MULTIPLE CHOICE QUESTIONS 43. Managerial accounting applies to each of the following types of businesses except a. service firms. b. merchandising firms. c. manufacturing firms. d. Managerial accounting applies to all types of firms. 44. Managerial accounting information is generally prepared for a. stockholders. b. creditors. c. managers. d. regulatory agencies. 45. Managerial accounting information a. pertains to the entity as a whole and is highly aggregated. b. pertains to subunits of the entity and may be very detailed. c. is prepared only once a year. d. is constrained by the requirements of generally accepted accounting principles. 46. The major reporting standard for presenting managerial accounting information is a. relevance. b. generally accepted accounting principles. c. the cost principle. d. the current tax law. 47. Managerial accounting is also called a. management accounting. b. controlling. c. analytical accounting. d. inside reporting. 48. Which of the following is not an internal user? a. Creditor b. Department manager c. Controller d. Treasurer 49. Managerial accounting does not encompass a. calculating product cost. b. calculating earnings per share. c. determining cost behavior. d. profit planning. 50. Managerial accounting is applicable to a. service entities. b. manufacturing entities. c. not-for-profit entities. d. all of these. 51. Management accountants would not a. assist in budget planning. b. prepare reports primarily for external users. c. determine cost behavior. d. be concerned with the impact of cost and volume on profits. 52. Internal reports must be communicated a. daily. b. monthly. c. annually. d. as needed. 53. Financial statements for external users can be described as Show a. user-specific. b. general-purpose. c. special-purpose. d. managerial reports. 54. Managerial accounting reports can be described as a. general-purpose. b. macro-reports. c. special-purpose. d. classified financial statements. 55. The reporting standard for external financial reports is a. industry-specific. b. company-specific. c. generally accepted accounting principles. d. department-specific. 56. Which of the following statements about internal reports is not true? a. The content of internal reports may extend beyond the double-entry accounting system. b. Internal reports may show all amounts at market values. c. Internal reports may discuss prospective events. d. Most internal reports are summarized rather than detailed. 57. In an analogous sense, external user is to internal user as generally accepted accounting principles are to a. timely. b. special-purpose. c. relevance to decision. d. SEC. 58. Internal reports are generally a. aggregated. b. detailed. c. regulated. d. unreliable. 59. A distinguishing feature of managerial accounting is a. external users. b. general-purpose reports. c. very detailed reports. d. quarterly and annual reports. 60. What activities and responsibilities are not associated with management's functions? a. Planning b. Accountability c. Controlling d. Directing 61. Planning is a function that involves a. hiring the right people for a particular job. b. coordinating the accounting information system. c. setting goals and objectives for an entity. d. analyzing financial statements. 62. The managerial function of controlling a. is performed only by the controller of a company. b. is only applicable when the company sustains a loss. c. is concerned mainly with operating a manufacturing segment. d. includes performance evaluation by management. 63. Which of the following is not a management function? a. Constraining b. Planning c. Controlling d. Directing 64.A manager that is establishing objectives is performing which management function? a. Controlling b. Directing c. Planning d. Constraining 65. The management function that requires managers to look ahead and establish objectives is a. controlling. b. directing. c. planning. d. constraining. 66. In determining whether planned goals are being met, a manager is performing the function of a. planning. b. follow-up. c. directing. d. controlling. 67. Which of the following is not a separate management function? a. Planning b. Directing c. Decision-making d. Controlling 68. Directing includes a. providing a framework for management to have criteria to terminate employees when needed. b. running a department under quality control standards universally accepted. c. coordinating a company's diverse activities and human resources to produce a smooth-running operation. d. developing a complex performance ranking system to give certain high performers good raises. 69. Both direct materials and indirect materials are a. raw materials. b. manufacturing overhead. c. merchandise inventory. d. sold directly to customers by a manufacturing company. 70. The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is a. manufacturing overhead. b. indirect materials. c. indirect labor. d. direct labor. 71. Which one of the following would not be classified as manufacturing overhead? a. Indirect labor b. Direct materials c. Insurance on factory building d. Indirect materials Manufacturing costs include a. direct materials and direct labor only. b. direct materials and manufacturing overhead only. c. direct labor and manufacturing overhead only. d. direct materials, direct labor, and manufacturing overhead. 73. Which one of the following is not a direct material? a. A tire used for a lawn mower b. Plastic used in the covered case for a home PC c. Steel used in the manufacturing of steel-radial tires d. Lubricant for a ball-bearing joint for a large crane 74. Which one of the following is not a cost element in manufacturing a product? a. Manufacturing overhead b. Direct materials c. Office salaries d. Direct labor 75. A manufacturing process requires small amounts of glue. The glue used in the production process is classified as a(n) a. period cost. b. indirect material. c. direct material. d. miscellaneous expense. 76. The wages of a timekeeper in the factory would be classified as a. a period cost. b. direct labor. c. indirect labor. d. compliance costs. 77. Which one of the following is not considered as material costs? a. Partially completed motor engines for a motorcycle plant b. Bolts used in manufacturing the compressor of an engine c. Rivets for the wings of a new commercial jet aircraft d. Lumber used to build tables 78. Which of the following is not a manufacturing cost category? a. Cost of goods sold b. Direct materials c. Direct labor d. Manufacturing overhead 79. As current technology changes manufacturing processes, it is likely that direct a. labor will increase. b. labor will decrease. c. materials will increase. d. materials will decrease. 80. For the work of factory employees to be considered as direct labor, the work must be conveniently and a. materially associated with raw materials conversion. b. periodically associated with raw materials conversion. 72. c. physically associated with raw materials conversion. d. promptly associated with raw materials conversion. 81. Which of the following is not classified as direct labor? a. Bottlers of beer in a brewery b. Copy machine operators at a copy shop c. Wages of supervisors d. Bakers in a bakery 82. Cotter pins and lubricants used irregularly in a production process are classified as a. miscellaneous expense. b. direct materials. c. indirect materials. d. nonmaterial materials. 83. Which of the following is not another name for the term manufacturing overhead? a. Factory overhead b. Pervasive costs c. Burden d. Indirect manufacturing costs 84. Because of automation, which component of product cost is declining? a. Direct labor b. Direct materials c. Manufacturing overhead d. Advertising 85. The product cost that is most difficult to associate with a product is a. direct materials. b. direct labor. c. manufacturing overhead. d. advertising. 86. Manufacturing costs that cannot be classified as either direct materials or direct labor are known as a. period costs. b. nonmanufacturing costs. c. selling and administrative expenses. d. manufacturing overhead. 87. Which one of the following is an example of a period cost? a. A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer b. Workers' compensation insurance on factory workers' wages allocated to the factory c. A box cost associated with computers d. A manager's salary for work that is done in the corporate head office 88.Which one of the following costs would not be inventoriable? a. Period costs b. Factory insurance costs c. Indirect materials d. Indirect labor costs 89. Direct materials and direct labor of a company total $6,000,000. If manufacturing overhead is $3,000,000, what is direct labor cost? a. $3,000,000 b. $6,000,000 90. 91. 92. 93. 94. 95. 96. 97. 98. c. $0 d. Cannot be determined from the information provided Which of the following are period costs? a. Raw materials b. Direct materials and direct labor c. Direct labor and manufacturing overhead d. Selling expenses Sales commissions are classified as a. overhead costs b. period costs. c. product costs. d. indirect labor. Product costs consist of a. direct materials and direct labor only. b. direct materials, direct labor, and manufacturing overhead. c. selling and administrative expenses. d. period costs. Which one of the following represents a period cost? a. The VP of Sales' salary and benefits b. Overhead allocated to the manufacturing operations c. Labor costs associated with quality control d. Fringe benefits associated with factory workers Product costs are also called a. direct costs. b. overhead costs. c. inventoriable costs. d. capitalizable costs. For inventoriable costs to become expenses under the matching principle, a. the product must be finished and in stock. b. the product must be expensed based on its percentage-of-completion. c. the product to which they attach must be sold. d. all accounts payable must be settled. As inventoriable costs expire, they become a. selling expenses. b. gross profit. c. cost of goods sold. d. sales revenue. A manufacturing company calculates cost of goods sold as follows: a. Beginning FG inventory + cost of goods purchased – ending FG inventory. b. Ending FG inventory – cost of goods manufactured + beginning FG inventory. c. Beginning FG inventory – cost of goods manufactured – ending FG inventory. d. Beginning FG inventory + cost of goods manufactured – ending FG inventory. A manufacturing company reports cost of goods manufactured as a(n) a. current asset on the balance sheet. b. administrative expense on the income statement. c. component in the calculation of cost of goods sold on the income statement. d. component of the raw materials inventory on the balance sheet. 99. The subtotal, "Cost of goods manufactured" appears on a. a merchandising company's income statement. b. a manufacturing company's income statement. c. both a manufacturing and a merchandising company's income statement. d. neither a merchandising nor a manufacturing company's income statement. 100. Cost of goods manufactured in a manufacturing company is analogous to a. Ending inventory in a merchandising company. b. Beginning inventory in a merchandising company. c. Cost of goods available for sale in a merchandising company. d. Cost of goods purchased in a merchandising company. 101. Cost of goods sold a. only appears on merchandising companies' income statements. b. only appears on manufacturing companies' income statements. c. appears on both manufacturing and merchandising companies' income statements. d. is calculated exactly the same for merchandising and manufacturing companies. 102. Hollern Combines, Inc. has $10,000 of ending finished goods inventory as of December 31, 2008. If beginning finished goods inventory was $5,000 and cost of goods sold was $20,000, how much would Hollern report for cost of goods manufactured? a. $22,500 b. $5,000 c. $25,000 d. $15,000 103. Cost of goods manufactured is calculated as follows: 104. 105. 106. a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP. b. Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP. c. Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP. d. Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP. If the amount of "Cost of goods manufactured" during a period exceeds the amount of "Total manufacturing costs" for the period, then a. ending work in process inventory is greater than or equal to the amount of the beginning work in process inventory. b. ending work in process is greater than the amount of the beginning work in process inventory. c. ending work in process is equal to the cost of goods manufactured. d. ending work in process is less than the amount of the beginning work in process inventory. On the costs of goods manufactured schedule, depreciation on factory equipment a. is not listed because it is included with Depreciation Expense on the income statement. b. appears in the manufacturing overhead section. c. is not listed because it is not a product cost. d. is not an inventoriable cost. On the costs of goods manufactured schedule, the item raw materials inventory (ending) appears as a(n) a. addition to raw materials purchases. b. addition to raw materials available for use. c. subtraction from raw materials available for use. d. subtraction from raw materials purchases. Use the following information for questions 107–109. Carly Manufacturing Company's accounting records reflect the following inventories: Dec. 31, 2008 Dec. 31, 2007 Raw materials inventory $310,000 $260,000 Work in process inventory 300,000 160,000 Finished goods inventory 190,000 150,000 During 2008, $500,000 of raw materials were purchased, direct labor costs amounted to $600,000, and manufacturing overhead incurred was $480,000. 107. 108. The total raw materials available for use during 2008 for Carly Manufacturing Company is a. $810,000. b. $260,000. c. $450,000. d. $760,000. Carly Manufacturing Company's total manufacturing costs incurred in 2008 amounted to a. $1,530,000. 109. 110. 111. 112. b. $1,490,000. c. $1,390,000. d. $1,580,000. If Carly Manufacturing Company's cost of goods manufactured for 2008 amounted to $1,390,000, its cost of goods sold for the year is a. $1,500,000. b. $1,250,000. c. $1,350,000. d. $1,430,000. What is work in process inventory generally described as? a. Costs applicable to units that have been started in production but are only partially completed b. Costs associated with the end stage of manufacturing that are almost always complete and ready for customers c. Costs strictly associated with direct labor d. Beginning stage production costs associated with labor costs dealing with bringing in raw materials from the shipping docks Utley Manufacturing Company reported the following year-end information: beginning work in process inventory, $180,000; cost of goods manufactured, $516,000; beginning finished goods inventory, $252,000; ending work in process inventory, $220,000; and ending finished goods inventory, $264,000. Utley Manufacturing Company's cost of goods sold for the year is a. $504,000. b. $528,000. c. $476,000. d. $252,000. Neeley Manufacturing Company reported the following year-end information: Beginning work in process inventory $1,080,000 Beginning raw materials inventory 300,000 Ending work in process inventory 900,000 Ending raw materials inventory 480,000 Raw materials purchased 960,000 Direct labor 900,000 Manufacturing overhead 600,000 Neeley Manufacturing Company's cost of goods manufactured for the year is a. $2,280,000. b. $2,460,000. c. $2,100,000. d. $2,640,000. Use the following information for questions 113–115. Hopkins Manufacturing Inc.'s accounting records reflect the following inventories: Dec. 31, 2007 Dec. 31, 2008 Raw materials inventory $ 80,000 $ 64,000 Work in process inventory 104,000 116,000 Finished goods inventory 100,000 92,000 During 2008, Hopkins purchased $760,000 of raw materials, incurred direct labor costs of $100,000, and incurred manufacturing overhead totaling $128,000. 113. How much is raw materials transferred to production during 2008 for Hopkins Manu-facturing? a. $992,000 b. $776,000 c. $760,000 d. $744,000 114. How much is total manufacturing costs incurred during 2008 for Hopkins? 115. 116. a. $992,000 b. $1,004,000 c. $988,000 d. $1,000,000 Assume Hopkins Manufacturing’s cost of goods manufactured for 2008 amounted to $960,000. How much would it report as cost of goods sold for the year? a. $968,000 b. $1,000,000 c. $1,060,000 d. $952,000 McNally Manufacturing Company reported the following year-end information: Beginning work in process inventory $ 46,000 Beginning raw materials inventory 24,000 Ending work in process inventory 50,000 Ending raw materials inventory 20,000 Raw materials purchased 680,000 Direct labor 240,000 Manufacturing overhead 100,000 How much is McNally Manufacturing’s cost of goods manufactured for the year? a. $684,000 b. $1,024,000 c. $1,020,000 d. $1,028,000 Use the following information for questions 117–118. Modine Manufacturing Inc.'s accounting records reflect the following inventories: Dec. 31, 2007 Dec. 31, 2008 Raw materials inventory $120,000 $ 96,000 Work in process inventory 156,000 174,000 Finished goods inventory 150,000 138,000 During 2008, Modine purchased $1,140,000 of raw materials, incurred direct labor costs of $150,000, and incurred manufacturing overhead totaling $192,000. 117. How much is total manufacturing costs incurred during 2008 for Modine? a. $1,488,000 b. $1,506,000 c. $1,482,000 d. $1,500,000 118. How much would Modine Manufacturing report as cost of goods manufactured for 2008? a. $1,464,000 b. $1,524,000 c. $1,518,000 d. $1,488,000 119. Sauder Manufacturing Company reported the following year-end information: Beginning work in process inventory Beginning raw materials inventory Ending work in process inventory Ending raw materials inventory Raw materials purchased Direct labor Manufacturing overhead $ 35,000 18,000 38,000 15,000 510,000 180,000 75,000 How much is Sauder Manufacturing’s total cost of work in process for the year? a. $513,000 b. $768,000 c. $765,000 d. $803,000 120. Hardigan Manufacturing Company reported the following year-end information: beginning work in process inventory, $80,000; cost of goods manufactured, $980,000; beginning finished goods inventory, $50,000; ending work in process inventory, $70,000; and ending finished goods inventory, $40,000. How much is Hardigan’s cost of goods sold for the year? a. $980,000 b. $990,000 c. $970,000 d. $1,000,000 Use the following information for questions 121–124. Raw materials inventory, January 1 $ 20,000 Raw materials inventory, December 31 40,000 Work in process, January 1 18,000 Work in process, December 31 12,000 Finished goods, January 1 40,000 Finished goods, December 31 32,000 Raw materials purchases 1,000,000 Direct labor 460,000 Factory utilities 150,000 Indirect labor 50,000 Factory depreciation 400,000 Selling and administrative expenses 420,00 121. Direct materials used is a. $1,060,000. b. $1,020,000. c. $1,000,000. d. $980,000. 