True/Falses
1. Period costs are not considered when costing products for inventory.
2. All direct labor costs during a period of time should be considered product costs and should be temporarily accumulated in the work in process inventory account.
3. Manufacturing overhead is an example of product cost.
4. Conversion costs equal direct labor plus manufacturing overhead.
5. The basis used in computing unit cost for the process costing system is made up of certain specific jobs worked on during the fiscal year.
6. The primary difference between the average costing method and the FIFO costing method is the assumption that the items in the beginning finished goods inventory were started and completed during the period.
7. Typically, there are 7 levels in the cost hierarchy.
8. Activity based costing applies only to production-related activities.
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1. False. Period costs are costs that are not directly associated with the production of goods and are expensed in the period incurred, such as selling and administrative expenses. They are not included in the inventory costing.
To find the answer, you can refer to any accounting textbook or online resources that explain the concept of period costs and inventory costing.
2. False. Only direct labor costs that are directly attributable to the production of goods should be considered product costs and temporarily accumulated in the work in process inventory account. Indirect labor costs, such as supervision and maintenance personnel, should be considered part of manufacturing overhead.
To confirm this, you can refer to accounting principles or consult accounting experts to clarify the distinction between direct and indirect labor costs.
3. True. Manufacturing overhead refers to the indirect costs incurred in the production process, such as factory rent, utilities, and equipment depreciation. These costs are considered part of the product cost because they are necessary for the production of goods.
You can find this information in accounting textbooks or online sources that explain different types of costs.
4. True. Conversion costs consist of direct labor and manufacturing overhead. They represent the costs incurred to convert raw materials into finished products.
To confirm this, consult accounting principles or textbooks that explain different types of costs.
5. False. In the process costing system, the unit cost is computed based on the total cost incurred during a given period divided by the equivalent units produced during that period. It does not depend on specific jobs worked on during the fiscal year.
You can consult accounting textbooks or online resources that provide explanations of process costing methods.
6. False. The primary difference between the average costing method and the FIFO costing method lies in how the cost of goods sold is calculated and how the cost of ending inventory is assigned. It does not relate to the assumption about the items in the beginning finished goods inventory.
To clarify this, refer to accounting textbooks or online resources on different costing methods.
7. False. The number of levels in the cost hierarchy can vary depending on the organization and industry. Typically, the cost hierarchy consists of four levels: unit-level, batch-level, product-level, and facility-level. However, some models may include additional levels specific to certain industries.
To find the correct information, refer to literature on cost hierarchy models or consult experts in cost accounting.
8. False. Activity-based costing (ABC) is a costing method that assigns costs to specific activities or cost drivers, not only production-related activities. It considers the activities required to produce a product or deliver a service and allocates costs accordingly.
To clarify this, refer to accounting textbooks or online resources that explain activity-based costing and its application across various activities within an organization.