1.Which of the following is not a product cost?
A) Sales commissions
2.If sales are $100,000, selling and administrative expenses are $30,000, and the gross margin is $40,000, then the net operating income must be:
A) $10,000.
3.Assume the following information for a merchandising company:
| Sales | $ 500,000 |
|---|---|
| Variable selling expenses | $ 25,000 |
| Cost of goods sold | $ 350,000 |
| Fixed administrative expenses | $ 50,000 |
| Fixed selling expenses | $ 40,000 |
| Variable administrative expenses | $ 5,000 |
What is the company’s gross margin?
A) $150,000
4.If the beginning merchandise inventory is $10,000. the merchandise purchases are $110,000, and the ending merchandise inventory is $20,000, then the cost of goods sold must be:
A) $100,000.
5.Which of the following statements is false?
A) Prime costs include manufacturing overhead.
6.Which of the following statements is false when considering cost behavior within the relevant range?
A) A variable cost remains constant, in total, as the activity level changes.
7.In the equation, y = a + bX, the a represents:
A) The total fixed cost.
8.Assume a company’s relevant range of production is 10,000 to 15,000 units. When it produces and sells 12,000 units, its unit costs are as follows:
| Amount per Unit | |
|---|---|
| Direct materials | $ 7.00 |
| Direct labor | $ 4.00 |
| Variable manufacturing overhead | $ 1.50 |
| Fixed manufacturing overhead | $ 5.00 |
| Fixed selling expense | $ 3.50 |
| Fixed administrative expense | $ 2.00 |
| Sales commissions | $ 1.00 |
| Variable administrative expense | $ 0.50 |
For financial accounting purposes, what is the total amount of product costs incurred to make 12,000 units?
A) $210,000
9.Which of the following statements is true?
A) Period costs are excluded from the calculation of gross margin.
10.Cost classifications used for preparing financial statements include:
A) Product cost and period cost.
11.At the beginning of the year, a company estimated a predetermined plantwide overhead rate of 140% of direct labor cost. Job X was charged $200 and $250 for direct materials and direct labor, respectively.
What is the total job cost for Job X?
A) $800
12.A document that lists the quantity of each type of direct material needed to complete a unit of product is called a:
A) Bill of materials.
13.A job-order costing system that relies on normal costing will:
A) Assign actual direct materials and direct labor costs to jobs.
14.Assume a company worked on four jobs during June: Jobs W, X, Y, and Z. At the end of June, the job cost sheets for these four jobs contained the following data:
| Job W | Job X | Job Y | Job Z | |
|---|---|---|---|---|
| Beginning balance | $ 80 | $ 120 | $ 90 | $ 140 |
| Charged to the jobs during June: | ||||
| Direct materials | $ 145 | $ 80 | $ 105 | $ 120 |
| Direct labor | $ 90 | $ 50 | $ 70 | $ 100 |
| Manufacturing overhead applied | $ 45 | $ 25 | $ 35 | $ 50 |
| Units completed | 0 | 100 | 50 | 82 |
| Units sold during June | 0 | 100 | 0 | 30 |
Jobs X, Y, and Z were completed during June. Job W was incomplete at the end of June. There was no finished goods inventory on June 1 and the company’s total manufacturing overhead applied always equals its total actual manufacturing overhead.
Which of the following choices correctly identifies where Job X’s costs will appear when the company prepares its financial statements for June?
| Work in Process | Finished Goods | Cost of Goods Sold | |
|---|---|---|---|
| A) | Yes | No | Yes |
| B) | No | Yes | No |
| C) | Yes | No | No |
| D) | No | No | Yes |
A) Option D.
15.Assume a company had no jobs in progress at the beginning of July and no beginning inventories. It started and completed only two jobs during July—Job Y and Job Z. The company uses a plantwide predetermined overhead rate based on direct labor-hours. The following additional information from the month of July is available for the company as a whole and for Jobs Y and Z:
| Estimated total fixed manufacturing overhead | $ 13,000 |
|---|---|
| Estimated variable manufacturing overhead per direct labor-hour | $ 1.00 |
| Estimated total direct labor hours to be worked | 2,000 |
| Total actual manufacturing overhead costs incurred | $ 12,800 |
| Job Y | Job Z | |
|---|---|---|
| Direct materials | $ 13,000 | $ 8,000 |
| Direct labor cost | $ 21,000 | $ 7,500 |
| Actual direct labor hours worked | 1,400 | 500 |
What is the direct labor hourly wage rate?