122. Assume your answer to question 121 above is $1,000,000. Total manufacturing costs equal a. $2,060,000. b. $2,054,000. c. $1,860,000. d. $2,480,000. 123. Assume your answer to question 122 above is $2,000,000. Cost of goods manufactured equals a. $1,992,000. b. $1,994,000. c. $2,006,000. d. $2,008,000. 124. Assume your answer to question 123 above is $2,040,000. The cost of goods sold is a. $2,046,000. b. $2,008,000. c. $2,032,000. d. $2,048,000. Use the following information for questions 125–128: Raw materials inventory, January 1 Raw materials inventory, December 31 Work in process, January 1 Work in process, December 31 Finished goods, January 1 Finished goods, December 31 Raw materials purchases Direct labor Factory utilities $ 30,000 60,000 27,000 18,000 60,000 48,000 1,500,000 690,000 225,000 Indirect labor 75,000 Factory depreciation 600,000 Selling and administrative expenses 630,000 125. Direct materials used is a. $1,590,000. b. $1,530,000. c. $1,500,000. d. $1,470,000. 126. Assume your answer to question 125 above is $1,500,000. Total manufacturing costs equal a. $3,090,000. b. $3,081,000. c. $2,790,000. d. $3,720,000. 127. Assume your answer to question 126 above is $3,000,000. Cost of goods manufactured equals a. $2,988,000. b. $2,991,000. c. $3,009,000. d. $3,012,000. 128. Assume your answer to question 127 above is $3,060,000. The cost of goods sold is a. $3,069,000. b. $3,012,000. c. $3,048,000. d. $3,072,000. 129. Samson Company reported total manufacturing costs of $130,000, manufacturing overhead totaling $26,000, and direct materials totaling $32,000. How much is direct labor cost? a. Cannot be determined from the information provided. b. $188,000 c. $58,000 d. $72,000 130. Given the following data for Mehring Company, compute (A) total manufacturing costs and (B) costs of goods manufactured: Direct materials used Direct labor Manufacturing overhead Operating expenses 131. 132. $180,000 75,000 225,000 263,000 Beginning work in process Ending work in process Beginning finished goods Ending finished goods $30,000 15,000 38,000 23,000 (A) (B) a. $465,000 $495,000 b. $480,000 $465,000 c. $480,000 $495,000 d. $495,000 $510,000 Penner Company reported total manufacturing costs of $195,000, manufacturing overhead totaling $39,000, and direct materials totaling $48,000. How much is direct labor cost? a. Cannot be determined from the information provided. b. $282,000 c. $87,000 d. $108,000 Given the following data for Glennon Company, compute (A) total manufacturing costs and (B) costs of goods manufactured: Direct materials used Direct labor Manufacturing overhead Operating expenses (A) $240,000 100,000 300,000 350,000 (B) Beginning work in process Ending work in process Beginning finished goods Ending finished goods $40,000 20,000 50,000 30,000 a. $620,000 $660,000 b. $640,000 $620,000 c. $640,000 $660,000 d. $660,000 $680,000 133. Which one of the following does not appear on the balance sheet of a manufacturing company? a. Finished goods inventory b. Work in process inventory c. Cost of goods manufactured d. Raw materials inventory 134. The equivalent of finished goods inventory for a merchandising firm is referred to as a. purchases. b. cost of goods purchased. c. merchandise inventory. d. raw materials inventory. 135. What term describes all activities associated with providing a product or service? a. The manufacturing chain b. The product chain c. The supply chain d. The value chain 136. How have many companies significantly lowered inventory levels and costs? a. They use activity-based costing. b. They utilize an enterprise resource planning system. c. They have a just-in-time method. d. They focus on a total quality management system. 137. Which one of the following managerial accounting approaches attempts to allocate manu-facturing overhead in a more meaningful fashion? a. Theory of constraints b. Just-in-time inventory c. Activity-based costing d. Total-quality management 138. What is one primary benefit of an enterprise resource planning (ERP) system? a. It reduces inventory levels. b. It permits companies to be more streamlined in production. c. It replaces research and development in a company. d. It requires an increased emphasis on product quality. 139. What is “balanced” in the balanced scorecard approach? a. The number of products produced b. The emphasis on financial and nonfinancial performance measurements c. The amount of costs allocated to products 140. 141. 142. 143. 144. d. The number of defects found on each product For what purpose is the theory of constraints used? a. To reduce product defects b. To balance performance measurement c. To identify and manage constraints that bottle-neck operations d. To reduce inventory levels Which one of the following characteristics would likely be associated with a just-in-time inventory method? a. Ending inventory of work in process that would allow several production runs b. A backlog of inventory orders not yet shipped c. Minimal finished goods inventory on hand d. An understanding with customers that they may come to the showroom and select from inventory on hand Which one of the following is a cost that would not likely be associated with computerintegrated manufacturing? a. Manufacturing overhead associated with allocation of equipment depreciation b. Direct labor costs of a welder on the production floor c. Manufacturing overhead associated with allocation of the plant lease to the latest production run d. Direct materials cost with several fuse plates for a new automobile Which one of the following is an activity not associated with TQM? a. Tightening the bolts on a chassis so that the frame will not drop out b. Redesigning the gas tank after fuel efficiency standards are not being met c. Verifying the 10 check points associated with producing the highest quality loaf of bread d. Ensuring that the mattress just manufactured meets the standard of comfort of a random factory line worker What is ERP’s primary benefit? a. It can eliminate stand alone systems that do not share information easily for manage-ment’s use. b. It allows management to rely on the simplest way to utilize information systems in a manufacturing environment. c. It permits line workers to perform accounting and marketing tasks. d. It calculates year end bonuses to a precision not available in traditional information systems management. 145. Some companies implement systems to reduce defects in finished products with the goal of achieving zero defects. What are these systems called? a. Activity-based costing systems b. Enterprise resource planning systems c. Value chain systems d. Total quality management systems 146. Many companies now manufacture products that are untouched by human hands. What do they use to achieve this? a. Activity-based costing b. Computer-integrated manufacturing c. Enterprise resource planning systems d. Total quality management systems a 147. When a company prepares a worksheet for a manufacturing company, to which column is the Indirect Labor account extended? a. To the adjustment columns b. To the income statement columns c. To the cost of goods manufactured columns d. To the balance sheet columns a 148. When a worksheet is prepared for a manufacturing company, an offsetting entry must be made to balance the cost of goods manufactured columns. Where does the offsetting entry appear? a. In the balance sheet debit column b. In the income statement debit column c. In the balance sheet credit column d. In the income statement credit column a 149. Which one of the following accounts would not appear in the cost of goods manufactured columns of a worksheet? a. Ending Work in Process Inventory b. Ending Finished Goods Inventory c. Raw Materials Inventory d. Direct Labor a 150. When making closing entries for a manufacturing company, to which account do all accounts that appear on the cost of goods manufactured schedule get closed? a. Income Summary b. Materials, Labor, and Overhead c. Manufacturing Summary d. Finished Goods Inventor Additional Multiple Choice Questions 151. Financial and managerial accounting are similar in that both 152. 153. 154. 155. 156. 157. 158. a. have the same primary users. b. produce general-purpose reports. c. have reports that are prepared quarterly and annually. d. deal with the economic events of an enterprise. The function that pertains to keeping the activities of the enterprise on track is a. planning. b. directing. c. controlling. d. accounting. Property taxes on a manufacturing plant are an element of a Product Cost Period Cost a. Yes No b. Yes Yes c. No Yes d. No No For a manufacturing company, which of the following is an example of a period cost rather than a product cost? a. Depreciation on factory equipment b. Wages of salespersons c. Wages of machine operators d. Insurance on factory equipment For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to a. cost of goods purchased. b. cost of goods manufactured. c. net purchases. d. total manufacturing costs. If the cost of goods manufactured is less than the cost of goods sold, which of the following is correct? a. Finished Goods Inventory has increased. b. Work in Process Inventory has increased. c. Finished Goods Inventory has decreased. d. Work in Process Inventory has decreased. The principal difference between a merchandising and a manufacturing income statement is the a. cost of goods sold section. b. extraordinary item section. c. operating expense section. d. revenue section. If the total manufacturing costs are greater than the cost of goods manufactured, which of the following is correct? a. Work in Process Inventory has increased. b. Finished Goods Inventory has increased. c. Work in Process Inventory has decreased. d. Finished Goods Inventory has decreased. 159. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the a. cost of goods manufactured. b. total manufacturing overhead. c. total manufacturing costs. d. total cost of work in process. 160. The inventory accounts that show the cost of completed goods on hand and the costs Item 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. Ans. d c b a a a b d b d b c c d c b c Item 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. Ans. b c d a c c d c c a d b d d c b c Item 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. Ans. a a b c c c b a c d d a d d b b a Item 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. Ans. c c c d c b d c c c d b c d a c a applicable to production that is only partially completed are, respectively a. Work in Process Inventory and Raw Materials Inventory. b. Finished Goods Inventory and Raw Materials Inventory. c. Finished Goods Inventory and Work in Process Inventory. d. Raw Materials Inventory and Work in Process Inventory. Item 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. Ans. a b b b a c b d d b d a c d d a c a. b. c. d. MULTIPLE CHOICE QUESTIONS 36. 37. 38. Which of the following is one of the components of cost accounting? a. It involves measuring product costs. b. It involves the determination of company profits. c. It requires GAAP to be applied. d. It requires cost minimizing principles. A major purpose of cost accounting is to a. classify all costs as operating or nonoperating. b. measure, record, and report period costs. c. provide information to stockholders for investment decisions. d. measure, record, and report product costs. The two basic types of cost accounting systems are Item 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. Ans. d d c d c c c d c c b b c c b a a Item 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160. Ans. d b c b b c d c a b b c a a c c Answers to Multiple Choice Questions job order and job accumulation systems. job order and process cost systems. process cost and batch systems. job order and batch systems. 39. A process cost system would most likely be used by a company that makes a. motion pictures. b. repairs to automobiles. c. breakfast cereal. d. college graduation announcements. 40. Which of the following would be accounted for using a job order cost system? a. The production of personal computers b. The production of automobiles c. The refining of petroleum d. The construction of a new campus building 41. 42. 43. 44. 45. 46. 47. Process costing is used when a. the production process is continuous. b. production is aimed at filling a specific customer order. c. dissimilar products are involved. d. costs are to be assigned to specific jobs. Process costing is not used when a. similar goods are being produced. b. large volumes are produced. c. jobs have distinguishing characteristics. d. a series of connected manufacturing processes is necessary. An important feature of a job order cost system is that each job a. must be similar to previous jobs completed. b. has its own distinguishing characteristics. c. must be completed before a new job is accepted. d. consists of one unit of output. As of December 31, 2008, Stand Still Industries had $1,500 of raw materials inventory. At the beginning of 2008, there was $1,200 of materials on hand. During the year, the company purchased $183,000 of materials; however, it paid for only $175,500. How much inventory was requisitioned for use on jobs during 2008? a. $175,200 b. $182,700 c. $183,300 d. $175,800 The flow of costs in a job order cost system a. involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done. b. cannot be measured until all jobs are complete. c. measures product costs for a set time period. d. generally follows a LIFO cost flow assumption. In a job order cost accounting system, the Raw Materials Inventory account is a. an expense. b. a control account. c. not used. d. a period cost. When a job is completed and all costs have been accumulated on a job cost sheet, the journal entry that should be made is a. Finished Goods Inventory Direct Materials Direct Labor Manufacturing Overhead b. Work In Process Inventory Direct Materials Direct Labor Manufacturing Overhead c. Raw Materials Inventory Work In Process Inventory d. Finished Goods Inventory 48. Work In Process Inventory The two major steps in the flow of costs are a. allocating and assigning. b. acquiring and accumulating. c. accumulating and assigning. d. accumulating and amortizing. 49. The Raw Materials Inventory account is a. a subsidiary account. b. debited for invoice costs and freight costs chargeable to the purchaser. c. debited for purchase discounts taken. d. debited for purchase returns and allowances. 50. Records of individual items of raw materials would not be maintained a. electronically. b. manually. c. on store ledger cards. d. in the Raw Materials Inventory account. 51. Cost of raw materials is debited to Raw Materials Inventory when the a. materials are ordered. b. materials are received. c. materials are put into production. d. bill for the materials is paid. 52. Raw Materials Inventory records are also referred to as a. the Raw Materials control account. b. the store ledger cards. c. the purchases journal. d. periodic inventory records. 53. After all postings have been completed, the sum of the balances in the raw materials subsidiary ledger should equal the a. balance in the Raw Materials Inventory control account. b. cost of materials charged to Work in Process Inventory. c. cost of materials purchased. d. cost of materials placed into production. 54. Factory labor costs a. are accumulated in a control account. b. do not include pension costs. c. include vacation pay. d. are based on workers’ net pay. 55. Factory Labor is a(n) a. expense account. b. control account. c. subsidiary account. d. manufacturing cost clearing account. 56. Kline Manufacturing has the following labor costs: Factory—Gross wages Factory—Net wages Employer Payroll Taxes Payable The entry to record the cost of factory labor and the associated payroll tax expense will include a debit to Factory Labor for a. b. c. d. 57. $220,000. $195,000. $185,000. $170,000. Factory labor costs a. accumulate in advance of utilization. b. accumulate in a control account. c. include sick pay earned by factory workers. d. accumulate in the Factory Labor Expense account. c. Accounts Receivable d. Raw Materials Inventory 59. Manufacturing Overhead would not have a subsidiary account for a. utilities. b. property taxes. c. insurance. d. raw materials inventory. 60. The entry to record the acquisition of raw materials on account is a. Work in Process Inventory Accounts Payable b. Manufacturing Overhead Raw Materials Inventory Accounts Payable c. Accounts Payable Raw Materials Inventory d. Raw Materials Inventory Accounts Payable 61. Which one of the following best describes a job cost sheet? a. It is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job. b. It is used to track manufacturing overhead costs to specific jobs. c. It is used by management to understand how direct costs affect profitability. d. It is a daily form that management uses for tracking worker productivity on which employee raises are based. 62. Job cost sheets constitute the subsidiary ledger for the a. Finished Goods Inventory account. b. Cost of Goods Sold account. c. Work In Process Inventory account. d. Cost of Goods Manufactured account. 58. Which of the following is not a control account? a. Manufacturing Overhead b. Factory Labor 63. A materials requisition slip showed that direct materials requested were $53,000 and indirect materials requested were $9,000. The entry to record the transfer of materials from the storeroom is a. Work In Process Inventory................................................... 53,000 Raw Materials Inventory.............................................. 53,000 b. Direct Materials.................................................................... 53,000 Indirect Materials................................................................. 9,000 Work in Process Inventory.......................................... 62,000 c. Manufacturing Overhead..................................................... 62,000 Raw Materials Inventory.............................................. 62,000 d. Work In Process Inventory................................................... 53,000 Manufacturing Overhead..................................................... 9,000 Raw Materials Inventory.............................................. 64.The job cost sheet does not show a. costs chargeable to a specific job. b. the total costs of a completed job. c. the unit cost of a completed job. d. the cost of goods sold. 65. Under an effective system of internal control, the authorization for issuing materials is made a. orally. b. on a prenumbered materials requisition slip. c. by the accounting department. d. by anyone on the production line. 66. A copy of the materials requisition slip a. is routed to the treasurer's office for payment. b. becomes the subsidiary ledger for the Work in Process Inventory. c. can be used as a subsidiary ledger for Raw Materials Inventory. d. is retained by the storeroom, and the original is sent to accounting. 