Cost Accounting

In comparing financial and management accounting, which of the following more accurately describes management accounting information? a. historical, precise, useful b. required, estimated, internal c. budgeted, informative, adaptable d. comparable, verifiable, monetary ANS: C

DIF: Easy

OBJ: 1-1

2. Management and financial accounting are used for which of the following purposes? Management accounting a. b. c. d.

internal external internal external

ANS: A

Financial accounting external internal internal external

DIF: Easy

OBJ: 1-1

3. One major difference between financial and management accounting is that a. financial accounting reports are prepared primarily for users external to the company. b. management accounting is not under the jurisdiction of the Securities and Exchange Commission. c. government regulations do not apply to management accounting. d. all of the above are true. ANS: D

DIF: Easy

OBJ: 1-1

4. Which of the following statements about management or financial accounting is false? a. Financial accounting must follow GAAP. b. Management accounting is not subject to regulatory reporting standards. c. Both management and financial accounting are subject to mandatory recordkeeping requirements. d. Management accounting should be flexible. ANS: C

DIF: Easy

OBJ: 1-1

5. Management accounting a. is more concerned with the future than is financial accounting. b. is less concerned with segments of a company than is financial accounting. c. is more constrained by rules and regulations than is financial accounting. d. all of the above are true. ANS: A

DIF: Easy

OBJ: 1-1

6. Modern management accounting can be characterized by its a. flexibility. b. standardization. c. complexity. d. precision. ANS: A

DIF: Easy

OBJ: 1-1

7. Which of the following is not a valid method for determining product cost? a. arbitrary assignment b. direct measurement c. systematic allocation d. cost-benefit measurement ANS: D

DIF: Moderate

OBJ: 1-1

8. Broadly speaking, cost accounting can be defined as a(n) a. external reporting system that is based on activity-based costs. b. system used for providing the government and creditors with information about a company's internal operations. c. internal reporting system that provides product costing and other information used by managers in performing their functions. d. internal reporting system needed by manufacturers to be in compliance with Cost Accounting Standards Board pronouncements. ANS: C

DIF: Easy

OBJ: 1-1

9. Cost accounting is directed toward the needs of a. regulatory agencies. b. external users. c. internal users. d. stockholders. ANS: C

DIF: Easy

OBJ: 1-1

10. Cost accounting is necessitated by a. the high degree of conversion found in certain businesses. b. regulatory requirements for manufacturing companies. c. management's need to be aware of all production activities. d. management's need for information to be used for planning and controlling activities. ANS: A

DIF: Moderate

OBJ: 1-1

11. The process of ___________ causes the need for cost accounting. a. Conversion b. Sales c. Controlling d. Allocating ANS: A

DIF: Easy

OBJ: 1-1

12. Financial accounting a. is primarily concerned with internal reporting. b. is more concerned with verifiable, historical information than is cost accounting. c. focuses on the parts of the organization rather than the whole. d. is specifically directed at management decision-making needs. ANS: B

DIF: Easy

OBJ: 1-1

13. Financial accounting and cost accounting are both highly concerned with

a. b. c. d.

preparing budgets. determining product cost. providing managers with information necessary for control purposes. determining performance standards.

ANS: B

DIF: Easy

OBJ: 1-1

14. Which of the following topics is of more concern to management accounting than to cost accounting? a. generally accepted accounting principles b. inventory valuation c. cost of goods sold valuation d. impact of economic conditions on company operations ANS: D

DIF: Moderate

OBJ: 1-1

15. Cost and management accounting a. require an entirely separate group of accounts than financial accounting uses. b. focus solely on determining how much it costs to manufacture a product or provide a service. c. provide product/service cost information as well as information for internal decision making. d. are required for business recordkeeping as are financial and tax accounting. ANS: C

DIF: Easy

OBJ: 1-1

16. Which of the following statements is true? a. Management accounting is a subset of cost accounting. b. Cost accounting is a subset of both management and financial accounting. c. Management accounting is a subset of both cost and financial accounting. d. Financial accounting is a subset of cost accounting. ANS: B

DIF: Moderate

OBJ: 1-1

17. Which of the following statements is false? a. A primary purpose of cost accounting is to determine valuations needed for external financial statements. b. A primary purpose of management accounting is to provide information to managers for use in planning, controlling, and decision making. c. The act of converting production inputs into finished products or services necessitates cost accounting. d. Two primary hallmarks of cost and management accounting are standardization of procedures and use of generally accepted accounting principles. ANS: D

DIF: Moderate

OBJ: 1-1

1. The term "relevant range" as used in cost accounting means the range over which a. costs may fluctuate. b. cost relationships are valid. c. production may vary. d. relevant costs are incurred. ANS: B

DIF: Easy

OBJ: 2-1

2. Which of the following defines variable cost behavior? Total cost reaction to increase in activity a. b. c. d.

remains constant remains constant increases increases

ANS: D

Cost per unit reaction to increase in activity remains constant increases increases remains constant

DIF: Easy

OBJ: 2-1

3. When cost relationships are linear, total variable prime costs will vary in proportion to changes in a. direct labor hours. b. total material cost. c. total overhead cost. d. production volume. ANS: D

DIF: Easy

OBJ: 2-1

4. Which of the following would not generally be considered a fixed overhead cost? Straight-line depreciation a. b. c. d. ANS: C

no yes yes no

Factory insurance no no yes yes

DIF: Easy

Units-of-production Depreciation no yes no no

OBJ: 2-1

5. An example of a fixed cost is a. total indirect material cost. b. total hourly wages. c. cost of electricity. d. straight-line depreciation. ANS: D

DIF: Easy

OBJ: 2-1

6. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n) a. expired cost. b. fixed cost. c. variable cost.

d. mixed cost. ANS: B

DIF: Easy

OBJ: 2-1

7. A(n) ________ cost increases or decreases in intervals as activity changes. a. historical cost b. fixed cost c. step cost d. budgeted cost ANS: C

DIF: Easy

OBJ: 2-1

8. When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n) a. increase in the fixed element. b. decrease in the variable element. c. increase in the mixed element. d. decrease in the fixed element. ANS: D

DIF: Easy

OBJ: 2-1

9. Which of the following always has a direct cause-effect relationship to a cost? Predictor a. b. c. d.

yes yes no no

Cost driver yes no yes no

ANS: C

DIF: Moderate

OBJ: 2-1

10. A cost driver a. causes fixed costs to rise because of production changes. b. has a direct cause-effect relationship to a cost. c. can predict the cost behavior of a variable, but not a fixed, cost. d. is an overhead cost that causes distribution costs to change in distinct increments with changes in production volume. ANS: B

DIF: Easy

OBJ: 2-1

11. Product costs are deducted from revenue a. as expenditures are made. b. when production is completed. c. as goods are sold. d. to minimize taxable income. ANS: C

DIF: Easy

OBJ: 2-2

12. A selling cost is a(n) product cost

period cost

inventoriable cost

a. b. c. d.

yes yes no no

ANS: C

yes no yes yes

no no no yes

DIF: Easy

OBJ: 2-2

13. Which of the following is not a product cost component? a. rent on a factory building b. indirect production labor wages c. janitorial supplies used in a factory d. commission on the sale of a product ANS: D

DIF: Easy

OBJ: 2-2

14. Period costs a. are generally expensed in the same period in which they are incurred. b. are always variable costs. c. remain unchanged over a given period of time. d. are associated with the periodic inventory method. ANS: A

DIF: Easy

OBJ: 2-2

15. Period costs include distribution costs a. b. c. d.

outside processing costs

yes no no yes

ANS: A

no yes no yes

DIF: Easy

sales commissions yes yes no yes

OBJ: 2-2

16. The three primary inventory accounts in a manufacturing company are a. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory. b. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory. c. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory. d. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory. ANS: D

DIF: Easy

OBJ: 2-2

17. Cost of Goods Sold is an a. unexpired product cost. b. expired product cost. c. unexpired period cost. d. expired period cost. ANS: B

DIF: Easy

OBJ: 2-2

18. The indirect costs of converting raw material into finished goods are called a. period costs. b. prime costs.

c. overhead costs. d. conversion costs. ANS: C

DIF: Easy

OBJ: 2-2

19. Which of the following would need to be allocated to a cost object? a. direct material b. direct labor c. direct production costs d. indirect production costs ANS: D

DIF: Easy

OBJ: 2-2

20. Conversion cost does not include a. direct labor. b. direct material. c. factory depreciation. d. supervisors' salaries. ANS: B

DIF: Easy

OBJ: 2-2

21. The distinction between direct and indirect costs depends on whether a cost a. is controllable or non-controllable. b. is variable or fixed. c. can be conveniently and physically traced to a cost object under consideration. d. will increase with changes in levels of activity. ANS: C

DIF: Moderate

OBJ: 2-2

22. Broussard Company is a construction company that builds houses on special request. What is the proper classification of the carpenters' wages? Product a. b. c. d.

yes yes no no

Period yes no no yes

ANS: B

Direct no yes no yes

DIF: Easy

OBJ: 2-2

23. Broussard Company is a construction company that builds houses on special request. What is the proper classification of the cost of the cement building slab used? Direct a. b. c. d.

no no yes yes

ANS: D

Fixed no yes yes no

DIF: Easy

OBJ: 2-2

24. Broussard Company is a construction company that builds houses on special request. What is the proper classification of indirect material used? Prime a. b. c. d.

no no yes yes

Conversion

Variable

no yes yes no

no yes yes no

ANS: B

DIF: Easy

OBJ: 2-2

25. Which of the following costs would be considered overhead in the production of chocolate chip cookies? a. flour b. chocolate chips c. sugar d. oven electricity ANS: D

