Ch2 Concept

True/False Questions 1. The sum of all costs of manufacturing costs except direct materials is called manufacturing overhead. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. Conversion cost is the sum of direct labor and manufacturing overhead. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Prime cost is the sum of direct labor and manufacturing overhead. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 4. Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 5. Period costs are also known as inventoriable costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 6. All costs in a merchandising company are period costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 7. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

8. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy 9. As activity increases within the relevant range, fixed costs remain constant on a per unit basis. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy 10. Direct costs are often difficult to trace to the specific cost object under consideration. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy 11. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium 12. The amount that was paid by a company for a building to house its operations is an example of a sunk cost. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy 13. The most effective way to minimize quality costs while maintaining high quality is to avoid having quality problems in the first place. This is the reason for incurring appraisal costs. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium 14. External failure costs are limited to the costs of repairing defective products that are under warranty. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard

15. The costs of lost sales arising from poor quality are always included in quality cost reports. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium Multiple Choice Questions 16. The cost of the cushions that are used to manufacture sofas is best described as a: A) manufacturing overhead cost. B) period cost. C) variable cost. D) conversion cost. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5 Level: Medium 17. Chezpere Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease be classified? A) B) C) D)

Direct Material Cost Fixed Cost Yes Yes Yes No No Yes No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5,6 Level: Hard

18. A security guard's wages at a factory would be an example of: A) B) C) D)

Indirect labor Fixed manufacturing overhead No No Yes Yes Yes No No Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted 19. Manufacturing overhead includes: A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor. C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 20. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: A) direct materials. B) a period cost. C) administrative expense. D) manufacturing overhead. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 21. The one cost that would be classified as part of both prime cost and conversion cost would be: A) indirect material. B) direct labor. C) direct material. D) indirect labor. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

22. Direct costs: A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision. C) can be easily traced to a particular cost object. D) are the variable costs of producing a product. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 23. Prime costs consist of: A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor. C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted 24. Which of the following is NOT a period cost? A) Monthly depreciation of the equipment in a fitness room used by factory workers. B) Salary of a billing clerk. C) Insurance on a company showroom, where current and potential customers can view new products. D) Cost of a seminar concerning tax law updates that was attended by the company's controller. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 25. The annual insurance premium for the factory building would be a: A) fixed cost, period cost, and indirect cost with regard to units of product. B) fixed cost, product cost, and direct cost with regard to units of product. C) variable cost, product cost, direct cost with regard to units of product. D) fixed cost, product cost, indirect cost with regard to units of product. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,6 Level: Medium

26. Factory supplies in a manufacturing plant are most likely: A) sunk costs. B) period costs. C) variable costs. D) excluded from product costs. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,7 Level: Medium 27. All of the following are examples of product costs except: A) depreciation on the company's retail outlets. B) salary of the plant manager. C) insurance on the factory equipment. D) rental costs of the factory facility. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 28. Inventoriable (i.e., product) costs that have become expenses can be found in: A) period costs. B) selling expenses. C) cost of goods sold. D) administrative expenses. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 29. The fixed portion of the cost of electricity for a manufacturing plant is a: A) B) C) D)

Period cost Product cost Yes No Yes Yes No Yes No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA, adapted

30. Which of the following statements about product costs is true? A) Product costs are deducted from revenue when the production process is completed. B) Product costs are deducted from revenue as expenditures are made. C) Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets. D) Product costs appear on financial statements only when products are sold. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 31. Conversion costs consist of: A) direct and indirect labor. B) direct labor and direct materials. C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted 32. Which of the following is an example of a period cost? A) Fabric used to produce men's pants. B) Advertising cost for a new product campaign. C) Factory supervisor's salary. D) Monthly depreciation of production equipment. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 33. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would: A) overstate period expenses on the income statement. B) overstate the cost of goods sold on the income statement. C) understate the cost of goods manufactured. D) have no effect on the cost of goods manufactured. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard

34. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A) raw materials inventory. B) work in process inventory. C) finished goods inventory. D) both raw materials inventory and work in process inventory. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy 35. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle? A) B) C) D)

Direct Cost Fixed Cost Yes Yes Yes No No Yes No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5,6 Level: Medium 36. Within the relevant range, as the number of units produced increases: A) the variable cost per unit remains the same. B) fixed costs in total remain the same. C) variable costs increase in total. D) all of the above. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy 37. Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies? A) Direct materials. B) Direct labor. C) Fixed manufacturing overhead. D) Responses A and B are both correct. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

38. When the level of activity decreases within the relevant range, the fixed cost per unit will: A) decrease. B) increase. C) remain the same. D) The effect cannot be predicted. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium 39. Which of the following is correct concerning reactions to INCREASES in activity? A) B) C) D)

Total Variable Cost Variable Cost Per Unit Increases Decreases Constant Decreases Decreases Constant Increases Constant

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy 40. The distinction between indirect and direct costs depends on: A) whether a cost differs between alternatives. B) whether a cost is variable or fixed. C) whether a cost is a product or a period cost. D) whether a cost can be easily traced to the cost object under consideration. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy 41. An example of a fixed cost that would be considered a direct cost is: A) a cost accountant's salary when the cost object is a unit of product. B) the rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department. C) a production supervisor's salary when the cost objective is the Production Department. D) Board of Directors' fees when the cost object is the Marketing Department. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Source: CMA, adapted

42. Which of the following statements concerning direct and indirect costs is NOT true? A) Whether a particular cost is classified as direct or indirect does not depend on the cost object. B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager's salary would be classified as an indirect cost of producing one unit of product. D) A particular cost may be direct or indirect, depending on the cost object. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium 43. All of the cost categories listed below are usually found in a company's accounting records, except for: A) sunk costs. B) inventoriable costs. C) opportunity costs. D) marketing costs. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy 44. Cobra Mining Company spent $200 million five years ago to develop underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is: A) sunk cost. B) variable cost. C) differential cost. D) opportunity cost. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Medium

45. In a decision-making situation involving an asset, which of the following costs is generally NOT considered relevant to the decision and should be ignored? A) Incremental cost of selecting one alternative over another. B) Opportunity cost of using the asset in an alternative. C) Differential cost between two alternatives. D) The original cost of the asset. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Source: CMA, adapted 46. A sunk cost is: A) a cost that is planned to be incurred in the near future. B) irrelevant for decision making. C) a cost connected with drilling for oil. D) affected by changes in the level of activity. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy 47. The potential benefit that is given up when one alternative is selected over another is called: A) A sunk cost. B) An opportunity cost. C) Both a sunk cost and an opportunity cost. D) Neither a sunk cost nor an opportunity cost. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy 48. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the: A) increased overall level of activity in the factory. B) customer's requirement for early completion of the job. C) management's failure to include the job in the production schedule. D) management's requirement that the job be completed before the annual factory closure due to vacation. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2A Source: CPA, adapted

AICPA BB: Critical Thinking LO: 8 Level: Medium

49. The idle time cost of assembly line workers in a manufacturing company is usually included as a part of: A) selling cost. B) direct labor cost. C) administrative cost. D) manufacturing overhead cost. Ans: D AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2A

AICPA BB: Critical Thinking LO: 8 Level: Medium

50. In preparing a quality cost report, the cost of employee's time spent in quality circles is part of: A) prevention costs. B) appraisal costs. C) internal failure costs. D) external failure costs. Ans: A AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9,10 Level: Medium

51. Which of the following would be classified as a prevention cost on a quality cost report? A) Net cost of spoilage. B) Supervision of testing and inspection activities. C) Liability arising from defective products. D) Technical support provided to suppliers. Ans: D AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9,10 Level: Medium

52. Which of the following would be classified as an internal failure cost on a quality cost report? A) Systems development. B) Returns and allowances arising from quality problems. C) Net cost of scrap. D) Final product testing and inspection. Ans: C AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9,10 Level: Medium

53. Which of the following would be classified as an external failure cost on a quality cost report? A) Depreciation of test equipment. B) Repairs and replacements beyond the warranty period. C) Supplies used in testing and inspection. D) Re-entering data because of keying errors. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9,10 Level: Medium

54. An increase in appraisal costs in a quality improvement program would usually have the following initial effects on internal and external failure costs: A) B) C) D)

Internal failure costs External failure costs Increase Increase Increase Decrease Decrease Increase Decrease Decrease

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard 55. The cost of testing incoming materials received from suppliers would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9 Level: Easy

56. In classifying the costs of quality at a company that manufactures sonar equipment, which of the following is considered an external failure cost? A) the net cost of scrap and spoilage incurred during production. B) the cost of repairs and replacements made during the warranty period. C) the cost of debugging software errors found in the sonar equipment during inspection at the plant. D) both B and C above. E) none of the above. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking LO: 9 Level: Medium

57. The four categories of quality costs in a quality cost report are: A) external failure, product liability, prevention, and carrying. B) external failure, internal failure, prevention, and appraisal. C) warranty, product liability, prevention, and appraisal. D) warranty, product liability, training, and appraisal. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2B Source: CMA, adapted

AICPA BB: Critical Thinking LO: 9 Level: Easy

58. The following costs were incurred in July: Direct materials.............................. Direct labor.................................... Manufacturing overhead................ Selling expenses............................. Administrative expenses................

$35,000 $13,000 $15,000 $14,000 $30,000

Prime costs during the month totaled: A) $48,000 B) $28,000 C) $107,000 D) $63,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Medium

Solution: Direct materials....... Direct labor............. Total........................

$35,000 13,000 $48,000

59. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is: A) $152,000 B) $11,750 C) $21,250 D) $9,500 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: Conversion costs = Direct labor + Manufacturing overhead Conversion costs = $38,000 + Manufacturing overhead 0.20 × Conversion costs = Manufacturing overhead 0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead $7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead $7,600 = 0.80 × Manufacturing overhead Manufacturing overhead = $9,500 60. During the month of July, direct labor cost totaled $12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were $86,000, the manufacturing overhead was: A) $46,000 B) $40,000 C) $28,000 D) $74,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard

Solution: 0.30 × Prime cost = Direct labor 0.30 × Prime cost = $12,000 Prime cost = $40,000 Prime cost = Direct materials + Direct labor $40,000 = Direct materials + $12,000 Direct materials = $28,000 Total = manufacturing costs $86,000

=

Direct materials

+

Direct labor

$28,000

+

$12,000

Manufacturing Overhead Manufacturing + Overhead +

Manufacturing overhead = $46,000 61. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost for the month was $34,000 and the direct materials cost was $23,000, the direct labor cost was: A) $22,667 B) $15,333 C) $51,000 D) $34,500 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard Solution: 0.40 × Conversion costs = Direct labor 0.60 × Conversion costs = Manufacturing overhead 0.60 × Conversion costs = $34,000 Conversion costs = $56,667 Conversion costs = Direct labor + Manufacturing overhead $56,667 = Direct labor + $34,000 Direct labor = $22,667

62. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks: Solvents and cleaners used by the custodians to clean the textbook printing presses........................................... Depreciation on the automobiles used by sales representatives................................................................. Fire insurance on factory building................................... Shipping costs on textbooks sold.....................................

$500 $4,20 0 $2,00 0 $3,70 0

What is the total of the manufacturing overhead costs above? A) $500 B) $2,500 C) $6,200 D) $6,700 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Solvents and cleaners used by the custodians to clean the textbook printing presses.................................. Fire insurance on factory building................................ Total.............................................................................. ‘

63. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows: Receiving and storing raw materials.......... 5% Production operations................................ 70% Sales offices............................................... 15% Administrative offices............................... 10% How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Receiving and storing raw materials (5% × $8,000)........ Production operations (70% × $8,000)............................

$ 400 5,600 $6,000

64. Consider the following costs: Direct materials.......................................... Depreciation on factory equipment........... Factory janitor’s salary.............................. Direct labor................................................ Utilities for factory.................................... Selling expenses......................................... Production supervisor’s salary................... Administrative expenses............................

$33,00 0 $12,00 0 $23,00 0 $28,00 0 $9,000 $16,00 0 $34,00 0 $21,00 0

What is the total amount of manufacturing overhead included above? A) $78,000 B) $139,000 C) $44,000 D) $37,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Depreciation on factory equipment........... Factory janitor’s salary.............................. Utilities for factory.................................... Production supervisor’s salary................... Total...........................................................

