17th Ed | Ch2 Cost Terms & Purposes – Test Bank

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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan

Chapter 2 An Introduction to Cost Terms and Purposes

Objective 2.1

1) Which of the following would be considered an actual cost of a current period?

A) the $25 of materials in a manufactured chair that is ready to be shipped to the customer

B) the $22 of direct material cost per unit assumed in the actual budget of a manufacturer of chairs

C) the expected cost of materials for a chair as a result of engineering specifications

D) the average of historical material cost data for a chair manufactured in several past accounting periods

Diff: 2

Objective: 1

AACSB: Analytical thinking

2) The collection of cost data in an organized way, such as in various categories such as materials, labor, and manufacturing overhead, is called:

A) cost application

B) cost accumulation

C) cost assignment

D) cost reporting

Diff: 2

Objective: 1

AACSB: Analytical thinking

3) Budgeted costs are:

A) the costs incurred this year

B) the costs incurred last year

C) planned or expected costs

D) competitor's costs

Diff: 1

Objective: 1

AACSB: Analytical thinking

4) Cost assignment:

A) includes future and arbitrary costs

B) associates accumulated costs with certain cost objects

C) is the same as cost accumulation

D) is the difference between budgeted and actual costs

Diff: 1

Objective: 1

AACSB: Analytical thinking

5) A cost system determines the cost of a cost object by:

A) accumulating and then assigning costs

B) accumulating costs

C) assigning and then accumulating costs

D) assigning costs

Diff: 1

Objective: 1

AACSB: Analytical thinking

6) A cost object is anything for which a cost measurement is desired.

Diff: 1

Objective: 1

AACSB: Analytical thinking

7) Costs are accounted for in two basic stages: assignment followed by accumulation.

Diff: 1

Objective: 1

AACSB: Analytical thinking

8) An actual cost is the cost incurred–a historical or past cost.

Diff: 1

Objective: 1

AACSB: Analytical thinking

9) Accountants define a cost as the amount of money spent on a resource.

Diff: 1

Objective: 1

AACSB: Analytical thinking

10) A cost is a resource sacrificed or forgone to achieve a specific objective.

Diff: 1

Objective: 1

AACSB: Analytical thinking

11) Managers use assigned cost information to make decisions and implement them.

Diff: 1

Objective: 1

AACSB: Analytical thinking

12) Cost accumulation and cost assignment are synonymous.

Diff: 1

Objective: 1

AACSB: Analytical thinking

13) Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants. They are:

Cost object #1: The physical buildings and equipment

Cost object #2: The use of buildings and equipment

Cost object #3: The availability and use of manufacturing labor

The following manufacturing overhead cost categories are found in the accounting records:

a. Depreciation on buildings and equipment

b. Lubricants for machines

c. Property insurance

d. Supervisors salaries

e. Fringe benefits

f. Property taxes

g. Utilities

Required:

Assign each of the above costs to the most appropriate cost object.

Cost object # 2 includes categories b and g.

Cost object # 3 includes categories d and e.

Diff: 2

Objective: 1

AACSB: Application of knowledge

Objective 2.2

1) Which of the following factors affect the direct/indirect classification of a cost?

A) the level of budgeted profit for the next year

B) the estimation of time required to complete the order

C) the ability to execute an order in the most cost-efficient manner

D) the design where a particular area is dedicated to a specific cost object

Diff: 1

Objective: 2

AACSB: Analytical thinking

2) All of the following are factors affecting direct versus indirect cost classification except:

A) materiality of the cost

B) cost accuracy

C) information technology's ability to trace costs in an economically feasible way

D) design of operations

Diff: 2

Objective: 1

AACSB: Analytical thinking

3) When costs can be traced to a particular cost object in an economically feasible way, the cost is a:

A) direct cost

B) indirect cost

C) allocated cost

D) budgeted cost

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following statements about the direct/indirect cost classification is true?

A) Indirect costs are always traced.

B) Indirect costs are always allocated.

C) The design of sales target affects the direct/indirect classification.

D) The direct/indirect classification depends on the cost control measures.

Diff: 1

Objective: 2

AACSB: Analytical thinking

5) The assignment of the cost of the leather used to make 100 bicycle seats to a custom order to be shipped to a bike retailer is an example of:

A) the cost tracing of direct costs to the chosen cost object

B) a function of cost accumulation

C) the process of tracking both direct and indirect costs associated with a cost object

D) the process of determining the actual cost of the cost object

Diff: 1

Objective: 2

AACSB: Analytical thinking

6) Cost allocation is:

A) the process of tracking both direct and indirect costs associated with a cost object

B) the process of determining the opportunity cost of a cost object chosen

C) the assignment of indirect costs to the chosen cost object

D) made based on material acquisition document

Diff: 1

Objective: 2

AACSB: Analytical thinking

7) The determination of a cost as either direct or indirect depends upon the:

A) accounting standards

B) tax system chosen

C) inventory valuation

D) cost object chosen

Diff: 1

Objective: 2

AACSB: Analytical thinking

8) Classifying a cost as either direct or indirect depends upon:

A) the behavior of the cost in response to volume changes

B) whether the cost is expensed in the period in which it is incurred

C) whether the cost can be traced to a particular cost object in an economically feasible way

D) whether a cost is fixed or variable

Diff: 1

Objective: 2

AACSB: Analytical thinking

9) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of a direct cost for the golf equipment line is:

A) beverages provided daily in the plant break room for the entire staff

B) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver

C) salaries of the clerical staff that work in the company administrative offices

D) overheads incurred in producing both golf and soccer equipment

Diff: 1

Objective: 2

AACSB: Application of knowledge

10) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the:

A) material used to make the soccer balls

B) labor to shape the leather used to make the soccer ball

C) material used to manufacture the soccer studs

D) property taxes paid on the land and building (plant)

Diff: 2

Objective: 2

AACSB: Application of knowledge

11) Which one of the following items is a direct cost?

A) Customer-service costs of a multiproduct firm; Product A is the cost object.

B) Printing costs incurred for payroll check processing; payroll check processing is the cost object.

C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.

D) Utility costs of the administrative offices; the accounting department is the cost object.

Diff: 1

Objective: 2

AACSB: Application of knowledge

12) Indirect manufacturing costs:

A) can be traced to the product that created the costs

B) can be easily identified with the cost object

C) generally include the cost of material and the cost of labor

D) may include both variable and fixed costs

Diff: 1

Objective: 2

AACSB: Application of knowledge

13) Which of the following is true of indirect costs?

A) Indirect costs are always considered sunk costs.

B) All indirect costs are included in cost of goods sold.

C) Indirect costs always vary in direct proportion to the level of production.

D) Indirect costs cannot be traced to a particular cost object in an economically feasible way.

Diff: 1

Objective: 2

AACSB: Application of knowledge

14) Which of the following statements is true?

A) A direct cost of one cost object will always be a direct cost of another cost object.

B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.

C) All fixed costs are indirect costs.

D) All direct costs are variable costs.

Diff: 2

Objective: 2

AACSB: Analytical thinking

15) Which of the following statements is true of direct costs?

A) A direct cost of one cost object is a true sense of the budgeted costs.

B) All variable costs are direct costs.

C) A direct cost of one cost object can be an indirect cost of another cost object.

D) All fixed costs are direct costs.

Diff: 1

Objective: 2

AACSB: Application of knowledge

16) A cost may be direct for one cost object and indirect for another cost object.

Diff: 1

Objective: 2

AACSB: Application of knowledge

17) Assigning indirect costs is easier than assigning direct costs.

Diff: 1

Objective: 2

AACSB: Application of knowledge

18) Improvements in information-gathering technologies are making it possible to trace more costs as direct.

Diff: 1

Objective: 2

AACSB: Analytical thinking

19) The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.

Diff: 1

Objective: 2

AACSB: Application of knowledge

20) A direct cost of one cost object cannot be an indirect cost of another cost object.

Diff: 1

Objective: 2

AACSB: Analytical thinking

21) The cost of natural gas used to heat a production facility that makes three products (A,B, and C) would be classified as an indirect cost when the cost object is one of the products (either A, B, or C).

Diff: 1

Objective: 2

AACSB: Application of knowledge

22) The broader the cost object definition (i.e., plant versus product), the more confident the manager will be about the accuracy of the direct cost amounts.

Diff: 2

Objective: 2

AACSB: Analytical thinking

23) All costs incurred by a company (sacrifice of a resource) are recorded in the accounting system.

Diff: 2

Objective: 2

AACSB: Analytical thinking

24) Cutler Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item. A nonmanufacturing item would be an operating cost.