67. 68. 69. Materials requisition slips are costed a. by production supervisors. b. by factory personnel who work on the production line. c. after the goods have been sold. d. using any of the inventory costing methods. Posting to control accounts in a costing system are made a. monthly. b. daily. c. annually. d. semi-annually. Which one of the following should be equal to the balance of the work in process inventory account at the end of the period? a. The total of the amounts transferred from raw materials for the current period b. The sum of the costs shown on the job cost sheets of unfinished jobs c. The total of manufacturing overhead applied to work in process for the period d. The total manufacturing costs for the period 62,000 70. Which of the following shows entries only to control accounts? a. Factory Labor Wages Payable b. Work in Process Factory Labor Raw Materials Inventory Wages Payable c. Work in Process Manufacturing Overhead Raw Materials Inventory d. Factory Labor Raw Materials Inventory Accounts Payable Wages Payable 71. A time ticket does not indicate the a. employee's name. b. account to be charged. c. number of personal exemptions claimed by the employee. d. job number. 72. Which one of the following is a source document that impacts the job cost sheet? a. Raw materials receiving slips b. Materials purchase orders c. Labor time tickets d. Finished goods shipping documents 73. Time tickets should be approved by a. the audit committee. b. co-workers. c. the employee's supervisor. d. the payroll department. 74. If the entry to assign factory labor showed only a debit to Work In Process Inventory, then all labor costs were a. direct labor. b. indirect labor. c. overtime related. d. regular hours. 75. The principal accounting record used in assigning costs to jobs is a. a job cost sheet. b. the cost of goods manufactured schedule. c. the Manufacturing Overhead control account. d. the store ledger cards. 76. The following information is available for completed Job No. 402: Direct materials, $60,000; direct labor, $90,000; manufacturing overhead applied, $45,000; units produced, 5,000 units; units sold, 4,000 units. The cost of the finished goods on hand from this job is 77. Sportly, Inc. completed Job No. B14 during 2008. The job cost sheet listed the following: Direct materials Direct labor Manufacturing overhead applied Units produced Units sold a. b. c. d. $30,000. $195,000. $39,000. $156,000. $33,000 $18,000 $12,000 3,000 units 1,800 units How much is the cost of the finished goods on hand from this job? a. $63,000 b. $37,800 c. $25,200 d. $30,600 78.Madison Inc. uses job order costing for its brand new line of sewing machines. The cost incurred for production during 2008 totaled $12,000 of materials, $6,000 of direct labor costs, and $4,000 of manufacturing overhead applied. The company ships all goods as soon as they are completed which results in no finished goods inventory on hand at the end of any year. Beginning work in process totaled $10,000, and the ending balance is $6,000. During the year, the company completed 40 machines. How much is the cost per machine? a. $450 b. $650 c. $550 d. $800 79. 80. As of December 31, 2008, Nilsen Industries had $2,000 of raw materials inventory. At the beginning of 2008, there was $1,600 of materials on hand. During the year, the company purchased $244,000 of materials; however it paid for only $234,000. How much inventory was requisitioned for use on jobs during 2008? a. $244,400 b. $234,400 c. $233,600 d. $243,600 Cost of goods manufactured equals $44,000 for 2008. Finished goods inventory is $2,000 at the beginning of the year and $5,500 at the end of the year. Beginning and ending work in process for 2008 are $4,000 and $5,000, respectively. How much is cost of goods sold for the year? a. $46,500 b. $42,000 c. $40,500 d. $47,500 81. A company expected its annual overhead costs to be $600,000 and direct labor costs to be $1,000,000. Actual overhead was $580,000, and actual labor costs totaled $1,100,000. How much is the company’s predetermined overhead rate to the nearest cent? a. $0.58 b. $0.53 c. $0.60 d. $0.55 82. Vektek, Inc. thinks machine hours is the best activity base for its manufacturing overhead. The estimate of annual overhead costs for its jobs was $615,000. The company used 1,000 hours of processing on Job No. B12 during the period and incurred overhead costs totaling $630,000. The budgeted machine hours for the year totaled 20,000. How much overhead should be applied to Job No. B12? a. $630 b. $30,750 c. $31,500 d. $615 83. Hill Mfg. provided the following information from its accounting records for 2008: Expected production Actual production Budgeted overhead Actual overhead 30,000 labor hours 28,000 labor hours $900,000 $870,000 How much is the overhead application rate if Hill bases the rate on direct labor hours? a. $31.07 per hour b. $30.00 per hour c. $29.00 per hour d. $28.00 per hour 84. Kinney Company applies overhead on the basis of 150% of direct labor cost. Job No. 176 is charged with $50,000 of direct materials costs and $60,000 of manufacturing overhead. The total manufacturing costs for Job No. 176 is a. $110,000. b. $200,000. c. $150,000. d. $135,000. 85. Redman Company manufactures customized desks. The following pertains to Job No. 978: Direct materials used Direct labor hours worked Direct labor rate per hour Machine hours used Applied factory overhead rate per machine hour $6,300 300 $12.00 200 $22.00 What is the total manufacturing cost for Job No. 978? a. $13,100 b. $14,300 c. $15,300 d. $16,500 86. Henson Company applies overhead on the basis of 120% of direct labor cost. Job No. 190 is charged with $60,000 of direct materials costs and $90,000 of manufacturing overhead. The total manufacturing costs for Job No. 190 is a. $150,000. b. $258,000. c. $162,000. d. $225,000. 87. Norman Company manufactures customized desks. The following pertains to Job No. 953: Direct materials used Direct labor hours worked Direct labor rate per hour Machine hours used Applied factory overhead rate per machine hour $8,400 300 $16.00 200 $30.00 What is the total manufacturing cost for Job No. 953? a. $17,600 b. $19,200 c. $20,600 d. $22,200 88. Oliver Company provided the following information from its accounting records for 2008: Expected production Actual production Budgeted overhead Actual overhead 60,000 labor hours 56,000 labor hours $1,500,000 $1,450,000 How much is the overhead application rate if Oliver Company bases it on direct labor hours? a. $25.00 per hour b. $26.79 per hour c. $25.89 per hour d. $24.17 per hour 89.The labor costs that have been identified as indirect labor should be charged to a. manufacturing overhead. b. direct labor. c. the individual jobs worked on. d. salary expense. 90. 91. 92. 93. Manufacturing overhead is applied to each job a. at the time when the overhead cost is incurred. b. by means of a predetermined overhead rate. c. at the end of the year when actual costs are known. d. only if the overhead costs can be directly traced to that job. The predetermined overhead rate is based on the relationship between a. estimated annual costs and actual activity. b. estimated annual costs and expected annual activity. c. actual monthly costs and actual annual activity. d. estimated monthly costs and actual monthly activity. The predetermined overhead rate is a. determined on a moving average basis throughout the year. b. not calculated until actual overhead costs are incurred. c. determined at the beginning of the year. d. determined at the end of the current year. In calculating a predetermined overhead rate, a recent trend in automated manufacturing operations is to choose an activity base related to a. direct labor hours. b. indirect labor dollars. c. machine hours. d. raw materials dollars. 94. If annual overhead costs are expected to be $750,000 and direct labor costs are expected to be $1,000,000, then a. $1.33 is the predetermined overhead rate. b. for every dollar of manufacturing overhead, 75 cents of direct labor will be assigned. c. for every dollar of direct labor, 75 cents of manufacturing overhead will be assigned. d. a predetermined overhead rate cannot be determined. 95. Overhead application is recorded with a a. credit to Work in Process Inventory. b. credit to Manufacturing Overhead. c. debit to Manufacturing Overhead. d. credit to job cost sheets. 96. Manufacturing overhead applied is added to direct labor incurred and to what other item to equal total manufacturing costs for the period? a. Goods available for sale b. Raw materials purchased c. Work in process d. Direct materials used 97. At the beginning of the year, Monroe Company estimates annual overhead costs to be $1,500,000 and that 300,000 machine hours will be operated. Using machine hours as a base, the amount of overhead applied during the year if actual machine hours for the year was 315,000 hours is a. $1,500,000. b. $1,428,572. c. $1,050,000. d. $1,575,000. 98. Cost of goods sold is obtained from a. analysis of all the control accounts in the cost system. b. the finished goods inventory records. c. the work in process inventory records. d. the Raw Materials Inventory control account. 99. 100. 101. When determining costs of jobs, how does a company account for indirect materials? a. It is added to work in process as used. b. It remains part of raw materials inventory. c. It is transferred out of raw materials into manufacturing overhead when used. d. It is transferred out of raw materials into work in process as used. In a job order cost system, a credit to Manufacturing Overhead will be accompanied by a debit to a. Cost of Goods Manufactured. b. Finished Goods Inventory. c. Work in Process Inventory. d. Raw Materials Inventory. During 2008, Lawson Manufacturing expected Job No. 26 to cost $600,000 of overhead, $1,000,000 of materials, and $400,000 in labor. Lawson applied overhead based on direct labor cost. Actual production required an overhead cost of $560,000, $1,100,000 in materials used, and $440,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods? a. $2,000,000 b. $2,100,000 c. $2,140,000 d. $2,200,000 a. b. c. d. 103. Which of the following is not viewed as part of accumulating manufacturing costs in a job order cost system? a. Cost of goods sold is recognized b. Raw materials are purchased c. Factory labor is incurred d. Manufacturing overhead is incurred 104. Which of the following is not viewed as part of assigning manufacturing costs in a job order cost system? a. Manufacturing overhead is applied b. Raw materials are used c. Manufacturing overhead is incurred d. Completed goods are recognized 105. In determining total manufacturing costs on the cost of goods manufactured schedule, a. beginning work in process inventory should have a zero balance. b. actual manufacturing overhead costs appear as a deduction. c. manufacturing overhead applied is added to direct materials and direct labor. d. ending work in process inventory is deducted from beginning work in process inventory. 102. Debits to Work in Process Inventory are accompanied by a credit to all but which one of the following accounts? Use the following information for questions 106–107. Baxter Company developed the following data for the current year: Beginning work in process inventory Direct materials used Actual overhead Overhead applied Cost of goods manufactured Total manufacturing costs Raw Materials Inventory Factory Labor Manufacturing Overhead Cost of Goods Sold $150,000 90,000 180,000 135,000 165,000 450,000 106. Baxter Company's direct labor cost for the year is a. $45,000. b. $225,000. c. $135,000. d. $180,000. 107. Baxter Company's ending work in process inventory is a. $435,000. b. $300,000. c. $285,000. d. $135,000. 108. Russell Manufacturing Company developed the following data: Beginning work in process inventory Direct materials used Actual overhead Overhead applied Cost of goods manufactured Ending work in process $180,000 140,000 220,000 160,000 240,000 300,000 Russell Manufacturing Company's total manufacturing costs for the period is a. $380,000. b. $360,000. c. $260,000. d. cannot be determined from the data provided. 109. Which of the following is not used in assigning manufacturing costs to work in process inventory? a. Actual manufacturing overhead b. Time tickets c. Materials requisitions d. Predetermined overhead rate 110. On the cost of goods manufactured schedule, the cost of goods manufactured agrees with the a. balance of Finished Goods Inventory at the end of the period. b. total debits to Work in Process Inventory during the period. c. amount transferred from Work in Process Inventory to Finished Goods during the period. d. debits to Cost of Goods Sold during the period. 111. Gannon Company had the following information at December 31: Finished goods inventory, January 1 Finished goods inventory, December 31 $ 50,000 150,000 If the cost of goods manufactured during the year amounted to $2,100,000 and annual sales were $2,750,000, the amount of gross profit for the year is a. $650,000. b. $2,000,000. c. $750,000. d. $550,000. 112. Vernon Company incurred direct materials costs of $500,000 during the year. Manu-facturing overhead applied was $90,000 and is applied at the rate of 60% of direct labor costs. Vernon Company’s total manufacturing costs for the year was a. $740,000. b. $644,000. c. $590,000. d. $944,000. Use the following information for questions 113–114. Payne Company developed the following data for the current year: Beginning work in process inventory Direct materials used Actual overhead Overhead applied Cost of goods manufactured Total manufacturing costs $ 34,000 52,000 44,000 46,000 225,000 214,000 113. How much is Payne Company's direct labor cost for the year? a. $127,000 b. $150,000 c. $116,000 d. $82,000 114. How much is Payne Company's ending work in process inventory for the year? a. $23,000 b. $121,000 c. $21,000 d. $93,000 115. Chmelar Manufacturing Company developed the following data: Beginning work in process inventory Direct materials used Actual overhead Overhead applied Cost of goods manufactured Ending work in process How much are total manufacturing costs for the period? a. $395,000 b. $315,000 c. $275,000 d. $305,000 116. $ 20,000 120,000 140,000 135,000 320,000 15,000 Barger Company had the following information at December 31: Finished goods inventory, January 1 Finished goods inventory, December 31 $30,000 42,000 If the cost of goods manufactured during the year amounted to $665,000 and annual sales were $998,000, how much is the amount of gross profit for the year? a. $333,000 b. $303,000 c. $653,000 d. $345,000 117. 118. Chin Company incurred direct materials costs of $300,000 during the year. Manufacturing overhead applied was $280,000 and is applied based on direct labor costs. The predetermined overhead rate is 70%. How much are Chin Company’s total manufacturing costs for the year? a. $776,000 b. $700,000 c. $580,000 d. $980,000 During 2008, Denson Manufacturing expected Job No. 51 to cost $450,000 of overhead, $750,000 of materials, and $300,000 in labor. Denson applied overhead based on direct labor cost. Actual production required an overhead cost of $420,000, $825,000 in materials used, and $330,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods? a. $1,605,000 b. $1,650,000 c. $1,500,000 d. $1,575,000 119. During 2008, Speck Manufacturing expected Job No. 59 to cost $450,000 of overhead, $750,000 of materials, and $300,000 in labor. Speck applied overhead based on direct labor cost. Actual production required an overhead cost of $420,000, $825,000 in materials used, and $330,000 in labor. All of the goods were completed. How much is the amount of overor underapplied overhead? a. $30,000 underapplied b. $30,000 overapplied c. $75,000 underapplied d. $75,000 overapplied 120. Kimble Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period: Estimated annual overhead cost $1,200,000 Actual annual overhead cost $1,145,000 Estimated machine hours 300,000 Actual machine hours 280,000 a. $1,120,000 applied and $25,000 overapplied b. $1,200,000 applied and $25,000 overapplied c. $1,120,000 applied and $25,000 underapplied d. $1,145,000 applied and neither under- nor overapplied 121. Barnes Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period: Estimated annual overhead cost Actual annual overhead cost Estimated machine hours Actual machine hours a. b. c. d. 122. 123. 124. $1,500,000 $1,430,000 375,000 350,000 $1,400,000 applied and $30,000 overapplied $1,500,000 applied and $30,000 overapplied $1,400,000 applied and $30,000 underapplied $1,430,000 applied and neither under- nor overapplied A company assigned overhead to work in process. At year end, what does the amount of overapplied overhead mean? a. The overhead assigned to work in process is greater than the estimated overhead costs. b. The overhead assigned to work in process is less than the estimated overhead costs. c. The overhead assigned to work in process is less than the actual overhead. d. The overhead assigned to work in process is greater than the overhead incurred. If the Manufacturing Overhead account has a debit balance at the end of a period, it means that a. actual overhead costs were less than overhead costs applied to jobs. b. actual overhead costs were greater than overhead costs applied to jobs. c. actual overhead costs were equal to overhead costs applied to jobs. d. no jobs have been completed. If the manufacturing overhead costs applied to jobs worked on were greater than the actual manufacturing costs incurred during a period, overhead is said to be a. underapplied. b. overapplied. c. in error. d. prepaid. 125. At the end of the year, any balance in the Manufacturing Overhead account is generally eliminated by adjusting a. Work In Process Inventory. b. Finished Goods Inventory. c. Cost of Goods Sold. d. Raw Materials Inventory. 126. If Manufacturing Overhead has a credit balance at the end of the period, then a. overhead has been underapplied. b. the overhead assigned to Work in Process Inventory is less than the overhead incurred. c. overhead has been overapplied. d. management must take corrective action. The Manufacturing Overhead account shows debits of $30,000, $24,000, and $28,000 and one credit for $86,000. Based on this information, manufacturing overhead a. has been overapplied. b. has been underapplied. c. has not been applied. d. shows a zero balance. 127. 128. When monthly financial statements are prepared, a difference between actual overhead and overhead applied will appear on a. the balance sheet. b. the income statement. c. the statement of stockholders' equity. d. none of the financial statements. 