$12,00 0 23,000 9,000 34,000 $78,00 0

65. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume that all raw materials are direct materials.): Purchases of raw materials........................ Direct labor cost......................................... Selling costs (total).................................... Administrative costs (total)........................ Manufacturing overhead costs (total)........ Raw materials inventory, beginning.......... Work in process inventory, beginning....... Finished goods inventory, beginning......... Raw materials inventory, ending............... Work in process inventory, ending............ Finished goods inventory, ending..............

$91,000 $122,00 0 $42,000 $56,000 $340,00 0 $22,000 $27,000 $42,000 $7,000 $35,000 $15,000

What was Derby's cost of goods manufactured for the month? A) $545,000 B) $560,000 C) $568,000 D) $587,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Hard Solution: Derby Manufacturing Company Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory................. $ 22,000 Add: Purchases of raw materials.................... 91,000 Raw materials available for use...................... 113,000 Deduct: Ending raw materials inventory........ 7,000 Raw materials used in production.................. Direct labor......................................................... Manufacturing overhead.................................... Total manufacturing costs.................................. Add: Beginning work in process inventory........ Deduct: Ending work in process inventory........ Cost of goods manufactured...............................

$106,000 122,000 340,000 568,000 27,000 595,000 35,000 $560,000

66. Consider the following costs incurred in a recent period: Direct materials.......................................... Depreciation on factory equipment........... Factory janitor’s salary.............................. Direct labor................................................ Utilities for factory.................................... Selling expenses......................................... Production supervisor’s salary................... Administrative expenses............................

$33,00 0 $12,00 0 $23,00 0 $28,00 0 $9,000 $16,00 0 $34,00 0 $21,00 0

What was the total amount of the period costs listed above for the period? A) $78,000 B) $71,000 C) $46,000 D) $37,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Selling expenses......................................... Administrative expenses............................ Total...........................................................

$16,00 0 21,00 0 $37,00 0

67. Using the following data for a recent period, calculate the beginning finished goods inventory: Sales........................................................... Beginning finished goods inventory.......... Cost of goods manufactured...................... Ending finished goods inventory............... Cost of goods sold..................................... Gross margin.............................................. Administrative and selling expenses......... Net operating income.................................

$40,00 0 ? $16,00 0 $5,000 ? $17,00 0 ? $10,00 0

The beginning finished goods inventory was: A) $24,000 B) $23,000 C) $7,000 D) $12,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Cost of goods sold = Sales − Gross margin Cost of goods sold = $40,000 − $17,000 Cost of goods sold = $23,000 Beginning finished Cost of goods Ending finished + − = goods inventory manufactured goods inventory Beginning finished + $16,000 − $5,000 = goods inventory Beginning finished goods inventory = $12,000

Cost of goods sold $23,000

68. The following data are for a recent period's operations: Beginning finished goods inventory.......... Ending finished goods inventory............... Sales........................................................... Gross margin..............................................

$150,47 5 $145,75 0 $400,00 0 $120,00 0

The cost of goods manufactured was: A) $115,275 B) $284,725 C) $275,275 D) $124,725 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Sales − Cost of goods sold = Gross margin $400,000 − Cost of goods sold = $120,000 Cost of goods sold = $280,000 Beginning finished Cost of goods Ending finished + − = goods inventory manufactured goods inventory Cost of goods $150,475 + − $145,750 = manufactured Cost of goods manufactured = $275,275

Cost of goods sold $280,000

69. Last month a manufacturing company had the following operating results: Beginning finished goods inventory.......... Ending finished goods inventory............... Sales........................................................... Gross margin..............................................

$77,000 $72,000 $593,00 0 $67,000

What was the cost of goods manufactured for the month? A) $588,000 B) $526,000 C) $521,000 D) $531,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Sales − Cost of goods sold = Gross margin $593,000 − Cost of goods sold = $67,000 Cost of goods sold = $526,000 Beginning finished Cost of goods Ending finished + − = goods inventory manufactured goods inventory Cost of goods $77,000 + − $72,000 = manufactured Cost of goods manufactured = $521,000

Cost of goods sold $526,000

70. The following data pertain to a recent period's operations: Sales........................................................... ? Beginning finished goods inventory.......... $12,000 Cost of goods manufactured...................... $36,000 Ending finished goods inventory............... $6,000 Cost of goods sold..................................... ? Gross margin.............................................. 40% of Sales Administrative and selling expenses......... $10,000 Net operating income................................. ? Net operating income was: A) $18,000 B) $10,000 C) $14,000 D) $46,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Cost of Beginning finished = + goods sold goods inventory Cost of = $12,000 + goods sold Cost of goods sold = $42,000

Cost of goods manufactured

−

Ending finished goods inventory

$36,000

−

$6,000

Sales − Cost of goods sold = Gross margin Sales − $42,000 = Gross margin Gross margin = 40% × Sales Sales − $42,000 = 40% × Sales 60% × Sales = $42,000 Sales = $70,000 Gross margin − Administrative and selling expenses = Net operating income Gross margin = 40% × Sales Gross margin = $28,000 $28,000 − $10,000 = Net operating income Net operating income = $18,000

71. The following inventory balances have been provided for the most recent year: Beginnin g Raw materials....................

$21,000

Work in process.................

$18,000

Finished goods...................

$57,000

Ending $15,00 0 $29,00 0 $33,00 0

The cost of goods manufactured was $714,000. What was the cost of goods sold? A) $738,000 B) $693,000 C) $714,000 D) $733,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium Solution: Finished goods inventory, beginning......................... Add: Cost of goods manufactured............................. Goods available for sale............................................. Deduct: Finished goods inventory, ending................ Cost of goods sold......................................................

$ 57,000 714,000 771,000 33,000 $738,000

72. The cost of goods manufactured for October at Toule Manufacturing Corporation was $907,000. The following changes occurred in Toule inventory accounts during October: Decrease in raw materials inventory.......... Decrease in work in process inventory...... Increase in finished goods inventory.........

$24,00 0 $17,00 0 $38,00 0

What was Toule's cost of goods sold for October? A) $869,000 B) $886,000 C) $928,000 D) $945,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution:

73. Gabrio Inc. is a merchandising company. Last month the company's merchandise purchases totaled $87,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $11,000. What was the company's cost of goods sold for the month? A) $79,000 B) $87,000 C) $95,000 D) $117,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Merchandise inventory, beginning............................. Add: Merchandise purchased..................................... Goods available for sale............................................. Deduct: Finished goods inventory, ending................. Cost of goods sold......................................................

$ 19,000 87,000 106,000 11,000 $ 95,000

74. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month? A) $96,000 B) $62,000 C) $68,000 D) $74,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium

Solution: Merchandise inventory, beginning............................. Add: Merchandise purchased..................................... Goods available for sale............................................. Deduct: Finished goods inventory, ending................. Cost of goods sold......................................................

$11,000 ? ? 17,000 $68,000

Goods available for sale = $68,000 + $17,000 Goods available for sale = $85,000 Merchandise purchased = $85,000 − Merchandise inventory, beginning Merchandise purchased = $85,000 − $11,000 Merchandise purchased = $74,000 75. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The beginning finished goods inventory was $19,000 and the ending finished goods inventory was $15,000. What was the cost of goods sold for the month? A) $104,000 B) $74,000 C) $70,000 D) $66,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Finished goods inventory, beginning......................... Add: Cost of goods manufactured.............................. Goods available for sale............................................. Deduct: Finished goods inventory, ending................. Cost of goods sold......................................................

$19,000 70,000 89,000 15,000 $74,000

76. At the beginning of the most recent month's operations, finished goods inventory was $30,000. The cost of goods manufactured was $326,000 and ending finished goods inventory was $42,000. What was the cost of goods sold for the month? A) $320,000 B) $338,000 C) $314,000 D) Cannot be calculated. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Finished goods inventory, beginning......................... Add: Cost of goods manufactured............................. Goods available for sale............................................. Deduct: Finished goods inventory, ending................ Cost of goods sold......................................................

$30,000 326,000 356,000 42,000 $314,000

77. Given the following information, calculate the company's manufacturing overhead: Work in process, ending................ Work in process, beginning........... Cost of goods manufactured.......... Direct labor.................................... Direct materials..............................

$8,000 $11,00 0 $70,00 0 $25,00 0 $20,00 0

The manufacturing overhead is: A) $22,000 B) $25,000 C) $28,000 D) $36,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution: Schedule of Cost of Goods Manufactured Direct materials............................................................... Direct labor..................................................................... Manufacturing overhead................................................. Total manufacturing costs............................................... Add: Work in process, beginning................................... Deduct: Work in process, ending.................................... Cost of goods manufactured...........................................

$20,000 25,000 22,000* 67,000* 11,000 78,000* 8,000 $70,000

* These items must be calculated by working backwards upward through the statements.

78. The following data have been provided for the most recent month's operations: Direct materials.......................................... Direct labor................................................ Manufacturing overhead............................ Total manufacturing costs.......................... Beginning work in process inventory........ Ending work in process inventory............. Cost of goods manufactured......................

$8,000 $25,00 0 $9,000 ? ? $8,000 $45,00 0

The beginning work in process inventory is: A) $11,000 B) $42,000 C) $53,000 D) $37,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution: Schedule of Cost of Goods Manufactured Direct materials............................................................... Direct labor..................................................................... Manufacturing overhead................................................. Total manufacturing costs............................................... Add: Work in process, beginning................................... Deduct: Work in process, ending.................................... Cost of goods manufactured...........................................

$ 8,000 25,000 9,000 42,000 11,000* 53,000* 8,000 $45,000

* These items must be calculated by working backwards upward through the statements.

79. Using the following data for July, calculate the cost of goods manufactured: Direct materials.......................................... Direct labor................................................ Manufacturing overhead............................ Beginning work in process inventory........ Ending work in process inventory.............

$31,00 0 $22,00 0 $29,00 0 $14,00 0 $15,00 0

The cost of goods manufactured was: A) $83,000 B) $96,000 C) $81,000 D) $82,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Schedule of Cost of Goods Manufactured Direct materials............................................................... Direct labor..................................................................... Manufacturing overhead................................................. Total manufacturing costs............................................... Add: Work in process, beginning................................... Deduct: Work in process, ending.................................... Cost of goods manufactured...........................................

$31,000 22,000 29,000 82,000 14,000 96,000 15,000 $81,000

80. During the month of April, LTP Company incurred $30,000 of manufacturing overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and the end of the month, the raw materials and work in process inventories decreased by $4,000 and $3,000, respectively. The total manufacturing costs used in the computation of cost of goods manufactured during the month of April was: A) $88,000 B) $91,000 C) $99,000 D) $102,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution: First calculate raw materials used: Beginning inventory + Purchases raw materials

−

Ending inventory = raw materials

Raw materials used

By rearranging: Purchases

+(

Beginning inventory raw materials

−

Ending inventory raw materials

)=

Raw materials used

Since raw material inventory decreased by $4,000, we know that: Beginning inventory raw materials − Ending inventory raw materials = $4,000 Substituting into equation: $25,000 + $4,000 = Raw materials used $29,000 = Raw materials used Next, solve for total manufacturing costs: Raw materials Manufacturing + Direct labor + used overhead $29,000 + $40,000 + $30,000

Total manufacturing costs = $99,000 =

81. The following information relates to Mako Manufacturing Company for the month of August: Cost of goods manufactured...................... Cost of goods sold..................................... Total manufacturing costs.......................... Cost of goods available for sale.................

$78,00 0 $82,00 0 $90,00 0 $95,00 0

What was the balance in Mako's Finished Goods Inventory account at the end of August? A) $4,000 B) $5,000 C) $8,000 D) $13,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution: Goods available for sale - Ending finished goods inventory = Cost of goods sold Ending finished goods inventory = Goods available for sale - Cost of goods sold Ending finished goods inventory = $95,000 - $82,000 Ending finished goods inventory = $13,000

82. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and end of the year: Beginnin g Raw materials.................... Work in process.................

$10,000 $5,000

Finished goods...................

$41,000

Ending $21,00 0 $3,000 $48,00 0

Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of goods manufactured? A) $581,000 B) $615,000 C) $629,000 D) $663,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution: Beginning finished Cost of goods Goods available + = goods inventory manufactured for sale Cost of goods $41,000 + = $622,000 manufactured Cost of goods manufactured = $581,000

83. Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, finished goods, which had a beginning balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled $600,000 during the year, the cost of goods available for sale must have been: A) $585,000 B) $600,000 C) $610,000 D) $625,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Cost of goods available for sale

=

Beginning finished goods inventory

+

Cost of goods = $25,000 + available for sale Cost of goods available for sale = $625,000

Cost of goods manufactured $600,000

84. A company has provided the following cost data for its most recent accounting period: Direct labor.................................... Administrative expenses................ Manufacturing overhead................ Direct materials.............................. Selling expenses.............................