Cost Cost Nonmanu-

Item Tracing Allocation facturing

Carpenter wages ________ ________ ________

Depreciation - office building ________ ________ ________

Glue for assembly ________ ________ ________

Lathe department supervisor ________ ________ ________

Lathe depreciation ________ ________ ________

Lathe maintenance ________ ________ ________

Lathe operator wages ________ ________ ________

Lumber ________ ________ ________

Samples for trade shows ________ ________ ________

Metal brackets for drawers ________ ________ ________

Factory washroom supplies ________ ________ ________

Item Tracing Allocation facturing

Carpenter wages X

Depreciation - office building X

Glue for assembly X

Lathe department supervisor X

Lathe depreciation X

Lathe maintenance X

Lathe operator wages X

Lumber X

Samples for trade shows X

Metal brackets for drawers X

Factory washroom supplies X

Diff: 2

Objective: 2

AACSB: Application of knowledge

25) What are the factors that affect the classification of a cost as direct or indirect?

The materiality of the cost in question. The smaller the amount of a cost–that is, the more immaterial the cost is–the less likely it is economically feasible to trace it to a particular cost object.

Available information-gathering technology. Improvements in information-gathering technology make it possible to consider more and more costs as direct costs.

Design of operations. Classifying a cost as direct is easier if a company's facility (or some part of it) is used exclusively for a specific cost object, such as a specific product or a particular customer.

Diff: 3

Objective: 2

AACSB: Analytical thinking

26) What are the differences between direct costs and indirect costs? Give an example of each.

Diff: 2

Objective: 2

AACSB: Analytical thinking

27) Match each of the following descriptions to a specific cost object category for a Miller Systems, a large software publisher of accounting applications for: Product (P), Service (S), Customer (C), Activity (A), Project (Proj) or Department (D).

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 2.3

1) Which of the following is true if the volume of sales increases (within a relevant range)?

A) total fixed cost increases

B) total variable cost decreases

C) total variable cost increases

D) total fixed cost decreases

Diff: 1

Objective: 3

AACSB: Application of knowledge

2) Which of the following is a fixed cost with respect to units produced in a factory?

A) monthly rent payment for the building

B) electricity expenses

C) utilities cost of the building

D) direct material costs

Diff: 1

Objective: 3

AACSB: Application of knowledge

3) Cost behavior refers to:

A) how costs react to a change in the level of activity

B) whether a cost is incurred in a manufacturing, merchandising, or service company

C) classifying costs as either perpetual or period costs

D) whether a particular expense is expensed in the same or the following period

Diff: 1

Objective: 3

AACSB: Analytical thinking

4) Which of the following is true if the production volume decreases?

A) fixed cost per unit increases

B) average cost per unit decreases

C) variable cost per unit increases

D) variable cost per unit decreases

Diff: 1

Objective: 3

AACSB: Application of knowledge

5) At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually:

A) are considered a variable cost

B) are considered a fixed cost

C) depend on the scheduling of floor workers

D) depend on the scheduling of production runs

Diff: 1

Objective: 3

AACSB: Analytical thinking

6) Variable costs:

A) are always indirect costs

B) increase in total when the actual level of activity increases

C) include most personnel costs and depreciation on machinery

D) are never considered a part of prime cost

Diff: 1

Objective: 3

AACSB: Analytical thinking

7) Rally Synthesis Inc. manufactures and sells 100 bottles per day. Fixed costs are $22,000 and the variable costs for manufacturing 100 bottles are $30,000. Each bottle is sold for $1,200. How would the daily profit be affected if the daily volume of sales drop by 10%?

A) profits are reduced by $9,000

B) profits are reduced by $3,000

C) profits are reduced by $12,000

D) profits are reduced by $59,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

8) Within the certain expected range of production during the next year, which of the following would be true?

A) total variable costs decrease as production increases

B) total fixed costs remain the same when production increases or decreases

C) fixed costs per unit decreases as production decreases

D) total variable costs remain the same when production increases or decreases

Diff: 1

Objective: 3

AACSB: Analytical thinking

9) Which one of the following is a variable cost for an insurance company?

A) rent of the building

B) CEO's salary

C) electricity expenses

D) property taxes

Diff: 1

Objective: 3

AACSB: Application of knowledge

10) Which of the following is a fixed cost for an automobile manufacturing plant?

A) administrative salaries

B) electricity used by assembly-line machines

C) sales commissions

D) tires

Diff: 1

Objective: 3

AACSB: Application of knowledge

11) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is:

A) considered to be a direct fixed cost

B) considered to be a direct variable cost

C) considered to be an indirect fixed cost

D) considered to be an indirect variable cost

Diff: 1

Objective: 3

AACSB: Application of knowledge

12) The most likely cost driver of distribution costs is the:

A) number of parts within the product

B) number of miles driven

C) number of products manufactured

D) number of production hours

Diff: 1

Objective: 3

AACSB: Application of knowledge

13) The most likely cost driver of direct labor costs is the:

A) number of machine setups for the product

B) number of miles driven

C) number of production hours

D) number of machine hours

Diff: 1

Objective: 3

AACSB: Application of knowledge

14) Which of the following statements is true?

A) There is a cause-and-effect relationship between the cost driver and the amount of cost.

B) Fixed costs have cost drivers over the short run.

C) Over the short run all costs have cost drivers.

D) Volume of production is a cost driver of distribution costs.

Diff: 1

Objective: 3

AACSB: Analytical thinking

15) A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the:

A) average range

B) cost-allocation range

C) cost driver range

D) relevant range

Diff: 1

Objective: 3

AACSB: Analytical thinking

16) Within the relevant range, if there is a change in the level of the cost driver, then:

A) total fixed costs and total variable costs will change

B) total fixed costs and total variable costs will remain the same

C) total fixed costs will remain the same and total variable costs will change

D) total fixed costs will change and total variable costs will remain the same

Diff: 2

Objective: 3

AACSB: Analytical thinking

17) Outside the relevant range, variable costs, such as direct material costs:

A) will decrease proportionately with changes in sales volumes

B) will remain the same with changes in production volumes

C) will not change proportionately with changes in production volumes

D) will increase proportionately with changes in sales volumes

Diff: 2

Objective: 3

AACSB: Analytical thinking

18) Which of the following is a cost driver for a company's human resource costs?

A) the number of employees in the company

B) the number of job applications processed

C) the number of units sold

D) the square footage of the office space used by the human resource department

Diff: 1

Objective: 3

AACSB: Analytical thinking

19) Puritan Apparels is a clothing retailer. Unit costs associated with one of its products, Product AHF 130, are as follows:

Direct materials $110

Direct manufacturing labor 90

Variable manufacturing overhead 45

Fixed manufacturing overhead 33

Sales commissions (2% of sales) 10

Administrative salaries 28

Total $316

What are the variable manufacturing costs per unit associated with Product AHF 130?

A) $288

B) $200

C) $245

D) $255

Diff: 1

Objective: 3

AACSB: Application of knowledge

20) Puritan Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCF 130, are as follows:

Direct materials $120

Direct manufacturing labor 40

Variable manufacturing overhead 15

Fixed manufacturing overhead 33

Sales commissions (2% of sales) 5

Administrative salaries 24

Total $237

What are the indirect nonmanufacturing variable costs per unit associated with Product DCF130?

A) $5

B) $29

C) $160

D) $213

Diff: 1

Objective: 3

AACSB: Application of knowledge

21) The East Company manufactures several different products. Unit costs associated with Product ORD105 are as follows:

Direct materials $92

Direct manufacturing labor 32

Variable manufacturing overhead 12

Fixed manufacturing overhead 32

Sales commissions (2% of sales) 26

Administrative salaries 6

Total $200

What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost?

A) 81%

B) 68%

C) 84%

D) 71%

Diff: 3

Objective: 3

AACSB: Application of knowledge

22) The East Company manufactures several different products. Unit costs associated with Product ORD105 are as follows:

Direct materials $54

Direct manufacturing labor 8

Variable manufacturing overhead 11

Fixed manufacturing overhead 25

Sales commissions (2% of sales) 5

Administrative salaries 12

Total $115

What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?

A) 37%

B) 32%

C) 15%

D) 26%

Diff: 3

Objective: 3

AACSB: Application of knowledge

23) Which of the following is a variable cost if the cost object is a product?

A) Interest payments on the company's mortgage on the headquarters' building

B) Direct materials cost incurred to make products sold by the company

C) Property taxes on all real estate owned by the firm

D) Insurance premiums paid during the year

Diff: 2

Objective: 3

AACSB: Application of knowledge

24) A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span.