A) $15.00
16.A document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials is called a:
A) Materials requisition form.
17.Assume a company has two manufacturing departments – Assembly and Fabrication. The company considers all of its manufacturing overhead costs to be fixed costs. The first set of data below is budgeted data for the company as a whole that was estimated at the beginning of the year. The second set of data below is actual data for the company as a whole that was derived at the end of the year. The third set of data relates to one particular job completed during the year– Job Z.
| Budgeted Data | Assembly | Fabrication |
|---|---|---|
| Manufacturing overhead costs | $ 300,000 | $ 400,000 |
| Direct labor hours | 25,000 | 15,000 |
| Machine hours | 10,000 | 50,000 |
| Actual Data | Assembly | Fabrication |
|---|---|---|
| Manufacturing overhead costs | $ 330,000 | $ 380,000 |
| Direct labor hours | 27,000 | 16,000 |
| Machine hours | 10,500 | 48,000 |
| Job Z | Assembly | Fabrication | ||
|---|---|---|---|---|
| Direct labor hours | 10 | hours | 2 | hours |
| Machine hours | 1 | hour | 7 | hours |
If the company uses a plantwide approach for applying overhead to production with machine-hours as the allocation base, the company’s plantwide predetermined overhead rate is closest to:
A) $11.67
18.Which of the following statements is true regarding the formula Y = a + bx?
A) Y = The estimated total manufacturing overhead cost.
19.Assume a company started and completed numerous jobs during July—two of which were Job Y and Job Z. The company uses two departmental predetermined overhead rates. The rate in the Machining Department is based on machine-hours and the rate in the Assembly Department is based on direct labor-hours. The following additional information from the month of July is available for the company as a whole and for Jobs Y and Z:
| Machining | Assembly | |
|---|---|---|
| Estimated total fixed manufacturing overhead | $ 48,000 | $ 30,000 |
| Estimated variable manufacturing overhead per machine-hour | $ 1.50 | |
| Estimated variable manufacturing overhead per direct labor-hour | $ 2.00 | |
| Estimated total machine-hours to be used | 12,000 | |
| Estimated total direct labor hours to be worked | 10,000 |
| Machining | Assembly | |
|---|---|---|
| Job Y | ||
| Machine-hours | 50 | |
| Direct labor-hours | 30 | |
| Job Z | ||
| Machine-hours | 40 | |
| Direct labor-hours | 60 |
How much manufacturing overhead is applied from the Assembly Department to Job Y?
A) $150
20.Which of the following statements is true regarding job-order costing?
A) It is used in situations where many different products, each with unique features, are produced each period.
21. Which of the following journal entries properly records the cost of goods manufactured for the period of $57,000?
A)
| Account Title | Debit | Credit |
|---|---|---|
| Finished Goods | 57,000 | |
| Work in Process | 57,000 |
22.Assume that a company uses direct labor dollars as the allocation base to compute its predetermined plantwide overhead rate of 130%. Also, assume the following information from the company’s schedule of cost of goods manufactured:
| Direct labor | $ 60,000 |
|---|---|
| Direct materials used in production | $ 160,000 |
What is the total manufacturing cost added to production?
A) $298,000
23.The journal entry to record indirect labor used in production includes:
A) a debit to Manufacturing Overhead.
24.Assume the following:
| Beginning finished goods inventory | $ 10,000 |
|---|---|
| Ending finished goods inventory | $ 14,000 |
| Cost of goods manufactured | $ 52,000 |
| Overapplied overhead | $ 1,000 |
What is the cost of goods available for sale?
A) $62,000
25.If a company recorded the following transaction—applied manufacturing overhead to production—then which of the following statements is true?
A) The Work in Process account would increase.
26.Which of the following statements is false?
A) Work in process inventory includes actual manufacturing overhead costs assigned to jobs worked on during the period.
27.If a company recorded the following transaction—various completed jobs costing a total of $100,000 were sold to customers for $180,000—then which of the following statements is true with respect to recording the cost of $100,000?
A) The Retained Earnings account would decrease.
28.Assume the following information from a schedule of cost of goods manufactured:
| Total manufacturing costs to account for | $ 230,000 |
|---|---|
| Ending work in process inventory | $ 72,000 |
What is the cost of goods manufactured?