DIF: Easy

OBJ: 2-2

26. All costs related to the manufacturing function in a company are a. prime costs. b. direct costs. c. product costs. d. conversion costs. ANS: C

DIF: Easy

OBJ: 2-2

27. Prime cost consists of direct material a. b. c. d.

direct labor

no yes yes no

overhead

yes yes no yes

ANS: B

no no yes yes

DIF: Easy

OBJ: 2-2

28. Plastic used to manufacture dolls is a prime cost a. b. c. d.

no yes yes yes

ANS: D

product cost yes no yes yes

direct cost

fixed cost

yes yes no yes

yes no yes no

DIF: Easy

OBJ: 2-2

29. The term "prime cost" refers to a. all manufacturing costs incurred to produce units of output. b. all manufacturing costs other than direct labor and raw material costs. c. raw material purchased and direct labor costs. d. the raw material used and direct labor costs. ANS: D

DIF: Easy

OBJ: 2-2

30. Conversion of inputs to outputs is recorded in the a. Work in Process Inventory account. b. Finished Goods Inventory account. c. Raw Material Inventory account. d. both a and b. ANS: A

DIF: Easy

OBJ: 2-4

31. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to Cash and a credit to Sales. The other entry is a debit to a. Work in Process Inventory and a credit to Finished Goods Inventory. b. Finished Goods Inventory and a credit to Cost of Goods Sold. c. Cost of Goods Sold and a credit to Finished Goods Inventory. d. Finished Goods Inventory and a credit to Work in Process Inventory. ANS: C

DIF: Easy

OBJ: 2-4

32. The formula to compute cost of goods manufactured is a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process Inventory. b. beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred minus ending Work in Process Inventory. c. direct material used plus direct labor plus overhead incurred. d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory. ANS: B

DIF: Easy

OBJ: 2-5

33. The final figure in the Schedule of Cost of Goods Manufactured represents the a. cost of goods sold for the period. b. total cost of manufacturing for the period. c. total cost of goods started and completed this period. d. total cost of goods completed for the period. ANS: D

DIF: Easy

OBJ: 2-5

34. The formula for cost of goods sold for a manufacturer is a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished Goods Inventory. b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work in Process Inventory. c. direct material plus direct labor plus applied overhead. d. direct material plus direct labor plus overhead incurred plus beginning Work in Process Inventory.

ANS: A

DIF: Easy

OBJ: 2-5

35. Which of the following replaces the retailing component "Purchases" in computing Cost of Goods Sold for a manufacturing company? a. direct material used b. cost of goods manufactured c. total prime cost d. cost of goods available for sale ANS: B

DIF: Easy

OBJ: 2-5

36. Costs that are incurred to preclude defects and improper processing are: a. prevention costs c. appraisal costs b. detection costs d. failure costs ANS: A

DIF: Moderate

OBJ: 2-4

37. Costs that are incurred for monitoring and inspecting are: a. prevention costs c. appraisal costs b. detection costs d. failure costs ANS: C

DIF: Moderate

OBJ: 2-4

38. Costs that are incurred when customers complain are: a. prevention costs c. appraisal costs b. detection costs d. failure costs ANS: D

DIF: Moderate

OBJ: 2-4

Wilson Company The following information has been taken from the cost records of Wilson Company for the past year: Raw material used in production Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to 60% of direct labor cost) Cost of goods available for sale Selling and Administrative expenses Inventories Raw Material Work in Process Finished Goods

Beginning

Ending

$75 80 90

$ 85 30 110

$326 686 826 25

39. Refer to Wilson Company. The cost of raw material purchased during the year was a. $316. b. $336. c. $360. d. $411. ANS: B Beginning Inventory +Purchases =Goods Available for Sale -Ending Inventory Materials Used in Production DIF: Moderate

75 336 411 (326) 85

OBJ: 2-4

40. Refer to Wilson Company. Direct labor cost charged to production during the year was a. $135. b. $216. c. $225. d. $360. ANS: C Total production costs - Raw materials Conversion Costs Let x = Direct Labor Let .60x = Factory Overhead x + .60x x DIF: Easy

$686 $326 $360

$360 $225

OBJ: 2-4

41. Refer to Wilson Company. Cost of Goods Manufactured was a. $636. b. $716. c. $736. d. $766. ANS: C Beginning WIP Inventory Costs of Production less: Ending WIP Inventory Cost of Goods Manufactured

DIF: Moderate

$ 80 686 (30) $736 ====

OBJ: 2-5

42. Refer to Wilson Company. Cost of Goods Sold was a. $691. b. $716. c. $736. d. $801. ANS: B Beginning Finished Goods Inventory Cost of Goods Manufactured less: Ending Finished Goods Inventory Cost of Goods Manufactured

DIF: Moderate

$ 90 736 (110) $716 ====

OBJ: 2-5

Brandt Company. Brandt Company manufactures wood file cabinets. The following information is available for June 2001: Beginning Raw Material Inventory Work in Process Inventory Finished Goods Inventory

$ 6,000 17,300 21,000

Ending $ 7,500 11,700 16,300

43. Refer to Brandt Company. Direct labor is $9.60 per hour and overhead for the month was $9,600. Compute total manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw material was purchased. a. $58,500 b. $46,500 c. $43,500 d. $43,100 ANS: C Raw Materials

Begin Inv $6,000.00

Direct Labor Overhead

DIF: Moderate

OBJ: 2-4

Purch $21,000.00 Rate $ 9.60

Ending Inv $(7,500.00) Hours 1,500

$19,500.00 14,400.00 9,600.00 $43,500.00

44. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. What are prime costs and conversion costs, respectively if there were 1,500 direct labor hours and $21,000 of raw material was purchased? a. $29,100 and $33,900 b. $33,900 and $24,000 c. $33,900 and $29,100 d. $24,000 and $33,900 ANS: B Raw Materials

Begin Inv $6,000.00

Direct Labor Overhead

Purch $21,000.00 Rate $ 9.60

Ending Inv $(7,500.00) Hours 1,500

$19,500.00 14,400.00 9,600.00

Prime Costs = Raw Materials + Direct Labor-- $19,500 + 14,400 = $33,900 Conversion Costs = Direct Labor + Factory Overhead--$14,400 + 9,600 - $24,000

DIF: Moderate

OBJ: 2-4

45. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If there were 1,500 direct labor hours and $21,000 of raw material purchased, Cost of Goods Manufactured is: a. $49,100. b. $45,000. c. $51,000. d. $49,500. ANS: A Beginning WIP Inventory Raw Materials Direct Labor Factory Overhead Ending WIP Inventory Cost of Goods Manufactured

DIF: Moderate

OBJ: 2-5

$ $

19,500 14,400 9,600

17,300

43,500 (11,700) $ 49,100

46. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If there were 1,500 direct labor hours and $21,000 of raw material purchased, how much is Cost of Goods Sold? a. $64,500. b. $59,800. c. $38,800. d. $53,800. ANS: D Beginning WIP Inventory Raw Materials Direct Labor Factory Overhead Ending WIP Inventory Cost of Goods Manufactured Beginning Finished Goods Inventory Ending Finished Goods Inventory

DIF: Moderate

$ $

19,500 14,400 9,600

17,300

43,500 (11,700) $ 49,100 21,000 (16,300) $ 53,800

OBJ: 2-5

47. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw material used during the month was a. $26,400. b. $34,100. c. $37,300. d. $29,600. ANS: A Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used $4,500 + 29,600 - 7,700 = X X = $26,400 DIF: Easy

OBJ: 2-4

48. Urban Company manufacturers tables. If raw material used was $80,000 and Raw Material Inventory at the beginning and end of the period, respectively, was $17,000 and $21,000, what was amount of raw material was purchased? a. $76,000 b. $118,000 c. $84,000 d. $101,000 ANS: C Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used $17,000 + X - 21,000 = $80,000 X = $84,000 DIF: Easy

OBJ: 2-4

49. Putnam Company manufacturers computer stands. What is the beginning balance of Finished Goods Inventory if Cost of Goods Sold is $107,000; the ending balance of Finished Goods Inventory is $20,000; and Cost of Goods Manufactured is $50,000 less than Cost of Goods Sold? a. $70,000 b. $77,000 c. $157,000 d. $127,000 ANS: A Beg Fin Goods Invy + Cost of Goods Manufactured - Ending Fin Goods Invy = COGS X + $57,000 - $20,000 = $107,000 X = $70,000 DIF: Easy

OBJ: 2-5

Sharp Enterprises Inventories: Raw material Work in process Finished goods

March 1 $18,000 9,000 27,000

Additional information for March: Raw material purchased Direct labor payroll Direct labor rate per hour Overhead rate per direct labor hour

March 31 $15,000 6,000 36,000

$42,000 30,000 7.50 10.00

50. Refer to Sharp Enterprises. For March, prime cost incurred was a. $75,000. b. $69,000. c. $45,000. d. $39,000. ANS: A Raw Materials

Begin Inv $18,000.00

Direct Labor

DIF: Easy

OBJ: 2-4

Purch $42,000.00 Rate $ 7.50

Ending Inv $(15,000.00) Hours 4,000

$45,000.00 30,000.00 $75,000.00

51. Refer to Sharp Enterprises. For March, conversion cost incurred was a. $30,000. b. $40,000. c. $70,000. d. $72,000. ANS: C Begin Inv Direct Labor Overhead

DIF: Easy

Purch Ending Inv $ 7.50 4,000 Rate Hours $ 10.00 4,000

30,000.00 40,000.00 $70,000.00

OBJ: 2-4

52. Refer to Sharp Enterprises. For March, Cost of Goods Manufactured was a. $118,000. b. $115,000. c. $112,000. d. $109,000. ANS: A Beginning WIP Inventory Raw Materials Direct Labor Factory Overhead Ending WIP Inventory

