58) Although the traditional format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
59) The contribution format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
60) A contribution format income statement separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
61) Traditional format income statements are widely used for preparing external financial statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Using Different Cost Classifications for Different Purposes
Learning Objective: 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
62) Which of the following statements concerning direct and indirect costs is NOT true?
A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.
B) A direct cost is one that can be easily traced to the particular cost object.
C) The factory manager's salary would be classified as an indirect cost of producing one unit of product.
D) A particular cost may be direct or indirect, depending on the cost object.
Answer: A
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
63) Direct costs:
A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.
Answer: C
Difficulty: 1 Easy
Topic: Cost Classifications for Assigning Costs to Cost Objects
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
64) Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?
A) The cost of the glue in a chair.
B) The amount paid to the individual who stains a chair.
C) The workman's compensation insurance of the supervisor who oversees production.
D) The factory utilities of the department in which production takes place.
Answer: B
Difficulty: 2 Medium
Topic: Cost Classifications for Assigning Costs to Cost Objects; Cost Classifications for Manufacturing Companies
Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.; 01-02 Identify and give examples of each of the three basic manufacturing cost categories.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Measurement
65) Rotonga Manufacturing Company leases a vehicle to deliver its finished products to customers. Which of the following terms correctly describes the monthly lease payments made on the delivery vehicle?