Diff: 1

Objective: 3

AACSB: Analytical thinking

25) Fixed cost per unit falls with an increase in production volume.

Diff: 2

Objective: 3

AACSB: Analytical thinking

26) Variable costs per unit vary with the level of production or sales volume.

Diff: 2

Objective: 3

AACSB: Analytical thinking

27) Wood used to manufacture chairs is considered a direct variable cost when the cost object is the chair.

Diff: 1

Objective: 3

AACSB: Analytical thinking

28) Cost drivers casually affect total costs of a cost object over a given time span.

Diff: 1

Objective: 3

AACSB: Analytical thinking

29) A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level

of total activity or volume of output produced.

Diff: 1

Objective: 3

AACSB: Analytical thinking

30) A lease for a store calls for a base monthly rent of $1,500 up to $10,000 of sales with a possible additional monthly cost of 2% of sales over $10,000. The rent is a fixed cost for the month for a relevant range of zero to $10,000 sales.

Diff: 2

Objective: 3

AACSB: Application of knowledge

31) Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.

Required:

a. Classify each of the following costs as either direct or indirect with respect to each patient.

b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.

Direct Indirect Fixed Variable

Electronic monitoring ________ ________ ________ ________

Meals for patients ________ ________ ________ ________

Nurses' salaries ________ ________ ________ ________

Parking maintenance ________ ________ ________ ________

Security ________ ________ ________ ________

Electronic monitoring X X

Meals for patients X X

Nurses' salaries X X

Parking maintenance X X

Security X X

Diff: 3

Objective: 2, 3

AACSB: Application of knowledge

32) The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.

Required:

Match each business function with its representative cost driver.

Diff: 3

Objective: 3

AACSB: Application of knowledge

33) Describe both variable and fixed costs. Explain why the distinction between variable and fixed costs is important in cost accounting.

Diff: 3

Objective: 3

AACSB: Analytical thinking

Objective 2.4

1) A unit cost is computed by:

A) multiplying total cost by the number of units produced

B) dividing total cost by the number of units produced

C) dividing variable cost by the number of units produced

D) dividing fixed cost by the number of units produced

Diff: 1

Objective: 4

AACSB: Analytical thinking

2) In its first year of operation, the Excellent Publishing Company sells 52,000 units and has 1,700 units in stock at year end. The cost of goods sold are $3,100,000. What are the total manufacturing costs for the year if the average unit cost is $8.50?

A) $3,114,450

B) $3,100,000

C) $3,085,550

D) $14,450

Diff: 2

Objective: 4

AACSB: Analytical thinking

3) When 25,000 units are produced, fixed costs are $21.00 per unit. Therefore, when 20,000 units are produced, fixed costs will:

A) increase to $26.25 per unit

B) remain at $21.00 per unit

C) decrease to $16.80 per unit

D) total $420,000

Diff: 3

Objective: 4

AACSB: Application of knowledge

4) When 24,000 units are produced, variable costs are $12.00 per unit. Therefore, when 18,000 units are produced:

A) variable costs will remain at $12.00 per unit

B) variable costs will total $288,000

C) variable unit costs will increase to $16.00 per unit

D) variable unit costs will decrease to $9.00 per unit

Diff: 2

Objective: 4

AACSB: Application of knowledge

5) Wonderful Products Manufacturing Corp. provided the following information for last month:

Sales $43,000

Variable costs 14,000

Fixed costs 11,000

Operating income $18,000

If sales reduce to half of the amount in the next month, what is the projected operating income?

A) $2,000

B) $9,000

C) $18,000

D) $3,500

Diff: 3

Objective: 4

AACSB: Application of knowledge

6) Rapid Cabinet Makers Inc. provided the following information for last month:

Sales $25,000

Variable costs 10,000

Fixed costs 3,000

Operating income $12,000

If sales reduce to half the amount in the next month, what is the projected operating income?

A) $1,000

B) $6,000

C) $4,500

D) $18,500

Diff: 3

Objective: 4

AACSB: Application of knowledge

7) Swansea Manufacturing currently produces 3,000 tires per month. The following per unit data for 3,000 tires apply for sales to regular customers:

Direct materials $38

Direct manufacturing labor 14

Variable manufacturing overhead 19

Fixed manufacturing overhead 20

Total manufacturing costs $91

The plant has capacity for 5,000 tires and is considering expanding production to 4,000 tires. What is the total cost of producing 4,000 tires?

A) $364,000

B) $344,000

C) $209,000

D) $288,000

Diff: 3

Objective: 4

AACSB: Application of knowledge

8) Atlas Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently Atlas produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.

B) Total manufacturing costs will increase and unit manufacturing costs will decrease.

C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.

D) Total manufacturing costs will increase and unit manufacturing costs will also increase.

Diff: 2

Objective: 4

AACSB: Application of knowledge

9) Eaton Manufacturing currently produces 4,000 bicycles per month. The following per unit data apply for sales to regular customers:

Direct materials $53

Direct manufacturing labor 10

Variable manufacturing overhead 12

Fixed manufacturing overhead 14

Total manufacturing costs $89

The plant has capacity for 6,000 bicycles and is considering expanding production to 5,000 bicycles. What is the per unit cost of producing 5,000 bicycles?

A) $91.80 per unit

B) $111.25 per unit

C) $69.80 per unit

D) $86.20 per unit

Diff: 3

Objective: 4

AACSB: Application of knowledge

10) Eaton Manufacturing currently produces 2,000 tables per month. The following per unit data for 2,000 tables apply for sales to regular customers:

Direct materials $75

Direct manufacturing labor 20

Variable manufacturing overhead 20

Fixed manufacturing overhead 40

Total manufacturing costs $155

The plant has capacity for 4,000 tables and is considering expanding production to 4,000 tables. What is the total cost of producing 4,000 tables?

A) $540,000

B) $500,000

C) $390,000

D) $620,000

Diff: 3

Objective: 4

AACSB: Application of knowledge

11) Eaton Manufacturing currently produces 2,000 tables per month. The following per unit data for 2,000 tables apply for sales to regular customers:

Direct materials $75

Direct manufacturing labor 20

Variable manufacturing overhead 20

Fixed manufacturing overhead 40

Total manufacturing costs $155

What is the per unit cost when producing 4,000 tables?

A) $125.00

B) $195.00

C) $135.00

D) $155.00

Diff: 2

Objective: 4

AACSB: Application of knowledge

12) Pederson Company reported the following:

Manufacturing costs $480,000

Units manufactured 8,000

Units sold 7,500 units sold for $90 per unit

Beginning inventory 2,000 units

What is the average manufacturing cost per unit? (Round the answer to the nearest dollar.)

A) $48.00

B) $80.00

C) $60.00

D) $64.00

Diff: 2

Objective: 4

AACSB: Application of knowledge

13) Pederson Company reported the following:

Manufacturing costs $360,000

Units manufactured 9,000

Units sold 7,500 units sold for $90 per unit

Beginning inventory 1,000 units

What is the manufacturing cost for the ending finished goods inventory?

A) $100,000

B) $60,000

C) $744,000

D) $54,000

Diff: 3

Objective: 4

AACSB: Application of knowledge

14) Pederson Company reported the following:

Manufacturing costs $187,000

Units manufactured 17,000

Units sold 8,500 units sold for $50 per unit

Beginning inventory 3,400 units

What is the average manufacturing cost per unit?

A) $11.20

B) $11.00

C) $22.00

D) $22.40

Diff: 2

Objective: 4

AACSB: Application of knowledge

15) Pederson Company reported the following:

Manufacturing costs $187,000

Units manufactured 17,000

Units sold 8,500 units sold for $20 per unit

Beginning inventory 3,400 units

What is the manufacturing cost for the ending finished goods inventory?

A) $238,000

B) $37,400

C) $93,500

D) $130,900

Diff: 3

Objective: 4

AACSB: Application of knowledge

16) When making decisions for product mix and pricing, the focus should be on total costs and not unit costs.

Diff: 1

Objective: 4

AACSB: Analytical thinking

17) Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.

Diff: 2

Objective: 4

AACSB: Analytical thinking

18) A unit cost is computed by dividing total cost by the number of units.

Diff: 1

Objective: 4

AACSB: Analytical thinking

19) A unit cost is also called an average cost.

Diff: 1

Objective: 4

AACSB: Analytical thinking

20) Universal Works Inc., reports the following information for September sales:

Sales $90,000

Variable costs (14,000)

Fixed costs (16,000)

Operating income $ 60,000

Promotional expenses for September were $1,000.

Required:

If sales double in October, what is the impact on the variable costs?