129. 130. When monthly financial statements are prepared, overapplied overhead will appear as a. unearned revenue. b. a current asset. c. a loss on the income statement under "Other Expenses and Losses." d. miscellaneous expense. When monthly financial statements are prepared, underapplied overhead will appear as a. unearned revenue. b. a current asset. c. "Other Revenues and Gains," on the income statement. d. a reduction to cost of goods sold. a. b. c. d. 133. The existence of under- or overapplied overhead at the end of the month a. is expected to be offset in future months. b. indicates that an error has been made. c. requires a retroactive adjustment to the cost of all jobs completed. d. is written off as a bad estimate expense. 134. Conceptually, any under- or overapplied overhead at the end of the year should be allocated among all of the following except a. cost of goods sold. b. ending work in process inventory. c. ending raw materials inventory. d. ending finished goods inventory. If, at the end of the year, Manufacturing Overhead has been overapplied, it means that a. actual overhead costs were greater than the overhead assigned to jobs. b. actual overhead costs were less than the overhead assigned to jobs. c. overhead has not been applied to jobs still in process. d. cost of goods will have to be increased by the amount of the overapplied overhead. 135. 131. If manufacturing overhead has been underapplied during the year, the adjusting entry at the end of the year will show a a. debit to Manufacturing Overhead. b. credit to Cost of Goods Sold. c. debit to Work in Process Inventory. d. debit to Cost of Goods Sold. 132. If manufacturing overhead has been overapplied during the year, the adjusting entry at the end of the year will show a Additional Multiple Choice Questions 136. 137. 138. A process cost system would be used for all of the following except the a. manufacture of cereal. b. refining of petroleum. c. printing of wedding invitations. d. production of automobiles. In a job order cost system, it would be correct in recording the purchase of raw materials to debit a. Work in Process Inventory. b. Work in Process and Manufacturing Overhead. c. Raw Materials Inventory. d. Finished Goods Inventory. In a manufacturing company, the cost of factory labor consists of all of the following except a. employer payroll taxes. debit to Manufacturing Overhead. credit to Finished Goods Inventory debit to Cost of Goods Sold. credit to Work in Process Inventory. b. fringe benefits incurred by the employer. c. net earnings of factory workers. d. gross earnings of factory workers. 139. Which of the following is not a control account? a. Raw Materials Inventory b. Factory Labor c. Manufacturing Overhead d. All of these are control accounts. 140. When the company assigns factory labor costs to jobs, the direct labor cost is debited to a. Direct Labor. b. Factory Labor. c. Manufacturing Overhead. d. Work in Process Inventory. 141. Jinnah Company applies overhead on the basis of 200% of direct labor cost. Job No. 501 is charged with $60,000 of direct materials costs and $80,000 of manufacturing overhead. The total manufacturing costs for Job No. 501 is a. $140,000. b. $220,000. c. $180,000. d. $200,000. 142. 143. d. less than overhead incurred and there is a credit balance in Manufacturing Overhead at the end of a period. Companies assign Manufacturing overhead to work in process on an estimated basis through the use of a(n) a. actual overhead rate. b. estimated overhead rate. c. assigned overhead rate. d. predetermined overhead rate. 144. Usually, under- or overapplied overhead is considered to be an adjustment to a. work in process. b. finished goods. c. finished goods and cost of goods sold. d. cost of goods sold. 145. Which of the following statements about underor overapplied manufacturing overhead is correct? a. After the entry to transfer over- or underapplied overhead to Cost of Goods Sold is posted, Manufacturing Overhead will have a zero balance. b. When Manufacturing Overhead has a credit balance, overhead is said to be under-applied. c. At the end of the year, under- or overapplied overhead is eliminated by a closing entry. d. When annual financial statements are prepared, overapplied overhead is reported in current liabilities. Overapplied manufacturing overhead exists when overhead assigned to work in process is a. more than overhead incurred and there is a debit balance in Manufacturing Overhead at the end of a period. b. less than overhead incurred and there is a debit balance in Manufacturing Overhead at the end of a period. c. more than overhead incurred and there is a credit balance in Manufacturing Overhead at the end of a period. Answers to Multiple Choice Questions Ite m 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. An s. a d b c d a c b b a b d c b d b Ite m 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. An s. B A C D A C B D D A C D D B D D Ite m 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. An s. a b c c c c a a c c b d c c b b Ite m 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. An s. c b d b a a b b c c c b d d b c Ite m 10 0. 10 1. 10 2. 10 3. 10 4. 10 5. 10 6. 10 7. 10 8. 10 9. 11 0. 11 1. 11 2. 11 3. 11 4. 11 5. An s. c d d a c c b a b a c c a c a b Item 116 . 117 .118 . 119 . 120 . 121 . 122 .123 . 124 . 125 .126 . 127 . 128 . 129 . 130 .131 . An s. d d b d c c d b b c c a a a b d Item 132 . 133 .134 . 135 .136 . 137 . 138 . 139 . 140 . 141 . 142 . 143 . 144 . 145 . An s. a a c b c c c b d c d c d a MULTIPLE CHOICE QUESTIONS 38. 39. 40. A process cost accounting system is most appropriate when a. a variety of different products are produced, each one requiring different types of materials, labor, and overhead. b. the focus of attention is on a particular job or order. c. similar products are mass-produced. d. individual products are custom made to the specification of customers. 44. Which of the following is a true statement about process cost systems? a. In process cost systems, costs are accumulated but not assigned. b. A process cost system has one work in process account for each process. c. In process cost systems, costs are summarized on job cost sheets. d. Unit costs are not computed in process cost systems. 45. Which of the following is correct regarding cost systems? A characteristic of products that are massproduced in a continuous fashion is that a. the products are identical or very similar in nature. b. they are grouped in batches. c. they are produced at the time an order is received. d. their costs are accumulated on job cost sheets. A process cost system would be used for all of the following products except a. chemicals. b. computer chips. c. motion pictures. d. soft drinks. In a process cost system, a. a Work in Process account is maintained for each product. b. a materials requisition must identify the job on which the materials will be used. c. a Work in Process account is maintained for each process. d. one Work in Process account is maintained for all the processes, similar to a job order cost system. 42. Differences between a job order cost system and a process cost system include all of the following except the a. documents used to track costs. b. point at which costs are totaled. c. unit cost computations. d. flow of costs. Job Order Process a. Work in process account one for each process b. Work in process account one c. Work in process account one for each process d. Work in process account one Which of these best reflects a distinguishing factor between a job order cost system and a process cost system? a. The detail at which costs are calculated b. The time period each covers c. The number of work in process accounts d. The manufacturing cost elements included one one several 46. In a process cost system, unit costs are determined using a a. numerator of costs of each job. b. denominator of units produced during the period. c. denominator of units produced for the job. d. denominator of units produced for the day. 47. In process cost accounting, manufacturing costs are summarized on a a. job order cost sheet. b. process order cost sheet. c. production cost report. d. manufacturing cost sheet. 48. Which of the following manufacturing cost elements occurs in a process cost system? a. Direct materials b. Direct labor c. Manufacturing overhead d. All of these 49. In a process cost system, product costs are summarized a. on job cost sheets. b. on production cost reports. c. after each unit is produced. d. when the products are sold. 41. 43. several 50. When manufacturing overhead costs are assigned to production in a process cost system, they are debited to a. the Finished Goods Inventory account. b. Cost of Goods Sold. c. a Manufacturing Overhead account. d. the Work in Process account. 51. A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred to a. Finished Goods Inventory. b. Cost of Goods Sold. c. Work in Process—Department B. d. Manufacturing Overhead. 52. Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process? a. Materials used b. Overhead applied c. Labor assigned d. Cost of products transferred out 53. Materials requisitions are a. not used in process costing. b. generally used more frequently in process costing than job order costing. c. generally used less frequently in process costing than job order costing. d. used more frequently by latter stage production departments. 54. A primary driver of overhead costs in continuous manufacturing operations is a. direct labor dollars. b. direct labor hours. c. machine hours. d. machine maintenance dollars. 55. Price Manufacturing assigns overhead based on machine hours. Department A logs 1,200 machine hours and Department B shows 2,000 machine hours for the period. If the overhead rate is $5 per machine hour, the entry to assign overhead will show a a. debit to Manufacturing Overhead for $16,000. b. credit to Work in Process—Department B for $10,000. c. debit to Work in Process for $10,000. d. credit to Manufacturing Overhead for $16,000. 56. Barnes and Miller Manufacturing is trying to determine the equivalent units for conversion costs with 3,000 units of ending work in process at 80% completion and 14,000 physical units. There are no beginning units in the department. Conversion costs occur evenly throughout the entire production period. What are the equivalent units for conversion costs for the current period? a. 17,000 b. 16,800 c. 2,400 d. 13,400 57. 7,000 units in a process that are 70% complete are referred to as a. 7,000 equivalent units of production. b. 2,100 equivalent units of production. c. 4,900 equivalent units of production. d. 2,100 unequivalent units of production. 58. A process with no beginning work in process, completed and transferred out 45,000 units during a period and had 30,000 units in the ending work in process inventory that were 30% complete. The equivalent units of production for the period were a. 45,000 equivalent units. b. 75,000 equivalent units. c. 54,000 equivalent units. d. 22,500 equivalent units. Use the following information for questions 59–60. A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of January, there were no units in the beginning work in process inventory; 80,000 units were started into production in January; and there were 20,000 units that were 40% complete in the ending work in process inventory at the end of January. 59. What were the equivalent units of production for materials for the month of January? a. 88,000 equivalent units b. 72,000 equivalent units c. 60,000 equivalent units d. 80,000 equivalent units 60. What were the equivalent units of production for conversion costs for the month of January? a. 60,000 equivalent units b. 72,000 equivalent units c. 68,000 equivalent units d. 80,000 equivalent units 61. 62. 63. b. dividing physical units by the percentage of work done. c. multiplying the percentage of work done by the physical units. d. dividing equivalent units by the percentage of work done. Equivalent units are calculated by a. multiplying the percentage of work done by the equivalent units of output. Minor Company had the following department data: Physical Units Work in process, July 1 16,000 Completed and transferred out 72,000 Work in process, July 31 24,000 Materials are added at the beginning of the process. What is the total number of equivalent units for materials in July? a. 72,000 b. 80,000 c. 112,000 d. 96,000 Corsi Company had the following department data: Physical Units Work in process, beginning -0Completed and transferred out 70,000 Work in process, ending 7,000 Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period? a. 70,000 b. 7,000 c. 77,000 d. 63,000 64. Gantner Company had the following department information about physical units and percentage of completion: Physical Units Work in process, May 1 (60%) 36,000 Completed and transferred out 90,000 Work in process, May 31 (40%) 30,000 If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during May? a. 126,000 b. 120,000 c. 116,400 d. 102,000 65. It is necessary to calculate equivalent units of production in a department because a. a physical count of units is impossible. b. some units worked on in the department are not fully complete. c. the physical units in the department are always 100% complete. d. at times a department may use a job order cost system and then switch to a process cost system. Use the following information for questions 66–68. In the month of June, a department had 10,000 units in beginning work in process that were 70% complete. During June, 40,000 units were transferred into production from another department. At the end of June there were 5,000 units in ending work in process that were 40% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. 66. How many units were transferred out of the process in June? a. 40,000 units b. 35,000 units c. 45,000 units d. 50,000 units 67. The equivalent units of production for materials for June were a. 45,000 equivalent units. b. 50,000 equivalent units. c. 52,000 equivalent units. d. 40,000 equivalent units. 68. The equivalent units of production for conversion costs for June were a. 40,000 equivalent units. b. 47,000 equivalent units. c. 45,000 equivalent units. d. 50,000 equivalent units. 69. A process with no beginning work in process, completed and transferred out 10,000 units during a period and had 5,000 units in the ending work in process that were 50% complete. How much is equivalent units of production for the period for conversion costs? a. 12,500 equivalent units b. 15,000 equivalent units c. 17,500 equivalent units d. 7,500 equivalent units 70. A process with 800 units of beginning work in process, completed and transferred out 10,000 units during a period. There were 5,000 units in the ending work in process that were 50% complete as to conversion costs. Materials are added 80% at the beginning of the process and 20% when the units are 90% complete. How much is equivalent units of production for the period for material costs? a. 12,000 equivalent units b. 15,000 equivalent units c. 11,000 equivalent units d. 14,000 equivalent units 71. Hanker Company had the following department data on physical units: Work in process, beginning Completed and transferred out Work in process, ending 1,000 4,000 800 Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period? a. 4,200 b. 800 c. 4,800 d. 3,000 72. Super-Tech Industries had the following department information about physical units and percentage of completion: Physical Units Work in process, June 1 (75%) 2,000 Completed and transferred out 4,500 Work in process, June 30 (50%) 3,000 If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during June? a. 3,750 b. 7,500 c. 8,000 d. 6,000 73. Gloria Company had no beginning work in process. During the period, 5,000 units were completed, and there were 500 units of ending work in process. How many units were started into production? a. 5,500 b. 5,000 c. 4,500 d. 500 74. Cohen Manufacturing is trying to determine the equivalent units for conversion costs with 2,000 units of ending work in process at 80% completion and 14,000 physical units that are 100% completed. There are no beginning units in the department. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the entire production period. What is the equivalent units for conversion costs for the current period? a. 16,000 b. 15,600 c. 1,600 d. 13,600 75. If beginning work in process is 2,000 units, ending work in process is 1,000 units, and the units accounted for equals 5,000 units, what must units started into production be? a. 7,000 b. 6,000 c. 3,000 d. 4,000 76. Cinder Company had the following department information for the month: Total materials costs Equivalent units of materials Total conversion costs Equivalent units of conversion costs $ 80,000 10,000 $120,000 20,000 How much is the total manufacturing cost per unit? a. $14.00 b. $6.67 c. $6.00 d. $8.00 Use the following information for questions 77–78. Materials costs of $200,000 and conversion costs of $214,200 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 100,000 units were started into production in September, and there were 8,000 units in ending work in process that were 40% complete at the end of September. 77. 78. What was the total amount of manufacturing costs assigned to those units that were completed and transferred out of the process in September? a. $184,000 b. $391,000 c. $414,200 d. $425,200 What was the total amount of manufacturing costs assigned to the 8,000 units in the ending work in process? a. $16,000 b. $7,200 c. $13,600 d. $23,200 79. 80. 81. Charley Company’s Assembly Department has materials cost at $3 per unit and conversion cost at $6 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory? a. $37,800 b. $64,800 c. $56,700 d. $81,000 Byrd Manufacturing decided to analyze certain costs for June of the current year. Units started into production equaled 14,000 and ending work in process equaled 2,000 units. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000? a. $3.13 b. $12.50 c. $4.00 d. $2.00 Reed Manufacturing has recently tried to improve its analysis for its manufacturing process. Units started into production equaled 6,000 and ending work in process equaled 400 units. Reed had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000? a. $10.00 b. $10.53 c. $37.50 d. $9.38 82. Conversion cost per unit equals $6.00. Total materials costs are $40,000. Equivalent units are 20,000. How much is the total manufacturing cost per unit? a. $8.00 b. $6.00 c. $10.00 d. $2.00 83. Physical units are 40,000. Total conversion costs are $197,500. There are 1,000 units in ending inventory which are 50% complete as to conversion costs. How much are conversion costs per unit? a. $5.00 b. $4.93 c. $9.88 d. $4.82 84. Madison Industries has equivalent units of 2,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit? a. $10.00 b. $25.00 c. $100.00 d. $20.00 85. Equivalent units for materials total 15,000. There were 12,000 units completed and transferred out. Equivalent units for conversion costs equals 13,500. How much are the physical units for conversion costs if ending work in process is 50% complete? a. 14,000 b. 15,000 c. 4,000 d. 12,000 86. If equivalent units are 6,000 for conversion costs and units transferred out equals 4,000, what stage of completion should the ending work in process be for the 8,000 units remaining? a. 75% b. 25% c. 10% d. 20% Use the following information for questions 87–88. In the month of April, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had $20,000 of materials costs and $15,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During April, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During April, manufacturing costs charged to the department were: Materials $460,000; Conversion costs $510,000. 87. The cost assigned to the units transferred to finished goods during April was a. $900,000. b. $905,000. c. $940,000. d. $895,000. 88. The cost assigned to the units in the ending work in process inventory on April 30 was a. $180,000. b. $105,000. c. $80,000. d. $145,000. 89. Zibba Company enters materials at the beginning of the process. In January, there was no beginning work in process, but there were 100 units in the ending work in process inventory. The number of units completed equals the number of a. units started. b. units started less 100. c. units started plus 100. d. equivalent units. If there are no units in process at the beginning of the period, then a. the company must be using a job order cost system. b. only one computation of equivalent units of production will be necessary. c. the units started into production will equal the number of units transferred out. d. the units to be accounted for will equal the units transferred out and the units in process at the end of the period. 90. 91. a. b. c. d. 92. Honrad Company's Assembly Department has materials cost at $4 per unit and conversion cost at $8 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory? a. $50,400 b. $86,400 c. $75,600 d. $108,000 93. In a process cost system, units to be accounted for in a department are equal to the a. number of units started or transferred into the department. b. number of units transferred out of the department. c. units in the beginning inventory plus the units started or transferred into the department. d. ending inventory plus the units started or transferred into the department. 94. The total units accounted for equals units in a. beginning work in process – units transferred out. b. beginning work in process + ending work in process. c. ending work in process + units transferred out. d. ending work in process – units started into production. Which of the following is not a necessary step in preparing a production cost report? Use the following information for questions 95–96. Department 1 of a two department production process shows: Beginning Work in Process Ending Work in Process Total units to be accounted for Compute the equivalent units of production Compute the physical unit flow Prepare the job order cost sheet Prepare a cost reconciliation schedule Units 10,000 50,000 120,000 95. How many units were started into production in Department 1? a. 50,000 b. 70,000 c. 120,000 d. 110,000 96. How many units were transferred out to Department 2? a. 50,000 b. 70,000 97. c. 120,000 d. 110,000 The Assembly Department shows the following information: Beginning Work in Process Ending Work in Process Units Transferred Out Units 20,000 50,000 90,000 How many total units are to be accounted for by the Assembly Department? a. 140,000 b. 50,000 c. 70,000 d. 120,000 98. The last department in a production process shows the following information at the end of the period: Units Beginning Work in Process 15,000 Started into Production 105,000 Ending Work in Process 30,000 How many units have been transferred out to finished goods during the period? a. 105,000 b. 120,000 c. 135,000 d. 90,000 99. A process began the month with 3,000 units in the beginning work in process inventory and ended the month with 2,000 units in the ending work in process. If 9,000 units were completed and transferred out of the process during the month, how many units were started into production during the month? a. 8,000 b. 10,000 c. 9,000 d. 7,000 100. If 75,000 units are started into production and 30,000 units are in process at the end of the period, how many units were completed and transferred out? a. 75,000 b. 30,000 c. 45,000 d. 105,000 101. Total units to be accounted for less units in beginning work in process equals a. total units accounted for. b. units transferred out. c. units started into production. d. equivalent units. 102. If 80,000 units are transferred out of a department and there are 16,000 units still in process at the end of a period, the number of units that were started into production during the period is a. 96,000. b. 80,000. c. 64,000. d. 16,000. A department adds materials at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of July, there was no beginning work in process; 20,000 units were completed and transferred out; and there were 10,000 units in the ending work in process that were 40% 103. complete. During July, $72,000 materials costs and $63,000 conversion costs were charged to the department. The unit production costs for materials and conversion costs for July was a. b. c. d. Materials $2.40 $2.40 $3.00 $3.60 Conversion Costs $2.10 $2.63 $2.10 $3.15 104. Conversion cost per unit equals $6.00. Total materials costs equal $60,000. Equivalent units for materials are 20,000. How much is the total manufacturing cost per unit? a. $9.00 b. $6.00 c. $12.00 d. $3.00 105. The following department data are available: Total materials costs Equivalent units of materials Total conversion costs Equivalent units of conversion costs $120,000 60,000 $70,000 30,000 What is the total manufacturing cost per unit? a. $2.00 b. $2.33 c. $4.33 d. $2.11 106. Byers Company had the following department information for the month: Total materials costs Equivalent units of materials Total conversion costs Equivalent units of conversion costs $30,000 5,000 $50,000 10,000 What is the total manufacturing cost per unit? a. $5.34 b. $5.00 c. $6.00 d. $11.00 107. Physical units are 80,000. Total conversion costs are $197,500. There are 2,000 units in ending inventory which are 50% complete as to conversion costs. How much is the conversion cost per unit? a. $2.50 b. $2.47 c. $2.44 d. $2.41 108. A department had the following information for the month: Total materials costs Conversion cost per unit Total manufacturing cost per unit $120,000 $3.00 $5.00 What are the equivalent units of production for materials? a. 60,000 b. 40,000 c. 24,000 d. Cannot be determined 109. Maisley Manufacturing decided to analyze certain costs for June of the current year. Units started into production equaled 28,000 and ending work in process equaled 4,000. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000? a. $1.57 b. $6.25 c. $2.00 d. $1.00 Use the following information for questions 110–111. 113. Materials costs of $400,000 and conversion costs of $510,000 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 20,000 units were started into production in September, and there were 5,000 units in ending work in process that were 40% complete at the end of September. 110. 111. 112. What was the total amount of manufacturing costs assigned to those units that were completed and transferred out of the process in September? a. $750,000 b. $1,000,000 c. $803,250 d. $682,500 What was the total amount of manufacturing costs assigned to the 5,000 units in the ending work in process? a. $227,500 b. $250,000 c. $160,000 d. $100,000 Snead Manufacturing has recently tried to improve its analysis for its manufacturing process. Units started into production equaled 9,000 and ending work in process equaled 600 units. Snead had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000? a. $6.67 b. $7.02 c. $25.00 d. $6.25 Madison Industries has equivalent units of 4,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit? a. $37.50 b. $12.50 c. $50.00 d. $10.00 114. In a process cost system, a production cost report is prepared a. only for the first processing department. b. for all departments in the aggregate. c. for each processing department. d. only for the last processing department. 115. A production cost report a. is prepared for each product. b. is prepared from a job cost sheet. c. will show quantity and cost data for a production department. d. will not identify a specific department if more than one department is involved in the production process. 116. In the production cost report, the total a. physical units accounted for equals the costs accounted for. b. physical units accounted for equals the units to be accounted for. c. costs charged equals the units to be accounted for. d. costs accounted for equals the costs of the units started into production. a The Cutting Department’s output during the period consists of 12,000 units completed and transferred out, and 3,000 units in ending work in process that were 25% complete as to materials and conversion costs. Beginning inventory was 1,500 units that were 25% 117. complete as to materials and conversion costs. Under the FIFO method, what are the equivalent units of production for materials? a. 13,725 b. 12,375 c. 14,475 d. 13,500 a 118. process that were 75% complete as to materials and conversion costs. Beginning inventory was 800 units that were 30% complete as to materials and conversion costs. Under the FIFO method, what are the equivalent units of production for materials? a. 10,690 b. 11,010 c. 10,450 d. 10,210 The Wrapping Department’s output during the period consists of 10,000 units completed and transferred out, and 600 units in ending work in Use the following information to answer questions 119–120. Chicotti Company has 3,000 units in beginning work in process, 30% complete as to conversion costs, 25,000 units transferred out to finished goods, and 1,000 units in ending work in process 20% complete as to conversion costs. The beginning and ending inventory is fully complete as to materials costs. a 119. How much are equivalent units for conversion costs if the FIFO method is used? a. 25,200 b. 27,300 c. 23,000 d. 24,300 a 120. How much are equivalent units for materials if the FIFO method is used? a. 25,200 b. 26,000 c. 23,000 d. 29,000 a 121. Schiller Company has unit costs of $5 for materials and $15 for conversion costs. There a 123. are 4,200 units in ending work in process which are 25% complete as to conversion costs, and fully complete as to materials cost. How much is the total cost assignable to the ending work in process inventory if the FIFO method is used? a. 36,750 b. 84,000 c. 21,000 d. 15,750 a 122. Solis Company uses the FIFO method to compute equivalent units. It has 2,000 units in beginning work in process, 20% complete as to conversion costs and 50% complete as to materials costs, 25,000 units started, and 3,000 units in ending work in process, 30% complete as to conversion costs, and 80% complete as to materials cost. How much are the equivalent units for materials under the FIFO method? a. 25,400 b. 25,000 c. 26,400 d. 27,000 Special Company had the following department information about physical units and percentage of completion: Physical Units Work in process, May 1 (60%) 14,400 Completed and transferred out 26,000 Work in process, May 31 (50%) 12,000 Materials are added at the beginning of the production process. Conversion costs are added equally throughout production. What is the total number of equivalent units during May for conversion costs if the FIFO method is used? a. 52,400 b. 32,000 c. 23,360 d. 43,760 a 124. Hanker Company had the following department data on physical units: Work in process, beginning 1,000 Completed and transferred out Work in process, ending 4,000 800 Materials are added at the beginning of the process. What is the total number of equivalent units for materials if the FIFO method is used? a. 4,200 b. 3,800 c. 4,800 d. 3,000 Additional Multiple Choice Questions 125. A process cost system would be used by all of the following except a(n) a. chemical company. b. advertising company. c. oil company. d. computer chip company. 126. Which of the following is considered a difference between a job order cost and a process cost system? a. The manufacturing cost elements b. Documents used to track costs c. The accumulation of the costs of materials, labor, and overhead d. The flow of costs 127. The basic similarities between job order cost and process cost systems include all of the following except the a. manufacturing cost elements. b. flow of costs. c. point at which costs are totaled. d. accumulation of the costs of materials, labor, and overhead. 128 Equivalent units of production are a measure of a. units completed and transferred out. b. units transferred out. c. units in ending work in process. d. the work done in a period expressed in fully completed units. 129. Total physical units to be accounted for are equal to the units a. started (or transferred) into production. b. started (or transferred) into production plus the units in beginning work in process. c. started (or transferred) into production less the units in beginning work in process. d. completed and transferred out. 130. In computing equivalent units, ___________ is not part of the equivalent units of production formula. a. units transferred out b. beginning work in process c. ending work in process d. None of these is correct. 131. In Saint-Simon, Inc., the Assembly Department started 12,000 units and completed 14,000 units. If beginning work in process was 6,000 units, how many units are in ending work in process? a. 0 b. 2,000 c. 4,000 d. 8,000 132. The total units to be accounted for is computed by adding a. beginning units in process to units transferred out. b. ending units in process to units started into production. c. beginning units in process to units started into production. d. ending units in process to total units accounted for. 133. In the Camria Company, materials are entered at the beginning of the process. If there is no beginning work in process, but there is an ending work in process inventory, the number of equivalent units as to materials costs will be a. the same as the units started. b. the same as the units completed. c. less than the units started. d. less than the units completed. 134. For the Assembly Department, unit materials cost is $8 and unit conversion cost is $12. If there are 6,000 units in ending work in process 75% complete as to conversion costs, the costs to be assigned to the inventory are a. $120,000. b. $102,000. c. $90,000. d. $108,000. 135. d. cost of beginning work in process plus the cost of units completed and transferred out. The total costs accounted for in a production cost report equal the a. cost of units completed and transferred out only. b. cost of units started into production. c. cost of units completed and transferred out plus the cost of ending work in process. 136. In a production cost report, which one of the following sections is not shown under Costs? a. Unit costs b. Costs to be accounted for c. Costs during the period d. Units accounted for Answers to Multiple Choice Questions Item Ans. Item Ans. Item Ans. Item Ans. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. c a c c d c b c b c d b d c d 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. c c d d c c d c c d c b b c b 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. b a d c b a b c a b d b c a a 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. a b b b a b b d c b c c d b a MULTIPLE CHOICE QUESTIONS 31. Which of the following is not typical of traditional costing systems? a. Use of a single predetermined overhead rate. b. Use of direct labor hours or direct labor cost to assign overhead. c. Assumption of correlation between direct labor and incurrence of overhead cost. d. Use of multiple cost drivers to allocate overhead. 32. In traditional costing systems, overhead is generally applied based on a. direct labor. b. machine hours. c. direct material dollars. d. units of production. An activity that has a direct cause-effect relationship with the resources consumed is a(n) a. cost driver. 33. Item Ans. Item Ans. Item Ans. 98. d 113. b 128. d 99. a 114. c 129. b 100. c 115. c 130. b 101. c 116. b 131. c a 102. a 117. b 132. c a 103. b 118. d 133. a a 104. a 119. d 134. b a 105. c 120. c 135. c a 106. d 121. a 136. d a 107. a 122. a a 108. a 123. c a 109. c 124. b 110. a 125. b 111. c 126. b 112. a 127. c b. overhead rate. c. cost pool. d. product activity. 34. Which best describes the flow of overhead costs in an activity-based costing system? a. Overhead costs direct labor cost or hours products b. Overhead costs products c. Overhead costs activity cost pools cost drivers products d. Overhead costs machine hours products 35. The costs that are easiest to trace directly to products are a. direct materials and direct labor. b. direct labor and overhead. c. direct materials and overhead. d. none of the above; all three costs are equally easy to trace to the product. 36. Often the most difficult part of computing accurate unit costs is determining the proper amount of _________ to assign to each product, service, or job. a. direct materials b. direct labor c. overhead d. direct materials and direct labor 37. 38. Predetermined overhead rates in traditional costing are often based on a. direct labor cost for job order costing and machine hours for process costing. b. machine hours for job order costing and direct labor cost for process costing. c. multiple bases for job order costing and direct labor cost for process costing. d. multiple bases for both job order costing and process costing. Direct labor is sometimes the appropriate basis for assigning overhead cost to products. It is appropriate to use direct labor when which of the following is true? a. allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers. b. accumulates overhead in one cost pool, then assigns the overhead to products and services by means of a cost driver. c. assigns activity cost pools to products and services, then allocates overhead back to the activity cost pools. d. allocates overhead directly to products and services based on activity levels. 41. Ordering materials, setting up machines, assembling products, and inspecting products are examples of a. cost drivers. b. overhead cost pools. c. direct labor costs. d. nonmanufacturing activities. 42. An “Ordering and Receiving Materials” cost pool would most likely have as a cost driver: a. machine hours. b. number of setups. c. number of purchase orders. d. number of inspection tests. 43. Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of a. $20.00. b. $24.61. c. $40.00. d. need more information to compute. (1) Direct labor constitutes a significant part of total product cost. (2) A high correlation exists between direct labor and changes in the amount of overhead costs. a. b. c. d. 39. (1) only (2) only Either (1) or (2) Both (1) and (2) Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by a. increasing direct labor costs and increasing overhead costs. b. increasing direct labor costs and decreasing overhead costs. c. decreasing direct labor costs and decreasing overhead costs. d. decreasing direct labor costs and increasing overhead costs. 40. Activity-based-costing Use the following information to answer questions 44–46. R-Ball Corporation manufactures deluxe and standard racquetball racquets. R-Ball’s total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Assembly Inspections Deluxe 500 mach. hours 350 2,100 labor hours Standard 500 mach. hours 150 1,900 labor hours Total Cost $30,000 $50,000 R-Ball is considering switching from one overhead rate based on labor hours to activity-based costing. 44. Total overhead costs assigned to deluxe racquets, using a single overhead rate, are a. $40,000. b. $42,000. c. $50,000. d. $56,000. 45. Using activity-based costing, how much assembly cost is assigned to deluxe racquets? a. $10,500. b. $15,000. c. $15,750. d. $21,000. Using activity-based costing, how much inspections cost is assigned to deluxe racquets? a. $15,000. b. $23,750. c. $25,000. d. $35,000. 46. Use the following information to answer questions 47–48. Vinnie Morelli Corporation has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Ordering and Receiving Machine Setup Machining Assembly Inspection Cost Driver Orders Setups Machine hours Parts Inspections Est. Overhead $ 120,000 297,000 1,500,000 1,200,000 300,000 Cost Driver Activity 500 orders 450 setups 125,000 MH 1,000,000 parts 500 inspections 47. If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is a. $9.60. b. $12.00. c. $15.00. d. $34.17. 48. If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is a. $1.20 per direct labor hour. b. $240 per order. c. $0.12 per part. d. $6,834 per order. 49. The last step in activity-based costing is to a. assign manufacturing overhead costs for each activity cost pool to products. b. compute the activity-based overhead rate per cost driver. c. identify and classify the major activities involved in the manufacture of specific products. d. identify the cost driver that has a strong correlation to the activity cost pool. 50. The first step in activity-based costing is to a. assign manufacturing overhead costs for each activity cost pool to products. b. compute the activity-based overhead rate per cost driver. c. identify and classify the major activities involved in the manufacture of specific products. d. identify the cost driver that has a strong correlation to the activity cost pool. 51. 54. A well-designed activity-based costing system starts with a. identifying the activity-cost pools. b. computing the activity-based overhead rate. c. assigning manufacturing overhead costs for each activity cost pool to products. d. analyzing the activities performed to manufacture a product. 52. Which of the following is not an example of an activity cost pool? a. Setting up machines b. Machining c. Inspecting d. Machine hours 53. An example of an activity cost pool is a. machine hours. b. setting up machines. c. number of setups. d. number of inspections. Estimated costs for activity cost pools and other item(s) are as follows: Machining Assembling Advertising Inspecting and testing $500,000 200,000 450,000 175,000 Total estimated overhead is a. $700,000. b. $875,000. c. $1,150,000. d. $1,325,000. 55. An example of a cost which would not be assigned to an overhead cost pool is a. salaries. b. freight-out. c. depreciation. d. supplies. 56. One of Jetson Company's activity cost pools is inspecting, with estimated overhead of $100,000. Jetson produces throw rugs (700 inspections) and area rugs (1,300 inspections). How much of the inspecting cost pool should be assigned to throw rugs? a. $35,000. b. $50,000. c. $53,846. d. $100,000. 57. Which would be an appropriate cost driver for the machining activity cost pool? a. Machine setups b. Purchase orders c. Machine hours d. Inspections 58. Which would be an appropriate cost driver for the purchasing activity cost pool? a. Machine setups b. Purchase orders c. Machine hours d. Inspections 59. An activity-based overhead rate is computed as follows: a. actual overhead divided by actual use of cost drivers. b. estimated overhead divided by actual use of cost drivers. c. actual overhead divided by estimated use of cost drivers. d. estimated overhead divided by estimated use of cost drivers. 60. Use of activity-based costing will result in the development of a. one overhead rate based on direct labor hours. b. one plant-wide activity-based overhead rate. c. multiple activity-based overhead rates. d. no overhead rates; overhead rates are not used in activity-based costing. 61. To use activity-based costing, it is necessary to know the a. cost driver for each activity cost pool. b. expected use of cost drivers per activity. c. expected use of cost drivers per product. d. all of the above. 62. 63. 64. To assign overhead costs to each product, the company a. multiplies the activity-based overhead rates per cost driver by the number of cost drivers expected to be used per product. b. multiplies the overhead rate by the number of direct labor hours used on each product. c. assigns the cost of each activity cost pool in total to one product line. d. multiplies the rate of cost drivers per estimated cost for the cost pool by the estimated cost for each cost pool. As compared to a low-volume product, a highvolume product a. usually requires less special handling. b. is usually responsible for more overhead costs per unit. c. requires relatively more machine setups. d. requires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead. Assigning overhead using ABC will usually a. decrease the cost per unit for low volume products as compared to a traditional overhead allocation. b. increase the cost per unit for low volume products as compared to a traditional overhead allocation. c. provide less accurate cost per unit for low volume products than will traditional costing. d. result in the same cost per unit for low volume products as does traditional costing. 65. Companies that switch to ABC often find they have a. been overpricing some products. b. possibly losing market share to competitors. c. been sacrificing profitability by underpricing some products. d. all of the above. 66. Comparing the U.S. to Japan, a. activity-based costing is used less than in the U.S. b. U.S. companies show a stronger preference to volume measures such as direct labor hours to assign overhead costs. c. labor cost reduction is less of a priority in the U.S. d. developing more accurate product costs is less of a priority in the U.S. For its inspecting cost pool, Hose Company expected overhead cost of $200,000 and 4,000 inspections. The actual overhead cost for that cost pool was $240,000 for 5,000 inspections. The activity-based overhead rate used to assign the costs of the inspecting cost pool to products is a. $40 per inspection. b. $48 per inspection. c. $50 per inspection. d. $60 per inspection. 67. Use the following information to answer questions 68–71. Donkey Company manufactures two products, Standard and DeLuxe. Donkey’s overhead costs consist of machining, $2,000,000; and assembling, $1,000,000. Information on the two products is: Standard DeLuxe Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 68. Overhead applied to Standard using traditional costing using direct labor hours is a. $860,000. b. $1,200,000. c. $1,800,000. d. $2,140,000. 69. Overhead applied to DeLuxe using traditional costing using direct labor hours is a. $860,000. b. $1,200,000. c. $1,800,000. d. $2,140,000. 70. Overhead applied to Standard using activity-based costing is a. $860,000. b. $1,200,000. c. $1,800,000. d. $2,140,000. 71. Overhead applied to DeLuxe using activity-based costing is a. $860,000. b. $1,200,000. c. $1,800,000. d. $2,140,000. 72. Calvin Co. produces 3 products: A1, B2, and C3. A1 requires 400 purchase orders, B2 requires 600 purchase orders, and C3 requires 1,000 purchase orders. Calvin has identified an ordering and receiving activity cost pool with allocated overhead of $120,000 for which the cost driver is purchase orders. Direct labor hours used on each product are 50,000 for A1, 40,000 for B2, and 110,000 for C3. How much ordering and receiving overhead is assigned to each product? A1 B2 C3 a. $40,000 $40,000 $40,000 b. $30,000 $24,000 $66,000 c. $24,000 $36,000 $60,000 d. $27,000 $30,000 $63,000 73. OldMaid Inc. computed an overhead rate for machining costs ($1,000,000) of $10 per machine hour. Machining costs are driven by machine hours. If computed based on direct labor hours, the overhead rate for machining costs would be $20 per direct labor hour. The company produces two products, Gert and Mill. Gert requires 60,000 machine hours and 20,000 direct labor hours, while Mill requires 40,000 machine hours and 30,000 direct labor hours. Using activity-based costing, machining costs assigned to each product is Gert Mill a. $400,000 $600,000 b. $500,000 $500,000 c. $533,333 $466,667 d. $600,000 $400,000 Use the following information to answer questions 76–77: 74. Gee-Tar Company manufactures two models of its guitar, the Beginner and the Pro. The Beginner model requires 10,000 direct labor hours and the Pro requires 30,000 direct labor hours. The company produces 3,400 units of the Beginner model and 600 units of the Pro model each year. The company inspects one Beginner for every 100 produced, and inspects one Pro for every 10 produced. The company expects to incur $56,400 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Beginner model using ABC costing? a. $14,100 b. $20,400 c. $28,200 d. $47,940 75. Sasse Inc. manufactures 2 products, hammers and screwdrivers. The company has estimated its overhead in the assembling department to be $165,000. The company produces 300,000 hammers and 600,000 screwdrivers each year. Each hammer uses 2 parts, and each screwdriver uses 3 parts. How much of the assembly overhead should be allocated to hammers? a. $41,250. b. $55,000. c. $66,000 d. $70,714. Zones Co. incurs $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packing ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Zones’s two products is as follows: Machining hours Inspections Orders packed Direct labor hours 76. 77. 78. Product A 1,000 100 350 1,700 Product B 3,000 500 650 1,800 If traditional costing based on direct labor hours is used, how much overhead is assigned to Product A this year? a. $84,167 b. $121,154 c. $170,000 d. $175,000 Using ABC, how much overhead is assigned to Product A this year? a. $84,167 b. $121,154 c. $170,000 d. $175,000 A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Ordering and Receiving Mixing Testing Expected use of Driver 2,000 50,000 1,500 Cost $400,000 500,000 450,000 Production information for Goo is as follows: Department Ordering and Receiving Mixing Testing Expected use of Driver 400 20,000 500 Compute the amount of overhead assigned to Goo. a. $337,500 b. $430,000 c. $527,382 d. $675,000 79. A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Ordering and Receiving Mixing Testing Expected use of Driver 2,000 50,000 1,500 Cost $400,000 500,000 450,000 Production information for Slime is as follows: Department Ordering and Receiving Mixing Testing Expected use of Driver 1,600 30,000 1,000 Compute the amount of overhead assigned to Slime. a. $675,000 b. $822,617 c. $920,000 d. $1,012,500 80. One of Astro Company's activity cost pools is machine setups, with estimated overhead of $180,000. Astro produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers? a. $180,000 b. $72,000 c. $90,000 d. $108,000 81. Which would be an appropriate cost driver for the ordering and receiving activity cost pool? a. Machine setups b. Purchase orders c. Machine hours d. Inspections 82. As compared to a high-volume product, a lowvolume product a. usually requires less special handling. b. is usually responsible for more overhead costs per unit. c. requires relatively fewer machine setups. d. requires use of direct labor hours as the primary cost driver to ensure proper allocation of overhead. 83. In Japan, a. activity-based costing is used more than in the U.S. b. companies prefer volume measures such as direct labor hours to assign overhead costs. c. labor cost reduction is less of a priority. d. developing more accurate product costs is more of a priority. Use the following information to answer questions 84–87. Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Mini A Maxi B Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 84. Overhead applied to Mini A using traditional costing using direct labor hours is a. $1,800,000. b. $2,304,000. c. $2,505,000. d. $2,880,000. 85. Overhead applied to Maxi B using traditional costing using direct labor hours is a. $1,920,000. b. $2,304,000. c. $2,505,000. d. $3,000,000. Overhead applied to Mini A using activity-based costing is a. $1,800,000. b. $2,304,000. 86. c. $2,496,000. d. $2,880,000. 87. Overhead applied to Maxi B using activity-based costing is a. $1,920,000. b. $2,304,000. c. $2,496,000. d. $3,000,000. 88. Veronica Co. produces three products: Rain, Snow and Wind. Rain requires 80 machine setups, Snow requires 60 setups, and Wind requires 180 setups. Veronica has identified an activity cost pool with allocated overhead of $480,000 for which the cost driver is machine setups. How much overhead is assigned to each product? a. b. c. d. Rain $160,000 $100,000 $120,000 $90,000 Snow $160,000 $75,000 $90,000 $160,000 Wind $160,000 $225,000 $270,000 $230,000 89. Hammock Company manufactures two models of its hammock, the Superior and the Deluxe. The Superior model requires 10,000 direct labor hours and the Deluxe model requires 40,000 direct labor hours. The company produces 4,000 units of the Superior model and 1,000 units of the Deluxe model each year. The company produces the Superior model in batch sizes of 200, while it produces the Deluxe model in batch sizes of 100. The company expects to incur $180,000 of total setup costs this year. How much of the setup costs are allocated to the Superior model using ABC costing? a. $120,000 b. $90,000 c. $36,000 d. $150,000 Use the following information to answer questions 91–93. 90. Jaime Inc. manufactures two products, sweaters and jackets. The company has estimated its overhead in the order-processing department to be $240,000. The company produces 50,000 sweaters and 80,000 jackets each year. Sweater production requires 25,000 machine hours, jacket production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for sweaters and the remainder for raw materials for jackets. How much of the order processing overhead should be allocated to jackets? a. $120,000 b. $160,000 c. $147,693 d. $192,000 Canterra Co, incurs $240,000 overhead costs each year in its three main departments, setup ($15,000), machining ($165,000), and packing ($60,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Canterra’s two products is as follows: Number of setups Machining hours Orders packed Number of products manufactured 91. Product One 20 1,000 150 600 Product Two 20 4,000 350 400 If machining hours are used as a base, how much overhead is assigned to Product One each year? a. $48,000 b. $120,000 c. $82,500 d. $72,000 92. Using ABC, how much overhead is assigned to Product One each year? a. $120,000 b. $181,500 c. $48,000 d. $58,500 93. Using ABC, how much overhead is assigned to Product Two each year? a. $120,000 b. $96,000 c. $181,500 d. $192,000 Use the following information to answer questions 94–95. A company incurs $1,800,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of oil and 600,000 drums of sludge. The following data are available: Department Processing Packaging Testing Expected Use of Driver 800 200,000 2,000 Cost $750,000 750,000 300,000 Production information for the two products is as follows: 94. Oil Department Expected Use of Driver Processing 300 Packaging 120,000 Testing 1,600 The amount of overhead assigned to oil is a. $900,000. b. $971,250. c. $828,750. d. $690,000. 95. The amount of overhead assigned to sludge is a. $900,000. b. $828,750. c. $971,250. d. $690,000. 96. Sleep-Tight manufactures mattresses for the hotel industry. It has two products, Downy and Firm, and total overhead is $790,000. The company plans to manufacture 400 Downy mattresses and 100 Firm mattresses his year. In manufacturing the mattresses, the company must perform 600 material moves for the Downy and 400 for the Firm; it processes 900 purchase orders for the Downy and 700 for the Firm; and the company’s employees work 1,400 direct labor hours on the Downy product and 3,400 on the Firm. Sleep-Tight’s total material handling costs are $500,000 and its Sludge Expected Use of Driver 500 80,000 400 total processing costs are $290,000. Using ABC, how much overhead would be assigned to the Downy product? a. $395,000 b. $463,125 c. $326,875 d. $559,583 97. Which of the following is a limitation of activitybased costing? a. More cost pools b. Less control over overhead costs c. Poorer management decisions d. Some arbitrary allocations continue 98. 99. 100. Which of the following factors would suggest a switch to activity-based costing? a. Product lines similar in volume and manufacturing complexity. b. Overhead costs constitute a significant portion of total costs. c. The manufacturing process has been stable. d. Production managers use data provided by the existing system. Which of the following is true of activity-based costing? a. More cost pools b. Same base as traditional costing c. Less costly to use d. Eliminates arbitrary allocations 103. 104. 105. Which of the following is true about activitybased costing? a. Less cost pools b. Same base as traditional costing c. More costly to use d. Eliminates arbitrary allocations 106. Each of the following is a limitation of activitybased costing except that a. it can be expensive to use. b. it decreases control over overhead costs c. it is complex and can be difficult to understand d. some arbitrary allocations continue. 