Ch.13 Test Bank Answers Cost Accounting and Reporting

Accounting - What the Numbers Mean, 12e (Marshall)

Chapter 13 Cost Accounting and Reporting

1) The term "cost" means:

A) the price paid for maintenance supplies.

B) the salary paid to a supervisor.

C) the price charged by an accounting firm for its audit services.

D) All of the answers are correct.

2) Cost accounting is concerned with:

A) accumulation and determination of product, process or service cost.

B) income measurement and inventory valuation.

C) generally accepted accounting principles.

D) All of the answers are correct.

3) Which of the following is more relevant to management accounting than to cost accounting?

A) accumulation and determination of product or service cost.

B) income measurement and inventory valuation.

C) generally accepted accounting principles.

D) providing managers information for planning and control purposes.

4) The sequence of functions and related activities that, over the life of a product or service, can ultimately make a difference to the customer are:

A) the value processes.

B) the chain of production events.

C) the value chain.

D) the strategic cost initiatives.

5) Which of the following activities is not included in the organization's value chain?

A) marketing.

B) finance.

C) customer service.

D) research and development.

6) For the partial value chain functions given below, which sequence is correct?

A) design, production, marketing.

B) marketing, production, distribution.

C) research and development, production, distribution.

D) customer service, marketing, distribution.

7) An example of a product cost is:

A) delivery expense for the product.

B) a portion of the president's compensation expenses.

C) interest expense on a loan to finance a new sales office.

D) wages of the production line maintenance staff.

8) Which of the following costs would be classified as a period cost?

A) production line maintenance costs.

B) advertising expense for the product.

C) plant electricity.

D) indirect labor.

9) Direct costs pertain to costs that:

A) are traceable to a cost object.

B) are not traceable to a cost object.

C) are commonly incurred.

D) are variable costs.

10) The manufacturing overhead component of a product's cost:

A) is the sum of the actual overhead costs incurred while manufacturing the product.

B) is likely to be the same amount for every product made by the company.

C) includes all manufacturing costs except those for raw materials and direct labor.

D) can only be determined at the end of the year when actual costs and actual production quantities are known.

11) Product costs are inventoried and treated as assets until:

A) the next accounting period.

B) related liabilities no longer exist.

C) the period in which the products they relate to are sold.

D) None of the answers are correct.

12) In the T-account cost flow diagram of balance sheet inventory accounts and the income statement cost of goods sold account:

A) raw materials purchases are debited to work in process.

B) direct labor costs are credited to work in process.

C) cost of goods manufactured is debited to finished goods inventory.

D) cost of goods sold is debited to finished goods inventory.

13) The product cost of a single unit of manufactured production is determined by:

A) dividing total direct materials and direct labor for a production run by the number of units produced.

B) adding total direct materials, direct labor, and manufacturing overhead for a production run and then dividing by the number of units produced.

C) dividing total direct materials, direct labor, manufacturing overhead and delivery expenses for a production run by the number of units produced.

D) dividing the product's selling price by the its contribution margin ratio.

14) Cost of Goods Manufactured can be computed as:

A) ending balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - beginning balance of work in process.

B) beginning balance of work in process + raw materials purchased + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process.

C) ending balance of work in process + raw materials purchased + direct labor costs incurred + manufacturing overhead costs applied - beginning balance of work in process.

D) beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process.

15) Costs may be allocated to a product or activity for many purposes, but care must be exercised when using allocated costs because:

A) direct costs identified with the product or activity may not be accurately assigned.

B) fixed costs will change in total if the volume of activity changes.

C) all costs may not have been allocated to the product or activity.

D) arbitrarily allocated costs may not behave in the way assumed in the allocation method.

16) Cost accounting is a subset of:

A) financial accounting.

B) product accounting.

C) both financial and managerial accounting.

D) managerial accounting.

17) An example of a cost that is likely to have a direct relationship with products being manufactured is:

A) sales force salaries.

B) depreciation of production equipment.

C) salaries of production supervisors.

D) production labor costs.

18) An example of a cost likely to have an indirect relationship with products being manufactured is:

A) production labor costs.

B) raw material costs.

C) electricity costs for packaging equipment.

D) None of the answers are correct.

19) The value chain of an organization refers to:

A) the process of using strategic cost information to manage the activities of the organization.