Diff: 2

Objective: 4

AACSB: Analytical thinking

21) Denver City Manufacturing currently produces 2,000 glasses per month. The following per unit data apply for sales to regular customers and is based on 1,000 units produced.

Direct materials $200

Direct manufacturing labor 40

Variable manufacturing overhead 70

Fixed manufacturing overhead 50

Total manufacturing costs $360

The plant has capacity for 3,000 glasses. Plant supervisor's salary is $15,000.

Required:

a. What is the total cost of producing 2,000 glasses?

b. What is the total cost of producing 1,600 glasses?

c. What is the per unit cost when producing 1,500 glasses?

a. [($200 + $40 + $70) × 2,000 units] + ($50 × 1,000 units) = $670,000

Plant supervisor's salary is already included in fixed manufacturing overhead hence not added.

b. [($200 + $40 + $70) × 1,600 units] + $50,000 = $546,000

c. $546,000/ 1,600 = $341.25 per unit

Diff: 2

Objective: 4

AACSB: Application of knowledge

22) During 2020, Get There Corporation incurred manufacturing expenses of $200,000 to produce 40,000 finished units. It was determined that 35,000 units were sold by the end of November while 5,000 units remained in ending inventory. The storage cost for December is $0.5 per unit.

Required:

a. What is the cost of producing one unit?

b. What is the amount that will be reported on the income statement for cost of goods sold?

c. What is the cost incurred for storing the inventory?

a. $2000,000 / 40,000 = $5

b. 35,000 units × $5 = $175,000

c. 5,000 units × $0.5 = $2,500

Diff: 2

Objective: 4

AACSB: Application of knowledge

23) For the year just ended, the unit cost of product A (materials, labor, and overhead), your best-selling item, was $100. With zero very likely for the cost of all the inputs for Product A, explain why using a cost assumption of $100 per unit in this year's budget may be an unwise decision.

Diff: 2

Objective: 4

AACSB: Analytical thinking

Objective 2.5

1) Pederson Company reported the following:

Manufacturing costs $2,385,000

Units manufactured 53,000

Units sold 40,000 units sold for $100 per unit

Beginning inventory 0 units

What is the amount of gross profit margin?

A) $2,915,000

B) $4,000,000

C) $1,615,000

D) $2,200,000

Diff: 3

Objective: 5

AACSB: Application of knowledge

2) ________ sector companies purchase materials and components and convert them into finished goods.

A) Merchandising

B) Service

C) Manufacturing

D) Professional

Diff: 1

Objective: 5

AACSB: Analytical thinking

3) Merchandising-sectors:

A) purchase and then sell tangible products without changing their basic form

B) provide intangible products

C) purchase materials and components and convert them into finished goods

D) purchase and then sell tangible products by changing their basic form

Diff: 1

Objective: 5

AACSB: Analytical thinking

4) Service-sector companies:

A) do not produce tangible products but cost accounting is still utilized in service firms

B) do not manufacture a product and therefore do not apply or adapt cost accounting to their operations

C) purchase and then sell tangible products by changing their basic form and therefore need cost accounting

D) purchase merchandise then sell it without changing its basic form and therefor do not need cost accounting systems

Diff: 1

Objective: 5

AACSB: Analytical thinking

5) Wages paid to machine operators on an assembly line are classified as a:

A) direct material cost

B) direct manufacturing labor cost

C) manufacturing overhead cost

D) period cost

Diff: 1

Objective: 5

AACSB: Analytical thinking

6) The following information pertains to Alleigh's Mannequins:

Manufacturing costs $2,240,000

Units manufactured 32,000

Units sold 29,500 units sold for $110 per unit

Beginning inventory 0 units

What is the amount of gross margin?

A) $2,065,000

B) $1,005,000

C) $3,245,000

D) $1,180,000

Diff: 3

Objective: 5

AACSB: Analytical thinking

7) Which of the following companies is part of the service sector of our economy?

A) Macy's

B) KPMG

C) Apple Inc.

D) Amazon.com

Diff: 1

Objective: 5

AACSB: Application of knowledge

8) Which of the following companies is part of the merchandising sector of our economy?

A) Jaguar

B) Hewlett Packard

C) Whole Foods Market

D) KPMG

Diff: 1

Objective: 5

AACSB: Application of knowledge

9) Which of the following companies is part of the manufacturing sector of our economy?

A) Nike

B) Barnes & Noble

C) Smith and Jones Law Firm

D) Target

Diff: 1

Objective: 5

AACSB: Application of knowledge

10) Marriott International, would be classified as a(n):

A) manufacturing-sector company

B) merchandising-sector company

C) service-sector company

D) financial services firm

Diff: 1

Objective: 5

AACSB: Application of knowledge

11) The balance sheet of a service-sector companies would show:

A) work-in-process inventory, and finished goods inventory accounts

B) only finished goods inventory

C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

D) no inventory accounts

Diff: 1

Objective: 5

AACSB: Analytical thinking

12) The balance sheet of a manufacturing-sector companies would report:

A) only merchandise inventory

B) only finished goods inventory

C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

D) direct materials inventory and finished goods inventory accounts only

Diff: 1

Objective: 5

AACSB: Analytical thinking

13) For a manufacturing company, direct material costs may be included in:

A) only the direct materials inventory account

B) only in the merchandise inventory account reflecting the inventory on hand

C) only in both work-in-process inventory and finished goods inventory

D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

Diff: 1

Objective: 5

AACSB: Analytical thinking

14) For a manufacturing company, direct labor costs would be included in:

A) only the direct materials inventory to reflect the cost of labor that has worked using those materials

B) only in the merchandise inventory to reflect the value added in the production process

C) only in both work-in-process inventory and finished goods inventory

D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

Diff: 3

Objective: 5

AACSB: Analytical thinking

15) For a manufacturing company, indirect manufacturing costs would be included in:

A) direct materials inventory only

B) merchandise inventory only

C) both work-in-process inventory and finished goods inventory

D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

Diff: 3

Objective: 5

AACSB: Analytical thinking

16) For a manufacturing-sector company, the cost of factory depreciation is classified as a:

A) direct material cost

B) direct manufacturing labor cost

C) manufacturing overhead cost

D) period cost

Diff: 1

Objective: 5

AACSB: Analytical thinking

17) Which of the following cost is included in cost of goods sold?

A) customer service cost

B) manufacturing labor cost

C) distribution cost

D) marketing cost

Diff: 1

Objective: 5

AACSB: Application of knowledge

18) Manufacturing overhead costs in an automobile manufacturing plant most likely include:

A) labor costs of the painting department

B) indirect material costs such as lubricants

C) leather seat costs

D) tire costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

19) Manufacturing overhead costs are also referred to as:

A) indirect manufacturing costs

B) prime costs

C) direct manufacturing costs

D) direct material

Diff: 1

Objective: 5

AACSB: Analytical thinking

20) The only type of inventory that Macy's, a major U.S. department store chain would report on its balance sheet is:

A) merchandise inventory

B) finished goods inventory

C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts

D) no inventory accounts as Macy's is a service-sector company

Diff: 1

Objective: 5

AACSB: Analytical thinking

21) Direct materials inventory costs would normally include:

A) the cost of materials in stock are part of the cost object (product) and can be traced to that cost object in an economically feasible way

B) the cost of goods partially worked on but not yet fully completed

C) the cost of goods fully completed but not yet sold

D) the cost of products in their original form intended to be sold without changing their basic form

Diff: 1

Objective: 5

AACSB: Analytical thinking

22) Work-in-process inventory would normally include:

A) direct materials in stock and awaiting use in the manufacturing process

B) goods partially worked on but not yet fully completed

C) goods fully completed but not yet sold

D) goods returned after being sold to be re-worked on further improvements and quality

Diff: 1

Objective: 5

AACSB: Analytical thinking

23) Finished goods inventory would normally include:

A) direct materials in stock and awaiting use in the manufacturing process

B) goods partially worked on but not yet fully completed

C) goods fully completed but not yet sold

D) goods returned after being sold to be re-worked on further improvements and quality

Diff: 1

Objective: 5

AACSB: Analytical thinking

24) Which of the following is a period cost?

A) costs incurred to provide customer service such as the operation of an 800 phone line to trouble shoot product problems and to answer questions about product warranties

B) the cost of materials used to make a product when those materials are an insignificant part of the finished product

C) the cost of direct labor

D) the amount of depreciation expense recognized because of the use of plant assets such as building and equipment

Diff: 1

Objective: 5

AACSB: Analytical thinking

25) Which of the following is NOT an inventoriable cost of a manufacturer?