$98,000 $15,000 $25,000 $200,00 0 $22,000

What was the cost of goods manufactured for the period? Assume there were no beginning or ending inventories. A) $303,000 B) $323,000 C) $338,000 D) $360,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Easy Source: CMA, adapted Solution: Direct labor.................................... Manufacturing overhead................ Direct materials.............................. Cost of goods manufactured..........

$ 98,000 25,000 200,00 0 $323,00 0

85. Beginning work in process was $145,000. Manufacturing cost incurred for the month was $810,000. The ending work in process was $200,000. What was the cost of goods manufactured during the month? A) $900,000 B) $810,000 C) $755,000 D) $1,155,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning work in process inventory................. Add: Manufacturing costs................................... Deduct: Ending work in process inventory........ Cost of goods manufactured...............................

$145,000 810,000 (200,000) $755,000

86. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units: Cost of raw materials used......................... Property taxes on factory building.............

$86,40 0 $9,000

What should be the cost per unit for the above costs if 20,000 units of product are produced next year? A) B) C) D)

Raw materials Property taxes $4.32 $0.45 $4.32 $0.50 $4.80 $0.45 $4.80 $0.50

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium Solution: Variable manufacturing costs: $86,400 18,000 = $4.80 Property taxes are a fixed cost: $9,000 At 20,000 units, fixed cost per unit = $9,000 20,000 units = $0.45 per unit

87. At a sales volume of 20,000 units, total costs are $55,000. The company's variable cost per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units, assuming that is within the relevant range. A) $25,000 B) $30,000 C) $45,000 D) Cannot be determined. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Hard Solution:

88. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? A) $21,000 B) $35,000 C) $89,000 D) $103,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy Solution: Indirect materials........................... Production supervisors.................. Total indirect costs.........................

$21,000 14,000 $35,000

89. How much sunk cost is represented in the following list? Annual operating cost............................................ Fixed operating costs other than depreciation....... Resale value, if sold now....................................... Original cost of current machine........................... A) B) C) D)

$80,000 $14,000 $25,000 $68,000

$80,000 $14,000 $25,000 $68,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy Solution: Only the original cost of the current machine is a sunk cost in the above list. 90. John Adams, an operator of a manufacturing machine, receives time-and-a-half for any time worked in excess of 40 hours per week. His rate of pay is $16 per hour. How much should be charged to direct labor if he worked 48 hours last week and had no idle time? A) $768 B) $640 C) $832 D) $192 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Solution: 48 hours × $16 per hour = $768

91. During the last week in October, Harvey worked a total of 45 hours and had no idle time. Harvey is paid $10 per hour for regular time, and is paid time-and-ahalf for all hours in excess of 35 hours per week. Given this information: A) $350 should be charged to direct labor B) $50 should be charged to manufacturing overhead C) $150 should be charged to manufacturing overhead D) $500 should be charged to direct labor. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Solution: Overtime premium = $5 $10 × 1.5 = $15 overtime rate $15 overtime rate − $10 regular rate = $5 overtime premium Total hours − Regular work week hours = Overtime hours 45 − 35 = 10 10 hours × $5 per hour = $50 amount to be charged to manufacturing overhead 92. Sandra Pietro installs mufflers at Dethtrapp Motorcycle Company. Sandra is paid $14 per hour and an extra $7 per hour for every hour over 40 that is worked in a given week. Last week Sandra worked 50 hours with 2 of these hours correctly classified as idle time. How much of Sandra's wages last week should be included in manufacturing overhead cost? A) $28 B) $70 C) $98 D) $168 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Hard Solution: Overtime premium charged to manufacturing overhead: (50 total hours − 40 regular hours) × $7 overtime premium = $70 2 hours of idle time × $14 per hour = $28 Total wages to be included in manufacturing overhead = $70 + $28 = $98

Use the following to answer questions 93-96: Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers. 93. Which of the following terms could be used to correctly describe the cost of the aluminum sheets? A) fixed cost B) period cost C) direct cost D) conversion cost Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium 94. Which of the following terms could be used to correctly describe the wages paid to the machine operator who operates the stamping machine? A) direct labor cost B) administrative cost C) opportunity cost D) manufacturing overhead cost Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Easy 95. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine? A) variable cost B) indirect cost C) manufacturing overhead cost D) all of the above Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium

96. Which of the following terms could be used to correctly describe the straight-line depreciation cost on the stamping machine? A) period cost B) variable cost C) inventoriable cost D) both A and C above Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Hard Use the following to answer questions 97-99: A partial listing of costs incurred at Archut Corporation during September appears below: Direct materials................................................... Utilities, factory.................................................. Administrative salaries....................................... Indirect labor....................................................... Sales commissions.............................................. Depreciation of production equipment............... Depreciation of administrative equipment.......... Direct labor......................................................... Advertising.........................................................

$113,00 0 $5,000 $81,000 $25,000 $48,000 $20,000 $30,000 $129,00 0 $135,00 0

97. The total of the manufacturing overhead costs listed above for September is: A) $586,000 B) $50,000 C) $292,000 D) $30,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Utilities, factory.................................................. Indirect labor....................................................... Depreciation of production equipment............... Total manufacturing overhead costs...................

$ 5,000 25,000 20,000 $50,000

98. The total of the product costs listed above for September is: A) $292,000 B) $294,000 C) $50,000 D) $586,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Direct materials................................................... Utilities, factory.................................................. Indirect labor....................................................... Depreciation of production equipment............... Direct labor......................................................... Total product costs..............................................

$113,00 0 5,000 25,000 20,000 129,00 0 $292,00 0

99. The total of the period costs listed above for September is: A) $294,000 B) $344,000 C) $292,000 D) $50,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Administrative salaries....................................... Sales commissions.............................................. Depreciation of administrative equipment.......... Advertising......................................................... Total period costs................................................

$ 81,000 48,000 30,000 135,00 0 $294,00 0

Use the following to answer questions 100-102: A partial listing of costs incurred during March at Febbo Corporation appears below: Factory supplies............................................... Administrative wages and salaries................... Direct materials................................................ Sales staff salaries............................................ Factory depreciation........................................ Corporate headquarters building rent.............. Indirect labor.................................................... Marketing......................................................... Direct labor......................................................

$9,000 $85,000 $126,00 0 $30,000 $33,000 $43,000 $26,000 $65,000 $99,000

100. The total of the period costs listed above for March is: A) $68,000 B) $293,000 C) $291,000 D) $223,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Administrative wages and salaries................... Sales staff salaries............................................ Corporate headquarters building rent.............. Marketing......................................................... Total period costs.............................................

$ 85,000 30,000 43,000 65,00 0 $223,00 0

101. The total of the manufacturing overhead costs listed above for March is: A) $68,000 B) $35,000 C) $516,000 D) $293,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Factory supplies............................................... Factory depreciation........................................ Indirect labor.................................................... Total manufacturing overhead.........................

$ 9,000 33,000 26,000 $68,000

102. The total of the product costs listed above for March is: A) $516,000 B) $68,000 C) $293,000 D) $223,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Factory supplies............................................... Direct materials................................................ Factory depreciation........................................ Indirect labor.................................................... Direct labor...................................................... Total product costs...........................................

$ 9,000 126,000 33,000 26,000 99,00 0 $293,00 0

Use the following to answer questions 103-105: The following data pertain to Graham Company's operations in May: May 1 Work in process inventory............. Raw materials inventory................

$7,000 $15,00 0

Finished goods inventory...............

?

Other data: Raw materials used........................ Sales............................................... Cost of goods manufactured.......... Manufacturing overhead cost........ Raw materials purchases................ Gross Margin.................................

May 31 $12,00 0 ? $20,00 0

$40,000 $200,00 0 $135,00 0 $60,000 $30,000 $60,000

103. The ending materials inventory was: A) $5,000 B) $10,000 C) $15,000 D) $20,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Medium Solution: Beginning raw materials inventory................ Add: Raw materials purchases....................... Raw materials available for use..................... Deduct: Ending raw materials inventory........ Raw materials used........................................

$15,000 30,000 45,000 5,000 * $40,000

*Calculate this item by working backwards, as shown: Raw materials used = Raw materials available − Ending raw materials inventory $40,000 = $45,000 − Ending raw materials inventory Ending raw materials inventory = $5,000

104. The beginning finished goods inventory was: A) $5,000 B) $15,000 C) $25,000 D) $30,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Hard Solution: Sales − Cost of goods sold = Gross margin Cost of goods sold = Sales − Gross margin Cost of goods sold = $200,000 − $60,000 Cost of goods sold = $140,000 Next, solve backwards for beginning finished goods inventory: Beginning raw materials inventory...................... $ 25,000 * Add: Cost of goods manufactured........................ 135,000 Cost of goods available for sale........................... 160,000 * Deduct: Ending finished goods inventory............ 20,000 Cost of goods sold................................................ $140,000 * These items must be calculated by working backwards upward through the statements.

105. The direct labor cost for May was: A) $35,000 B) $40,000 C) $30,000 D) $25,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,3,4 Level: Hard Solution: Graham Company Schedule of Cost of Goods Manufactured Direct materials............................................................... Direct labor..................................................................... Manufacturing overhead................................................. Total manufacturing costs............................................... Add: Work in process, beginning...................................

$40,000 40,000* 60,000 140,000* 7,000 147,000* Deduct: Work in process, ending.................................... 12,000 Cost of goods manufactured........................................... $135,000 * These items must be calculated by working backwards upward through the statements. Use the following to answer questions 106-107: Demeglio Corporation reported the following data for the month of September: Inventories:

Beginnin g

Raw materials....................

$30,000

Work in process.................

$23,000

Finished goods...................

$32,000

Ending $34,00 0 $22,00 0 $35,00 0

106. If the raw materials purchased during September totaled $63,000, what was the cost of the raw materials used in production for the month? A) $67,000 B) $63,000 C) $59,000 D) $64,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw material inventory............... Raw materials used in production........................

$30,000 63,000 93,000 34,000 $59,000

107. If the company transferred $222,000 of completed goods from work in process to finished goods inventory during September, what was the cost of goods sold for the month? A) $219,000 B) $225,000 C) $222,000 D) $221,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy Solution: Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished inventory....................... Cost of goods sold................................................

$ 32,000 222,000 254,000 35,000 $219,000

Use the following to answer questions 108-109: Boardman Company reported the following data for the month of January: Inventories: Raw materials.................... Work in process................. Finished goods...................

1/1 $32,00 0 $18,00 0 $30,00 0

1/31 $31,00 0 $12,00 0 $35,00 0

Additional information: Sales revenue................................. Direct labor costs........................... Manufacturing overhead costs....... Selling expenses............................. Administrative expenses................

$210,00 0 $40,000 $70,000 $25,000 $35,000

108. If raw materials costing $35,000 were purchased during January, the total manufacturing costs for the month would be: A) $145,000 B) $144,000 C) $151,000 D) $146,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs....................................

$ 32,000 35,000 67,000 31,000 36,000 40,000 70,000 $146,000

109. Boardman Company's total conversion cost for January would be: A) $110,000 B) $170,000 C) $135,000 D) $130,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: $ 40,00 0 70,000 $110,00 0

Direct labor.................................... Manufacturing overhead................ Total conversion costs................... Use the following to answer questions 110-111:

Fassino Corporation reported the following data for the month of November: Inventories:

Beginnin g

Raw materials....................

$23,000

Work in process.................

$19,000

Finished goods...................

$55,000

Additional information: Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........ Selling expense.............................. Administrative expense.................

Ending $30,00 0 $20,00 0 $29,00 0

$58,000 $54,000 $82,000 $18,000 $42,000

110. The conversion cost for November was: A) $187,000 B) $112,000 C) $136,000 D) $140,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Direct labor.................................... Manufacturing overhead................ Total conversion costs...................

$ 54,00 0 82,000 $136,00 0

111. The prime cost for November was: A) $136,000 B) $60,000 C) $105,000 D) $112,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Direct labor........................................................... Total prime cost....................................................

$ 23,000 58,000 81,000 30,000 51,000 54,000 $105,000

Use the following to answer questions 112-113: Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. The beginning balance in the raw materials inventory account was $25,000. During the month, the company made raw materials purchases amounting to $54,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $44,000 and the ending balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000. 112. The conversion cost for November was: A) $116,000 B) $79,000 C) $87,000 D) $129,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Direct labor.................................... Manufacturing overhead................ Total conversion costs...................