B) the sequence of functions and related activities that add value for the customer.

C) the procedure of collecting and recording the value of information in the accounting system.

D) None of the answers are correct.

20) Common costs pertain to costs that:

A) are directly traceable to a cost object.

B) are not directly traceable to a cost object.

C) are commonly incurred.

D) are direct costs.

21) The three components of product costs are:

A) direct material, supervisor salaries, selling expenses.

B) direct labor, manufacturing overhead, indirect material.

C) direct material, direct labor, manufacturing overhead.

D) manufacturing overhead, indirect material, indirect labor.

22) The inventory accounts for a manufacturing company would not include:

A) Manufacturing overhead.

B) Work-in-process.

C) Raw materials.

D) Finished goods.

23) Which of the following is not an account that over/under applied overhead is transferred to at the end of an accounting period?

A) Cost of Goods Sold.

B) Work-in-Process.

C) Raw Materials.

D) Finished Goods.

24) Which of the following is a true statement regarding absorption and/or direct costing?

A) A firm can choose to use either absorption or direct costing for income tax purposes.

B) A firm can choose to use either absorption or direct costing for financial reporting purposes.

C) Direct costing assigns only direct materials and direct labor to products.

D) Absorption costing includes fixed overhead in product costs whereas direct costing does not.

25) A predetermined manufacturing overhead rate is used to:

A) accumulate actual manufacturing overhead costs as they are incurred.

B) assign indirect costs to the units produced.

C) establish predetermined selling prices for manufactured products.

D) assign selling and administrative expenses to total manufacturing costs.

26) The predetermined overhead application rate based on direct labor hours is computed as:

A) actual total overhead costs divided by actual direct labor hours.

B) estimated total overhead costs divided by estimated direct labor hours.

C) actual total overhead costs divided by estimated direct labor hours.

D) estimated total overhead costs divided by actual direct labor hours.

27) A debit balance in the manufacturing overhead account at the end of the period indicates that:

A) manufacturing overhead is overapplied.

B) manufacturing overhead is underapplied.

C) manufacturing overhead has been accurately applied.

D) None of the answers are correct.

28) Which of the following costs are included in the "for product costing purposes" in the big-picture cost classification model?

A) Variable cost and fixed cost.

B) Differential cost and opportunity cost.

C) Product cost and period cost.

D) Committed cost and controllable cost.

29) Which of the following describes the correct sequence of flow of costs for a manufacturing firm?

A) Raw materials, finished goods, work-in-process, cost of goods sold.

B) Work-in-process, raw materials, finished goods, cost of goods sold.

C) Raw materials, work-in-process, finished goods, cost of goods sold.

D) Raw materials, work-in-process, cost of goods sold, finished goods.

30) An excess of cost of goods manufactured over cost of goods sold for the period represents:

A) an increase in gross profit.

B) a decrease in work in process inventory.

C) overapplied manufacturing overhead.

D) an increase in finished goods inventory.

31) The three sections of a statement of cost of goods manufactured include:

A) raw material, direct labor, manufacturing overhead.

B) variable expenses, contribution margin, fixed expenses.

C) sales revenue, gross profit, selling and administrative expenses.

D) direct costs, indirect costs, operating profit.

32) On the statement of cost of goods manufactured, which of the following items would not be reported?

A) ending work in process inventory.

B) raw materials used.

C) direct labor costs.

D) gross profit.

33) Total manufacturing costs for the month on the statement of costs of goods manufactured equals:

A) variable costs + fixed costs + mixed costs.

B) work in process inventory – finished goods inventory.

C) cost of goods sold – cost of goods manufactured.

D) cost of raw material used + direct labor cost incurred + manufacturing overhead applied.

34) Absorption costing and direct costing differ in the treatment of:

A) direct labor costs.

B) variable manufacturing overhead.

C) fixed manufacturing overhead.

D) selling expenses.

35) Direct costing may be used for:

A) internal reporting purposes.

B) external financial reporting purposes.

C) income tax reporting purposes.

D) All of the answers are correct.

36) Which of the following will cause income determined with absorption costing to be higher than income determined with direct costing?

A) units produced equal units sold.

B) units produced are greater than units sold.

C) units produced are less than units sold.

D) income determined with absorption costing will always equal income determined with direct costing.