A) $158,000
29.Which of the following properly records the closing entry related to $4,000 of underapplied overhead?
A)
| Account Title | Debit | Credit |
|---|---|---|
| Cost of Goods Sold | 4,000 | |
| Manufacturing Overhead | 4,000 |
30.Which of the following journal entries properly records the application of $57,000 in manufacturing overhead to units entered into production during the period?
A)
| Account Title | Debit | Credit |
|---|---|---|
| Work in Process | 57,000 | |
| Manufacturing Overhead | 57,000 |
31.Assume the following information:
| Milling Department | Units | Percent Complete | |
|---|---|---|---|
| Materials | Conversion | ||
| Beginning work in process inventory | 200 | 40% | 30% |
| Units started into production during March | 6,200 | ||
| Units completed during the period and transferred to the next department | 5,800 | 100% | 100% |
| Ending work in process inventory | 600 | 70% | 60% |
| Milling Department | Materials | Conversion |
|---|---|---|
| Cost of beginning work in process inventory | $ 10,000 | $ 15,000 |
| Costs added during the period | 290,000 | 385,000 |
| Total cost | $ 300,000 | $ 400,000 |
Using the weighted-average method, what is the equivalent units of production for conversion?
A) 6,160 units
32.Assume a company uses the weighted-average method in its process costing. Its Work in Process T-account for the Refining Department for August is:
| Work in Process: Refining Department | |||
|---|---|---|---|
| Debit | Credit | ||
| August 1 balance | 62,000 | Completed and transferred to Finished Goods | ?question mark |
| Materials | 310,000 | ||
| Direct labor | 72,000 | ||
| Overhead | 181,000 | ||
| August 31 balance | ?question mark | ||
The August 1 work in process inventory consisted of 6,000 units with $40,000 in materials cost and $22,000 in conversion cost. The August 1 work in process inventory was 100% complete with respect to materials and 40% complete with respect to conversion. During August 48,000 units were started into production. The August 31 work in process inventory consisted of 8,000 units that were 100% with respect to materials and 60% complete with respect to conversion.
What is the cost of beginning work in process inventory plus the cost added during the period for materials?
A) $350,000
33.Which of the following statements is false with respect to job-order costing and process costing?
A) Both systems compute unit product costs by department.
34.Using the weighted-average method, the equivalent units of production is calculated using which of the following equations?
A) Units transferred to the next department + Equivalent units in ending work in process inventory
35.Which of the following journal entries properly records direct labor costs (on account) of $7,000 incurred in the Formulating Department?
A)
| Debit | Credit | |
|---|---|---|
| Work in Process—Formulating | 7,000 | |
| Salaries and Wages Payable | 7,000 |
36.The equation for computing equivalent units is
A) Number of partially completed units × Percentage completion
37.Assume the following information:
| Milling Department | Units | Percent Complete | |
|---|---|---|---|
| Materials | Conversion | ||
| Beginning work in process inventory | 200 | 40% | 30% |
| Units started into production during March | 6,200 | ||
| Units completed during the period and transferred to the next department | 5,800 | 100% | 100% |
| Ending work in process inventory | 600 | 70% | 60% |
| Milling Department | Materials | Conversion |
|---|---|---|
| Cost of beginning work in process inventory | $ 10,000 | $ 15,000 |
| Costs added during the period | 290,000 | 385,000 |
| Total cost | $ 300,000 | $ 400,000 |
Using the weighted-average method, what is the equivalent units of production for materials?
A) 6,220 units
38.Assume the following information appears in the Milling Department’s cost reconciliation report:
| Milling Department | Materials |
|---|---|
| Cost of ending work in process inventory | $ 20,000 |
| Total cost to be accounted for | $ 665,000 |
What is the cost of the units transferred out of the Milling Department?
A) $645,000
39.Assume the following information for the Milling Department:
| Milling Department | Units |
|---|---|
| Beginning work in process inventory | 300 |
| Units started into production during the period | 6,000 |
| Units completed during the period and transferred to the next department | 5,800 |
| Ending work in process inventory | ?question mark |
Using the weighted-average method, how many units were in ending work in process inventory?