A) sales commissions paid to sales representatives who sell the products made by the manufacturer

B) wages paid to assembly-line workers

C) plant depreciation incurred

D) property taxes on plant

Diff: 1

Objective: 5

AACSB: Analytical thinking

26) Which of the following is a direct manufacturing cost?

A) plant maintenance

B) plant rent

C) fringe benefits paid to machine operators

D) property taxes on plant

Diff: 1

Objective: 5

AACSB: Analytical thinking

27) ________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object in an economically feasible way.

A) Indirect manufacturing costs

B) Marketing costs incurred

C) Variable manufacturing costs

D) Custom duties paid for the materials

Diff: 1

Objective: 5

AACSB: Analytical thinking

28) Which of the following is NOT reported on the income statement of a manufacturing firm?

A) cost of goods sold

B) administrative and selling expenses

C) work in progress

D) marketing and distribution costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

29) The income statement of a service-sector firm reports:

A) period costs only

B) cost of goods sold

C) both period costs and cost of goods sold

D) direct labor costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

30) Which of the following is an inventoriable cost?

A) manufacturing overhead cost

B) customer service costs

C) distribution costs

D) marketing costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

31) Inventoriable costs:

A) include administrative and marketing costs

B) are expensed in the accounting period in which the products are sold

C) are expensed in the accounting period in which the products are manufactured

D) are also referred to as nonmanufacturing costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

32) Inventoriable costs are expensed on the income statement:

A) when direct materials for the product are purchased

B) when the direct materials are used in production

C) when the products are sold

D) when the goods move from work-in process to finished goods account

Diff: 1

Objective: 5

AACSB: Analytical thinking

33) Costs that are initially recorded as assets and expensed when goods sold are called:

A) period costs

B) inventoriable costs

C) irrelevant costs

D) research and development costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

34) For merchandising companies, inventoriable costs include:

A) selling expenses

B) shipping (incoming) costs to acquire merchandise

C) distribution costs

D) outgoing freight and handling costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

35) For manufacturing firms, inventoriable costs include:

A) plant supervisor salaries

B) advertising costs to promote the sale of finished goods

C) costs of dealing with customer questions about warranties after the sale

D) distribution costs such the cost of operating a fleet of delivery vehicles

Diff: 1

Objective: 5

AACSB: Analytical thinking

36) A plant manufactures several different products. If a particular product is the cost object, then the wages of the plant supervisor can be classified as a(n):

A) direct cost because it occurs in the production facility

B) indirect manufacturing cost and therefore is an inventoriable cost

C) variable cost as it will vary on a per unit basis depending on volume

D) period cost

Diff: 1

Objective: 5

AACSB: Application of knowledge

37) R&D costs are treated as period costs because:

A) these costs may increase revenues in the current period

B) these costs may increase revenues in the future period

C) these costs may decrease revenues in the current period

D) these costs are expensed when the goods are sold

Diff: 1

Objective: 5

AACSB: Analytical thinking

38) For an automobile manufacturer, period costs include the cost of:

A) the dashboard

B) labor used for assembly

C) advertising

D) assembly-line equipment

Diff: 1

Objective: 5

AACSB: Application of knowledge

39) Period costs:

A) include only fixed costs

B) seldom influence financial success or failure

C) include the cost of selling, delivering, and after-sales support for customers

D) should be treated as an indirect cost rather than as a direct manufacturing cost

Diff: 1

Objective: 5

AACSB: Application of knowledge

40) Period costs:

A) are treated as expenses in the period they are incurred

B) are directly traceable to products

C) are treated as expenses in the following period they are incurred

D) are also referred to as manufacturing overhead costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

41) Inventoriable costs are costs of a product that are considered:

A) assets in a company's balance sheet when the costs are incurred and that are expensed as cost of goods sold only when the product is sold

B) liabilities in a company's balance sheet when the costs are incurred and that are expensed only when the product is sold

C) assets in a company's income statement when the costs are capitalized and that are expensed as cost of goods sold only when the product is sold

D) liabilities in a company's income statement when the costs are capitalized and that are expensed only when the product is sold

Diff: 3

Objective: 5

AACSB: Analytical thinking

42) Costs expensed on the income statement in the accounting period incurred are called:

A) direct costs

B) indirect costs

C) period costs

D) inventoriable costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

43) In the cost classification system used by manufacturing firms, assembly workers' wages would be included in:

A) irrelevant cost

B) direct manufacturing costs

C) indirect manufacturing costs

D) period cost

Diff: 1

Objective: 5

AACSB: Analytical thinking

44) Total manufacturing costs are comprised of:

A) direct materials costs and period costs

B) direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs

C) indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs

D) prime costs and period costs

Diff: 1

Objective: 5

AACSB: Analytical thinking

45) Puritan Apparels is a clothing manufacturer. Unit costs associated with one of its products, Product FGS1156 are as follows:

Direct materials $80

Direct manufacturing labor 40

Variable manufacturing overhead 45

Fixed manufacturing overhead 31

Sales commissions (2% of sales) 7

Administrative salaries 20

Total $223

What are the inventoriable costs per unit associated with Product FGS1156?

A) $196

B) $165

C) $178

D) $143

Diff: 2

Objective: 5

AACSB: Application of knowledge

46) Campus Apparels is a clothing maker. Unit costs associated with one of its products, Product DCT121, are as follows:

Direct materials $160

Direct manufacturing labor 50

Variable manufacturing overhead 55

Fixed manufacturing overhead 32

Sales commissions (2% of sales) 13

Administrative salaries 17

Total $327

What are the period costs per unit associated with Product DCT121?

A) $33

B) $17

C) $30

D) $100

Diff: 2

Objective: 5

AACSB: Application of knowledge

47) The American West Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:

Direct materials $90

Direct manufacturing labor 24

Variable manufacturing overhead 20

Fixed manufacturing overhead 10

Sales commissions (2% of sales) 18

Administrative salaries 38

Total $200

What are the inventoriable costs per unit associated with Product ORD210?

A) $134

B) $124

C) $144

D) $114

Diff: 2

Objective: 5

AACSB: Application of knowledge

48) The American West Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:

Direct materials $90

Direct manufacturing labor 24

Variable manufacturing overhead 20

Fixed manufacturing overhead 10

Sales commissions (2% of sales) 18

Administrative salaries 38

Total $200

What are the period costs per unit associated with Product ORD210?

A) $18

B) $38

C) $56

D) $66

Diff: 2

Objective: 5

AACSB: Application of knowledge

49) Expert Manufacturing reported the following:

How much of the above would be considered period costs for Expert Manufacturing?

A) $229,000

B) $279,000

C) $152,000

D) $284,000

Diff: 3

Objective: 5

AACSB: Application of knowledge

50) Banks provide services or what some might call "intangible products" to their customers.

Diff: 1

Objective: 5

AACSB: Application of knowledge

51) Department stores, such as Macy's and Kohl's, are examples of a merchandising company.

Diff: 1

Objective: 5

AACSB: Application of knowledge

52) Merchandising companies purchase products and sell them to customers without changing their basic form.

Diff: 1

Objective: 5

AACSB: Application of knowledge

53) Manufacturing companies hold only one type of inventory: direct material.

Diff: 1

Objective: 5

AACSB: Analytical thinking

54) Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory.

Diff: 1

Objective: 5

AACSB: Analytical thinking

55) Work-in-process inventory are goods partially worked on but not yet completed.

Diff: 1

Objective: 5

AACSB: Analytical thinking

56) Direct material costs are the acquisition costs of all materials that eventually become part of the cost object and cannot be traced to the cost object in an economically feasible way.

Diff: 2

Objective: 5

AACSB: Analytical thinking

57) Acquisition costs of direct materials include freight-in charges, sales taxes, and custom duties.

Diff: 2

Objective: 5

AACSB: Analytical thinking

58) Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.

Diff: 2

Objective: 5

AACSB: Analytical thinking

59) Direct manufacturing cost labor includes plant rent and salaries paid to plant supervisors.

Diff: 2

Objective: 5

AACSB: Application of knowledge

60) Inventoriable costs are reported as a liability on the balance sheet when incurred and expensed on the income statement when the product is sold.

Diff: 2

Objective: 5

AACSB: Application of knowledge

61) All manufacturing costs are period costs.

Diff: 2

Objective: 5

AACSB: Analytical thinking

62) All costs reported on the income statement of a service-sector company are inventoriable costs.

Diff: 1

Objective: 5

AACSB: Analytical thinking

63) Period costs are included in the cost of goods sold.

Diff: 2

Objective: 5

AACSB: Analytical thinking

64) Once product costs are defined, all other costs are period costs.