DIF: Easy

OBJ: 2-5

$ $

45,000 30,000 40,000

9,000

115,000 (6,000) $ 118,000

25.The estimated maximum potential activity for a specified time is: a. theoretical capacity c. normal capacity b. practical capacity d. expected capacity ANS: A

DIF: Moderate

OBJ: 3-3

26. The measure of activity that allows for routine variations in manufacturing activity is: a. theoretical capacity c. normal capacity b. practical capacity d. expected capacity ANS: B

DIF: Moderate

OBJ: 3-3

27. The measure of production that considers historical and estimated future production levels and cyclical fluctuations is referred to as: a. theoretical capacity c. normal capacity b. practical capacity d. expected capacity ANS: C

DIF: Moderate

OBJ: 3-3

28. A short-run measure of activity that represents a firm’s anticipated activity level for an upcoming period based upon expected demand is referred to as: a. theoretical capacity c. normal capacity b. practical capacity d. expected capacity ANS: D DIF: Moderate OBJ: 3-3 29.An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a a. mixed cost. b. predictor. c. direct cost. d. cost driver. ANS: D

DIF: Easy

OBJ: 3-2

30. Furman Tailors has gathered information on utility costs for the past year. The controller has decided that utilities are a function of the hours worked during the month. The following information is available and representative of the company’s utility costs: Hours worked Low point High point

1,300 1,680

Utility cost incurred $ 903 1,074

If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low method should be a. $947. b. $954. c. $959. d. $976. ANS: C Variable portion:

Fixed Portion 903 - 0.45 ( 1,300) = $318 Y = $318 + $0.45(1,425) = $959 DIF: Moderate

OBJ: 3-4

31. Reno Corporation uses a predetermined overhead application rate of $.30 per direct labor hour. During the year it incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead. The company applied $363,000 of overhead during the year. How many direct labor hours did the company plan to incur? a. 1,150,000 b. 1,190,000 c. 1,200,000 d. 1,210,000 ANS: C $360,000 / .30 = 1,200,000 direct labor hours DIF: Easy

OBJ: 3-4

32. Birmingham Machine Works had the following data regarding monthly power costs: Month Jun Jul Aug Sept.

Machine hours 300 600 400 200

Power cost $680 720 695 640

Assume that management expects 500 machine hours in October. Using the high-low method, calculate October’s power cost using machine hours as the basis for prediction. a. $700 b. $705 c. $710 d. $1,320 ANS: A Variable portion:

Fixed portion: $640 - (200 *$0 .20) = $600 $600 + (500*$0.20) = $700 DIF: Easy

OBJ: 3-4

33. Gary Corporation has developed the following flexible budget formula for monthly overhead: For output of less than 200,000 units: For output of 200,000 units or more:

$36,600 + $.80(units) $43,000 + $.80(units)

How much overhead should Gary expect if the firm plans to produce 200,000 units? a. $52,600 b. $59,000 c. $196,600 d. $203,000 ANS: D $43,000 + $0.80(200,000) = $43,000 + $160,000 = $203,000 DIF: Easy

OBJ: 3-5

34. Walton Corporation wishes to develop a single predetermined overhead rate. The company's expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2. The company's relevant range is from 200,000 to 600,000 machine hours. Walton expects to operate at 425,000 machine hours for the coming year. The plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be a. $2.40. b. $2.57. c. $2.80. d. $2.85. ANS: C Fixed component:

Variable component = $2.00 per unit Total predetermined overhead = $2.80 per unit DIF: Easy

OBJ: 3-4

Burke Corporation Burke Corporation has the following data for use of its machinery Month Jun Jul Aug Sept Oct

Usage 600 650 420 500 450

Cost $750 775 550 650 570

35. Refer to Burke Corporation. Using the high-low method, compute the variable cost element. a. $1.02 b. $.98 c. $1.31 d. $1.19 ANS: B

DIF: Easy

OBJ: 3-4

36. Refer to Burke Corporation. Using the high-low method, compute the fixed cost element (to the nearest whole dollar). a. $225 b. $138 c. $411 d. $364 ANS: B $775 - 650(.98) = $775 - 637 = $138 DIF: Easy

OBJ: 3-4

Zenith Corporation The records of Zenith Corporation revealed the following data for the current year. $ 73,150 115,000 133,650 111,600 84,200

Work in Process Finished Goods Cost of Goods Sold Direct Labor Direct Material

37. Refer to Zenith Corporation. Assume, for this question only, actual overhead is $98,700 and applied overhead is $93,250. Manufacturing overhead is: a. overapplied by $12,900. b. underapplied by $18,350. c. overapplied by $5,450. d. underapplied by $5,450. ANS: D $98,700 - $93,250 = $5,450 underapplied DIF: Easy

OBJ: 3-2

38. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200 and that this amount is material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.) a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and credit Overhead $37,200 b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 c. Debit Work in Process $37,200 and credit Overhead $37,200 d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200 ANS: A WIP: 73,150/321,800 = $ 8,456 FG: 115,000/321,800 = $13,294 EI: 133,650/321,800 = $15,450 DIF: Moderate

OBJ: 3-2

39. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $10,000 and that this amount is immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is closed? a. $133,650 b. $123,650 c. $143,650 d. $137,803 ANS: C COGS + Underapplied Overhead = Adjusted COGS $133,650 + $ 10,000 = $143,650

DIF: Easy

OBJ: 3-2

40. Refer to Zenith Corporation. Assume that Zenith has overapplied overhead of $25,000 and that this amount is material. What is the balance in Cost of Goods Sold after the overapplied overhead is closed? a. $123,267 b. $144,033 c. $158,650 d. $108,650 ANS: A $133,650/$321,800 * $25,000 = $10,383 $133,650-$10,383 = $123,267 DIF: Moderate

OBJ: 3-2

41. Aztec Company is relocating its facilities. The company estimates that it will take three trucks to move office contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost to move 800 miles? a. $1,000 b. $1,200 c. $2,400 d. $3,600 ANS: D 3 trucks * ($1,000 + $0.25(800)) = 3 * $1,200 = $3,600 DIF: Easy

OBJ: 3-2

42. Aquatic Motor Company is exploring different prediction models that can be used to forecast indirect labor costs. One independent variable under consideration is machine hours. Following are matching observations on indirect labor costs and machine hours for the past six months: Month 1 2 3 4 5 6

Machine hours 300 400 240 370 200 225

Indirect labor costs $20,000 $24,000 $17,000 $22,000 $13,000 $14,000

In a high-low model, which months' observations would be used to compute the model's parameters? a. b. c. d.

2 and 5 1 and 6 2 and 6 4 and 5

ANS: A

DIF: Easy

OBJ: 3-4

43. Consider the following three product costing alternatives: process costing, job order costing, and standard costing. Which of these can be used in conjunction with absorption costing? a. job order costing b. standard costing c. process costing d. all of the above ANS: D

DIF: Easy

OBJ: 3-6

44. Another name for absorption costing is a. full costing. b. direct costing. c. job order costing. d. fixed costing. ANS: A

DIF: Easy

OBJ: 3-6

45. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in a. higher income and assets. b. higher income but lower assets. c. lower income but higher assets. d. lower income and assets. ANS: A

DIF: Moderate

OBJ: 3-6

46. Under absorption costing, fixed manufacturing overhead could be found in all of the following except the a. work-in-process account. b. finished goods inventory account. c. Cost of Goods Sold. d. period costs.

ANS: D

DIF: Easy

OBJ: 3-6

47. If a firm uses absorption costing, fixed manufacturing overhead will be included a. only on the balance sheet. b. only on the income statement. c. on both the balance sheet and income statement. d. on neither the balance sheet nor income statement. ANS: C

DIF: Easy

OBJ: 3-6

48. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a larger income in period 2 when a. period 2 production exceeds period 1 production. b. period 1 production exceeds period 2 production. c. variable production costs are larger in period 2 than period 1. d. fixed production costs are larger in period 2 than period 1. ANS: A

DIF: Moderate

OBJ: 3-7

49. The FASB requires which of the following to be used in preparation of external financial statements? a. variable costing b. standard costing c. activity-based costing d. absorption costing ANS: D

DIF: Easy

OBJ: 3-6

50. An ending inventory valuation on an absorption costing balance sheet would a. sometimes be less than the ending inventory valuation under variable costing. b. always be less than the ending inventory valuation under variable costing. c. always be the same as the ending inventory valuation under variable costing. d. always be greater than or equal to the ending inventory valuation under variable costing. ANS: D

DIF: Easy

OBJ: 3-6

51. Absorption costing differs from variable costing in all of the following except a. treatment of fixed manufacturing overhead. b. treatment of variable production costs. c. acceptability for external reporting. d. arrangement of the income statement. ANS: B

DIF: Easy

OBJ: 3-6

52. Which of the following is not associated with absorption costing? a. functional format b. gross margin c. period costs d. contribution margin ANS: D

DIF: Easy

OBJ: 3-6

53. Unabsorbed fixed overhead costs in an absorption costing system are a. fixed manufacturing costs not allocated to units produced. b. variable overhead costs not allocated to units produced. c. excess variable overhead costs. d. costs that cannot be controlled. ANS: A

DIF: Easy

OBJ: 3-6

54. Profit under absorption costing may differ from profit determined under variable costing. How is this difference calculated? a. Change in the quantity of all units in inventory times the relevant fixed costs per unit. b. Change in the quantity of all units produced times the relevant fixed costs per unit. c. Change in the quantity of all units in inventory times the relevant variable cost per unit. d. Change in the quantity of all units produced times the relevant variable cost per unit. ANS: A

DIF: Easy

OBJ: 3-6

55. What factor, related to manufacturing costs, causes the difference in net earnings computed using absorption costing and net earnings computed using variable costing? a. Absorption costing considers all costs in the determination of net earnings, whereas variable costing considers fixed costs to be period costs. b. Absorption costing allocates fixed overhead costs between cost of goods sold and inventories, and variable costing considers all fixed costs to be period costs. c. Absorption costing "inventories" all direct costs, but variable costing considers direct costs to be period costs. d. Absorption costing "inventories" all fixed costs for the period in ending finished goods inventory, but variable costing expenses all fixed costs. ANS: B

DIF: Easy

OBJ: 3-7

56. The costing system that classifies costs by functional group only is a. standard costing. b. job order costing. c. variable costing. d. absorption costing. ANS: D

DIF: Easy

OBJ: 3-6

57. A functional classification of costs would classify "depreciation on office equipment" as a a. product cost. b. general and administrative expense. c. selling expense. d. variable cost. ANS: B

DIF: Easy

OBJ: 3-6

58. The costing system that classifies costs by both functional group and behavior is a. process costing. b. job order costing. c. variable costing. d. absorption costing.