107. The presence of any of the following factors would suggest a switch to ABC except when a. product lines differ greatly in volume. b. overhead costs constitute a major portion of total costs. c. the manufacturing process has changed significantly. d. production managers are using data provided by the existing system 108. Activity-based costing uses a. one plantwide pool and a single cost driver. b. departmental pools and a single cost driver. c. numerous cost pools and numerous cost drivers. d. one plantwide pool and numerous cost drivers 109. Which of the following statements is false? a. ABC can weaken control over overhead costs. b. Under ABC, companies can trace many overhead costs directly to activities. c. ABC allows some indirect costs to be identified as direct costs. d. managers become more aware of their responsibility to control the activities that generate costs. 110. Which of the following is a value-added activity? a. Inventory storage b. Machining c. Building maintenance d. Bookkeeping 111. Which of the following is a value-added activity? The primary benefit of ABC is it provides a. better management decisions. b. enhanced control over overhead costs. c. more cost pools. d. more accurate product costing. 101. Which of the following is not a benefit of activity-based costing? a. More accurate product costing b. Enhanced control over overhead costs c. Better management decisions d. Less costly to use 102. d. Poorer management decisions Each of the following is a limitation of activitybased costing except that a. it can be expensive to use. b. it is more complex than traditional costing. c. more cost pools are used. d. some arbitrary allocations continue. The presence of any of the following factors would suggest a switch to ABC except when a. product lines differ greatly in volume. b. overhead costs constitute a minor portion of total costs. c. the manufacturing process has changed significantly. d. production managers are ignoring data provided by the existing system. Which of the following is a limitation of activitybased costing? a. More cost pools b. Less control over overhead costs c. ABC can be expensive to use a. b. c. d. 112. 113. 114. Inventory control Inspections Packaging Repair of machines 119. Which of the following is a non-value-added activity? a. Inventory control b. Machining c. Assembly d. Painting Which of the following is a non-value-added activity? a. Engineering design b. Machining c. Inspection d. Packaging 120. Which of the following is a non-value-added activity? a. Painting b. Finishing c. Packaging d. Building maintenance A non-value-added activity in a service enterprise is a. taking appointments. b. traveling. c. advertising. d. all of these. 121. Value-added activities a. should be reduced or eliminated. b. involve resource usage customers are willing to pay for. c. add cost to a product without affecting selling price. d. cannot be differentiated from non-valueadded activities. 122. All of the following are examples of a valueadded activity in a service company except a. delivering packages by a delivery service. b. ordering supplies. c. performing surgery. d. providing legal research for legal services. 123. Which of the following is not a facility-level activity? a. Plant management b. Product design c. Personnel administration d. Training 124. Which of the following is not a product-level activity? a. Product design b. Engineering changes c. Inventory management d. Equipment setups 125. Which of the following is not a batch-level activity? a. Engineering changes b. Equipment setups c. Inspection d. Materials handling 126. Which of the following is not a unit-level activity? a. Purchase ordering b. Assembling c. Painting A non-value-added activity in a service enterprise is a. providing legal research. b. delivering packages. c. consulting. d. bookkeeping. 115. A value-added activity in a service enterprise is a. performing landscaping services. b. reception. c. billing. d. ordering supplies. 116. Non-value-added activities a. should be reduced or eliminated. b. involve resource usage customers are willing to pay for. c. increase both the cost and market value of a product. d. cannot be differentiated from value-added activities. 117. 118. Value-added activities a. increase the worth of a product or service to customers. b. involve resource usage and related costs that customers are willing to pay for. c. are the activities of actually manufacturing a product or performing a service. d. all of the above. Which of the following is a value-added activity? a. Engineering design b. Machinery repair c. Inventory storage d. Inspections 127. 128. d. Sewing Which of the following is a batch-level activity? a. Plant management b. Product design c. Equipment setups d. Assembling Which of the following is not a facility-level activity? a. Plant depreciation b. Property taxes c. Engineering changes d. Utilities 129. Which of the following is not a product-level activity? a. Product design b. Engineering changes c. Material handling d. Inventory management 130. Which of the following is not a batch-level activity? a. Purchase ordering b. Equipment setups c. Inspection d. Assembling 131. 132. Which of the following is not a unit-level activity? a. Drilling b. Cutting c. Sanding d. Inspecting 133. Which of the following is a batch-level activity? a. Assembling b. Product design c. Engineering changes d. Purchase ordering 134. Which of the following is a product-level activity? a. Equipment setups b. Product design c. Property taxes d. Utilities 135. Which of the following is a facility-level activity? a. Engineering changes b. Product design c. Property taxes d. Inspection 136. Activities required to support or sustain an entire production process are called a. unit-level activities. b. batch-level activities. c. product-level activities. d. facility-level activities. 137. Which would be a cost driver for a facility-level activity? a. Number of setups b. Number of product designs c. Square footage d. Number of purchase orders 138. Which of the following is a unit-level activity? a. Painting b. Purchase ordering c. Inspection d. Material handling 139. Activity-based costing is used in a. b. c. d. 140. Service industries Manufacturing industries Yes No Yes Yes No Yes No No In service industries a. activities cannot be labeled as value-added or non-value-added.. Activity-based costing has been found to be useful in each of the following service industries except a. airlines. b. railroads. c. hotels. d. ABC has been useful in all of these industries. b. the overall objective of ABC is different than in manufacturing industries. c. a larger proportion of overhead costs are company-wide costs. d. activity cost pools cannot be identified.. 141. Activity-based costing is used by a. accounting firms. b. law firms. c. consulting firms. d. all of the above. 142. Ben and Jake’s Accounting Services estimates for next year revenues of $1,000,000, direct labor of $200,000, and overhead of $350,000. Under traditional costing, overhead is applied to audit jobs using the rate of a. 35% of revenues. b. 20% of revenues. c. 56% of direct labor. d. 175% of direct labor. Use the following information to answer questions 143–147. JC Accounting performs two types of services, Tax and Consulting. JC’s overhead costs consist of computer support, $200,000; and legal support, $100,000. Information on the two services is: Direct labor cost CPU minutes Legal hours used Tax $50,000 40,000 200 Consulting $100,000 10,000 800 143. Overhead applied to tax services using traditional costing is a. $100,000. b. $120,000. c. $180,000. d. $200,000. 144. Overhead applied to consulting services using traditional costing is a. $100,000. b. $120,000. c. $180,000. d. $200,000. 145. Overhead applied to tax services using activity-based costing is a. $100,000. b. $120,000. c. $180,000. d. $200,000. 146. Overhead applied to consulting services using activity-based costing is a. $100,000. b. $120,000. c. $180,000. d. $200,000. 147. JC Accounting performs tax services for Vince Morelli. Direct labor cost is $1,200; 600 CPU minutes were used; and 1 legal hour was used. What is the total cost of the Morelli job? a. $2,400 b. $2,500 c. $3,600 d. $3,700 148. Activity-based costing has been found to be useful in each of the following service industries except a. banks. b. hospitals. c. telephone companies. d. ABC has been useful in any of these industries. 149. What sometimes makes implementation of activity-based costing difficult in service industries is a. the labeling of activities as value-added. b. identifying activities, activity cost plus, and cost drivers. c. that a larger proportion of overhead costs are company-wide costs. d. attempting to reduce or eliminate nonvalue-added activities. 150. All of the following statements are correct except that a. activity-based costing has been widely adopted in service industries. b. the objective of installing ABC in service firms is different than it is in a manufacturing firm. c. a larger proportion of overhead costs are company-wide costs in service industries. d. the general approach to identifying activities and activity cost pools is the same in a service company as in a manufacturing company. 151. The use of activity-based costing in service industries a. has the same objective as in manufacturing. b. results in improved costing of services provided. c. uses cost pools to assign overhead. d. all of these. a 152. Just-in-time processing a. is based on a just-in-case philosophy. b. results in a push approach. c. minimizes inventory storage and waiting time. d. all of these. a 153. An element of just-in-time processing is a. dependable suppliers who are willing to deliver on short notice. b. a multi-skilled workforce. c. a total quality control system. d. all of these. a 154. Which of the following is not a benefit of justin-time processing? a. Control of significant inventory balances b. Enhanced product quality c. Reduction of rework costs d. Production cost savings a 155. Which account is used in just-in-time processing? a. Raw materials inventory b. Work-in-process inventory c. Merchandise inventory d. Raw and In-Process inventory a 156. Under just-in-time processing, all of the following are received or completed “just in time” except a. finished goods. b. raw materials. c. subassembly parts. d. supplies. a 157. Just-in-time processing a. is based on a just-in-case philosophy. b. results in higher inventory amounts. c. eliminates the push approach. d. all of the above. a 158. Just-in-time processing a. results in the opposite of a just-in-case philosophy. b. results in a pull approach. c. minimizes inventory storage and waiting time. d. all of the above. d. None of the above a 161. Which account is not used in just-in-time processing? a. Accounts payable b. Work-in-process inventory c. Finished goods inventory d. Raw and In-Process inventory a 159. An important element of just-in-time processing is a. dependable suppliers who are willing to deliver on short notice. b. a specialized workforce. Item Ans. Item Ans. Item Ans. a Item 31. d 50. C 69. c 88. 32. a 51. D 70. a 89. 33. a 52. D 71. d 90. 34. c 53. b 72. c 91. 35. a 54. b 73. d 92. 36. c 55. b 74. b 93. 37. a 56. a 75. a 94. 38. d 57. c 76. c 95. 39. d 58. b 77. a 96. 40. a 59. d 78. b 97. 41. b 60. c 79. c 98. 42. c 61. d 80. b 99. 43. c 62. a 81. b 100. 44. b 63. a 82. b 101. 45. b 64. b 83. b 102. 46. d 65. d 84. a 103. 47. d 66. c 85. d 104. 48. b 67. c 86. c 105. 49. a 68. b 87. b 106. c. less emphasis on a quality control system. d. all of the above. 162. Ans. Item C A D A D C B B B D B A D D C B C C B 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 160. Which of the following is a limitation of just-intime processing? a. Significant reduction of manufacturing inventories b. Less emphasis on product quality c. Higher production costs 32. The CVP income statement classifies costs Item Ans. Item Ans. a. as variable or fixed and computes contribution margin. b. by function and computes a contribution margin. c. as variable or fixed and computes gross margin. d. by function and computes a gross margin. MULTIPLE CHOICE QUESTIONS Cost-volume-profit analysis is the study of the effects of a. changes in costs and volume on a company’s profit. b. cost, volume, and profit on the cash budget. c. cost, volume, and profit on various ratios. d. changes in costs and volume on a company’s profitability ratios. Ans. d 126. a 145. c c 127. c 146. b a 128. c 147. d b 129. c 148. d c 130. d 149. c a 131. d 150. b d 132. a 151. d d 133. d 152. c a 134. b 153. D a 135. c 154. a d 136. d 155. d a 137. c 156. d c 138. d 157. c d 139. b 158. d b 140. c 159. a b 141. d 160. d b 142. d 161. b d 143. a 162. c a 144. d stored just in case they are needed later in the manufacturing process. b. Finished goods are completed and stored just in case unexpected and rush customer orders are received. c. the manufacturing process begins with a customer placing an order. d. None of the above. a 31. In the pull approach a. subassembly parts are manufactured and 33. Contribution margin is the amount of revenue remaining after deducting a. cost of goods sold. b. fixed costs. c. variable costs. d. contra-revenue. 40. 34. Buerhrle’s CVP income statement included sales of 2,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $44,000. Contribution margin is a. $200,000. b. $120,000. c. $80,000. d. $36,000. 35. Buerhrle’s CVP income statement included sales of 2,000 units, a selling price of $100, variable expenses of $60 per unit, and fixed expenses of $44,000. Net income is a. $200,000. b. $80,000. c. $76,000. d. $36,000. 36. For Dye Company, at a sales level of 5,000 units, sales is $75,000, variable expenses total $40,000, and fixed expenses are $21,000. What is the contribution margin per unit? a. $2.80 b. $7.00 c. $8.00 d. $15.00 37. If contribution margin is $200,000, sales is $300,000, and net income is $30,000, then variable and fixed expenses are a. b. c. d. Variable Fixed $100,000 $100,000 $170,000 $500,000 $270,000 $170,000 $100,000 $270,000 38. In a CVP income statement, cost of goods sold is generally a. completely a variable cost. b. completely a fixed cost. c. neither a variable cost nor a fixed cost. d. partly a variable cost and partly a fixed cost. 39. In a CVP income statement, a selling expense is generally a. completely a variable cost. b. completely a fixed cost. c. neither a variable cost nor a fixed cost. d. partly a variable cost and partly a fixed cost. Vazquez Company’s cost of goods sold is $350,000 variable and $200,000 fixed. The company’s selling and administrative expenses are $250,000 variable and $300,000 fixed. If the company’s sales is $1,400,000, what is its contribution margin? a. $300,000 b. $800,000 c. $850,000 d. $900,000 41. Vazquez Company’s cost of goods sold is $350,000 variable and $200,000 fixed. The company’s selling and administrative expenses are $250,000 variable and $300,000 fixed. If the company’s sales is $1,400,000, what is its net income? a. $300,000 b. $800,000 c. $850,000 d. $900,000 42. Garland’s CVP income statement included sales of 3,000 units, a selling price of $100, variable expenses of $60 per unit, and net income of $50,000. Fixed expenses are a. $70,000. b. $120,000. c. $180,000. d. $300,000. 43. The contribution margin ratio is a. sales divided by contribution margin. b. sales divided by fixed expenses. c. sales divided by variable expenses. d. contribution margin divided by sales. 44. For Danks Company, sales is $500,000, variable expenses are $310,000, and fixed expenses are $140,000. Danks’ contribution margin ratio is a. 10%. b. 28%. c. 38%. d. 62%. 45. For Contreras Company, sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $72. What is the break-even point? a. $1,388,889 sales dollars b. $416,667 sales dollars c. 13,889 units d. 4,167 units 46. For Garland Company, sales is $1,000,000, fixed expenses are $300,000, and the contribution margin ratio is 36%. What is net income? a. $60,000 b. $108,000 c. $252,000 d. $360,000 47. 48. 49. 50. 51. For Garland Company, sales is $1,000,000, fixed expenses are $300,000, and the contribution margin ratio is 36%. What are the total variable expenses? a. $192,000 b. $360,000 c. $640,000 d. $1,000,000 In 2008, Masset sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $200,000. What was Masset’s 2008 net income? a. $250,000 b. $450,000 c. $1,050,000 d. $1,500,000 In 2008, Masset sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $200,000. The same selling price, variable expenses, and fixed expenses are expected for 2009. What is Masset’s break-even point in sales dollars for 2009? a. $666,667 b. $1,333,333 c. $1,500,000 d. $2,142,857 In 2008, Masset sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $200,000. The same selling price, variable expenses, and fixed expenses are expected for 2009. What is Masset’s break-even point in units for 2009? a. 1,333 b. 3,000 c. 4,285 d. 6,667 The required sales in units to achieve a target net income is a. (sales + target net income) divided by contribution margin per unit. b. (sales + target net income) divided by contribution margin ratio. c. (fixed cost + target net income) divided by contribution margin per unit. d. (fixed cost + target net income) divided by contribution margin ratio. 52. For Jon Company, sales is $1,000,000, fixed expenses are $300,000, and the contribution margin ratio is 36%. What is required sales in dollars to earn a target net income of $200,000? a. $555,556 b. $833,333 c. $1,388,889 d. $2,777,778 53. Jenks Corporation reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 80,000 units. Jenks’ margin of safety ratio is a. 20%. b. 25%. c. 80%. d. 120%. 54. For Bobby Company, sales is $1,000,000 (5,000 units), fixed expenses are $300,000, and the contribution margin per unit is $80. What is the margin of safety in dollars? a. $50,000 b. $250,000 c. $450,000 d. $700,000 55. Margin of safety in dollars is a. expected sales divided by break-even sales. b. expected sales less break-even sales. c. actual sales less expected sales. d. expected sales less actual sales. 56. The margin of safety ratio is a. expected sales divided by break-even sales. b. expected sales less break-even sales. c. margin of safety in dollars divided by expected sales. d. margin of safety in dollars divided by break-even sales. 57. In 2008, McDougal sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $195,000. The same variable expenses per unit and fixed expenses are expected for 2009. If McDougal cuts selling price by 4%, what is McDougal’s break-even point in units for 2009? a. 1,300 b. 1,354 c. 1,440 d. 1,500 58. 59. In 2008, Thornton sold 3,000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $150,000. The same selling price is expected for 2009. Thornton is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Thornton’s break-even point in units for 2009? a. 600 b. 720 c. 750 d. 900 In 2008, Logan sold 1,000 units at $500 each, and earned net income of $40,000. Variable expenses were $300 per unit, and fixed expenses were $160,000. The same selling price is expected for 2009. Logan’s variable cost per unit will rise by 10% in 2009 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Logan sell in 2009 to maintain the same income level as 2008? a. 882 b. 1,000 c. 1,056 d. 1,118 60. Sales mix is a. the relative percentage in which a company sells its multiple products. b. the trend of sales over recent periods. c. the mix of variable and fixed expenses in relation to sales. d. a measure of leverage used by the company. 