Diff: 1

Objective: 5

AACSB: Analytical thinking

65) Indirect manufacturing costs are also referred to as manufacturing overhead costs or factory overhead costs.

Diff: 1

Objective: 5

AACSB: Analytical thinking

66) Whippany manufacturing wants to estimate costs for each product they produce at its Troy plant. The Troy plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line can produce all three products.

Required:

a. Classify each of the following costs as either direct or indirect for each product.

b. Classify each of the following costs as either fixed or variable with respect to the number of units produced of each product.

Direct Indirect Fixed Variable

Assembly line labor wages ________ ________ ________ ________

Plant manager's wages ________ ________ ________ ________

Depreciation on the assembly

line equipment ________ ________ ________ ________

Component parts for the product ________ ________ ________ ________

Wages of security personnel for the

factory ________ ________ ________ ________

Assembly line labor wages X X

Plant manager's wages X X

Depreciation on the assembly line equipment X X

Component parts for the product X X

Wages of security personnel for the factory X X

Diff: 2

Objective: 2, 4, 5

AACSB: Application of knowledge

67) What are the three types of manufacturing cost?

Direct manufacturing labor costs include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way. Examples of direct manufacturing labor include wages paid to assembly-line workers.

Indirect manufacturing costs are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way. Examples of indirect manufacturing costs include plant insurance paid, plant rent, property taxes on plant.

Diff: 3

Objective: 5

AACSB: Analytical thinking

68) Explain the difference between an inventoriable cost and a period cost. What potential problems does an inaccurate classification of product and period costs cause?

Diff: 2

Objective: 5

AACSB: Analytical thinking

Objective 2.6

1) Which of the following formulas determine cost of goods sold in a merchandising entity?

A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold

B) Beginning inventory + Purchases - Ending inventory = Costs of goods sold

C) Beginning inventory - Purchases + Ending inventory = Cost of goods sold

D) Beginning inventory - Ending inventory - Purchases = Cost of goods sold

Diff: 1

Objective: 6

AACSB: Analytical thinking

2) Which of the following formulas determine cost of goods sold in a manufacturing entity?

A) Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process inventory = Cost of goods sold

B) Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process inventory = Cost of goods sold

C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold

D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods inventory = Cost of goods sold

Diff: 1

Objective: 6

AACSB: Analytical thinking

3) A company reported revenues of $377,000, cost of goods sold of $122,000, selling expenses of $12,000, and total operating costs of $72,000. Gross margin for the year is:

A) $255,000

B) $243,000

C) $171,000

D) $293,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

4) All Rite Manufacturing reported the following:

What is All Rite Manufacturing's cost of goods sold?

A) $390,000

B) $240,000

C) $239,000

D) $389,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

5) All Rite Manufacturing reported the following:

What is All Rite's gross margin (or gross profit)?

A) $54,000

B) $217,000

C) $211,000

D) $60,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

6) Cost of goods sold for a manufacturer is calculated as follows: beginning finished goods + cost of goods manufacturered - ending finished goods.

Diff: 2

Objective: 6

AACSB: Analytical thinking

7) Cost of goods sold refers to the products brought to completion, whether they were started before or during the current accounting period.

Diff: 2

Objective: 6

AACSB: Application of knowledge

8) Worcester Manufacturing produces electronic storage devices, and uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and indirect manufacturing costs. Total indirect manufacturing costs for January were $300 million, and were allocated to each product on the basis of direct manufacturing labor costs of each line. Summary data (in millions) for January for the most popular electronic storage device, the Big Brain, was:

Required:

a. Compute the manufacturing cost per unit for each product produced in January.

b. Suppose production will be reduced to 30,000 units in February. Speculate as to whether the unit costs in February will most likely be higher or lower than unit costs in January; it is not necessary to calculate the exact February unit cost. Briefly explain your reasoning.

a. Unit costs for January were:

($4,600,000 + $1,700,000 + $4,750,000) / 40,000 = $276.25 per unit

b. Unit costs should be higher in February if only 30,000 units are to be produced. Indirect manufacturing costs most likely include both fixed and variable components. Since fewer units are expected to be produced in February, total fixed costs will be spread over fewer units. This will result in an increase in total cost per unit since variable costs per unit will most likely not change with the decreased production.

Diff: 2

Objective: 6

AACSB: Application of knowledge

9) Millworks Company manufactured 100,000 units in 2020 and reported the following costs:

Sandpaper $ 32,000 Leasing costs-plant $ 384,000

Materials handling 320,000 Depreciation-equipment 224,000

Coolants & lubricants 22,400 Property taxes-equipment 32,000

Indirect manufacturing labor 275,200 Fire insurance-equipment 16,000

Direct manufacturing labor 2,176,000 Direct material purchases 3,140,000

Direct materials, 1/1/18 348,000 Direct materials, 12/31/18 280,000

Finished goods, 1/1/18 672,000 Sales revenue 12,800,000

Finished goods, 12/31/18 1,280,000 Sales commissions 640,000

Work-in-process, 1/1/18 96,000 Sales salaries 576,000

Work-in-process, 12/31/18 64,000 Advertising costs 480,000

Administration costs 800,000

Required:

a. What is the amount of direct materials used during 2020?

b. What manufacturing costs were added to WIP during 2020?

c. What is cost of goods manufactured for 2020?

d. What is cost of goods sold for 2020?

a. $348,000 + $3,140,000 - $280,000 = $3,208,000

b. $3,208,000 + $2,176,000 + $32,000 + $320,000 + $22,400 + $275,200 + $384,000 + $224,000 + $32,000 + $16,000 = $6,689,600

c. $6,,689,600 + $96,000 - $64,000 = $6,529,600

d. $6,529,600 + $672,000 - $1,280,000 = $5,921,600

Diff: 3

Objective: 6

AACSB: Application of knowledge

10) Howard Manufacturing Company had the following account balances for the quarter ending March 31, unless otherwise noted:

Work-in-process inventory (January 1) $ 140,400

Work-in-process inventory (March 31) 171,000

Finished goods inventory (January 1) 540,000

Finished goods inventory (March 31) 510,000

Direct materials used 420,000

Indirect materials used 84,000

Direct manufacturing labor 480,000

Indirect manufacturing labor 186,000

Property taxes on manufacturing plant building 28,800

Salespersons' company vehicle costs 12,000

Depreciation of manufacturing equipment 264,000

Depreciation of office equipment 123,600

Miscellaneous plant overhead 135,000

Plant utilities 92,400

General office expenses 305,400

Marketing distribution costs 30,000

Required:

a. Prepare a cost of goods manufactured schedule for the quarter.

b. Prepare a cost of goods sold schedule for the quarter.

a. Howard Manufacturing Company

Cost of Goods Manufactured Schedule

For quarter ending March 31

Direct materials used $ 420,000

Direct manufacturing labor 480,000

Manufacturing overhead

Depreciation of manufacturing equipment $264,000

Indirect manufacturing labor 186,000

Indirect materials 84,000

Miscellaneous plant overhead 135,000

Plant utilities 92,400

Property taxes on building 28,800 790,200

Manufacturing costs incurred $1,690,200

Add beginning work-in-process inventory 140,400

Total manufacturing costs $1,830,600

Less ending work-in-process inventory (171,000)

Cost of goods manufactured $1,659,600

b. Howard Manufacturing Company

Cost of Goods Sold Schedule

For the quarter ending March 31

Beginning finished goods inventory $ 540,000

Cost of goods manufactured 1,659,600

Cost of goods available for sale 2,199,600

Ending finished goods inventory (510,000)

Cost of goods sold $1,689,600

Diff: 3

Objective: 6

AACSB: Application of knowledge

11) Using the following information find the unknown amounts. Assume each set of information is an independent case.

a. Merchandise Inventory Purchases $210,000

Cost of goods sold 223,000

Beginning balance 41,000

Ending balance ?

b. Direct Materials Beginning balance $ 7,000

Ending balance 14,000

Purchases 48,000

Direct materials used ?

c. Work-in-process Inventory Ending balance $ 22,000

Cost of goods manufactured 21,000

Beginning balance 8,000

Current manufacturing costs ?

d. Finished Goods Inventory Cost of goods manufactured $62,000

Ending balance 20,000

Cost of goods sold 61,000

Beginning balance ?

a. Ending balance of merchandise inventory:

$41,000 + $210,000 - $223,000 = 28,000

b. Direct materials used:

$7,000 + $48,000 - $14,000 = $41,000

c. Current manufacturing costs:

$21,000 + $22,000 - $8,000 = $35,000

d. Beginning balance of finished goods inventory:

$20,000 + $61,000 - $62,000 = $19,000

Diff: 3

Objective: 6

AACSB: Analytical thinking

12) Each of the following items pertains to one of these companies: Bedell Electronics (a manufacturing company), Gregory Food Retailers (a merchandising company), and Larson Real Estate (a service sector company). Classify each item as either inventoriable (I) costs or period (P) costs.