ANS: C

DIF: Easy

OBJ: 3-6

59. Under variable costing, which of the following are costs that can be inventoried? a. variable selling and administrative expense b. variable manufacturing overhead c. fixed manufacturing overhead d. fixed selling and administrative expense ANS: B

DIF: Easy

OBJ: 3-6

60. Consider the following three product costing alternatives: process costing, job order costing, and standard costing. Which of these can be used in conjunction with variable costing? a. job order costing b. standard costing c. process costing d. all of them ANS: D

DIF: Easy

OBJ: 3-6

61. Another name for variable costing is a. full costing. b. direct costing. c. standard costing. d. adjustable costing. ANS: B

DIF: Easy

OBJ: 3-6

62. If a firm uses variable costing, fixed manufacturing overhead will be included a. only on the balance sheet. b. only on the income statement. c. on both the balance sheet and income statement. d. on neither the balance sheet nor income statement. ANS: B

DIF: Easy

OBJ: 3-6

63. Under variable costing, a. all product costs are variable. b. all period costs are variable. c. all product costs are fixed. d. product costs are both fixed and variable. ANS: A

DIF: Easy

OBJ: 3-6

64. How will a favorable volume variance affect net income under each of the following methods?

a. b. c. d.

Absorption

Variable

reduce reduce increase increase

no effect increase no effect reduce

ANS: C

DIF: Easy

OBJ: 3-7

65. Variable costing considers which of the following to be product costs? Fixed Mfg. Costs a. b. c. d.

yes yes no no

ANS: D

Fixed Selling & Adm. no no no no

DIF: Easy

Variable Mfg. Costs yes yes yes yes

Variable Selling & Adm. no yes yes no

OBJ: 3-6

66. The variable costing format is often more useful to managers than the absorption costing format because a. costs are classified by their behavior. b. costs are always lower. c. it is required for external reporting. d. it justifies higher product prices. ANS: A

DIF: Easy

OBJ: 3-6

67. The difference between the reported income under absorption and variable costing is attributable to the difference in the a. income statement formats. b. treatment of fixed manufacturing overhead. c. treatment of variable manufacturing overhead. d. treatment of variable selling, general, and administrative expenses. ANS: B

DIF: Easy

OBJ: 3-7

68. Which of the following costs will vary directly with the level of production? a. total manufacturing costs b. total period costs c. variable period costs d. variable product costs ANS: D

DIF: Easy

OBJ: 3-6

69. On the variable costing income statement, the difference between the "contribution margin" and "income before income taxes" is equal to a. the total variable costs. b. the Cost of Goods Sold. c. total fixed costs. d. the gross margin. ANS: C

DIF: Easy

OBJ: 3-7

70. For financial reporting to the IRS and other external users, manufacturing overhead costs are a. deducted in the period that they are incurred. b. inventoried until the related products are sold. c. treated like period costs. d. inventoried until the related products have been completed.

ANS: B

DIF: Easy

OBJ: 3-6

71. In the application of "variable costing" as a cost-allocation process in manufacturing, a. variable direct costs are treated as period costs. b. nonvariable indirect manufacturing costs are treated as product costs. c. variable indirect manufacturing costs are treated as product costs. d. nonvariable direct costs are treated as product costs. ANS: C

DIF: Easy

OBJ: 3-6

72. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale behind this procedure? a. Period costs are uncontrollable and should not be charged to a specific product. b. Period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would outweigh the benefits. c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by management. d. Because period costs will occur whether production occurs, it is improper to allocate these costs to production and defer a current cost of doing business. ANS: D

DIF: Moderate

OBJ: 3-6

73. Which of the following is a term more descriptive of the term "direct costing"? a. out-of-pocket costing b. variable costing c. relevant costing d. prime costing ANS: B

DIF: Easy

OBJ: 3-6

74. What costs are treated as product costs under variable (direct) costing? a. only direct costs b. only variable production costs c. all variable costs d. all variable and fixed manufacturing costs ANS: B

DIF: Easy

OBJ: 3-6

75. Which of the following must be known about a production process in order to institute a variable costing system? a. the variable and fixed components of all costs related to production b. the controllable and non-controllable components of all costs related to production c. standard production rates and times for all elements of production d. contribution margin and break-even point for all goods in production ANS: A

DIF: Easy

OBJ: 3-6

76. Why is variable costing not in accordance with generally accepted accounting principles? a. Fixed manufacturing costs are treated as period costs under variable costing. b. Variable costing procedures are not well known in industry. c. Net earnings are always overstated when using variable costing procedures. d. Variable costing ignores the concept of lower of cost or market when valuing inventory.

ANS: A

DIF: Easy

OBJ: 3-6

77. Which of the following is an argument against the use of direct (variable) costing? a. Absorption costing overstates the balance sheet value of inventories. b. Variable factory overhead is a period cost. c. Fixed manufacturing overhead is difficult to allocate properly. d. Fixed manufacturing overhead is necessary for the production of a product. ANS: D

DIF: Easy

OBJ: 3-6

78. Which of the following statements is true for a firm that uses variable costing? a. The cost of a unit of product changes because of changes in the number of units manufactured. b. Profits fluctuate with sales. c. An idle facility variation is calculated. d. None of the above. ANS: B

DIF: Easy

OBJ: 3-6

79. An income statement is prepared as an internal report. Under which of the following methods would the term contribution margin appear? Absorption costing a. b. c. d.

no no yes yes

ANS: B

Variable costing no yes no yes

DIF: Easy

OBJ: 3-6

80. In an income statement prepared as an internal report using the variable costing method, fixed manufacturing overhead would a. not be used. b. be used in the computation of operating income but not in the computation of the contribution margin. c. be used in the computation of the contribution margin. d. be treated the same as variable manufacturing overhead. ANS: B

DIF: Easy

OBJ: 3-7

81. Variable costing has an advantage over absorption costing for which of the following purposes? a. analysis of profitability of products, territories, and other segments of a business b. determining the CVP relationship among the major factors of selling price, sales mix, and sales volume c. minimizing the effects of inventory changes on net income d. all of the above ANS: D

DIF: Easy

OBJ: 3-6

82. In the variable costing income statement, which line separates the variable and fixed costs? a. selling expenses b. general and administrative expense c. product contribution margin

d. total contribution margin ANS: D

DIF: Easy

OBJ: 3-6

83. A firm presently has total sales of $100,000. If its sales rise, its a. net income based on variable costing will go up more than its net income based on absorption costing. b. net income based on absorption costing will go up more than its net income based on variable costing. c. fixed costs will also rise. d. per unit variable costs will rise. ANS: A

DIF: Moderate

OBJ: 3-7

Langley Corporation Langley Corporation has the following standard costs associated with the manufacture and sale of one of its products: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed SG&A expense

$3.00 per unit 2.50 per unit 1.80 per unit 4.00 per unit (based on an estimate of 50,000 units per year) .25 per unit $75,000 per year

During its first year of operations Langley manufactured 51,000 units and sold 48,000. The selling price per unit was $25. All costs were equal to standard. 84. Refer to Langley Corporation. Under absorption costing, the standard production cost per unit for the current year was a. $11.30. b. $ 7.30. c. $11.55. d. $13.05. ANS: A DM + DL + VFOH + FFOH = Standard Cost per Unit $3.00 + $2.50 + $1.80 + $4.00 = $11.30 DIF: Easy

OBJ: 3-7

85. Refer to Langley Corporation. The volume variance under absorption costing is a. $8,000 F. b. $4,000 F. c. $4,000 U. d. $8,000 U. ANS: B 1,000 favorable units production variance * $4.00 fixed factory overhead = $4,000 F

DIF: Moderate

OBJ: 3-7

86. Refer to Langley Corporation. Under variable costing, the standard production cost per unit for the current year was a. $11.30. b. $7.30. c. $7.55. d. $11.55. ANS: B DM + DL + VOH = Standard Production Cost per Unit $3.00 + $2.50 + $1.80 = $7.30 DIF: Easy

OBJ: 3-7

87. Refer to Langley Corporation. Based on variable costing, the income before income taxes for the year was a. $570,600. b. $560,000. c. $562,600. d. $547,500. ANS: C Sales: Variable Expenses Contribution Margin Fixed Expenses Overhead Net Income