37) If all units produced during March are sold, and there is no change in the number of units in the beginning finished goods inventory, then:

A) income determined with absorption costing will equal income determined with direct costing.

B) ending work in process inventory will increase with absorption costing.

C) income determined with absorption costing will be higher than income determined with direct costing.

D) ending finished goods inventory will increase.

38) In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured, the use of a predetermined overhead rate is being replaced by:

A) absorption costing.

B) job order costing.

C) activity-based costing.

D) process costing.

39) An activity-based costing system involves identifying the activity that causes the incurrence of a cost; this activity is known as a:

A) cost driver.

B) cost applier.

C) direct cost.

D) cost object.

40) The change in the amount of manufacturing overhead costs applied to a company's mix of products that are produced when using a single cost driver rate as compared to using activity-based cost driver rates is known as:

A) under/over applied overhead.

B) cost dysfunction.

C) cost absorption.

D) cost distortion.

41) The use of activity-based costing information to support the decision-making process is known as:

A) value chain analysis.

B) cost distortion analysis.

C) activity-based management.

D) cost-based management.

42) Which of the following best describes cost accounting?

A) Cost accounting serves the needs of both financial and managerial accounting.

B) Managerial accounting is a subset of cost accounting.

C) Financial accounting is a subset of cost accounting.

D) Cost accounting is an alternative to both financial and managerial accounting.

43) Strategic cost management initiatives that would occur in an organization's value chain functions begins with ________ and concludes with ________.

A) production; marketing

B) research and development; customer service

C) design; distribution

D) marketing; distribution

44) Indirect costs pertain to costs that:

A) are traceable to a cost object.

B) are not traceable to a cost object.

C) are commonly incurred.

D) are variable costs.

45) An example of a direct cost in the production of a computer is:

A) depreciation of production equipment.

B) production labor costs.

C) salary of the vice president of production.

D) material warehouse costs.

46) Liberty Company estimates total overhead costs to be $900,000 and will apply overhead to units produced based on 200,000 estimated machine hours. During the year Liberty Company incurred actual overhead costs of $925,000 and achieved 220,000 machine hours.  Liberty Company's predetermined overhead rate is:

A) $4.09 per machine hour.

B) $4.20 per machine hour.

C) $4.50 per machine hour.

D) $4.63 per machine hour.

47) Which of the following items would be reported on the Statement of Cost of Goods Manufactured?

A) cost of goods sold.

B) beginning finished goods inventory.

C) ending work in process inventory.

D) contribution margin.

48) The following information is from ABC Company's general ledger: Beginning and ending inventories, respectively, for raw materials were $16,000 and $20,000 and for work in process were $40,000 and $44,000. Raw material purchases and direct labor costs incurred were $72,000 each, and manufacturing overhead applied amounted to $40,000. Determine the total cost of goods manufactured during the period.

A) $176,000.

B) $180,000.

C) $184,000.

D) $220,000.

49) The risk of cost distortion is minimized with activity-based costing by applying overhead using:

A) a single cost driver rate.

B) multiple cost driver rates.

C) an absorption costing rate.

D) direct costing rates.

50) SurfsUp Specialty Products has the following inventory account balances and related manufacturing cost flow information for the month of October:

Raw materials purchased in October is:

A) $5,000.

B) $70,000.

C) $80,000.

D) $90,000.

51) SurfsUp Specialty Products has the following inventory account balances and related manufacturing cost flow information for the month of October:

Direct labor incurred in October is:

A) $85,000.

B) $100,000.

C) $105,000.

D) $200,000.

52) SurfsUp Specialty Products has the following inventory account balances and related manufacturing cost flow information for the month of October:

Cost of goods sold for October is:

A) $300,000.

B) $306,000.

C) $362,000.

D) $368,000.

53) O'Fallon Products estimates manufacturing overhead of $400,000 for 2019 and applies overhead to units produced based on 200,000 machine hours.  During 2019, O'Fallon generated 195,120 machine hours and incurred $409,752 of manufacturing overhead.  For 2019, O'Fallon will apply manufacturing overhead at the rate of ________ per machine hour.

A) $1.95

B) $2.00

C) $2.05

D) $2.10

54) O'Fallon Products estimates manufacturing overhead of $400,000 for 2019 and applies overhead to units produced based on 200,000 machine hours. During 2019, O'Fallon generated 195,120 machine hours and incurred $409,752 of manufacturing overhead. For 2019, O'Fallon's under/overapplied overhead is:

A) $4,880 underapplied.