Diff: 3

Objective: 6

AACSB: Analytical thinking

13) For last year, Watson Limited reported revenues of $420,000, cost of goods sold of $118,000, cost of goods manufactured of $105,000, and total operating costs of $60,000. Operating income for that year was:

A) $315,000

B) $302,000

C) $255,000

D) $242,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

14) Prime costs include:

A) direct materials and direct manufacturing labor costs

B) direct manufacturing labor and manufacturing overhead costs

C) direct materials and manufacturing overhead costs

D) only direct materials

Diff: 1

Objective: 6

AACSB: Analytical thinking

15) Expert Manufacturing reported the following:

What is Expert's operating income?

A) $346,400

B) $218,200

C) $204,200

D) $200,200

Diff: 3

Objective: 6

AACSB: Application of knowledge

16) Conversion costs include:

A) direct materials and direct manufacturing labor costs

B) direct manufacturing labor and manufacturing overhead costs

C) direct materials and manufacturing overhead costs

D) only direct materials

Diff: 1

Objective: 6

AACSB: Analytical thinking

17) Total manufacturing costs equal:

A) direct materials plus prime costs

B) direct materials plus conversion costs

C) direct manufacturing labor costs plus sunk costs

D) direct manufacturing labor costs plus conversion costs

Diff: 1

Objective: 6

AACSB: Analytical thinking

18) The following information pertains to the Ruby Corp:

Beginning work-in-process inventory $74,000

Ending work-in-process inventory 82,000

Beginning finished goods inventory 172,000

Ending finished goods inventory 209,000

Cost of goods manufactured 1,202,000

What is cost of goods sold?

A) $1,210,000

B) $1,165,000

C) $1,157,000

D) $1,239,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

19) The following information pertains to Expert System Corporation:

Beginning work-in-process inventory $18,000

Ending work-in-process inventory 25,000

Beginning finished goods inventory 36,000

Ending finished goods inventory 31,000

Cost of goods manufactured 241,000

Sales 302,000

What is the gross profit margin earned by the company?

A) $56,000

B) $63,000

C) $68,000

D) $66,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

20) What is the cost of goods manufactured for 2020?

Beginning finished goods, 1/1/2020 $84,000

Ending finished goods, 12/31/2020 79,000

Cost of goods sold 306,000

Sales revenue 450,000

Operating expenses 98,000

A) $404,000

B) $399,000

C) $301,000

D) $311,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

21) What is the gross margin for 2020?

Beginning finished goods, 1/1/2020 $91,000

Ending finished goods, 12/31/2020 77,000

Cost of goods sold 310,000

Sales revenue 459,000

Operating expenses 103,000

A) $135,000

B) $46,000

C) $163,000

D) $149,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

22) What is the operating income for 2020?

Beginning finished goods, 1/1/2020 $90,000

Ending finished goods, 12/31/2020 77,000

Cost of goods sold 306,000

Sales revenue 456,000

Operating expenses 101,000

A) $73,000

B) $49,000

C) $36,000

D) $62,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

23) What is the cost of goods manufactured for 2020?

Beginning finished goods, 1/1/2020 $47,000

Ending finished goods, 12/31/2020 36,000

Cost of goods sold 259,000

Sales revenue 488,000

Operating expenses 110,000

A) $248,000

B) $369,000

C) $270,000

D) $259,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

24) What is gross margin for 2020?

Beginning finished goods, 1/1/2020 $53,000

Ending finished goods, 12/31/2020 37,000

Cost of goods sold 256,000

Sales revenue 484,000

Operating expenses 106,000

A) $212,000

B) $228,000

C) $244,000

D) $122,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

25) What is operating income for 2020?

Beginning finished goods, 1/1/2020 $50,000

Ending finished goods, 12/31/2020 35,000

Cost of goods sold 251,000

Sales revenue 485,000

Operating expenses 109,000

A) $199,000

B) $110,000

C) $125,000

D) $140,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

26) A company reported revenues of $382,000, cost of goods sold of $125,000, selling expenses of $16,000, and total operating costs of $74,000. Gross margin for the year is:

A) $257,000

B) $241,000

C) $167,000

D) $292,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

27) Operating income is sales revenue minus operating expenses.

Diff: 1

Objective: 6

AACSB: Analytical thinking

28) Conversion costs include all direct manufacturing costs and some of the period costs including research and development costs and customer service.

Diff: 1

Objective: 6

AACSB: Analytical thinking

29) Designing, marketing, customer services, research and development expenses are all examples of operating costs.

Diff: 2

Objective: 6

AACSB: Application of knowledge

30) Since costs that are inventoried are not expensed until the units associated with them are sold, a manager can produce more units than are expected to be sold in a period without reducing a firm's net income.

Diff: 3

Objective: 6

AACSB: Analytical thinking

31) Indirect manufacturing costs such as rent, factory supervisor salary, and depreciation on production equipment are always costs of the period in which they are incurred and are not associated with inventories.

Diff: 3

Objective: 6

AACSB: Analytical thinking

32) Design costs incurred in a manufacturing company flow through the accounting system from work-in-process to finished goods and when the products are sold, the design costs are part of cost of goods sold.

Diff: 2

Objective: 6

AACSB: Analytical thinking

Objective 2.7

1) Which of the following is a manufacturing overhead cost?

A) the use of direct materials in the making of a finished good

B) labor cost of plant workers that can be traced accurately and easily to a particular product

C) cost of materials that can be traced to individual products in an economically feasible manner

D) overtime premiums paid to plant workers

Diff: 1

Objective: 6

AACSB: Application of knowledge

2) U.S. Systems Inc., had the following activities during 2020:

Direct materials:

Beginning inventory $ 24,000

Purchases 61,600

Ending inventory 11,000

Direct manufacturing labor 18,000

Manufacturing overhead 11,500

Beginning work-in-process inventory 1,000

Ending work-in-process inventory 3,500

Beginning finished goods inventory 25,000

Ending finished goods inventory 19,000

Required:

a. What is the cost of direct materials used during 2020?

b. What is cost of goods manufactured for 2020?

c. What is cost of goods sold for 2020?

d. What amount of prime costs was added to production during 2020?

e. What amount of conversion costs was added to production during 2020?

a. Cost of direct materials = $24,000 + $61,600 − $11,000 = $74,600

b. Cost of goods manufactured = $74,600 + $18,000 + $11,500 + $1,000 − $3,500 = $101,600

c. Cost of goods sold = $101,600 + $25,000 − $19,000 = $107,600

d. Amount of prime costs added to production = $72,800 + $18,000 = $92,600

e. Amount of conversion costs was added to production = $18,000 + $11,500 = $29,500

Diff: 2

Objective: 7

AACSB: Application of knowledge

3) Many government agency contracts exclude all but which of the following costs from reimbursement under cost-plus agreements?

A) marketing costs

B) design costs

C) production costs

D) part of the research and development costs

Diff: 1

Objective: 7

AACSB: Application of knowledge

4) On the assembly floor, Jennifer is paid a regular rate of $25 an hour for straight-time assuming 8 working hours a day and five working days in a week. She is paid 1.5 times her regular rate for overtime hours. One week she worked 48 hours.

Required:

a. What is Jennifer's total compensation for the week?

b. What amount of compensation would be reported as direct manufacturing labor?

c. What amount of compensation would be reported as manufacturing overhead?

a. Total compensation = Direct labor (40 hours × $25) + Overtime premium (8 hrs × $37.50) = $1,300

b. Direct manufacturing labor (48 hours × $25) = $1,200

c. Manufacturing overhead costs = Overtime premium (8 hrs × $12.50) = $100

Diff: 3

Objective: 7

AACSB: Application of knowledge

5) In the manufacturing plant, Alex is paid $40 an hour for straight-time and $60 an hour for overtime. One week she worked 54 hours, which included 8 hours of overtime, and 6 hours of idle time caused by material shortages.