DIF: Moderate Ford Company

$1,200,000 362,400 $ 837,600 $ 200,000 75,000 $ 562,600 =========

OBJ: 3-7

The following information is available for Ford Company for its first year of operations: Sales in units Production in units Manufacturing costs: Direct labor Direct material Variable overhead Fixed overhead Net income (absorption method) Sales price per unit

5,000 8,000 $3 per unit 5 per unit 1 per unit $100,000 $30,000 $40

88. Refer to Ford Company. If Ford Company had used variable costing, what amount of income before income taxes would it have reported? a. $30,000 b. ($7,500) c. $67,500 d. can't be determined from the information given ANS: B Net Income--Absorption Costing Fixed OH in Ending Inventory: $100,000 * (3,000/8,000) Net Loss--Variable Costing

DIF: Moderate

$ 30,000 ($37,500) ($ 7,500) =======

OBJ: 3-7

89. Refer to Ford Company. What was the total amount of Selling,General and Administrative expense incurred by Ford Company? a. $30,000 b. $62,500 c. $6,000 d. can't be determined from the information given ANS: B Sales COGS Gross Profit SG&A Net Income

$200,000 107,500 92,500 X $ 30,000

X = $62,500 DIF: Moderate

OBJ: 3-7

90. Refer to Ford Company. If Ford Company were using variable costing, what would it show as the value of ending inventory? a. $120,000 b. $64,500 c. $27,000 d. $24,000 ANS: C 3,000 units * $9.00/unit = $27,000 DIF: Easy Clinton Corporation

OBJ: 3-7

The following information has been extracted from the financial records of Clinton Corporation for its first year of operations: Units produced Units sold Variable costs per unit: Direct material Direct labor Manufacturing overhead SG&A Fixed costs: Manufacturing overhead SG&A

10,000 7,000 $8 9 3 4 $70,000 30,000

91. Refer to Clinton Corporation. Based on absorption costing, Clinton Corporation's income in its first year of operations will be a. $21,000 higher than it would be under variable costing. b. $70,000 higher than it would be under variable costing. c. $30,000 higher than it would be under variable costing. d. higher than it would be under variable costing, but the exact difference cannot be determined from the information given. ANS: A 3,000 unsold units * $7.00 fixed overhead/unit = $21,000 higher under absorption costing. DIF: Moderate

OBJ: 3-7

92. Refer to Clinton Corporation. Based on absorption costing, the Cost of Goods Manufactured for Clinton Corporation's first year would be a. $200,000. b. $270,000. c. $300,000. d. $210,000. ANS: B COGM = Variable Overhead + Fixed Overhead COGM = (100,000 units * $20/unit) + $70,000 COGM = $270,000 DIF: Moderate

OBJ: 3-7

93. Refer to Clinton Corporation. Based on absorption costing, what amount of period costs will Clinton Corporation deduct? a. $70,000 b. $79,000 c. $30,000 d. $58,000 ANS: D Period costs = Variable SG&A + Fixed SG&A $58,000 = (7,000 * $4) + $30,000 DIF: Moderate

OBJ: 3-7

94. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of sales and that its net income amounted to 10 percent of sales. If its fixed costs for the year were $60,000, how much were sales? a. $150,000 b. $200,000 c. $600,000 d. can't be determined from the information given ANS: B Let S = Sales Let CM = .40S Let NI = .10S FC = .30S $60,000 = .30S S = $200,000 DIF: Moderate

OBJ: 3-7

95. At its present level of operations, a small manufacturing firm has total variable costs equal to 75 percent of sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if sales change by $1.00, income will change by a. $0.25. b. $0.10. c. $0.75. d. can't be determined from the information given. ANS: A Let S = 1.00 Let VC = .75S Let CM = .25S Under variable costing every dollar of sales will increase net income by $0.25. DIF: Easy

OBJ: 3-7

96. The following information regarding fixed production costs from a manufacturing firm is available for the current year: Fixed costs in the beginning inventory Fixed costs incurred this period

$ 16,000 100,000

Which of the following statements is not true? a. The maximum amount of fixed production costs that this firm could deduct using absorption costs in the current year is $116,000. b. The maximum difference between this firm's the current year income based on absorption costing and its income based on variable costing is $16,000. c. Using variable costing, this firm will deduct no more than $16,000 for fixed production costs. d. If this firm produced substantially more units than it sold in the current year, variable costing will probably yield a lower income than absorption costing. ANS: C

DIF: Moderate

OBJ: 3-7

Enigma Corporation The following information was extracted from the first year absorption-based accounting records of Enigma Corporation Total fixed costs incurred Total variable costs incurred Total period costs incurred Total variable period costs incurred Units produced Units sold Unit sales price

$100,000 50,000 70,000 30,000 20,000 12,000 $12

97. Refer to Enigma Corporation. What is Cost of Goods Sold for Enigma Corporation's first year? a. $80,000 b. $90,000 c. $48,000 d. can't be determined from the information given ANS: C Total variable manufacturing costs = $50,000 - 30,000 = $20,000 Total fixed period costs incurred = $70,000 - 30,000 = $40,000 Total fixed manufacturing costs = $100,000 - 40,000 = $60,000 Total manufacturing costs = $60,000 + $20,000 = $80,000 Percent of goods sold: 12,000/20,000 = 60% $80,000 * 60% = $48,000 DIF: Difficult

OBJ: 3-7

98. Refer to Enigma Corporation. If Enigma Corporation had used variable costing in its first year of operations, how much income (loss) before income taxes would it have reported? a. ($6,000) b. $54,000 c. $26,000 d. $2,000 ANS: D Sales Less: Variable Costs Manufacturing $20,000 * 60% Period Costs $30,000 Contribution Margin Fixed Costs Variable Costing Net Income

DIF: Difficult

$144,000 12,000 30.000 $102,000 100,000 2,000 ======

OBJ: 3-7

99. Refer to Enigma Corporation. Based on variable costing, if Enigma had sold 12,001 units instead of 12,000, its income before income taxes would have been a. $9.50 higher. b. $11.00 higher. c. $8.50 higher. d. $8.33 higher. ANS: C Sales Price per Unit: Variable Costs per Unit ($50,000 / 20,000) Contribution Margin

DIF: Moderate

OBJ: 3-7

$12.00 2.50 $ 8.50 ======

King Corporation King Corporation produces a single product. The following cost structure applied to its first year of operations: Variable costs: SG&A Production Fixed costs (total cost incurred for the year): SG&A Production

$2 per unit $4 per unit $14,000 $20,000

100. Refer to King Corporation. Assume for this question only that during the current year King Corporation manufactured 5,000 units and sold 3,800. There was no beginning or ending work-in-process inventory. How much larger or smaller would King Corporation's income be if it uses absorption rather than variable costing? a. The absorption costing income would be $6,000 larger. b. The absorption costing income would be $6,000 smaller. c. The absorption costing income would be $4,800 larger. d. The absorption costing income would be $4,000 smaller. ANS: C Add back fixed manufacturing portion of units unsold (1,200/5,000) * $20,000 = $4,800. DIF: Moderate

OBJ: 3-7

101. Refer to King Corporation. Assume for this question only that King Corporation manufactured and sold 5,000 units in the current year. At this level of activity it had an income of $30,000 using variable costing. What was the sales price per unit? a. $16.00 b. $18.80 c. $12.80 d. $14.80 ANS: B Sales--5,000 units * $18.80/unit Variable Costs: Manufacturing SG&A Contribution Margin Fixed Costs Manufacturing SG&A Net Income

DIF: Moderate

OBJ: 3-7

$94,000 20,000 10,000 $64,000 14,000 20,000 $30,000 =====

102. Refer to King Corporation. Assume for this question only that King Corporation produced 5,000 units and sold 4,500 units in the current year. If King uses absorption costing, it would deduct period costs of a. $24,000. b. $34,000. c. $27,000. d. $23,000. ANS: D Variable SG&A Costs (4,500 units * $2/unit) Fixed SG&A Costs Total period costs to be deducted

DIF: Moderate

$ 9,000 14,000 $23,000 ======

OBJ: 3-7

103. Refer to King Corporation. Assume for this question only that King Corporation manufactured 5,000 units and sold 4,000 in the current year. If King employs a costing system based on variable costs, the company would end the current year with a finished goods inventory of a. $4,000. b. $8,000. c. $6,000. d. $5,000. ANS: A 1,000 units * $4.00 variable cost per unit = $4,000 DIF: Moderate

OBJ: 3-7

Companies R, S, and T Three new companies (R, S, and T) began operations on January 1 of the current year. Consider the following operating costs that were incurred by these companies during the complete calendar year: Production in units Sales price per unit Fixed production costs Variable production costs Variable SG&A Fixed SG&A

Company R 10,000 $10 $10,000 $30,000 $10,000 $30,000

Company S 10,000 $10 $20,000 $20,000 $20,000 $20,000

Company T 10,000 $10 $30,000 $10,000 $30,000 $10,000

104. Refer to Companies R, S, and T. Based on sales of 7,000 units, which company will report the greater income before income taxes if absorption costing is used? a. Company R b. Company S c. Company T d. All of the companies will report the same income. ANS: D Under absorption costing, the net income for all three companies is the same.