B) $9,752 underapplied.

C) $9,752 overapplied.

D) $19,512 underapplied.

55) Lakeside Machining, Inc., has the following inventory account balances and related manufacturing cost information for the month of August:  

In Lakeside's Statement of Cost of Goods Manufactured for August, raw materials used will be reported as:

A) $214,000.

B) $221,000.

C) $279,000.

D) $296,000.

56) Lakeside Machining, Inc., has the following inventory account balances and related manufacturing cost information for the month of August:  

In Lakeside's Statement of Cost of Goods Manufactured for August, cost of goods manufactured will be reported as:

A) 725,000.

B) 733,000.

C) 739,000.

D) 747,000.

57) SKM Innovations, Inc., anticipates producing 40,000 units and incurring the following manufacturing costs for the coming year: raw material, $35 per unit; direct labor, $50 per unit; manufacturing overhead, $1,200,000 + $40 per unit. Using absorption costing, the unit cost for the coming year will be:

A) $85.

B) $90.

C) $125.

D) $155.

58) SKM Innovations, Inc., anticipates producing 40,000 units and incurring the following manufacturing costs for the coming year: raw material, $35 per unit; direct labor, $50 per unit; manufacturing overhead, $1,200,000 + $40 per unit. Using direct costing, the unit cost for the coming year will be:

A) $85.

B) $90.

C) $125.

D) $155.

59) Nautical Creations manufactures high-end boat accessories for large custom yachts. Nautical has always applied manufacturing overhead using a traditional predetermined overhead rate based on direct labor hours, this year it is $45 per DLH. Nautical is currently evaluating the use of activity-based driver rates to apply manufacturing overhead cost and has assembled the following budgeted amounts and actual activity required to produce Job #258.

Using the traditional method of applying manufacturing overhead, the amount of overhead applied to Job #258 would be:

A) $36,000.

B) $44,600.

C) $63,000.

D) $72,000.

60) Nautical Creations manufactures high-end boat accessories for large custom yachts. Nautical has always applied manufacturing overhead using a traditional predetermined overhead rate based on direct labor hours, this year it is $45 per DLH. Nautical is currently evaluating the use of activity-based driver rates to apply manufacturing overhead cost and has assembled the following budgeted amounts and actual activity required to produce Job #258.

Using the activity-based costing method of applying manufacturing overhead, the amount of overhead applied to Job #258 would be:

A) $36,000.

B) $44,600.

C) $63,000.

D) $72,000.

61) For each of the following costs, check the columns that most likely apply.

62) Premier Products uses the following account titles:

For each transaction described below, indicate which accounts would be debited and credited under a job order cost system:

63) Erca, Inc. produces automobile bumpers. Overhead is applied on the basis of machine hours required for cutting and fabricating. A predetermined overhead application rate of $15.00 per machine hour was established for 2019.

(a.) If 9,000 machine hours were expected to be used during 2019, how much overhead was expected to be incurred?

(b.) Actual overhead incurred during 2019 totaled $135,000, and 9,200 machine hours were used during 2019. Calculate the amount of over- or underapplied overhead for 2019.

(c.) Explain the accounting necessary for the over- or underapplied overhead for the year.

64) Riverside Boats estimates the following for 2019:

During 2019 Riverside incurs the following costs and activity:

Riverside uses direct labor hours to calculate the predetermined overhead rate for the year.

(a.) Calculate the predetermined overhead rate for 2019.

(b.) Calculate the applied overhead for 2019.

(c.) Calculate the amount of overapplied or underapplied overhead for 2019.

65) For each of the following costs, check the columns that most likely apply.

66) AAA Plumbing Co. incurred the following costs during August:

During the month, 9,000 units of product were manufactured and 8,500 units of product were sold. On August 1, AAA Plumbing carried no inventories.

(a.) Calculate the cost of goods manufactured during August and the average cost per unit of product manufactured.

(b.) Calculate the cost of goods sold during August.

(c.) Where in the financial statements will the difference between cost of goods manufactured and cost of goods sold be classified?

67) Erber, Inc. produces men's neckties and dress socks. Manufacturing overhead is assigned to production using an application rate based on direct labor hours.