61. In a sales mix situation, at any level of units sold, net income will be higher if a. more higher contribution margin units are sold than lower contribution margin units. b. more lower contribution margin units are sold than higher contribution margin units. c. more fixed expenses are incurred. d. weighted-average unit contribution margin decreases. 62. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. The weighted-average unit contribution margin for Konerko is a. $23. b. $25. c. $27. d. $50. 63. Iguchi Company sells 2,000 units of Product A annually, and 3,000 units of Product B annually. The sales mix for Product A is a. 40%. b. 60%. c. 67%. d. cannot determine from information given. 64. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. Konerko’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? a. 6,000 b. 7,043 c. 10,000 d. 14,000 Use the following information for questions 65 and 66. Uribe Company has a weighted-average unit contribution margin of $30 for its two products, Standard and Supreme. Expected sales for Uribe are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000. d. 50%. 68. The break-even point in dollars is a. $821,400. b. $5,162,791. c. $5,550,000. d. $6,000,000. 65. How many Standards would Uribe sell at the break-even point? a. 24,000 b. 36,000 c. 40,000 d. 60,000 69. What will sales be for the Sporting Goods Division at the break-even point? a. $1,800,000 b. $2,100,000 c. $3,355,814 d. $3,900,000 66. At the expected sales level, Uribe’s net income will be a. $(300,000). b. $ - 0 -. c. $1,200,000. d. $3,000,000. 70. What will be the total contribution margin at the break-even point? a. $1,910,233 b. $2,220,000 c. $2,400,000 d. $2,580,000 Use the following information for questions 67–70. 71. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. 72. A shift from low-margin sales to high-margin sales a. may increase net income, even though there is a decline in total units sold. b. will always increase net income. c. will always decrease net income. d. will always decrease units sold. A shift from high-margin sales to low-margin sales a. may decrease net income, even though there is an increase in total units sold. b. will always decrease net income. c. will always increase net income. d. will always increase units sold. 67. The weighted-average contribution margin ratio is a. 37%. b. 40%. c. 43%. Use the following information for questions 73 and 74. Innova Discs has two divisions—Standard and Premium. Each division has hundreds of different types of golf discs and disc golf products. The following information is available: Sales Variable costs Contribution margin Total fixed costs Standard Division $400,000 280,000 $120,000 Premium Division $600,000 360,000 $240,000 73. What is the weighted-average contribution margin ratio? a. 34% b. 35% c. 36% d. 50% 74. What is the break-even point in dollars? a. $108,000 b. $833,333 Total $1,000,000 $300,000 c. $857,143 d. $882,353 75.The sales mix percentages for Guillen’s Chicago and Charlotte Divisions are 70% and 30%. The contribution margin ratios are: Chicago (40%) and Charlotte (30%). Fixed costs are $555,000. What is Guillen’s break-even point in dollars? a. $194,250 b. $1,500,000 c. $1,585,714 d. $1681,818 76. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be a. $2,000 more if Product A is made. b. $2,000 less if Product B is made. c. $2,000 less if Product A is made. d. the same if either product is made. 79. 77. 78. Dye Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $96 and takes two machine hours to make and Fancy has a unit contribution margin of $120 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Dye do? a. Make Fancy which creates $24 more profit per unit than Plain does. b. Make Plain which creates $8 more profit per machine hour than Fancy does. c. Make Plain because more units can be made and sold than Fancy. d. The same total profits exist regardless of which product is made. What is the key factor in determining sales mix if a company has limited resources? a. Contribution margin per unit of limited resource b. The amount of fixed costs per unit c. Total contribution margin d. The cost of limited resources Jermaine’s Vittles can produce and sell only one of the following two products: Oven Hours Required Crackers 0.2 Bread sticks 0.3 Contribution Margin Per Unit $3 $4 The company has oven capacity of 600 hours. How much will contribution margin be if it produces only the most profitable product? a. $6,000 b. $8,000 c. $9,000 d. $12,000 80. 81. S-Pod’s contribution margin is $10 per unit for Product A and $12 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product? A B a. $5.00 $3.00 b. $5.00 $3.33 c. $4.00 $3.00 d. $4.00 $3.33 Cost structure a. refers to the relative proportion of fixed versus variable costs that a company incurs. b. generally has little impact on profitability. c. cannot be significantly changed by companies. d. refers to the relative proportion of operating versus nonoperating costs that a company incurs. 82. Outsourcing production will a. reduce fixed costs and increase variable costs. b. reduce variable costs and increase fixed costs. c. have no effect on the relative proportion of fixed and variable costs. d. make the company more susceptible to economic swings. 83. 84. of c. .33. d. .75. 87. Which of the following statements is not true? a. Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales. b. Companies that have higher fixed costs relative to variable costs have higher operating leverage. c. When a company’s sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly. d. When a company’s sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease. 88. Scottie Company’s degree of operating leverage is 1.5. Erstadt Corporation’s degree of operating leverage is 4.5. Erstadt’s earnings would go up (or down) by ________ as much as Scottie’s with an equal increase (or decrease) in sales. a. 1/3 b. 2 times c. 3 times d. 6 times 89. The margin of safety ratio a. is computed as actual sales divided by break-even sales. b. indicates what percent decline in sales could be sustained before the company would operate at a loss. c. measures the ratio of fixed costs to variable costs. d. is used to determine the break-even point. Reducing reliance on human workers and instead investing heavily in computers and online technology will a. reduce fixed costs and increase variable costs. b. reduce variable costs and increase fixed costs. c. have no effect on the relative proportion of fixed and variable costs. d. make the company less susceptible to economic swings. Cost structure refers to the relative proportion a. selling expenses versus administrative expenses. b. selling and administrative expenses versus cost of goods sold. c. contribution margin versus sales. d. none of the above. Use the following information for questions 85 and 86. Small Fry Company has sales of $1,000,000, variable costs of $400,000, and fixed costs of $450,000. 85. Small Fry’s degree of operating leverage is a. .80. b. 1.50. c. 1.67 d. 4.00. 86. Small Fry’s margin of safety ratio is a. .18. b. .25. 90.A cost structure which relies more heavily on fixed costs makes the company a. more sensitive to changes in sales revenue. b. less sensitive to changes in sales revenue. c. either more or less sensitive to changes in sales revenue, depending on other factors. d. have a lower break-even point. 91. A company with a higher contribution margin ratio is a. more sensitive to changes in sales revenue. b. less sensitive to changes in sales revenue. c. either more or less sensitive to changes in sales revenue, depending on other factors. d. likely to have a lower breakeven point. 92. The degree of operating leverage a. does not provide a reliable measure of a company’s earnings volatility. b. cannot be used to compare companies. c. is computed by dividing total contribution margin by net income. d. measures how much of each sales dollar is available to cover fixed expenses. a a a a 93. 94. 95. 96. Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using a. full costing. b. absorption costing. c. variable costing. d. product costing. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using a. operations costing. b. absorption costing. c. variable costing. d. product costing. Companies recognize fixed manufacturing overhead costs as period costs (expenses) when incurred when using a. full costing. b. absorption costing. c. product costing. d. variable costing. Under absorption costing and variable costing, how are fixed manufacturing costs treated? a. b. c. d. Absorption Product Cost Product Cost Period Cost Period Cost Variable Product Cost Period Cost Product Cost Period Cost a 97. Under absorption costing and variable costing, how are variable manufacturing costs treated? a. b. c. d. a 98. 99. Variable Product Cost Period Cost Product Cost Period Cost Under absorption costing and variable costing, how are direct labor costs treated? a. b. c. d. a Absorption Product Cost Product Cost Period Cost Period Cost Absorption Product Cost Product Cost Period Cost Period Cost Variable Product Cost Period Cost Product Cost Period Cost Fixed selling expenses are period costs a. under both absorption and variable costing. b. under neither absorption nor variable costing. c. under absorption costing, but not under variable costing. d. under variable costing, but not under absorption costing. a 100. Which cost is not charged to the product under variable costing? a. Direct materials b. Direct labor c. Variable manufacturing overhead d. Fixed manufacturing overhead a 101. Which cost is charged to the product under variable costing? a. Variable manufacturing overhead b. Fixed manufacturing overhead c. Variable administrative expenses d. Fixed administrative expenses a 102. Variable costing a. is used for external reporting purposes. b. is required under GAAP. c. treats fixed manufacturing overhead as a period cost. d. is also known as full costing. Use the following information for questions 103–107. Briscoe Company sells its product for $40 per unit. During 2008, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $10, direct labor $6, and variable overhead $2. Fixed costs are: $480,000 manufacturing overhead, and $60,000 selling and administrative expenses. a 103. The per unit manufacturing cost under absorption costing is a. $16. b. $18. c. $26. d. $27. a 104. The per unit manufacturing cost under variable costing is a. $16. b. $18. c. $26. d. $27. a 105. Cost of goods sold under absorption costing is a. $900,000. b. $1,080,000. c. $1,300,000. d. $1,560,000. a 106. Ending inventory under variable costing is a. $180,000. b. $260,000. c. $400,000. d. $900,000. a 107. Under absorption costing, what amount of fixed overhead is deferred to a future period? a. $20,000 b. $80,000 c. $100,000 d. $480,000 a 108. Net income under absorption costing is gross profit less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses. a a 109. 110. Net income under variable costing is contribution margin less a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses. The manufacturing cost per unit for absorption costing is a. usually, but not always, higher than manufacturing cost per unit for variable costing. b. usually, but not always, lower than manufacturing cost per unit for variable costing. c. always higher than manufacturing cost per unit for variable costing. d. always lower than manufacturing cost per unit for variable costing. c. variable costing, companies charge the variable manufacturing overhead as an expense in the current period. d. absorption costing, companies charge the variable manufacturing overhead as an expense in the current period. a 112. Net income under absorption costing is higher than net income under variable costing a. when units produced exceed units sold. b. when units produced equal units sold. c. when units produced are less than units sold. d. regardless of the relationship between units produced and units sold. a Use the following information for questions 114–118. Jack Company sells its product for $11,000 per unit. Variable costs per unit are: manufacturing, $6,000, and selling and administrative, $125. Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative. There was no beginning inventory at 1/1/07. Production was 20 units per year in 2007– 2009. Sales was 20 units in 2007, 16 units in 2008, and 24 units in 2009. a 114. Income under absorption costing for 2008 is a. $8,000. b. $14,000. c. $16,000. d. $22,000. a 115. Income under absorption costing for 2009 is a. $33,000. b. $39,000 c. $41,000 d. $47,000. a 116. Income under variable costing for 2008 is a. $8,000. b. $14,000 c. $16,000 d. $22,000. a Income under variable costing for 2009 is a. $33,000. b. $39,000. a 111. The one primary difference between variable and absorption costing is that under a. variable costing, companies charge the fixed manufacturing overhead as an expense in the current period. b. absorption costing, companies charge the fixed manufacturing overhead as an expense in the current period. 113. Some fixed manufacturing overhead costs of the current period are deferred to future periods under a. absorption costing. b. variable costing. c. both absorption and variable costing. d. neither absorption nor variable costing. 117. c. $41,000. d. $47,000. a a a 118. For the three years 2007–2009, a. absorption costing income exceeds variable costing income by $6,000. b. absorption costing income equals variable costing income. c. variable costing income exceeds absorption costing income by $6,000. d. absorption costing income may be greater than, equal to, or less than variable costing income, depending on the situation. a 119. When production exceeds sales, a. some fixed manufacturing overhead costs are deferred until a future period under absorption costing. b. some fixed manufacturing overhead costs are deferred until a future period under variable costing. c. variable and fixed manufacturing overhead costs are deferred until a future period under absorption costing. b. variable and fixed manufacturing overhead costs are deferred until a future period under variable costing. 120. a c. absorption costing, in order to increase net income. d. absorption costing, in order to decrease net income. When production exceeds sales, a. ending inventory under variable costing will exceed ending inventory under absorption costing. b. ending inventory under absorption costing will exceed ending inventory under variable costing. c. ending inventory under absorption costing will be equal to ending inventory under variable costing. d. ending inventory under absorption costing may exceed, be equal to, or be less than ending inventory under variable costing. 122. If a division manager’s compensation is based upon the division’s net income, the manager may decide to meet the net income targets by increasing production when using a. variable costing, in order to increase net income. b. variable costing, in order to decrease net income. c. absorption costing, in order to increase net income. d. absorption costing, in order to decrease net income. a a 123. Expected sales for next year for the Huxtable Division is 150,000 units. Bill Cosby, manager of the Huxtable Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 150,000 units or 180,000 units. The Huxtable Division will have higher net income if Bill Cosby decides to produce a. 180,000 units if income is measured under absorption costing. b. 180,000 units if income is measured under variable costing. c. 150,000 units if income is measured under absorption costing. d. 150,000 units if income is measured under variable costing. 124. Which of the following is a potential advantage of variable costing relative to absorption costing? a. Net income is affected by changes in production levels. b. The use of variable costing is consistent with cost-volume-profit analysis. c. Net income computed under variable costing is not closely tied to changes in sales levels. d. More than one of the above. 121. Management may be tempted to overproduce when using a. variable costing, in order to increase net income. b. variable costing, in order to decrease net income. a 125. Companies that use just-in-time processing techniques will a. have greater differences between absorption and variable costing net income. b. have smaller differences between absorption and variable costing net income. c. not be able to use absorption costing. d. not be able to use variable costing. Answers to Multiple Choice Questions Item 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. Ans . a a c c d b b d d b a a d c Item 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. Ans . d a c a a a c c a b b c d a Item 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. Ans . d a a c a a a c a d d b a a Item 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. Ans . C B B C B A C A A A B d d B Item 87. 88. 89. 90. 91. 92. a 93. a 94. a 95. a 96. a 97. a 98. a 99. a 100. Ans . d c b a a c c b d b a a a d Item a 101. 102. a 103. a 104. a 105. a 106. a 107. a 108. a 109. a 110. a 111. a 112. a 113. a 114. a Ans. a c c b c a b d b c a a a b Item a 115. 116. a 117. a 118. a 119. a 120. a 121. a 122. a 123. a 124. a 125. a Ans. c a d b a b c c a b b Which type of business will managerial accounting not apply to?Managerial accounting applies to each of the following types of businesses except: manufacturing firms.
What types of companies need managerial accounting?According to Accounting in Focus, managerial accounting is used in businesses such as merchandising, manufacturing and service industries, but it goes beyond these industries. Any companies that need to plan, budget or analyze income reports should use managerial accounting.
What are the four areas of managerial accounting?Preparation of these data and reports is the focus of managerial accounting, which consists mainly of four broad functions: (1) budgetary planning, (2) cost finding, (3) cost and profit analysis, and (4) performance reporting.
What are the 5 managerial functions of accounting?The main functions of management accounting include:. Helping Forecast the Future. Forecasting helps decision to made and answers questions like: Should a company invest more in equipment? ... . Helping in Make-or-buy Decisions. ... . Forecasting Cash Flows. ... . Helping Understand Performance Variances. ... . Analyzing the Rate of Return.. |
Managerial accounting is used in each of the following types of businesses except
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