$25,000 62,000 $87,000

113. The prime cost for November was: A) $79,000 B) $59,000 C) $67,000 D) $87,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Direct labor........................................................... Total prime cost....................................................

$25,000 54,000 79,000 37,000 42,000 25,000 $67,000

Use the following to answer questions 114-116: Yokum Company has provided the following data for the month of August: August 1 August 31 Raw materials inventory................ $8,000 ? Work in process inventory............. ? $14,000 Finished goods inventory............... $25,000 $35,000 Other Data: Sales........................................................... Manufacturing overhead costs................... Direct labor................................................ Purchase of raw materials.......................... Administrative expenses............................ Cost of goods manufactured...................... Raw materials used in production.............. Selling expenses.........................................

$350,00 0 $44,000 $80,000 $94,000 $40,000 $206,00 0 $87,000 $15,000

114. The ending raw materials inventory was: A) $3,000 B) $11,000 C) $15,000 D) $7,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 8,000 94,000 102,000 15,000 * $87,000

* This item must be calculated by working backwards upward through the statements. 115. The beginning work in process inventory was: A) $6,000 B) $9,000 C) $15,000 D) $2,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard

Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 8,000 94,000 102,000 15,000 * $87,000

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 87,000 80,000 44,000 211,000 9,000 * 220,000 * 14,000 $206,000

* These items must be calculated by working backwards upward through the statements.

116. The cost of goods sold was: A) $196,000 B) $206,000 C) $211,000 D) $190,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 8,000 94,000 102,000 15,000 * $ 87,000

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 87,000 80,000 44,000 211,000 9,000 * 220,000 * 14,000 $206,000

* These items must be calculated by working backwards upward through the statements. Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 25,000 206,000 231,000 35,000 $196,000

Use the following to answer questions 117-120: The following data (in thousands of dollars) have been taken from the accounting records of Karling Corporation for the just completed year. Sales........................................................... Raw materials inventory, beginning.......... Raw materials inventory, ending............... Purchases of raw materials........................ Direct labor................................................ Manufacturing overhead............................ Administrative expenses............................ Selling expenses......................................... Work in process inventory, beginning....... Work in process inventory, ending............ Finished goods inventory, beginning......... Finished goods inventory, ending..............

$99 0 $40 $70 $12 0 $20 0 $23 0 $15 0 $14 0 $70 $50 $12 0 $16 0

117. The cost of the raw materials used in production during the year (in thousands of dollars) was: A) $190 B) $90 C) $150 D) $160 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 40 120 160 70 $90

118. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $540 B) $500 C) $570 D) $590 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 40 120 160 70 $ 90

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 90 200 230 520 70 590 50 $540

119. The cost of goods sold for the year (in thousands of dollars) was: A) $700 B) $500 C) $660 D) $580 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured................................. Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 40 120 160 70 $90 $ 90 200 230 520 70 590 50 $540 $120 540 660 160 $500

120. The net operating income for the year (in thousands of dollars) was: A) $150 B) $200 C) $490 D) $250 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 40 120 160 70 $90

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 90 200 230 520 70 590 50 $540

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$120 540 660 160 $500

Sales............................................................. Cost of goods sold........................................ Gross margin................................................ Selling and administrative expenses: Administrative expense.............................$150 Selling expense......................................... 140 Net operating income...................................

$990 500 490 290 $200

Use the following to answer questions 121-125: Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device. 121. The salary that Mark earns at his present employ is: A) a variable cost B) a fixed cost C) a product cost D) an opportunity cost Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy 122. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: A) an opportunity cost B) a sunk cost C) a differential cost D) a period cost Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy 123. The cost of the raw materials that will be used in manufacturing the computer board is: A) a sunk cost B) a fixed cost C) a period cost D) a variable cost Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy 124. Rent on the administrative office space is: A) a variable cost B) an opportunity cost C) a period cost D) a product cost Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy

125. Property taxes on the building that will be purchased to house the manufacturing facility are: A) a product cost B) a variable cost C) an opportunity cost D) a period cost Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy Use the following to answer questions 126-128: Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year: Cost of clay used in production....................................... Wages paid to the workers who paint the figurines......... Wages paid to the sales manager’s secretary................... Cost of junk mail advertising...........................................

$65,00 0 $90,00 0 $22,00 0 $47,00 0

126. What is the total of the direct costs above? A) $65,000 B) $112,000 C) $155,000 D) $202,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium Solution: Cost of clay used in production....................................... Wages paid to the workers who paint the figurines......... Total direct costs..............................................................

$ 65,000 90,000 $155,000

127. What is the total of the inventoriable (product) costs above? A) $0 B) $69,000 C) $155,000 D) $159,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Cost of clay used in production....................................... Wages paid to the workers who paint the figurines......... Total product costs...........................................................

$ 65,000 90,000 $155,000

128. What is the total of the conversion costs above? A) $65,000 B) $69,000 C) $90,000 D) $155,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Solution: Only the wages paid to the works who paint the figurines ($90,000) are considered to be conversion costs.

Use the following to answer questions 129-132: Gaeddert Corporation reported the following data for the month of July: Inventories:

Beginnin g

Raw materials....................

$36,000

Work in process.................

$13,000

Finished goods...................

$36,000

Ending $27,00 0 $16,00 0 $42,00 0

Sales..................................................... Raw materials purchases...................... Direct labor cost................................... Manufacturing overhead cost.............. Selling expense.................................... Administrative expense.......................

$250,00 0 $76,000 $33,000 $81,000 $24,000 $29,000

Additional information:

129. The total manufacturing cost for July was: A) $190,000 B) $114,000 C) $199,000 D) $81,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 36,000 76,000 112,000 27,000 85,000 33,000 81,000 $199,000

130. The cost of goods manufactured for July was: A) $196,000 B) $190,000 C) $202,000 D) $199,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 36,000 76,000 112,000 27,000 85,000 33,000 81,000 $199,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$199,000 13,000 212,000 16,000 $196,000

131. The cost of goods sold for July was: A) $244,000 B) $138,000 C) $190,000 D) $202,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 36,000 76,000 112,000 27,000 85,000 33,000 81,000 $199,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$199,000 13,000 212,000 16,000 $196,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 36,000 196,000 232,000 42,000 $190,000

132. The net operating income for July was: A) $7,000 B) $60,000 C) $83,000 D) $9,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$36,000 76,000 112,000 27,000 $85,000

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 85,000 33,000 81,000 199,000 13,000 212,000 16,000 $196,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 36,000 196,000 232,000 42,000 $190,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$29,000 Selling expenses................................... 24,000 Net operating income..............................

$250,000 190,000 60,000 53,000 $ 7,000

Use the following to answer questions 133-136: Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May. The company started the month with raw materials inventories of $29,000. During the month, the company made raw materials purchases amounting to $72,000. At the end of the month, raw materials inventories totaled $33,000. Direct labor cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance in the work in process account was $24,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $46,000. Sales totaled $220,000. Selling expense was $14,000 and administrative expense was $36,000. 133. The total manufacturing cost for May was: A) $93,000 B) $57,000 C) $165,000 D) $161,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 72,000 101,000 33,000 68,000 36,000 57,000 $161,000

134. The cost of goods manufactured for May was: A) $161,000 B) $165,000 C) $169,000 D) $153,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 72,000 101,000 33,000 68,000 36,000 57,000 $161,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$161,000 24,000 185,000 16,000 $169,000

135. The cost of goods sold for May was: A) $107,000 B) $180,000 C) $158,000 D) $209,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 72,000 101,000 33,000 68,000 36,000 57,000 $161,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$161,000 24,000 185,000 16,000 $169,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 35,000 169,000 204,000 46,000 $158,000

136. The net operating income for May was: A) $77,000 B) $12,000 C) $62,000 D) $5,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$ 29,000 72,000 101,000 33,000 $ 68,000

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 68,000 36,000 57,000 161,000 24,000 185,000 16,000 $169,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 35,000 169,000 204,000 46,000 $158,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$36,000 Selling expenses................................... 14,000 Net operating income..............................

$220,000 158,000 62,000 50,000 $ 12,000

Use the following to answer questions 137-139: The following selected data for March were taken from Rubenstein Company's financial statements: Cost of goods available for sale.................... Manufacturing overhead............................... Cost of goods manufactured......................... Finished goods inventory, ending................. Direct materials used.................................... Sales.............................................................. Selling and administrative expenses............. Direct labor................................................... Work in process inventory, beginning..........

$65,000 $20,000 $51,000 $10,000 $15,000 $105,00 0 $30,000 $20,000 $0

137. The gross margin was: A) $55,000 B) $54,000 C) $50,000 D) $40,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Step #1: Cost of goods available for sale........................... Less: Finished goods inventory, ending............... Cost of goods sold................................................

$65,000 10,000 $55,000

Step #2: Sales..................................................................... Cost of goods sold................................................ Gross margin........................................................

$105,000 55,000 $ 50,000

138. The beginning finished goods inventory was: A) $24,000 B) $9,000 C) $10,000 D) $14,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Finished goods inventory, beginning................... Add: Cost of goods manufactured........................ Cost of goods available for sale...........................

$14,000* 51,000 $65,000

* This item must be calculated by working backwards upward through the statements. 139. The ending work in process inventory was: A) $4,000 B) $8,000 C) $10,000 D) $0 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning work in process inventory.................. Add: Direct materials........................................... Add: Direct labor.................................................. Add: Manufacturing overhead............................. Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$

0 15,000 20,000 20,000 55,000 4,000 * $51,000

* This item must be calculated by working backwards upward through the statements.

Use the following to answer questions 140-143: Dauenhauer Corporation reported the following data for the month of April: Inventories:

Beginnin g

Raw materials....................

$27,000

Work in process.................

$10,000

Finished goods...................

$38,000

Ending $20,00 0 $24,00 0 $28,00 0

Additional information: Sales........................................................... Raw materials purchases............................ Direct labor cost......................................... Manufacturing overhead cost.................... Selling expense.......................................... Administrative expense.............................

$230,00 0 $76,000 $30,000 $61,000 $22,000 $26,000

140. The total manufacturing cost for April was: A) $61,000 B) $167,000 C) $91,000 D) $174,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 27,000 76,000 103,000 20,000 83,000 30,000 61,000 $174,000

141. The cost of goods manufactured for April was: A) $160,000 B) $174,000 C) $167,000 D) $188,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 27,000 76,000 103,000 20,000 83,000 30,000 61,000 $174,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$174,000 10,000 184,000 24,000 $160,000

142. The cost of goods sold for April was: A) $240,000 B) $170,000 C) $150,000 D) $113,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 27,000 76,000 103,000 20,000 83,000 30,000 61,000 $174,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$174,000 10,000 184,000 24,000 $160,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 38,000 160,000 198,000 28,000 $170,000

143. The net operating income for April was: A) $60,000 B) $15,000 C) $12,000 D) $91,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use........................... Deduct: Ending raw materials inventory.............. Raw materials used..............................................

$27,000 76,000 103,000 20,000 $83,000

Raw materials used.............................................. Direct labor........................................................... Manufacturing overhead....................................... Total manufacturing costs.................................... Add: Beginning work in process inventory......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$ 83,000 30,000 61,000 174,000 10,000 184,000 24,000 $160,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Goods available for sale....................................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 38,000 160,000 198,000 28,000 $170,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$26,000 Selling expenses................................... 22,000 Net operating income..............................

$230,000 170,000 60,000 48,000 $ 12,000

Use the following to answer questions 144-145: Juart Corporation reported the following data for the month of December: Inventories:

Beginnin g

Raw materials....................

$26,000

Work in process.................

$22,000

Finished goods...................

$54,000

Ending $38,00 0 $21,00 0 $56,00 0

Additional information: Sales............................................... Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........ Selling expense.............................. Administrative expense.................

$230,00 0 $78,000 $24,000 $58,000 $15,000 $45,000

144. The cost of goods sold for December was: A) $147,000 B) $97,000 C) $228,000 D) $151,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium

Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs.................................... Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured................................. Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 26,000 78,000 104,000 38,000 66,000 24,000 58,000 $148,000 $148,000 22,000 170,000 21,000 $149,000 $ 54,000 149,000 203,000 56,000 $147,000

145. The net operating income for December was: A) $23,000 B) $83,000 C) $88,000 D) $10,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 26,000 78,000 104,000 38,000 66,000 24,000 58,000 $148,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$148,000 22,000 170,000 21,000 $149,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 54,000 149,000 203,000 56,000 $147,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$45,000 Selling expenses................................... 15,000 Net operating income..............................

