the following is an example of a variable cost?

1. Insurance premium for fire insurance on the factory building

2. The salary of the company president

3. Wood used to make custom tables

4. Rent for use of a storage warehouse

5. Depreciation on the factory building

PE 1-9 Product and Period Costs

Which one of the following is an example of a product cost for a manufacturing company?

1. Office supplies at corporate headquarters

2. Wages paid to office staff

3. Fire insurance premium on office building

4. Wages paid to factory workers

5. Commissions paid to salespeople

PE 1-10 Types of Product Costs

Which one of the following statements is incorrect?

1. Manufacturing overhead includes all direct material and direct labor costs.

2. Indirect materials include those materials that become part of the product but cannot be traced to specific products.

3. Direct labor includes the wages paid to factory workers who do the actual assembly of a product.

4. Direct materials include those materials that become part of the product and can be traced to specific products.

5. Indirect labor includes the salaries of manufacturing supervisors.

PE 1-11 Computing the Cost of a Manufactured Product

Beesley Company manufactures filing cabinets. The company's costs are as follows:

In an average year, the company manufactures 25,000 units.

What is the variable cost to manufacture each filing cabinet?

PE 1-12 Direct and Indirect Costs

Which one of the following statements best explains why companies want to distinguish between direct and indirect costs?

1. To evaluate business segments on the basis of only those costs directly traceable to each segment

2. To better determine whether a company is a large organization or a small organization

3. To determine the sales prices necessary to break even

4. To better distinguish between variable and fixed costs for each product

5. To better distinguish between materials costs and labor costs

PE 1-13 Differential Costs and Sunk Costs

Which one of the following statements is incorrect?

1. Sunk costs should be irrelevant in decision making.

2. Differential costs are the costs a company should consider when making decisions.

3. Differential costs cannot be reasonably avoided by a company.

4. Sunk costs are costs made in the past or committed in the future that do not pertain to future decisions.

5. Differential costs are sometimes called avoidable costs.

PE 1-14 Out-of-Pocket Costs and Opportunity Costs

Which one of the following is an example of an opportunity cost?

1. Revenue lost from sale of cakes by deciding to sell only cookies

2. Wages paid to construction workers

3. Materials used to assemble computers

4. Ordering costs related to a customer's special order of guitar strings

5. Rent paid for the use of a factory building