A) 500 units
40.Assume the following information:
| Milling Department | Materials | Conversion | Total |
|---|---|---|---|
| Cost of beginning work in process inventory | $ 10,000 | $ 15,000 | $ 25,000 |
| Costs added during the period | 290,000 | 385,000 | 675,000 |
| Total cost | $ 300,000 | $ 400,000 | $ 700,000 |
If the equivalent units of production for materials is 6,000 units using the weighted-average method, then what is the cost per equivalent unit for materials?
A) $50.00
41.Which of the following is an example of a product-level activity?
A) Advertising related to specific products
42.Assume a company’s activity-based costing system includes three activities. The following information is available with respect to those activities:
| Activity Cost Pool | Estimated Overhead Cost | Expected Activity | |
|---|---|---|---|
| Testing | $ 150,000 | 100,000 | testing minutes |
| Setups | $ 110,000 | 2,200 | setup hours |
| Molding | $ 220,000 | 10,000 | machine hours |
What is the activity rate for the Testing activity?
A) $1.50 per testing minute
43.Which of the following is an example of a batch-level activity?
A) Forklift truck drivers moving work in process inventory
44.Assume that a company makes only two products: Product A and Product B. The company’s activity-based costing system has allocated $60,000 to an activity called machine setups. It is considering allocating the machine setups cost to its products using either the number of setups or setup hours as the activity measure. It gathered the following data with respect to these two potential activity measures:
| Product A | Product B | |
|---|---|---|
| Number of machine setups | 30 | 45 |
| Number of setup hours per setup | 6 | 6 |
If the company uses number of machine setups as the activity measure, what is the activity rate for machine setups?
A) $800
45.Which of the following statements is true?
A) Activity rates are used to assign overhead costs to products.
46.A company makes two products—Product A and B. Data regarding the two products follow:
| Direct Labor-Hours per Unit | Annual Production | ||
|---|---|---|---|
| Product A | 0.75 | 20,000 units | |
| Product B | 0.50 | 50,000 units | |
Additional information is as follows:
- Product A requires $40 in direct materials per unit, and Product B requires $32.
- The direct labor wage rate is $18 per hour.
- The company’s activity-based costing system has the following activity cost pools:
| Activity Cost Pool (and Activity Measures) | Estimated Overhead Cost | Expected Activity | ||
|---|---|---|---|---|
| Product A | Product B | Total | ||
| Machine setups (number of setups) | $ 100,000 | 100 | 300 | 400 |
| Special processing (machine-hours) | $ 200,000 | 2,000 | 6,000 | 8,000 |
| General factory (Direct labor-hours) | $ 150,000 | 15,000 | 25,000 | 40,000 |
How much overhead cost would be assigned from the Special processing activity to Product A?
A) $50,000
47.Assume that company makes only two products: Product A and Product B. The company’s activity-based costing system has allocated $60,000 to an activity called machine setups. It is considering allocating the machine setups cost to its products using either the number of setups or setup hours as the activity measure. It gathered the following data with respect to these two potential activity measures:
| Product A | Product B | |
|---|---|---|
| Number of machine setups | 30 | 45 |
| Number of setup hours per setup | 6 | 6 |
If the company uses number of machine setups as the activity measure, how much machine setup activity cost would be allocated to Product B?
A) $36,000
48.A company makes two products—Product A and B. Data regarding the two products follow:
| Direct Labor-Hours per Unit | Annual Production | ||
|---|---|---|---|
| Product A | 0.75 | 20,000 units | |
| Product B | 0.50 | 50,000 units | |
Additional information is as follows:
- Product A requires $40 in direct materials per unit, and Product B requires $32.
- The direct labor wage rate is $18 per hour.
- The company’s activity-based costing system has the following activity cost pools:
| Activity Cost Pool (and Activity Measures) | Estimated Overhead Cost | Expected Activity | ||
|---|---|---|---|---|
| Product A | Product B | Total | ||
| Machine setups (number of setups) | $ 100,000 | 100 | 300 | 400 |
| Special processing (machine-hours) | $ 200,000 | 2,000 | 6,000 | 8,000 |
| General factory (Direct labor-hours) | $ 150,000 | 15,000 | 25,000 | 40,000 |
What is the activity rate for the Machine setups activity?
A) $250
49.Which of the following statements is true?
A) Unit-level activities are performed each time a unit is produced.
50.An activity cost pool is:
A) A “bucket” in which costs are accumulated that relate to a single activity.