DIF: Moderate

OBJ: 3-7

105. Refer to Companies R, S, and T. Based on sales of 7,000 units, which company will report the greater income before income taxes if variable costing is used? a. Company R b. Company S c. Company T d. All of the companies will report the same income. ANS: A Since Company R has the largest variable manufacturing costs, income will increase by the amount that was held in finished goods inventory. DIF: Moderate

OBJ: 3-7

106. Refer to Companies R, S, and T. Based on sales of 10,000 units, which company will report the greater income before income taxes if variable costing is used? a. Company R b. Company S c. Company T d. All of the companies will report the same income before income taxes. ANS: D Since all the companies have the same net income and all had the same amount of sales, all three companies would have the same net income under variable costing. DIF: Moderate

OBJ: 3-7

107. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000 units in the coming year. To realize a profit of $20,000, the firm must have a sales price per unit of at least a. $11.00. b. $11.50. c. $10.00. d. $10.50. ANS: B Sales--40,000 units * $11.50/unit Variable Costs: Manufacturing Contribution Margin Fixed Costs Net Income

DIF: Moderate

OBJ: 3-7

$460,000 240,000 $220,000 200,000 $ 20,000 =====

Bennett Corporation Bennett Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing costs and selling and administrative expenses are presented below. There were no variances from the standard variable costs. Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold. Direct material Direct labor Manufacturing overhead Selling & Administration expense

Fixed costs $0 0 $150,000 80,000

Variable costs $1.50 per unit produced 1.00 per unit produced 0.50 per unit produced 0.50 per unit sold

Bennett Corporation had no inventory at the beginning of the year. 108. Refer to Bennett Corporation. In presenting inventory on the balance sheet at December 31, the unit cost under absorption costing is a. $2.50. b. $3.00. c. $3.50. d. $4.50. ANS: D DM + DL + VOH + FOH = Absorption Cost per Unit $1.50 + $1.00 + $0.50 + $(150,000/100,000) = $4.50 / Unit DIF: Moderate

OBJ: 3-7

109. Refer to Bennett Corporation. What is the net income under variable costing? a. $50,000 b. $80,000 c. $90,000 d. $120,000 ANS: A Sales Variable Costs: Materials Labor Overhead Selling and Administrative Contribution Margin Fixed Costs Overhead Selling and Administrative Net Income

$560,000 $120,000 80,000 40,000 40,000 $280,000 150,000 80,000 $ 50,000 =======

DIF: Moderate

OBJ: 3-7

110. Refer to Bennett Corporation. What is the net income under absorption costing? a. $50,000 b. $80,000 c. $90,000 d. $120,000 ANS: B Sales Cost of Goods Sold: Materials Labor Overhead (Variable and Fixed) Gross Profit Fixed Costs: Selling and Administrative Net Income

$560,000 $120,000 80,000 160,000 $200,000 $120,000 $ 80,000 =======

DIF: Moderate OBJ: 3-7 48.A unit that is rejected at a quality control inspection point, but that can be reworked and sold, is referred to as a a. spoiled unit. b. scrap unit. c. abnormal unit. d. defective unit. ANS: D

DIF: Easy

OBJ: 4-8

49.The cost of abnormal losses (net of disposal costs) should be written off as Product cost

Period cost

yes yes no no

no yes yes no

a. b. c. d.

ANS: C

DIF: Easy

OBJ: 4-8

50. In a job order costing system, the net cost of normal spoilage is equal to a. estimated disposal value plus the cost of spoiled work. b. the cost of spoiled work minus estimated spoilage cost. c. the units of spoiled work times the predetermined overhead rate. d. the cost of spoiled work minus the estimated disposal value. ANS: D

DIF: Moderate

OBJ: 4-8

51. If abnormal spoilage occurs in a job order costing system, has a material dollar value, and is related to a specific job, the recovery value of the spoiled goods should be debited to a. b. c. d.

a scrap inventory account the specific job in process a loss account factory overhead

ANS: A

DIF: Moderate

credited to the specific job in process overhead the specific job in process sales

OBJ: 4-8

52. In a job order costing system, the net cost of normal spoilage is equal to a. estimated disposal value plus the cost of spoiled work. b. the cost of spoiled work minus estimated spoilage cost. c. the units of spoiled work times the predetermined overhead rate. d. the cost of spoiled work minus the estimated disposal value. ANS: D

DIF: Moderate

OBJ: 4-8

53. Shrinkage should be treated as a. defective units. b. spoiled units. c. miscellaneous expense. d. a reduction of overhead. ANS: B

DIF: Easy

OBJ: 4-8

54. Spoiled units are a. units that cannot be economically reworked to bring them up to standard. b. units that can be economically reworked to bring them up to standard. c. the same as defective units. d. considered abnormal losses. ANS: A

DIF: Easy

OBJ: 4-8

55. Abnormal spoilage is a. spoilage that is forecasted or planned. b. spoilage that is in excess of planned. c. accounted for as a product cost. d. debited to Cost of Goods Sold. ANS: B

DIF: Easy

OBJ: 4-8

56. Normal spoilage is defined as unacceptable production that a. arises because of a special job or process. b. occurs in on-going operations. c. is caused specifically by human error. d. is in excess of that which is expected. ANS: B

DIF: Easy

OBJ: 4-8

57. Which of the following would fall within the range of tolerance for a production cycle? Abnormal loss a. b. c. d.

Normal loss

yes yes no no

yes no no yes

ANS: D

DIF: Easy

OBJ: 4-8

58. The net cost of normal spoilage in a job order costing system in which spoilage is common to all jobs should be a. assigned directly to the jobs that caused the spoilage. b. charged to manufacturing overhead during the period of the spoilage. c. charged to a loss account during the period of the spoilage. d. allocated only to jobs that are completed during the period. ANS: B

DIF: Moderate

OBJ: 4-8

Smithson Company Smithson Company produces two products (A and B). Direct material and labor costs for Product A total $35 (which reflects 4 direct labor hours); direct material and labor costs for Product B total $22 (which reflects 1.5 direct labor hours). Three overhead functions are needed for each product. Product A uses 2 hours of Function 1 at $10 per hour, 1 hour of Function 2 at $7 per hour, and 6 hours of Function 3 at $18 per hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Smithson produces 800 units of A and 8,000 units of B each period. 70. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units produced, Product A will have an overhead cost per unit of a. $ 88.64. b. $123.64. c. $135.00. d. None of the responses are correct. ANS: A Total Overhead Product A

Function

Hourly Rate 1 2 3

$ $ $

10 7 18 Totals

Hours

Total 2 1 6 9

$ $ $ $

20 7 108 135

Product B

Function

Hourly Rate 1 2 3

OH/Unit $ $

Units Produced 135 84

$ $ $

10 7 18 Totals

Hours

Total 1 8 1 10

$ $ $ $

10 56 18 84

Total

$ 108,000 $ 672,000 $ 780,000 Total OH Proportion Allocated Units OH per OH Produced Unit $ 780,000 0.090909091 $ 70,909.09 800 $ 88.64 (800/8800)

DIF: Moderate

800 8000

OBJ: 5-3

71. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units produced, Product B will have an overhead cost per unit of a. $84.00. b. $88.64. c. $110.64. d. None of the responses are correct. ANS: B See #70 for Total Overhead Computations Total OH Proportion Allocated Units OH per OH Produced Unit $ 780,000 0.909090909 $ 709,090.91 8000 $ 88.64 (8000/8800)

DIF: Moderate

OBJ: 5-3

72. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor hours, Product A will have an overhead cost per unit of a. $51.32. b. $205.28. c. $461.88. d. None of the responses are correct. ANS: B Product

DL Hrs/Unit

A B

Units Produced

4 1.5

Total OH $

Proportion

800 8000

Total DL Hours 3200 12000 15200

Allocated Units OH per OH Produced Unit 780,000 0.210526316 $ 164,210.53 800 $ 205.28 (3,200/15,200)

DIF: Moderate

OBJ: 5-3

73. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of a. $51.32. b. $76.98. c. $510.32. d. None of the responses are correct. ANS: B See #72 for Direct Labor Computations Total OH $

Proportion

Allocated Units OH per OH Produced Unit 780,000 0.789473684 $ 615,789.47 8000 $ 76.98 (12,000/15,200)

DIF: Moderate

OBJ: 5-3

74. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity hours used, the total product cost per unit assigned to Product A will be a. $86.32. b. $95.00. c. $115.50. d. None of the responses are correct. ANS: C Total OH $

780,000

Proportion 0.082568807 (7,200/87,200)

DIF: Moderate

Allocated OH $ 64,403.67

Units OH per DM and Produced Unit DL/Unit 800 $ 80.50 $ 35.00

Total $ 115.50

OBJ: 5-3

75. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity hours used, the total product cost per unit assigned to Product B will be a. $115.50. b. $73.32. c. $34.60. d. None of the responses are correct. ANS: D Total OH $

780,000

Proportion 0.917431193 $ (80,000/87,200)

DIF: Moderate

OBJ: 5-3

Allocated OH 715,596.33

Units OH per DM and Total Produced Unit DL/Unit 8000 $ 89.44 $ 22.00 $ 111.44

Phelps Company Phelps Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In that period, four set-ups were required for color changes. All units of Product Q are black, which is the color in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product Z; a setup was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A setup was then made to return the process to its standard black coloration and the units of Product Q were run. Each set-up costs $500. 76. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit set-up cost for Product Z? a. $.010. b. $.036. c. $.040. d. None of the responses are correct. ANS: B Total setup cost: $500 x 4 = $2,000 $2,000/56,000 = $0.0357 DIF: Moderate

OBJ: 5-3

77. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the approximate per-unit set-up cost for the red units of Product Z? a. $.036. b. $.111. c. $.250. d. None of the responses are correct. ANS: A Total setup cost: $500 x 4 = $2,000 $2,000/56,000 = $0.0357 DIF: Moderate

OBJ: 5-3

78. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product Z? a. $.04. b. $.25. c. $.50. d. None of the responses are correct. ANS: C Setup cost for blue units = $500.00 Number of blue units produced = 1,000 $500/1,000 = $.50