$230,000 147,000 83,000 60,000 $ 23,000

Use the following to answer questions 146-147: Steenbergen Corporation reported the following data for the month of June: Inventories:

Beginnin g

Raw materials....................

$39,000

Work in process.................

$24,000

Finished goods...................

$28,000

Ending $32,00 0 $23,00 0 $30,00 0

Additional information: Sales............................................... Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........ Selling expense.............................. Administrative expense.................

$250,00 0 $50,000 $44,000 $71,000 $21,000 $27,000

146. The total manufacturing cost for June was: A) $165,000 B) $71,000 C) $115,000 D) $172,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 39,000 50,000 89,000 32,000 57,000 44,000 71,000 $172,000

147. The net operating income for June was: A) $37,000 B) $87,000 C) $79,000 D) $31,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 39,000 50,000 89,000 32,000 57,000 44,000 71,000 $172,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$172,000 24,000 196,000 23,000 $173,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 28,000 173,000 201,000 30,000 $171,000

Use the following to answer questions 148-151: Management of Thede Corporation has asked your help as an intern in preparing some key reports for July. The beginning balance in the raw materials inventory account was $29,000. During the month, the company made raw materials purchases amounting to $55,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $41,000 and manufacturing overhead cost was $61,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $55,000. Sales totaled $230,000. Selling expense was $13,000 and administrative expense was $32,000. 148. The total manufacturing cost for July was: A) $157,000 B) $149,000 C) $61,000 D) $102,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 55,000 84,000 37,000 47,000 41,000 61,000 $149,000

149. The cost of goods manufactured for July was: A) $149,000 B) $150,000 C) $148,000 D) $157,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 55,000 84,000 37,000 47,000 41,000 61,000 $149,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$149,000 22,000 171,000 23,000 $148,000

150. The cost of goods sold for July was: A) $217,000 B) $135,000 C) $161,000 D) $115,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 55,000 84,000 37,000 47,000 41,000 61,000 $149,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$149,000 22,000 171,000 23,000 $148,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 42,000 148,000 190,000 55,000 $135,000

151. The net operating income for July was: A) $28,000 B) $95,000 C) $50,000 D) $83,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 55,000 84,000 37,000 47,000 41,000 61,000 $149,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$149,000 22,000 171,000 23,000 $148,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 42,000 148,000 190,000 55,000 $135,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$32,000 Selling expenses................................... 13,000 Net operating income..............................

$230,000 135,000 95,000 45,000 $ 50,000

Use the following to answer questions 152-153: The CFO of Claussen Corporation has provided the following data for June. The beginning balance in the raw materials inventory account was $38,000. During the month, the company made raw materials purchases amounting to $53,000. At the end of the month, the balance in the raw materials inventory account was $27,000. Direct labor cost was $33,000 and manufacturing overhead cost was $74,000. The beginning balance in the work in process account was $24,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $57,000 and the ending balance was $55,000. Sales totaled $290,000. Selling expense was $17,000 and administrative expense was $43,000. 152. The cost of goods sold for June was: A) $174,000 B) $170,000 C) $292,000 D) $124,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 38,000 53,000 91,000 27,000 64,000 33,000 74,000 $171,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$171,000 24,000 195,000 23,000 $172,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 57,000 172,000 229,000 55,000 $174,000

153. The net operating income for June was: A) $56,000 B) $123,000 C) $70,000 D) $116,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 38,000 53,000 91,000 27,000 64,000 33,000 74,000 $171,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$171,000 24,000 195,000 23,000 $172,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 57,000 172,000 229,000 55,000 $174,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$43,000 Selling expenses................................... 17,000 Net operating income..............................

$290,000 174,000 116,000 60,000 $ 56,000

Use the following to answer questions 154-155: Downin Corporation has provided the following data for May. The beginning balance in the raw materials inventory account was $34,000. During the month, the company made raw materials purchases amounting to $65,000. At the end of the month, the balance in the raw materials inventory account was $29,000. Direct labor cost was $30,000 and manufacturing overhead cost was $56,000. The beginning balance in the work in process account was $15,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $41,000 and the ending balance was $57,000. Sales totaled $220,000. Selling expense was $21,000 and administrative expense was $42,000. 154. The total manufacturing cost for May was: A) $156,000 B) $86,000 C) $151,000 D) $56,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 34,000 65,000 99,000 29,000 70,000 30,000 56,000 $156,000

155. The net operating income for May was: A) $71,000 B) $81,000 C) $6,000 D) $18,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 34,000 65,000 99,000 29,000 70,000 30,000 56,000 $156,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$156,000 15,000 171,000 16,000 $155,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 41,000 155,000 196,000 57,000 $139,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$42,000 Selling expenses................................... 21,000 Net operating income..............................

$220,000 139,000 81,000 63,000 $ 18,000

Use the following to answer questions 156-157: Yore Corporation has provided the following data for the month of June. The beginning balance in the finished goods inventory account was $35,000 and the ending balance was $26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling expense was $15,000, and administrative expense was $46,000. 156. The cost of goods sold for June was: A) $99,000 B) $160,000 C) $90,000 D) $108,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 35,000 99,000 134,000 26,000 $108,000

157. The net operating income for June was: A) $51,000 B) $60,000 C) $121,000 D) $130,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Solution: Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 35,000 99,000 134,000 26,000 $108,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$46,000 Selling expenses................................... 15,000 Net operating income..............................

$220,000 108,000 112,000 61,000 $ 51,000

Use the following to answer questions 158-159: Streif Inc., a local retailer, has provided the following data for the month of June: Merchandise inventory, beginning balance..................... Merchandise inventory, ending balance.......................... Sales................................................................................. Purchases of merchandise inventory............................... Selling expense................................................................ Administrative expense...................................................

$46,000 $52,000 $260,00 0 $128,00 0 $13,000 $40,000

158. The cost of goods sold for June was: A) $128,000 B) $181,000 C) $122,000 D) $134,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 46,000 128,000 174,000 52,000 $122,000

159. The net operating income for June was: A) $132,000 B) $126,000 C) $85,000 D) $79,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution: Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 46,000 128,000 174,000 52,000 $122,000

Sales........................................................ Cost of goods sold................................... Gross margin........................................... Selling and administrative expenses: Administrative expenses......................$40,000 Selling expenses................................... 13,000 Net operating income..............................

$260,000 122,000 138,000 53,000 $ 85,000

Use the following to answer questions 160-161: Mcclean Corporation reported the following data for the month of October: Inventories:

Beginnin g

Raw materials....................

$29,000

Work in process.................

$19,000

Finished goods...................

$55,000

Additional information: Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........ Selling expense.............................. Administrative expense.................

Ending $36,00 0 $21,00 0 $53,00 0

$75,000 $45,000 $64,000 $16,000 $44,000

160. The total manufacturing cost for October was: A) $177,000 B) $184,000 C) $64,000 D) $109,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 75,000 104,000 36,000 68,000 45,000 64,000 $177,000

161. The cost of goods manufactured for October was: A) $177,000 B) $175,000 C) $184,000 D) $179,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 29,000 75,000 104,000 36,000 68,000 45,000 64,000 $177,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$177,000 19,000 196,000 21,000 $175,000

Use the following to answer questions 162-163: Vives Corporation reported the following data for the month of April: Inventories:

Beginnin g

Raw materials....................

$27,000

Work in process.................

$21,000

Finished goods...................

$48,000

Ending $21,00 0 $10,00 0 $41,00 0

Additional information: Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........

$79,00 0 $27,00 0 $89,00

0

162. The cost of goods manufactured for April was: A) $212,000 B) $190,000 C) $201,000 D) $195,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 27,000 79,000 106,000 21,000 85,000 27,000 89,000 $201,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$201,000 21,000 222,000 10,000 $212,000

163. The cost of goods sold for April was: A) $267,000 B) $205,000 C) $219,000 D) $132,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium

Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 27,000 79,000 106,000 21,000 85,000 27,000 89,000 $201,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$201,000 21,000 222,000 10,000 $212,000

Beginning finished goods inventory.................... Add: Cost of goods manufactured........................ Cost of goods available for sale........................... Deduct: Ending finished goods inventory............ Cost of goods sold................................................

$ 48,000 212,000 260,000 41,000 $219,000

Use the following to answer questions 164-165: Server Corporation has provided the following data for July. The beginning balance in the raw materials inventory account was $22,000. During the month, the company made raw materials purchases amounting to $76,000. At the end of the month, the balance in the raw materials inventory account was $36,000. Direct labor cost was $25,000 and manufacturing overhead cost was $79,000. The beginning balance in the work in process account was $11,000 and the ending balance was $20,000. The beginning balance in the finished goods account was $43,000 and the ending balance was $39,000.

164. The total manufacturing cost for July was: A) $166,000 B) $104,000 C) $79,000 D) $180,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 22,000 76,000 98,000 36,000 62,000 25,000 79,000 $166,000

165. The cost of goods manufactured for July was: A) $166,000 B) $157,000 C) $180,000 D) $175,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium

Solution: Beginning raw materials inventory...................... Add: Raw materials purchased............................. Raw materials available for use............................ Deduct: Ending raw materials inventory.............. Raw materials used.............................................. Add: Direct labor costs......................................... Add: Manufacturing overhead............................. Total manufacturing costs....................................

$ 22,000 76,000 98,000 36,000 62,000 25,000 79,000 $166,000

Total manufacturing costs.................................... Add: Beginning work in process inventory.......... Subtotal................................................................ Deduct: Ending work in process inventory.......... Cost of goods manufactured.................................

$166,000 11,000 177,000 20,000 $157,000

Use the following to answer questions 166-167: At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is variable with respect to sales volume) total $132,000. 166. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 18,400 units? (Assume that this sales volume is within the relevant range.) A) $126,720 B) $132,000 C) $121,440 D) $143,478 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $132,000 ÷ 20,000 = $6.60 per unit 18,400 units × $6.60 = $121,440

167. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) A) $6.60 B) $6.87 C) $7.17 D) $7.14 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $132,000 ÷ 20,000 = $6.60 per unit average cost Use the following to answer questions 168-169: At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400. 168. To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) A) $725,680 B) $733,400 C) $749,172 D) $717,960 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $733,400 at a sales volume of 37,200 units.

169. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) A) $19.30 B) $19.66 C) $19.72 D) $19.48 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $733,400 ÷ 37,300 units = $19.66 per unit (rounded) Use the following to answer questions 170-171: Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500. 170. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 23,900 calls in a month? (Assume that this call volume is within the relevant range.) A) $442,545 B) $452,500 C) $473,326 D) $432,590 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $452,500 ÷ 25,000 calls = $18.10 per call $18.10 per call × 23,900 calls = $432,590

171. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.) A) $18.93 B) $18.00 C) $17.89 D) $18.10 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $452,500 ÷ 25,000 calls = $18.10 per call (average) Use the following to answer questions 172-173: Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200. 172. To the nearest whole dollar, what should be the total lease cost at a sales volume of 29,200 units in a month? (Assume that this sales volume is within the relevant range.) A) $712,140 B) $697,200 C) $727,080 D) $668,548 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $697,200 at all sales levels within the relevant range.

173. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 26,400 units in a month? (Assume that this sales volume is within the relevant range.) A) $25.66 B) $24.90 C) $23.88 D) $26.41 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Solution: $697,200 ÷ 26,400 units = $26.41 (rounded) Use the following to answer questions 174-175: The following cost data pertain to the operations of Ladwig Department Stores, Inc., for the month of December. Corporate legal office salaries.............................................. Shoe Department cost of sales--Brentwood Store................ Corporate headquarters building lease.................................. Store manager’s salary--Brentwood Store............................ Shoe Department sales commissions--Brentwood Store...... Store utilities--Brentwood Store........................................... Shoe Department manager’s salary--Brentwood Store........ Central warehouse lease cost................................................ Janitorial costs--Brentwood Store.........................................

$68,000 $66,000 $86,000 $10,000 $5,000 $11,000 $3,000 $3,000 $11,000

The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores.

174. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A) $66,000 B) $74,000 C) $106,000 D) $71,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy Solution: Shoe Department cost of sales–Brentwood Store................. Shoe Department sales commissions–Brentwood Store....... Shoe Department Manager’s Salary–Brentwood Store........ Total direct costs...................................................................

$66,000 5,000 3,000 $74,000

175. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A) $74,000 B) $32,000 C) $157,000 D) $86,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium Solution: Corporate legal office salaries................... Corporate headquarters building lease....... Central warehouse lease cost..................... Total...........................................................

