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Chapter 2: Building Blocks of Managerial Accounting

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Chapter 2: Building Blocks of Managerial Accounting

15 problems · 0 figures

Multiple Choice 2.1 §2.1 source ↗

Which of the following is the primary source of revenue for a service business?
  1. a.
    the production of products from raw materials
  2. b.
    the purchase and resale of finished products
  3. c.
    providing intangible goods and services
  4. d.
    the sale of raw materials to manufacturing firms

Answer

C. providing intangible goods and services

Multiple Choice 2.3 §2.1 source ↗

Which of the following is the primary source of revenue for a manufacturing business?
  1. a.
    the production of products from raw materials
  2. b.
    the purchase and resale of finished products
  3. c.
    the provision of intangible goods and services
  4. d.
    both the provision of services and the sale of finished goods

Answer

A. the production of products from raw materials

Multiple Choice 2.5 §2.1 source ↗

Which of the following represents the components of the income statement for a manufacturing business?
  1. a.
    Sales Revenue – Cost of Goods Sold = gross profit
  2. b.
    Service Revenue – Operating Expenses = gross profit
  3. c.
    Service Revenue – Cost of Goods Manufactured = gross profit
  4. d.
    Sales Revenue – Cost of Goods Manufactured = gross profit

Answer

A. Sales Revenue – Cost of Goods Sold = gross profit

Multiple Choice 2.7 §2.2 source ↗

Conversion costs include all of the following except:
  1. a.
    wages of production workers
  2. b.
    depreciation on factory equipment
  3. c.
    factory utilities
  4. d.
    direct materials purchased

Answer

D. direct materials purchased

Multiple Choice 2.9 §2.2 source ↗

Fixed costs are expenses that ________.
  1. a.
    vary in response to changes in activity level
  2. b.
    remain constant on a per-unit basis
  3. c.
    increase on a per-unit basis as activity increases
  4. d.
    remain constant as activity changes

Answer

D. remain constant as activity changes

Multiple Choice 2.11 §2.2 source ↗

Total costs for ABC Distributing are $250,000 when the activity level is 10,000 units. If variable costs are $5 per unit, what are their fixed costs?
  1. a.
    $240,000
  2. b.
    $200,000
  3. c.
    $260,000
  4. d.
    Their fixed costs cannot be determined from the information presented.

Answer

B. $200,000

Multiple Choice 2.13 §2.2 source ↗

Which of the following are prime costs?
  1. a.
    indirect materials, indirect labor, and direct labor
  2. b.
    direct labor, indirect materials, and indirect labor
  3. c.
    direct labor and indirect labor
  4. d.
    direct labor and direct materials

Answer

D. direct labor and direct materials

Multiple Choice 2.15 §2.3 source ↗

The high-low method and least-squares regression are used by managers to ________.
  1. a.
    decide whether to make or buy a component part
  2. b.
    minimize corporate tax liability
  3. c.
    maximize output
  4. d.
    estimate costs

Answer

D. estimate costs

Multiple Choice 2.17 §2.3 source ↗

In the cost equation Y = a + bx, Y represents which of the following?
  1. a.
    fixed costs
  2. b.
    variable costs
  3. c.
    total costs
  4. d.
    units of production

Answer

C. total costs

Question 2.1 §2.1 source ↗

Identify the three primary classifications of businesses and explain the differences among the three.

Answer

Answers will vary but should include merchandising, service, and manufacturing businesses.

Question 2.3 §2.1 source ↗

Walsh & Coggins, a professional accounting firm, collects cost information about the services they provide to their clients. Describe the types of cost data they would collect and explain the importance of analyzing this cost data.

Answer

Answers will vary but should include a discussion of operating costs such as salaries and wages, advertising, rent, and office expenses.

Question 2.5 §2.2 source ↗

Identify and describe the three types of product costs in a manufacturing firm.

Answer

Answers will vary but must include direct materials, direct labor, and manufacturing overhead.

Question 2.7 §2.2 source ↗

Explain the concept of relevant range and how it affects total fixed costs.

Answer

Answers will vary but should include that fixed costs remain fixed in total across the relevant range, bounded by a minimum and maximum activity level.

Question 2.9 §2.2 source ↗

Explain the difference between prime costs and conversion costs.

Answer

Answers will vary but should include that prime costs are the direct material and direct labor costs, and conversion costs are direct labor and general factory overhead combined.

Question 2.11 §2.3 source ↗

Explain the components of the total cost equation and describe how each of the components can be used by management for decision-making.

Answer

Answers will vary.

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Problems and answers are adapted from Principles of Accounting, Volume 2: Managerial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.