DIF: Moderate

OBJ: 5-3

79. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the green units of Product Z? a. $1.00. b. $0.25. c. $0.04. d. None of the responses are correct. ANS: A Setup cost = $500.00 Units produced = 500 $500.00/500 = $1.00/unit DIF: Moderate

OBJ: 5-3

Lafayette Savings and Loan Lafayette Savings and Loan had the following activities, traceable costs, and physical flow of driver units: Activities

Traceable Costs

Open new accounts Process deposits Process withdrawals Process loan applications

$50,000 36,000 15,000 27,000

Physical flow of Driver Units 1,000 accounts 400,000 deposits 200,000 withdrawals 900 applications

The above activities are used by the Jennings branch and the Crowley branch:

New accounts Deposits Withdrawals Loan applications

Jennings

Crowley

200 40,000 15,000 100

400 20,000 18,000 160

80. Refer to Lafayette Savings and Loan. What is the cost per driver unit for new account activity? a. $0.09 c. $30.00 b. $0.075 d. $50.00 ANS: D $50,000 / 1,000 = $50.00 per account DIF: Easy

OBJ: 5-4

81. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the deposit activity? a. $0.09 b. $0.075

c. $30.00 d. $50.00

ANS: A $36,000/400,000 = $0.09 DIF: Easy

OBJ: 5-4

82. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the withdrawal activity? a. $0.09 b. $0.075

c. $30.00 d. $50.00

ANS: B $15,000/200,000 = $0.075 DIF: Easy

OBJ: 5-4

83. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the loan application activity? a. $0.09 b. $0.075

c. $30.00 d. $50.00

ANS: C $27,000/900 = $30.00 DIF: Easy

OBJ: 5-4

84. Refer to Lafayette Savings and Loan. How much of the loan application cost will be assigned to the Jennings branch? a. $3,000 c. $ 7,800 b. $4,800 d. $27,000 ANS: A $30.00 x 100 = $3,000 DIF: Easy

OBJ: 5-4

85. Refer to Lafayette Savings and Loan. How much of the deposit cost will be assigned to the Crowley branch? a. $1,800 c. $ 5,400 b. $3,600 d. $36,000 ANS: A $0.09 * 20,000 = $1,800 DIF: Easy

OBJ: 5-4

86. Refer to Lafayette Savings and Loan. How much of the new account cost will be assigned to the Crowley branch? a. $10,000 c. $30,000 b. $20,000 d. $50,000 ANS: B 400 * $50 = $20,000 DIF: Easy

OBJ: 5-4

Hazel Company uses activity-based costing. The company produces two products: coats and hats. The annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are three activity cost pools with the following expected activities and estimated total costs: Activity Cost Pool Activity 1 Activity 2 Activity 3

Estimated Cost $20,000 $37,000 $91,200

Expected Activity Coats 100 800 800

Expected Activity Hats 400 200 3,000

Total 500 1,000 3,800

87. Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately: a. $2.40 b. $3.90 ANS: C Activity 1 2 3

c. $ 6.60 d. $10.59 Cost Allocation $20,000 * 100/500 = $ 4,000 / 8,000 $37,000 * 800/1,000 = $29,600 / 8,000 $91,200 * 800/3,800 = $19,200 / 8,000 Total Cost per Unit

DIF: Difficult

Cost per Unit $0.50 3.70 2.40 6.60

OBJ: 5-4

88. Refer to Hazel Company. Using ABC, the cost per unit of hats is approximately: a. $2.40 b. $3.90 ANS: D Activity 1 2 3

c. $12.00 d. $15.90 Cost Allocation $20,000 * 400/500 = $ 16,000 / 6,000 $37,000 * 200/1,000 = $ 7,400/ 6,000 $91,200 * 3,000/3,800 = $72,000 / 6,000 Total Cost per Unit

DIF: Difficult

OBJ: 5-4

Cost per Unit $2.67 1.23 12.00 15.90

1.Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments? a. standard b. actual c. process d. job order ANS: C

DIF: Easy

OBJ: 6-1

2. Process costing is used in companies that a. engage in road and bridge construction. b. produce sailboats made to customer specifications. c. produce bricks for sale to the public. d. construct houses according to customer plans. ANS: C

DIF: Easy

OBJ: 6-1

3. A producer of ________ would not use a process costing system. a. gasoline b. potato chips c. blank videotapes d. stained glass windows ANS: D

DIF: Easy

OBJ: 6-1

4. A process costing system is used by a company that a. produces heterogeneous products. b. produces items by special request of customers. c. produces homogeneous products. d. accumulates costs by job. ANS: C

DIF: Easy

OBJ: 6-1

5. Which is the best cost accumulation procedure to use for continuous mass production of like units? a. actual b. standard c. job order d. process ANS: D

DIF: Easy

OBJ: 6-1

6. Equivalent units of production are equal to the a. units completed by a production department in the period. b. number of units worked on during the period by a production department. c. number of whole units that could have been completed if all work of the period had been used to produce whole units. d. identifiable units existing at the end of the period in a production department. ANS: C

DIF: Moderate

OBJ: 6-2

7. In a process costing system using the weighted average method, cost per equivalent unit for a given cost component is found by dividing which of the following by EUP? a. only current period cost b. current period cost plus the cost of beginning inventory c. current period cost less the cost of beginning inventory d. current period cost plus the cost of ending inventory ANS: B

DIF: Easy

OBJ: 6-2

8. The weighted average method is thought by some accountants to be inferior to the FIFO method because it a. is more difficult to apply. b. only considers the last units worked on. c. ignores work performed in subsequent periods. d. commingles costs of two periods. ANS: D

DIF: Moderate

OBJ: 6-3

9. The first step in determining the cost per EUP per cost component under the weighted average method is to a. add the beginning Work in Process Inventory cost to the current period's production cost. b. divide the current period's production cost by the equivalent units. c. subtract the beginning Work in Process Inventory cost from the current period's production cost. d. divide the current period's production cost into the EUP. ANS: A

DIF: Moderate

OBJ: 6-3

10. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the equivalent units a. started and completed during the period. b. residing in beginning Work in Process Inventory. c. residing in ending Work in Process Inventory. d. uncompleted in Work in Process Inventory. ANS: B

DIF: Moderate

OBJ: 6-3,6-4

11. EUP calculations for standard process costing are the same as a. the EUP calculations for weighted average process costing. b. the EUP calculations for FIFO process costing. c. LIFO inventory costing for merchandise. d. the EUP calculations for LIFO process costing. ANS: B

DIF: Moderate

OBJ: 6-5

12. In a FIFO process costing system, which of the following are assumed to be completed first in the current period? a. units started this period b. units started last period c. units transferred out d. units still in process ANS: B

DIF: Easy

OBJ: 6-4

13. To compute equivalent units of production using the FIFO method of process costing, work for the current period must be stated in units a. completed during the period and units in ending inventory. b. completed from beginning inventory, units started and completed during the period, and units partially completed in ending inventory. c. started during the period and units transferred out during the period. d. processed during the period and units completed during the period. ANS: B

DIF: Moderate

OBJ: 6-4

14. The FIFO method of process costing will produce the same cost of goods transferred out amount as the weighted average method when a. the goods produced are homogeneous. b. there is no beginning Work in Process Inventory. c. there is no ending Work in Process Inventory. d. beginning and ending Work in Process Inventories are each 50 percent complete. ANS: B

DIF: Easy

OBJ: 6-4

15. The primary difference between the FIFO and weighted average methods of process costing is a. in the treatment of beginning Work in Process Inventory. b. in the treatment of current period production costs. c. in the treatment of spoiled units. d. none of the above. ANS: A

DIF: Easy

OBJ: 6-3,6-4

16. Material is added at the beginning of a process in a process costing system. The beginning Work in Process Inventory for the process was 30 percent complete as to conversion costs. Using the FIFO method of costing, the number of equivalent units of material for the process during this period is equal to the a. beginning inventory this period for the process. b. units started this period in the process. c. units started this period in the process plus the beginning Work in Process Inventory. d. units started and completed this period plus the units in ending Work in Process Inventory. ANS: D

DIF: Moderate

OBJ: 6-3,6-4

17. In a cost of production report using process costing, transferred-in costs are similar to the a. cost of material added at the beginning of production. b. conversion cost added during the period. c. cost transferred out to the next department. d. cost included in beginning inventory. ANS: A

DIF: Easy

OBJ: 6-3

18. In a process costing system, the journal entry to record the transfer of goods from Department #2 to Finished Goods Inventory is a a. debit Work in Process Inventory #2, credit Finished Goods Inventory. b. debit Finished Goods Inventory, credit Work in Process Inventory #1. c. debit Finished Goods Inventory, credit Work in Process Inventory #2. d. debit Cost of Goods Sold, credit Work in Process Inventory #2. ANS: C

DIF: Easy

OBJ: 6-3

19. Transferred-in cost represents the cost from a. the last department only. b. the last production cycle. c. all prior departments. d. the current period only. ANS: C

DIF: Easy

OBJ: 6-3

20. Which of the following is(are) the same between the weighted average and FIFO methods of calculating EUPs? Units to account for a. b. c. d.

no yes yes yes

ANS: D

EUP calculations

Total cost to account for

yes yes no no

DIF: Easy

no yes no yes

OBJ: 6-3,6-4

21. Process costing techniques should be used in assigning costs to products a. if a product is manufactured on the basis of each order received. b. when production is only partially completed during the accounting period. c. if a product is composed of mass-produced homogeneous units.

d. whenever standard-costing techniques should not be used. ANS: C

DIF: Easy

OBJ: 6-1

22. Averaging the total cost of completed beginning inventory and units started and completed over all units transferred out is known as a. strict FIFO. b. modified FIFO. c. weighted average costing. d. normal costing. ANS: B