$ 68,000 86,000 3,000 $157,000

Use the following to answer questions 176-177: The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the month of September. Corporate headquarters building lease.............................................. Cosmetics Department sales commissions–Northridge Store.......... Corporate legal office salaries.......................................................... Store manager’s salary–Northridge Store......................................... Heating–Northridge Store................................................................. Cosmetics Department cost of sales–Northridge Store.................... Central warehouse lease cost............................................................ Store security–Northridge Store....................................................... Cosmetics Department manager’s salary–Northridge Store.............

$77,00 0 $4,000 $59,00 0 $11,00 0 $10,00 0 $37,00 0 $16,00 0 $12,00 0 $4,000

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores. 176. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A) $78,000 B) $45,000 C) $41,000 D) $37,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy Solution: Cosmetics Department sales commissions–Northridge Store.......... Cosmetics Department cost of sales–Northridge Store.................... Cosmetics Department manager’s salary–Northridge Store............. Total direct costs...............................................................................

$ 4,00 0 37,000 4,000 $45,00 0

177. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A) $152,000 B) $33,000 C) $45,000 D) $77,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium Solution: Corporate headquarters building lease....... Corporate legal office salaries................... Central warehouse lease cost..................... Total costs which are NOT direct..............

$ 77,000 59,000 16,000 $152,000

Use the following to answer questions 178-180: A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations. 178. In this decision, the original cost of any of the trucks that it currently owns can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy 179. In this decision, the wage costs of the additional drivers that will have to be hired for the long haul operations can best be described as a(n): A) opportunity cost B) administrative cost C) sunk cost D) differential (incremental) cost Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

180. In this decision, the lost income from the local delivery routes given up can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Use the following to answer questions 181-183: Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. 181. In making the decision to buy the model 240 machine rather than the model 310 machine, the differential cost was: A) $95,000 B) $5,000 C) $77,000 D) $18,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: Model 310 cost.............................. Model 240 cost.............................. Differential cost.............................

$545,000 450,000 $ 95,000

182. In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was: A) $545,000 B) $450,000 C) $527,000 D) $532,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: The original cost of $527,000 is a sunk cost. 183. In making the decision to invest in the model 240 machine, the opportunity cost was: A) $545,000 B) $450,000 C) $532,000 D) $527,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: The opportunity cost is the proceeds from the project that would have yielded $532,000. Use the following to answer questions 184-186: Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000.

184. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: The original cost of the machine purchased 7 years ago for $348,000 is a sunk cost. 185. In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A) $20,000 B) $8,000 C) $12,000 D) $63,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: Cost of model 370 machine....................... Cost of model 220 machine....................... Differential cost.........................................

$360,000 340,000 $ 20,000

186. In making the decision to invest in the model 220 machine, the opportunity cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Solution: The opportunity cost is the proceeds from the project that would have yielded $411,000.

Use the following to answer questions 187-190: (Appendix 2A) Debra works on the assembly line of a manufacturing company where she installs a component part for one of the company's products. She is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week. 187. Debra works 42 hours during a week in which there was no idle time. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $664 $24 B) $688 $0 C) $640 $48 D) $672 $16 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 2 hours × $24 per hour.......................... Total wages................................................................ Allocation of total wages: Direct labor: 42 hours × $16 per hour.................... Manufacturing overhead: 2 hours × $8 per hour.... Total wages................................................................

$640 48 $688 $672 16 $688

188. Debra works 43 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $712 $0 B) $688 $24 C) $624 $88 D) $640 $72 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 3 hours × $24 per hour.......................... Total wages................................................................ Allocation of total wages: Direct labor: 39 hours × $16 per hour.................... Manufacturing overhead: Idle time: 4 hours × $16 per hour....................... Overtime premium: 3 hours × $8 per hour......... Total wages................................................................

$640 72 $712 $624 $64 24

88 $712

189. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $688 $126 B) $624 $190 C) $672 $142 D) $640 $174 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages and fringe benefits for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 2 hours × $24 per hour.......................... Fringe benefits: 42 hours × $3 per hour................. Total wages and fringe benefits.......................... Allocation of wages and fringe benefits: Direct labor: 39 hours × $16 per hour.................... Manufacturing overhead: Idle time: 3 hours × $16 per hour....................... Overtime premium: 2 hours × $8 per hour......... Fringe benefits: 42 hours × $3 per hour.............. Total wages and fringe benefits.................................

$640 48 126 $814 $624 $ 48 16 126

190 $814

190. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $688 $126 B) $624 $190 C) $741 $73 D) $672 $142 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Allocation of wages and fringe benefits: Direct labor: Wage cost: 39 hours × $16 per hour................... Fringe benefits: 39 hours × $3 per hour.............. Manufacturing overhead: Idle time: 3 hours × $16 per hour....................... Overtime premium: 2 hours × $8 per hour......... Fringe benefits: 3 hours × $3 per hour................ Total wages and fringe benefits.............................

$624 117 48 16 9

$741

73 $814

Use the following to answer questions 191-194: (Appendix 2A) Larry is a quality inspector on the assembly line of a manufacturing company. He is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week. He is classified as a direct labor worker.

191. Larry works 44 hours during a week in which there was no idle time. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $736 $0 B) $640 $96 C) $704 $32 D) $688 $48 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 4 hours × $24 per hour.......................... Total wages................................................................ Allocation of total wages: Direct labor: 44 hours × $16 per hour.................... Manufacturing overhead: 4 hours × $8 per hour.... Total wages................................................................

$640 96 $736 $704 32 $736

192. Larry works 45 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $656 $104 B) $760 $0 C) $720 $40 D) $640 $120 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 5 hours × $24 per hour.......................... Total wages................................................................ Allocation of total wages: Direct labor: 41 hours × $16 per hour.................... Manufacturing overhead: Idle time: 4 hours × $16 per hour....................... Overtime premium: 5 hours × $8 per hour......... Total wages................................................................

$640 120 $760 $656 $64 40

104 $760

193. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $760 $225 B) $640 $345 C) $656 $329 D) $720 $265 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Total wages and fringe benefits for the week: Regular time: 40 hours × $16 per hour.................. Overtime: 5 hours × $24 per hour.......................... Fringe benefits: 45 hours × $5 per hour................. Total wages and fringe benefits.......................... Allocation of wages and fringe benefits: Direct labor: 41 hours × $16 per hour.................... Manufacturing overhead: Idle time: 4 hours × $16 per hour....................... Overtime premium: 5 hours × $8 per hour......... Fringe benefits: 45 hours × $5 per hour.............. Total wages and fringe benefits.................................

$640 120 225 $985 $656 $ 64 40 225

329 $985

194. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: A) B) C) D)

Direct Labor Manufacturing Overhead $720 $265 $861 $124 $760 $225 $656 $329

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium Solution: Allocation of wages and fringe benefits: Direct labor: Wage cost: 41 hours × $16 per hour................... Fringe benefits: 41 hours × $5 per hour.............. Manufacturing overhead: Idle time: 4 hours × $16 per hour....................... Overtime premium: 5 hours × $8 per hour......... Fringe benefits: 4 hours × $5 per hour................ Total wages and fringe benefits.............................

$656 205 64 40 20

$861

124 $985

Use the following to answer questions 195-196: (Appendix 2B) Circle K Toys, Inc. manufactures toys and children's clothing and sells these products to retail outlets. The following costs were incurred in performing quality activities at Circle K during the year: Product recall activities.......................................... Quality training activities...................................... Quality improvement activities.............................. Warranty claim activities....................................... Quality inspection and testing activities................ Rework activities................................................... Quality data collection and reporting activities.....

$370,00 0 $240,00 0 $154,00 0 $109,00 0 $61,000 $38,000 $15,000

195. What is the total of the prevention costs for Circle K? A) $394,000 B) $409,000 C) $455,000 D) $470,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Quality training activities...................................... Quality improvement activities.............................. Quality data collection and reporting activities..... Total prevention costs............................................

$240,00 0 154,000 15,000 $409,00 0

196. What is the total of the internal failure costs for Circle K? A) $53,000 B) $99,000 C) $517,000 D) $38,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Rework activities. . .

$38,000

Use the following to answer questions 197-200: (Appendix 2B) Ean Company's quality cost report is to be based on the following data: Quality circles.................................................................. Downtime caused by quality problems........................... Debugging software errors.............................................. Statistical process control activities................................. Test and inspection of in-process goods.......................... Final product testing and inspection................................ Cost of field servicing and handling complaints............. Product recalls................................................................. Maintenance of test equipment........................................

$57,000 $98,000 $98,000 $68,000 $24,000 $66,000 $87,000 $72,000 $75,000

197. What would be the total prevention cost appearing on the quality cost report? A) $143,000 B) $125,000 C) $81,000 D) $129,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Quality circles........................................................ Statistical process control activities....................... Total prevention costs............................................

$ 57,00 0 68,000 $125,00 0

198. What would be the total appraisal cost appearing on the quality cost report? A) $141,000 B) $165,000 C) $90,000 D) $164,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Test and inspection of in-process goods................ Final product testing and inspection...................... Maintenance of test equipment.............................. Total appraisal cost................................................

$ 24,00 0 66,000 75,000 $165,00 0

199. What would be the total internal failure cost appearing on the quality cost report? A) $185,000 B) $196,000 C) $173,000 D) $170,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Downtime caused by quality problems.................. Debugging software errors.................................... Total internal failure cost.......................................

$ 98,00 0 98,000 $196,00 0

200. What would be the total external failure cost appearing on the quality cost report? A) $170,000 B) $645,000 C) $159,000 D) $355,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Cost of field servicing and handling complaints... Product recalls....................................................... Total external failure cost......................................

$ 87,00 0 72,000 $159,00 0

Use the following to answer questions 201-204: (Appendix 2B) Fagel Company's quality cost report is to be based on the following data: Disposal of defective products........................................ Supervision of testing and inspection activities.............. Statistical process control activities................................. Cost of field servicing and handling complaints............. Re-entering data because of keying errors...................... Warranty repairs and replacements................................. Supplies used in testing and inspection........................... Quality circles.................................................................. Downtime caused by quality problems...........................

$42,000 $73,000 $78,000 $53,000 $46,000 $87,000 $89,000 $27,000 $14,000

201. What would be the total prevention cost appearing on the quality cost report? A) $105,000 B) $80,000 C) $151,000 D) $116,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Statistical process control activities................................. Quality circles.................................................................. Total prevention cost.......................................................

$ 78,000 27,000 $105,000

202. What would be the total appraisal cost appearing on the quality cost report? A) $115,000 B) $135,000 C) $267,000 D) $162,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Supervision of testing and inspection activities.............. Supplies used in testing and inspection........................... Total appraisal cost..........................................................

$ 73,000 89,000 $162,000

203. What would be the total internal failure cost appearing on the quality cost report? A) $129,000 B) $67,000 C) $115,000 D) $102,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Disposal of defective products........................................ Re-entering data because of keying errors...................... Downtime caused by quality problems........................... Total internal failure cost.................................................

$ 42,000 46,000 14,000 $102,000

204. What would be the total external failure cost appearing on the quality cost report? A) $509,000 B) $242,000 C) $101,000 D) $140,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Cost of field servicing and handling complaints............. Warranty repairs and replacements................................. Total external failure cost................................................

$ 53,000 87,000 $140,000

Use the following to answer questions 205-208: (Appendix 2B) Faust Company's quality cost report is to be based on the following data: Quality engineering......................................................... Quality circles.................................................................. Supervision of testing and inspection activities.............. Net cost of scrap.............................................................. Test and inspection of in-process goods.......................... Liability arising from defective products........................ Warranty repairs and replacements................................. Debugging software errors.............................................. Rework labor and overhead.............................................

$68,00 0 $35,00 0 $72,00 0 $76,00 0 $6,000 $3,000 $56,00 0 $68,00 0 $19,00 0

205. What would be the total prevention cost appearing on the quality cost report? A) $107,000 B) $41,000 C) $140,000 D) $103,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Quality engineering......................................................... Quality circles.................................................................. Total prevention cost.......................................................

$ 68,000 35,000 $103,000

206. What would be the total appraisal cost appearing on the quality cost report? A) $78,000 B) $181,000 C) $81,000 D) $74,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Supervision of testing and inspection activities.............. Test and inspection of in-process goods.......................... Total appraisal cost..........................................................

$72,000 6,000 $78,000

207. What would be the total internal failure cost appearing on the quality cost report? A) $71,000 B) $163,000 C) $74,000 D) $132,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Net cost of scrap............................ Debugging software errors............ Rework labor and overhead........... Total internal failure cost...............