Required:

a. What is Alex's total compensation for the week?

b. What amount of compensation would be reported as direct manufacturing labor?

c. What amount of compensation would be reported as manufacturing overhead?

a. Total compensation (48 hours × $40) + Idle time (6 hrs × $40) + Overtime premium (8 hrs × $20) = $2,320

b. Direct manufacturing labor (48 hours × $40) = $1,920

c. Manufacturing overhead costs = Idle time (6 hrs × $40) + Overtime premium (8 hrs × $20) = $400

Diff: 3

Objective: 7

AACSB: Application of knowledge

6) Exceptional Manufacturing Co. wants to classify costs for the product produced at its facility. The company produces only one product at the facility and operates continually. The cost categories are:

Product cost

Prime cost

Conversion cost

Period cost

The following costs are found in the accounting records:

a. Quality control inspection wages

b. Raw material purchases

c. Sales commissions

d. Factory depreciation

e. Assembly wages

Required:

Assign each of the above costs to the most appropriate cost categories.

Prime cost includes a, b, e.

Conversion cost includes a, d, e.

Period cost includes c.

Diff: 3

Objective: 7

AACSB: Analytical thinking

7) A publisher employs authors and editors at their office to write accounting textbooks. They also utilize subcontractors, who are accounting faculty, to proofread and provide feedback on manuscripts. In the table below, classify each of the publishers' costs of producing textbooks.

Diff: 3

Objective: 7

AACSB: Analytical thinking

8) Which of the following is included in product cost for pricing and product-mix decisions?

A) marketing costs

B) sunk costs

C) opportunity costs

D) cost of capital

Diff: 2

Objective: 7

AACSB: Application of knowledge

9) Under GAAP, only ________ can be assigned to inventories in the financial statements.

A) manufacturing costs

B) period costs

C) cost of goods sold

D) historical costs

Diff: 2

Objective: 7

AACSB: Application of knowledge

10) Product costs for financial statements are:

A) inventoriable costs for external reporting purposes

B) exchange costs incurred during transportation

C) only the costs incurred along the supply chain

D) opportunity costs incurred for the decisions forgone

Diff: 2

Objective: 7

AACSB: Analytical thinking

11) Under GAAP, for the purposes of calculating inventory costs, product costs include:

A) all costs incurred along the value chain

B) design costs

C) only inventoriable costs

D) only research and development costs

Diff: 2

Objective: 7

AACSB: Analytical thinking

12) Product costs used for government contracts generally include:

A) marketing costs, and customer service costs

B) design costs and production costs

C) all the costs for pricing and product-mix decisions

D) production costs, distribution costs, marketing costs, and customer service costs

Diff: 1

Objective: 7

AACSB: Analytical thinking

13) A common classification of costs is by business function. Which of the following classifications is NOT by business function?

A) cost object

B) research and development

C) distribution

D) production

Diff: 1

Objective: 7

AACSB: Analytical thinking

14) Which of the following might explain why one manager might assign certain costs to a cost object while a different manager might assign some different costs to that same cost object?

A) One manager might classify one cost as direct while another might classify that same cost as indirect.

B) For financial statement purposes, one manager might include all the costs of the value chain while the other might only include GAAP cost.

C) One manager might value an inventory item for the balance sheet as the sum of all the value chain costs while another manager might choose to only recognize variable costs as inventoriable costs for GAAP purposes.

D) One manager might be pricing a cost object while the other manager might be seeking the inventoriable cost.

Diff: 2

Objective: 7

AACSB: Analytical thinking

15) For external reporting:

A) costs are classified as either inventoriable or period costs

B) costs reflect current values

C) there are no prescribed rules since no one is exactly sure how investors and creditors will use these numbers

D) costs include amounts that reflect both current and future benefits

Diff: 1

Objective: 7

AACSB: Analytical thinking

16) Which of the following statements is true?

A) Product costs and design costs are interchangeable terms.

B) Inventoriable costs are assigned to inventories under GAAP.

C) Manufacturing costs are a special case of period costs.

D) Intangible costs refer to a particular cost of a product.

Diff: 1

Objective: 7

AACSB: Analytical thinking

17) One possible item that some companies include as direct manufacturing labor include:

A) fringe benefits

B) overtime

C) idle time

D) plant supervisor's salary

Diff: 1

Objective: 7

AACSB: Analytical thinking

18) Francis Kenney is paid $19 an hour for straight-time and $29 an hour for overtime. One week she worked 44 hours, which included 4 hours of overtime. What is the overtime premium incurred to the company?

A) $116

B) $440

C) $40

D) $876

Diff: 2

Objective: 7

AACSB: Analytical thinking

19) Ralph Johnson is paid $30 an hour for straight-time and $40 an hour for overtime. One week he worked 39 hours, which included 9 hours of overtime, and 4 hours of idle time caused by material shortages. What is the direct labor cost incurred to the company?

A) $1,050

B) $1,260

C) $1,140

D) $1,100

Diff: 3

Objective: 7

AACSB: Analytical thinking

20) Andy worked 60 hours last week for Bread Works Manufacturing. Of the 60 hours 10 hours were considered overtime, and also Tony was idle for 8 of the 60 hours due to an equipment malfunction. Andy makes $90 per hour and is paid $135 an hour (time and a half) for overtime. Andy's total compensation for that week would be ________, and assuming Bread Works charges overtime premium and idle time to indirect labor, the amount of this compensation credited to indirect labor would be ________.

A) $5,850; $1,170

B) $6,300; $2,070

C) $5,130; $2,430

D) $5,400; $1,620

Diff: 3

Objective: 7

AACSB: Analytical thinking

21) Idle time wages consists of the wages paid to all workers (for both direct labor and indirect labor) in excess of their straight-time wage rates.

Diff: 1

Objective: 7

AACSB: Analytical thinking

22) Rework labor time is considered an overhead cost and not a direct labor cost.

Diff: 1

Objective: 7

AACSB: Analytical thinking

23) For external reporting purposes, indirect manufacturing costs must be allocated to individual units.

Diff: 1

Objective: 7

AACSB: Analytical thinking

24) Overtime premium is normally considered as a component of direct labor.

Diff: 1

Objective: 7

AACSB: Analytical thinking

25) It is common for fringe benefit costs, such as the portion of social security premiums paid by the employer and the costs incurred by the company for its portion of premiums for health and disability insurance, to be classified as an indirect (overhead) cost.

Diff: 1

Objective: 7

AACSB: Analytical thinking

26) If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hours of idle time would be considered a component of direct labor.

Diff: 1

Objective: 7

AACSB: Analytical thinking

27) When should an overtime premium of direct manufacturing labor be considered an indirect manufacturing cost? A direct manufacturing cost?

Diff: 1

Objective: 7

AACSB: Analytical thinking

28) In determining product cost, what concerns does a manufacturing firm have when contracting with a government agency?

Diff: 1

Objective: 7

AACSB: Analytical thinking

Objective 2.8

1) Which of the following influences the make or buy decision to the company?

A) opportunity cost

B) sunk cost

C) historical cost

D) plant depreciation

Diff: 2

Objective: 8

AACSB: Analytical thinking

2) Since budgeting is a financial function and mostly an analytical and quantitative exercise, it generally has no impact on human behavior, motivation and decision making.

Diff: 2

Objective: 8

AACSB: Analytical thinking

3) Cost accounting and cost management include calculating various costs, obtaining financial and nonfinancial information, and analyzing relevant information for decision making.

Diff: 1

Objective: 8

AACSB: Analytical thinking

4) Cost accounting helps to aids managers in formulating strategies, setting prices for products and services and making decisions about the mix of products and services to be offered to customers.

Diff: 2

Objective: 8

AACSB: Analytical thinking

5) Management accountants help managers identify what information is relevant and what information is

irrelevant that help in decision making.

Diff: 1

Objective: 8

AACSB: Analytical thinking

6) The capability of most state-of-the-art cost accounting systems are limited to calculating the cost of products, and services.

Diff: 2

Objective: 8

AACSB: Analytical thinking

7) The cost system of Charlton Fabricators indicates that a product cost $30 to make in house. Of that $30 cost, $7 consists of plant costs that have already been paid for. A supplier proposes to make the same product for $26 but Charlton's plant will have idle time and because of budgetary constraints, will not be retooled to take advantage of that idle time. Should the product be outsourced to the supplier?

A) No because the relevant cost for making the product is only $23 .

B) Yes, because the Supplier can produce the product for $4.00 less per unit than Charlton can.

C) Yes, because the Supplier can produce the product for $11.00 less per unit than Charlton can.

D) No because the plant can be utilized for other purposes and either save the company even more money or produce additional revenue.

Diff: 2

Objective: 8

AACSB: Analytical thinking

8) A company is considering buying a product at $15 per unit, the in-house manufacturing of the same product is $17. The fixed cost per unit is $3 is included in the $17 in-house product manufacturing cost. What should the company do in this scenario?

Diff: 2

Objective: 8

AACSB: Application of knowledge