(a.) For 2019, the company's cost accountant estimated that total overhead costs incurred would be $184,500, and that a total of 24,600 direct labor hours would be worked. Calculate the amount of overhead to be applied for each direct labor hour worked on a production run.

(b.) A production run of 500 neckties required raw materials that cost $3,120, and 140 direct labor hours at a cost of $8.00 per hour. Calculate the cost of each necktie produced.

(c.) At the end of February 2019, 420 neckties made in the above production run had been sold, and the rest were in ending inventory. Calculate the cost of the neckties sold that would have been reported in the income statement and the cost included in the February 28, 2019, finished goods inventory.

68) Partridge, Inc. incurred the following costs during March:

Manufacturing overhead is applied on the basis of $8.50 per direct labor hour. Assume that overapplied or underapplied overhead is transferred to cost of goods sold only at the end of the year. During the month, 3,500 units of product were manufactured and 3,400 units of product were sold. On March 1 and March 31, Partridge carried the following inventory balances:

(a.) Prepare a Statement of Cost of Goods Manufactured for the month of March, and calculate the average cost per unit produced.

(b.) Calculate the cost of goods sold during March.

(c.) Where in the financial statements will the difference between cost of goods manufactured and cost of goods sold be classified?

69) The following table summarizes the beginning and ending inventories of Ariel Co. for the month of October:

Raw materials purchased during the month of October totaled $112,300. Direct labor costs incurred totaled $234,800 for the month. Actual and applied manufacturing overhead costs for October totaled $145,100 and $149,400, respectively.

(a) Calculate the cost of goods manufactured for October.

(b) Calculate the cost of goods sold for October (Ignore under/overapplied overhead).

(c) Given the fact that 25,000 units were produced, what is the cost per unit for October?

70) Great Bay Co. manufactures cordless telephones. During 2019, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows:

(a.) Calculate the cost per phone under both direct (or variable) costing and absorption costing.

(b.) If 2,800 of these phones were in finished goods inventory at the end of 2019, by how much and in what direction (higher or lower) would 2019 operating income be different under direct (or variable) costing than under absorption costing?

(c.) Express the phone cost in a cost formula. What does this formula suggest the total cost of making an additional 1,600 phones would be?

71) PlayCraft Co. manufactures toy boats. During 2019, total costs incurred in making 54,000 toy boats included $189,000 of fixed manufacturing overhead. The total absorption cost per toy boat was $28.50.

(a.) Calculate the variable cost per toy boat.

(b.) The ending inventory of toy boats was 11,600 units higher at the end of 2019 than at the beginning of the year. By how much and in what direction (higher or lower) would cost of goods sold for 2019 be different under direct costing than under variable costing?

(c.) Express the toy boat cost in a cost formula. What does this formula suggest the total cost of making an additional 5,800 toy boats would be?

72) Envision Company uses activity-based costing (ABC) for allocating manufacturing overhead costs to jobs and it has established the following cost drivers and rates:

During July, Job #2005 produced 1,500 units and required the following activity: 1,800 parts, 2 production runs, and 325 direct labor hours.

(a.) Calculate the amount of manufacturing overhead applied to Job #2005.

(b.) Explain the advantage of using the ABC approach.

73) Baja Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based costing (ABC). Assume that the direct labor rate is $18.00 per hour and that there were no beginning inventories. The following cost drivers and rates have been developed for allocating manufacturing overhead costs:

The following production, costs, and activities occurred during the month of August:

(a.) Calculate the total manufacturing cost and the cost per unit for the month of August.

(b.) Assume instead that Baja Industries applies manufacturing overhead on the basis of $40.00 per direct labor hours (rather than the ABC method). Calculate the total manufacturing overhead cost applied for the month of August.

(c.) Which method of applying overhead do you think provides better information for manufacturing managers?

74) The following are beginning and ending inventories of ABC Company for the month of May:

Raw materials purchased during the month of May totaled $185,900. Direct labor costs incurred totaled $468,300 for the month. Actual and applied manufacturing overhead costs for May totaled $282,600 and $288,400, respectively. Over/underapplied overhead is written off to cost of goods sold at the end of the year in December.

(a) Calculate the cost of goods manufactured for May.

(b) Calculate the cost of goods sold for May.