$ 76,000 68,000 19,000 $163,000

208. What would be the total external failure cost appearing on the quality cost report? A) $222,000 B) $403,000 C) $79,000 D) $59,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium Solution: Liability arising from defective products........................ Warranty repairs and replacements................................. Total external failure cost................................................

$ 3,000 56,000 $59,000

Essay Questions 209. The information below relates to Guzzardi Manufacturing Company. (Assume that all raw materials are direct materials.): Purchases of raw materials........................ Direct labor cost......................................... Selling costs (total).................................... Administrative costs (total)........................ Manufacturing overhead costs (total)........ Raw materials inventory, beginning.......... Work in process inventory, beginning....... Finished goods inventory, beginning......... Raw materials inventory, ending............... Work in process inventory, ending............ Finished goods inventory, ending..............

$362,00 0 $207,00 0 $61,000 $84,000 $775,00 0 $37,000 $19,000 $62,000 $44,000 $3,000 $77,000

Required: What is Guzzardi's cost of goods sold? Ans: Purchases of raw materials.............................................. Add: Raw materials inventory, beginning...................... Deduct: Raw materials inventory, ending....................... Raw materials used in production................................... Direct labor cost.............................................................. Manufacturing overhead costs (total)............................. Total manufacturing cost................................................ Add: Work in process inventory, beginning................... Deduct: Work in process inventory, ending................... Cost of goods manufactured...........................................

$ 362,00 0 37,00 0 399,000 44,00 0 355,000 207,000 775,00 0 1,337,000 19,00 0 1,356,000 3,00 0 $1,353,00 0

Finished goods inventory, beginning.............................. Add: Cost of goods manufactured.................................. Goods available for sale.................................................. Deduct: Finished goods inventory, ending..................... Cost of goods sold........................................................... AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,2,3,4

$ 62,000 1,353,000 1,415,000 77,000 $1,338,00 0

Level: Medium

210. Miyose Corporation, a manufacturing company, has provided the following data for the month of June: Inventories:

Beginnin g

Raw materials....................

$23,000

Finished goods...................

$32,000

Ending $21,00 0 $37,00 0

Raw materials purchased during June totaled $67,000 and the cost of goods manufactured totaled $124,000. Required: 10. What was the cost of raw materials used in production during June? Show your work. 11. What was the cost of goods sold for June? Show your work. Ans: a. Beginning materials inventory......................................... Add: Purchases of raw materials..................................... Raw materials available for use....................................... Deduct: Ending raw materials inventory......................... Raw materials used in production...................................

$23,00 0 67,000 90,000 21,000 $69,00 0

b. Cost of goods manufactured............................................ Add: Beginning finished goods inventory....................... Goods available for sale.................................................. Deduct: Ending finished goods inventory....................... Cost of goods sold...........................................................

$124,00 0 32,00 0 156,000 37,00 0 $119,00 0

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

211. During the month of May, Russnak Corporation, a manufacturing company, purchased raw materials costing $73,000. The cost of goods manufactured for the month was $102,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $39,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $46,000. Required: 12. What was the cost of raw materials used in production during May? Show your work. 13. What was the cost of goods sold for May? Show your work. Ans: a. Beginning materials inventory......................................... Add: Purchases of raw materials..................................... Raw materials available for use....................................... Deduct: Ending raw materials inventory......................... Raw materials used in production...................................

$26,00 0 73,000 99,000 39,000 $60,00 0

b. Cost of goods manufactured............................................ Add: Beginning finished goods inventory....................... Goods available for sale.................................................. Deduct: Ending finished goods inventory....................... Cost of goods sold...........................................................

$102,00 0 42,00 0 144,000 46,00 0 $ 98,00 0

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

212. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below: Galaxy Toys Internal Memo Sept 15 To: Harry Wilson, Controller Fm: Gary Resnick, Executive Vice President As you know, we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month. Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse? Please let me know as soon as possible. The President is pushing for results. Mary didn't know what to do about the memo. It wasn't intended for her, but its contents were alarming. Required: 14. Why has Gary Resnick suggested reclassifying some period costs as product costs? 15. Why do you think Mary was alarmed about the memo? Ans: 16. Gary Resnick has suggested reclassifying some period costs as product costs since the company is building up large finished goods inventories in anticipation of the Christmas selling season. Product costs are inventoried and flow through to the income statement only when products are sold. Period expenses, in contrast, flow directly to the income statement. Since most of the finished goods inventories will be held over to the next quarter, reclassifying period costs as product costs will effectively defer recognition of expenses until next quarter and therefore will improve the current quarter's net operating income.

17. Mary Tappin is probably alarmed by both the economic situation the company finds itself in and by the apparent willingness of top management to bend the rules. Improperly reclassifying costs is an indication that top management does not feel like it has to play by the rules or be honest in its dealings with the bank. With such loose ethical standards, Mary may wonder what other things they are doing that are unethical and/or illegal. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 2 Level: Medium

213. A partial listing of costs incurred at Boylen Corporation during March appears below: Direct materials................................................................ Utilities, factory............................................................... Sales commissions........................................................... Administrative salaries.................................................... Indirect labor.................................................................... Advertising...................................................................... Depreciation of production equipment............................ Direct labor...................................................................... Depreciation of administrative equipment......................

$181,00 0 $10,000 $69,000 $99,000 $32,000 $75,000 $28,000 $120,00 0 $49,000

Required: 18. What is the total amount of product cost listed above? Show your work. 19. What is the total amount of period cost listed above? Show your work. Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: $181,00 Direct materials...................................................... 0 Direct labor............................................................ 120,000 Manufacturing overhead: $10,00 Utilities, factory.................................................. 0 Indirect labor...................................................... 32,000 70,00 Depreciation of production equipment............... 28,000 0 $371,00 Total product cost.................................................. 0 b. Period costs consist of all costs other than product costs: $ 99,00 Administrative salaries.......................................... 0 Sales commissions................................................. 69,000 Depreciation of administrative equipment............. 49,000 75,00 Advertising............................................................ 0 $292,00 Total period cost.................................................... 0

AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Medium

AICPA FN: Reporting

214. Marquess Corporation has provided the following partial listing of costs incurred during May: Marketing salaries...................................... Property taxes, factory............................... Administrative travel................................. Sales commissions..................................... Indirect labor.............................................. Direct materials.......................................... Advertising................................................ Depreciation of production equipment...... Direct labor................................................

$39,000 $8,000 $102,00 0 $73,000 $31,000 $197,00 0 $145,00 0 $39,000 $78,000

Required: 20. What is the total amount of product cost listed above? Show your work. 21. What is the total amount of period cost listed above? Show your work. Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: $197,00 Direct materials...................................................... 0 Direct labor............................................................ 78,000 Manufacturing overhead: Property taxes, factory........................................ $ 8,000 Indirect labor...................................................... 31,000 78,00 Depreciation of production equipment............... 39,000 0 $353,00 Total product cost.................................................. 0 b. Period costs consist of all costs other than product costs: $102,00 Administrative travel..................... 0 Sales commissions......................... 73,000 Marketing salaries.......................... 39,000 Advertising.................................... 145,000 $359,00 Total period cost............................ 0

AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Medium

AICPA FN: Reporting

215. Classify the following costs for an auto manufacturer as either direct materials, direct labor, manufacturing overhead, or period costs. 22. Steel used in automobiles 23. Assembly department employee wages 24. Utility costs used in executive building 25. Travel costs used by sales personnel 26. Cost of shipping goods to customers 27. Property taxes on assembly plant 28. Glass used in automobiles 29. Maintenance supplies 30. Depreciation on assembly plant 31. Plant manager's salary 32. CEO's salary 33. Depreciation on executive building 34. Salary of marketing executive 35. Tires installed on automobiles 36. Advertising Required: Complete the answer sheet above by placing an “X” under each heading that identifies the cost involved. Direct Materials Direct Labor Manufacturing Overhead Period Cost a. b. c. d. e. f. g. h. i. j. k. l. m. n. o.

Ans: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o.

Direct Materials Direct Labor Manufacturing Overhead Period Cost X X X X X X X X X X X X X X X

AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Medium

AICPA FN: Reporting

216. The following costs relate to one month's activity in Carr Company: Indirect labor.................................. Rent on factory building................ Maintenance of equipment............ Direct material used....................... Utilities on factory......................... Direct labor.................................... Selling expense.............................. Administrative expense................. Work in process, beginning........... Work in process, ending................ Finished goods, beginning............. Finished goods, ending..................

$400 $300 $100 $1,20 0 $200 $1,50 0 $500 $300 $800 $600 $500 $250

Required: 37. Prepare a schedule of Cost of Goods Manufactured in good form. 38. Determine the Cost of Goods Sold for the month. Ans: a. $1,20 0 1,500

Direct materials.............................. Direct labor.................................... Manufacturing overhead: Indirect labor.............................. Rent............................................. Maintenance................................ Utilities....................................... Total manufacturing cost............... Add: WIP, beginning..................... Deduct: WIP, ending..................... Cost of goods manufactured..........

$40 0 300 100 200

1,000 3,700 800 4,500 600 $3,90 0

b. Finished goods, beginning......................... Add: Cost of goods manufactured............. Goods available for sale............................. Finished goods, ending.............................. Cost of goods sold.....................................

$ 500 3,900 4,400 25 0 $4,15 0

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium 217. Nish Corporation has provided the following data for the month of April: Sales............................................... Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........ Selling expense.............................. Administrative expense................. Inventories:

Beginnin g

Raw materials........

$26,000

Work in process.....

$18,000

Finished goods.......

$42,000

$220,00 0 $50,000 $23,000 $59,000 $18,000 $43,000 Ending $35,00 0 $22,00 0 $29,00 0

Required: 39. Prepare a Schedule of Cost of Goods Manufactured in good form for April. 40. Prepare an Income Statement in good form for April. Ans: a. Schedule of Cost of Goods Manufactured Direct materials: Beginning materials inventory............................ Add: Purchases of raw materials........................ Raw materials available for use.......................... Deduct: Ending raw materials inventory............

$26,00 0 50,000 76,000 35,000

Raw materials used in production.......................... Direct labor............................................................ Manufacturing overhead........................................ Total manufacturing costs...................................... Add: Beginning work in process inventory...........

$ 41,00 0 23,000 59,00 0 123,000 18,00 0 141,000

22,00 0 $119,00 0

Deduct: Ending work in process inventory........... Cost of goods manufactured.................................. b. Income Statement

$220,00 0

Sales....................................................................... Cost of goods sold: Beginning finished goods inventory................... Add: Cost of goods manufactured...................... Goods available for sale..................................... Deduct: Ending finished goods inventory.......... Gross margin.......................................................... Selling and administrative expenses: Selling expenses................................................. Administrative expenses..................................... Net operating income.............................................

$ 42,00 0 119,00 0 161,000 29,000 18,000 43,000

132,000 88,000 61,000 $ 27,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium 218. The following data have been provided the Monster Manufacturing Company for the most recent period: Sales................................................................................. Raw materials inventory, beginning................................ Raw materials inventory, ending..................................... Purchases of raw materials.............................................. Direct labor...................................................................... Manufacturing overhead.................................................. Administrative expenses.................................................. Selling expenses.............................................................. Work in process inventory, beginning............................. Work in process inventory, ending.................................. Finished goods inventory, beginning............................... Finished goods inventory, ending....................................

$16,80 0 $900 $750 $8,400 $1,240 $2,070 $1,890 $1,000 $700 $1,050 $970 $1,120

Required: Calculate the cost of goods manufactured and prepare an income statement.

Ans: Cost of goods manufactured: Direct materials = $900+$8,400-$750 = $8,550 Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860 Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510

Sales....................................................................... Cost of goods sold: Beginning finished goods inventory................... Plus cost of goods manufactured........................ Cost of goods available for sale.......................... Less ending finished goods inventory................ Cost of goods sold................................................. Gross margin.......................................................... Selling and administrative expenses: Administrative expenses..................................... Selling expenses................................................. Total selling and administrative expense............... Net operating income.............................................

$16,80 0 $ 970 11,510 12,480 1,120 11,36 0 5,440 1,890 1,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Easy

2,890 $ 2,550

219. In December, Vollick Corporation had sales of $245,000, selling expenses of $23,000, and administrative expenses of $26,000. The cost of goods manufactured was $190,000. The beginning balance in the finished goods inventory account was $59,000 and the ending balance was $56,000. Required: Prepare an Income Statement in good form for December. Ans: Income Statement $245,00 0

Sales.................................................................... Cost of goods sold:............................................. Beginning finished goods inventory................ Add: Cost of goods manufactured................... Goods available for sale.................................. Deduct: Ending finished goods inventory....... Gross margin....................................................... Selling and administrative expenses: Selling expenses.................................................. Administrative expenses..................................... Net operating income..........................................

