14. Indirect costs, such as manufacturing overhead, are always fixed costs. True False
15. Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas. True False
16. Even if operations are interrupted or cut back, committed fixed costs remain largely unchanged in the short term because the costs of restoring them later are likely to be far greater than any short-run savings that might be realized.
True False
18. Committed fixed costs are fixed costs that are not controllable. True False
19. A mixed cost is partially variable and partially fixed.
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True False
20. Traditional format income statements are prepared primarily for external reporting purposes. True False
21. In a contribution format income statement, sales minus cost of goods sold equals the gross margin. True False 22. In a traditional format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period.
True False
23. Although the contribution 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.
True False
24. In a contribution format income statement for a merchandising company, cost of goods sold is a variable cost that gets included in the “Variable expenses” portion of the income statement.
True False
25. The traditional 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.
True False
26. The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager’s salary, and the cost of the General Electric jet engines installed on the aircraft.
True False
27. The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician’s fees, and a portion of the liability insurance carried by the hospital to cover the delivery room.
True False
28. The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, the costs of heating the law firm’s offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client.
True False
29. In any decision making situation, sunk costs are irrelevant and should be ignored. True False