$ 59,00 0 190,00 0 249,000 56,00 0 23,000 26,00 0

193,00 0 52,000

49,000 $ 3,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy 220. In April, Holderness Inc., a merchandising company, had sales of $221,000, selling expenses of $14,000, and administrative expenses of $25,000. The cost of merchandise purchased during the month was $155,000. The beginning balance in the merchandise inventory account was $34,000 and the ending balance was $48,000. Required: Prepare an Income Statement in good form for April.

Ans: Income Statement Sales................................................................. Cost of goods sold: Beginning merchandise inventory................ Add: Purchases............................................. Goods available for sale............................... Deduct: Ending merchandise inventory....... Gross margin.................................................... Selling and administrative expenses: Selling expenses........................................... Administrative expenses............................... Net operating income.......................................

$221,000 $ 34,000 155,000 189,000 48,000 14,000 25,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

141,000 80,000 39,000 $ 41,000

221. The following data were taken from the cost records of Morrey Company for last year: Depreciation, factory..................... Indirect labor.................................. Utilities, factory............................. Insurance, factory.......................... Lubricants for machines................ Direct labor.................................... Purchases of raw materials............

$60,000 $100,00 0 $40,000 $10,000 $15,000 $200,00 0 $150,00 0

Inventories at the beginning and at the end of the year were as follows: Beginnin g Raw materials.................... Work in process.................

$10,000 $25,000

Finished goods...................

$30,000

Ending $20,00 0 $5,000 $50,00 0

Required: Prepare a schedule of cost of goods manufactured in good form. Ans: Morrey Company Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning................ $ 10,000 Add: Purchases of raw materials..................... 150,000 Raw materials available for use....................... 160,000 Deduct: Raw materials inventory, ending....... 20,000 Raw materials used in production................... Direct labor......................................................... Manufacturing overhead: Depreciation, factory....................................... 60,000 Indirect labor................................................... 100,000 Utilities, factory............................................... 40,000 Insurance, factory............................................ 10,000 Lubricants for machines.................................. 15,000

$140,000 200,000

Total manufacturing overhead cost.................... Total manufacturing costs................................... Add: Work in process inventory, beginning....... Deduct: Work in process inventory, ending....... Cost of Goods Manufactured..............................

225,000 565,000 25,000 590,000 5,000 $585,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium 222. Pamer Corporation has provided the following data for the month of September: Raw materials purchases................ Direct labor cost............................. Manufacturing overhead cost........

$60,00 0 $27,00 0 $76,00 0

Inventories:

Beginnin g

Raw materials....................

$20,000

Work in process.................

$24,000

Finished goods...................

$43,000

Ending $23,00 0 $18,00 0 $32,00 0

Required: Prepare a Schedule of Cost of Goods Manufactured in good form for September. Ans: Schedule of Cost of Goods Manufactured Direct materials: $20,00 Beginning materials inventory............................ 0 Add: Purchases of raw materials........................ 60,000 Raw materials available for use.......................... 80,000 Deduct: Ending raw materials inventory............ 23,000 Raw materials used in production.......................... Direct labor............................................................ Manufacturing overhead........................................ Total manufacturing costs...................................... Add: Beginning work in process inventory...........

$ 57,000 27,000 76,000 160,000 24,000 184,000

Deduct: Ending work in process inventory........... Cost of goods manufactured.................................. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium

18,000 $166,00 0

223. A number of costs and measures of activity are listed below.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10 .

Cost Description Cost of vaccine used at a clinic Building rent at a taco shop Salary of production manager at a snowboard manufacturer Cost of electricity for production equipment at a snowboard manufacturer Ferry captain’s salary on a regularly scheduled passenger ferry Cost of glue used in furniture production Janitorial wages at a snowboard manufacturer Depreciation on factory building at a snowboard manufacturer Cost of advertising at a snowboard company Cost of shipping bags of fertilizer to a customer at a chemical plant

Possible Measure of Activity Vaccines administered Dollar sales Snowboards produced Snowboards produced Number of passengers Units produced Snowboards produced Snowboards produced Snowboards sold Bags shipped

Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it. Ans: 1. Cost of vaccine used at a clinic; Vaccines administered; Variable 2. Building rent at a taco shop; Dollar sales; Fixed 3. Salary of production manager at a snowboard manufacturer; Snowboards produced; Fixed 4. Cost of electricity for production equipment at a snowboard manufacturer; Snowboards produced; Variable 5. Ferry captain's salary on a regularly scheduled passenger ferry; Number of passengers; Fixed 6. Cost of glue used in furniture production; Units produced; Variable 7. Janitorial wages at a snowboard manufacturer; Snowboards produced; Fixed 8. Depreciation on factory building at a snowboard manufacturer; Snowboards produced; Fixed 9. Cost of advertising at a snowboard company; Snowboards sold; Fixed 10. Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags shipped; Variable AACSB: Analytic AICPA BB: Critical Thinking LO: 5 Level: Easy

AICPA FN: Reporting

224. A number of costs are listed below. Cost Description 1. Wages of carpenters on a home building site 2. Cost of wiring used in making a personal computer 3. Manager’s salary at a hotel run by a chain of hotels 4. Manager’s salary at a hotel run by a chain of hotels 5. Cost of aluminum mast installed in a yacht at a yacht manufacturer 6. Monthly lease cost of X-ray equipment at a hospital 7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer 8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer 9. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer 10 Cost of a measles vaccine administered at an outpatient . clinic at a hospital

Cost Object A particular home A particular personal computer A particular hotel guest The particular hotel A particular yacht The Radiology (X-Ray) Department A particular yacht A particular yacht The auto repair shop A particular patient

Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it. Ans: 41. Wages of carpenters on a home building site; A particular home; Direct 42. Cost of wiring used in making a personal computer; A particular personal computer; Indirect 43. Manager's salary at a hotel run by a chain of hotels; A particular hotel guest; Indirect 44. Manager's salary at a hotel run by a chain of hotels; The particular hotel; Direct 45. Cost of aluminum mast installed in a yacht at a yacht manufacturer; A particular yacht; Direct 46. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray) Department; Direct 47. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A particular yacht; Indirect 48. Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht; Direct

49. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The auto repair shop; Direct 50. Cost of a measles vaccine administered at an outpatient clinic at a hospital; A particular patient; Direct AACSB: Analytic AICPA BB: Critical Thinking LO: 6 Level: Easy

AICPA FN: Reporting

225. A direct labor worker at Ude Corporation is paid $24 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 44 hours during a week in which there was no idle time. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: $24 per hour × 44 hour = $1,056 Manufacturing overhead: Overtime premium: $12 per hour × 4 hours = $48 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 2A LO: 8 Level: Easy

AICPA FN: Reporting

226. A direct labor worker at Bodreau Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 48 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work.

Ans: Direct labor: $14 per hour × 44 hours...................................... Manufacturing overhead: Idle time: $14 per hour × 4 hours....................... Overtime premium: $7 per hour × 8 hours......... Total manufacturing overhead............................... AACSB: Analytic AICPA BB: Critical Thinking Appendix: 2A LO: 8 Level: Easy

$61 6 $ 5 6 56 $11 2 AICPA FN: Reporting

227. A direct labor worker at Chiarini Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 45 hours but was idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: $14 per hour × 42 hours...................................... Manufacturing overhead: Idle time: $14 per hour × 3 hours....................... Overtime premium: $7 per hour × 5 hours......... Fringe benefits: $4 per hour × 45 hours............. Total manufacturing overhead............................... AACSB: Analytic AICPA BB: Critical Thinking Appendix: 2A LO: 8 Level: Medium

$58 8 $ 42 35 180 $25 7 AICPA FN: Reporting

228. A direct labor worker at Kimmer Corporation is paid $18 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 42 hours but was idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: Wages: $18 per hour × 38 hours......................... Fringe benefits: $4 per hour ×38 hours.............. Total direct labor.................................................... Manufacturing overhead: Idle time: $18 per hour ×4 hours........................ Overtime premium: $9 per hour × 2 hours......... Fringe benefits: $4 per hour × 4 hours............... Total manufacturing overhead............................... AACSB: Analytic AICPA BB: Critical Thinking Appendix: 2A LO: 8 Level: Medium

$68 4 152 $83 6 $ 72 18 16 $10 6 AICPA FN: Reporting

229. Toole Manufacturing Company manufactures and sells ceiling fans. Toole incurred the following costs related to quality for the year: Cost of warranty repairs............................. Cost of employee quality training.............. Cost incurred to rework fans...................... Spoilage cost (net)..................................... Cost of handling customer complaints...... Depreciation cost of test equipment.......... Cost of quality circles................................ Maintenance cost of test equipment.......... Cost of retesting reworked fans................. Cost of final testing of fans........................

$35,00 0 $27,00 0 $18,00 0 $15,00 0 $11,00 0 $6,000 $5,000 $3,000 $2,000 $1,000

Required: Prepare a Quality Cost Report for Toole Manufacturing Company showing both dollars and percents. Assume that sales were $2,000,000. Ans:

Amount

Percent

Prevention costs: Cost of employee quality training.......... Cost of quality circles............................. Total prevention cost................................. Appraisal costs: Depreciation cost of test equipment....... Maintenance cost of test equipment....... Cost of final testing of fans.................... Total appraisal cost.................................... Internal failure costs: Cost incurred to rework fans..................

$ 27,00 0 5,00 0 32,00 0

1.35 0.25 1.60

6,000 3,000 1,00 0 10,00 0

0.30 0.15

18,000

0.90

0.05 0.50

Spoilage cost (net).................................. Cost of retesting reworked fans.............. Total internal failure cost...........................

15,000 2,00 0 35,00 0

0.75 0.10 1.75

External failure costs: Cost of warranty repairs......................... Cost of handling customer complaints... Total external failure cost.......................... Total quality cost.......................................

35,000 11,00 0 46,00 0 $123,00 0

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B Level: Easy

1.75 0.55 2.30 6.15 LO: 9,10

230. Gad Company's quality cost report is to be based on the following data: Re-entering data because of keying errors............. Net cost of spoilage............................................... Supervision of testing and inspection activities..... Lost sales due to poor quality................................ Warranty repairs and replacements....................... Depreciation of test equipment.............................. Maintenance of test equipment.............................. Systems development............................................ Quality training......................................................

$17,00 0 $88,00 0 $78,00 0 $17,00 0 $92,00 0 $12,00 0 $75,00 0 $79,00 0 $19,00 0

Required: Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs. Ans: Prevention costs Quality training............................................................. Systems development...................................................

$ 19,00 0 79,000

Total prevention cost....................................................... Appraisal costs Depreciation of test equipment..................................... Supervision of testing and inspection activities........... Maintenance of test equipment..................................... Total appraisal cost.......................................................... Internal failure costs Re-entering data because of keying errors................... Net cost of spoilage...................................................... Total internal failure cost.................................................

98,000 12,000 78,000 75,000 165,000 17,000 88,000 105,000

External failure costs Lost sales due to poor quality....................................... Warranty repairs and replacements.............................. Total external failure cost................................................ Total quality cost............................................................. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B Level: Medium

17,000 92,000 109,000 $477,00 0

LO: 9,10

231. Hartz Company's quality cost report is to be based on the following data: Lost sales due to poor quality.......................................... Net cost of spoilage......................................................... Final product testing and inspection................................ Net cost of scrap.............................................................. Systems development...................................................... Supplies used in testing and inspection........................... Rework labor and overhead............................................. Quality data gathering, analysis, and reporting............... Product recalls.................................................................

$86,000 $35,000 $19,000 $88,000 $83,000 $94,000 $72,000 $43,000 $53,000

Required: Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs. Ans: Prevention costs Systems development................................................... Quality data gathering, analysis, and reporting............ Total prevention cost....................................................... Appraisal costs Final product testing and inspection............................. Supplies used in testing and inspection........................ Total appraisal cost.......................................................... Internal failure costs Rework labor and overhead.......................................... Net cost of scrap........................................................... Net cost of spoilage...................................................... Total internal failure cost.................................................

$ 83,000 43,000 126,000 19,000 94,000 113,000 72,000 88,000 35,000 195,000

External failure costs Lost sales due to poor quality....................................... Product recalls.............................................................. Total external failure cost................................................ Total quality cost............................................................. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B Level: Medium

86,000 53,000 139,000 $573,00 0

LO: 9,10