DIF: Moderate

OBJ: 6-3

23. A process costing system a. cannot use standard costs. b. restates Work in Process Inventory in terms of completed units. c. accumulates costs by job rather than by department. d. assigns direct labor and manufacturing overhead costs separately to units of production. ANS: B

DIF: Easy

OBJ: 6-2

24. A process costing system does which of the following? Calculates EUPs a. b. c. d.

Assigns costs to inventories

no no yes yes

ANS: C

no yes yes no

DIF: Easy

OBJ: 6-3

25. A process costing system Calculates average cost per whole unit a. b. c. d.

Determines total units to account for

yes no yes no

ANS: D

yes no no yes

DIF: Easy

OBJ: 6-2

26. A hybrid costing system combines characteristics of a. job order and standard costing systems. b. job order and process costing systems. c. process and standard costing systems. d. job order and normal costing systems. ANS: B

DIF: Easy

OBJ: 6-6

27. When standard costs are used in process costing, a. variances can be measured during the production period. b. total costs rather than current production and current costs are used. c. process costing calculations are made simpler. d. the weighted average method of calculating EUPs makes computing transferred-out costs easier. ANS: D

DIF: Moderate

OBJ: 6-5

28. Which of the following is subtracted from weighted average EUP to derive FIFO EUP? a. beginning WIP EUP completed in current period b. beginning WIP EUP produced in prior period c. ending WIP EUP not completed d. ending WIP EUP completed ANS: B

DIF: Easy

OBJ: 6-2,6-4

29. The cost of abnormal continuous losses is a. considered a product cost. b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis. c. written off as a loss on an equivalent unit basis. d. absorbed by all units past the inspection point. ANS: C

DIF: Easy

OBJ: 6-8

30. Abnormal spoilage can be continuous

discrete

a. b. c. d.

no no yes yes

yes no yes no

ANS: C

DIF: Easy

OBJ: 6-8

31. When the cost of lost units must be assigned, and those same units must be included in an equivalent unit schedule, these units are considered a. normal and discrete. b. normal and continuous. c. abnormal and discrete. d. abnormal and continuous. ANS: D

DIF: Moderate

OBJ: 6-8

32. A continuous loss a. occurs unevenly throughout a process. b. never occurs during the production process. c. always occurs at the same place in a production process. d. occurs evenly throughout the production process. ANS: D

DIF: Easy

OBJ: 6-8

33. Which of the following would be considered a discrete loss in a production process? a. adding the correct ingredients to make a bottle of ketchup b. putting the appropriate components together for a stereo c. adding the wrong components when assembling a stereo d. putting the appropriate pieces for a bike in the box ANS: C

DIF: Easy

OBJ: 6-8

34. The method of neglect handles spoilage that is a. discrete and abnormal. b. discrete and normal. c. continuous and abnormal. d. continuous and normal. ANS: D

DIF: Moderate

OBJ: 6-8

35. The cost of normal discrete losses is a. absorbed by all units past the inspection point on an equivalent unit basis. b. absorbed by all units in ending inventory. c. considered a period cost. d. written off as a loss on an equivalent unit basis. ANS: A

DIF: Easy

OBJ: 6-8

36. The cost of abnormal continuous losses is a. considered a product cost. b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis. c. written off as a loss on an equivalent unit basis. d. absorbed by all units past the inspection point. ANS: C

DIF: Easy

OBJ: 6-8

37. Normal spoilage units resulting from a continuous process a. are extended to the EUP schedule. b. result in a higher unit cost for the good units produced. c. result in a loss being incurred. d. cause estimated overhead to increase. ANS: B

DIF: Easy

OBJ: 6-8

38. When the cost of lost units must be assigned, and those same units must be included in an equivalent unit schedule, these units are considered a. normal and discrete. b. normal and continuous. c. abnormal and discrete. d. abnormal and continuous. ANS: D

DIF: Moderate

OBJ: 6-8

39. Which of the following accounts is credited when abnormal spoilage is written off in an actual cost system? a. Miscellaneous Revenue b. Loss from Spoilage c. Finished Goods d. Work in Process ANS: D

DIF: Easy

OBJ: 6-8

40. The cost of abnormal discrete units must be assigned to good units lost units a. b. c. d.

yes no yes no

yes no no yes

ANS: D

DIF: Easy

OBJ: 6-8

41. Which of the following statements is false? The cost of rework on defective units, if a. abnormal, should be assigned to a loss account. b. normal and if actual costs are used, should be assigned to material, labor and overhead costs of the good production. c. normal and if standard costs are used, should be considered when developing the overhead application rate. d. abnormal, should be prorated among Work In Process, Finished Goods, and Cost of Goods Sold. ANS: D

DIF: Moderate

OBJ: 6-8

42. If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost of that spoilage should be a. included with the cost of the units sold during the period. b. included with the cost of the units completed in that department during the period. c. allocated to ending work in process units and units transferred out based on their relative values. d. allocated to the good units that have passed the inspection point. ANS: D

DIF: Moderate

OBJ: 6-8

43. Taylor Co. has a production process in which the inspection point is at 65 percent of conversion. The beginning inventory for July was 35 percent complete and ending inventory was 80 percent complete. Normal spoilage costs would be assigned to which of the following groups of units, using FIFO costing? Beginning Inventory a. b. c. d.

no yes no yes

ANS: B

Ending Inventory yes yes no no

Units Started & Completed yes yes yes no

DIF: Moderate

OBJ: 6-8

44. Which of the following is not a question that needs to be answered with regard to quality control? a. What happens to the spoiled units? b. What is the actual cost of spoilage? c. How can spoilage be controlled? d. Why does spoilage happen? ANS: A

DIF: Moderate

OBJ: 6-8

45. Normal spoilage units resulting from a continuous process a. are extended to the EUP schedule. b. result in a higher unit cost for the good units produced. c. result in a loss being incurred. d. cause estimated overhead to increase. ANS: B

DIF: Easy

OBJ: 6-8

46. The addition of material in a successor department that causes an increase in volume is called a. accretion. b. reworked units. c. complex procedure. d. undetected spoilage. ANS: A

DIF: Easy

OBJ: 6-8

47. Long Company transferred 5,500 units to Finished Goods Inventory during September. On September 1, the company had 300 units on hand (40 percent complete as to both material and conversion costs). On June 30, the company had 800 units (10 percent complete as to material and 20 percent complete as to conversion costs). The number of units started and completed during September was: a. 5,200. b. 5,380. c. 5,500. d. 6,300. ANS: A Units Transferred Out Less: Units in Beginning Inventory Units Started and Completed

DIF: Easy

OBJ: 6-2

5,500 (300) 5,200

48. Green Company started 9,000 units in February. The company transferred out 7,000 finished units and ended the period with 3,500 units that were 40 percent complete as to both material and conversion costs. Beginning Work in Process Inventory units were a. 500. b. 600. c. 1,500. d. 2,000. ANS: C Beginning Work in Process Add: Units Started Deduct: Units Transferred Out

1,500 9,000 7,000

Ending Work in Process

3,500

DIF: Easy

OBJ: 6-2

49. Bush Company had beginning Work in Process Inventory of 5,000 units that were 40 percent complete as to conversion costs. X started and completed 42,000 units this period and had ending Work in Process Inventory of 12,000 units. How many units were started this period? a. 42,000 b. 47,000 c. 54,000 d. 59,000 ANS: C Beginning Work in Process Add: Units Started Deduct: Units Transferred Out

5,000 54,000 47,000

Ending Work in Process

12,000

DIF: Moderate

OBJ: 6-2

50. Dixie Company uses a weighted average process costing system. Material is added at the start of production. Dixie Company started 13,000 units into production and had 4,500 units in process at the start of the period that were 60 percent complete as to conversion costs. If Dixie transferred out 11,750 units, how many units were in ending Work in Process Inventory? a. 1,250 b. 3,000 c. 3,500 d. 5,750 ANS: D Beginning Work in Process Add: Units Started Deduct: Units Transferred Out Ending Work in Process

DIF: Easy

OBJ: 6-2

4,500 13,000 11,750 5,750

51. Taylor Company uses a weighted average process costing system and started 30,000 units this month. Taylor had 12,000 units that were 20 percent complete as to conversion costs in beginning Work in Process Inventory and 3,000 units that were 40 percent complete as to conversion costs in ending Work in Process Inventory. What are equivalent units for conversion costs? a. 37,800 b. 40,200 c. 40,800 d. 42,000 ANS: B Beginning Work in Process + Completion of Units in Process + Units Started and Completed + Ending Work in Process

12,000 12,000 27,000 3,000

20% 80% 100% 40%

Equivalent Units of Production

DIF: Easy

2,400 9,600 27,000 1,200 40,200

OBJ: 6-2,6-3

52. Kerry Company makes small metal containers. The company began December with 250 containers in process that were 30 percent complete as to material and 40 percent complete as to conversion costs. During the month, 5,000 containers were started. At month end, 1,700 containers were still in process (45 percent complete as to material and 80 percent complete as to conversion costs). Using the weighted average method, what are the equivalent units for conversion costs? a. 3,450 b. 4,560 c. 4,610 d. 4,910 ANS: D Beginning Work in Process + Completion of Units in Process + Units Started and Completed + Ending Work in Process Equivalent Units of Production

DIF: Moderate

250 250 3,300 1,700

40% 60% 100% 80%

100 150 3,300 1,360 4,910

OBJ: 6-2,6-3

53. Mehta Company Co. uses a FIFO process costing system. The company had 5,000 units that were 60 percent complete as to conversion costs at the beginning of the month. The company started 22,000 units this period and had 7,000 units in ending Work in Process Inventory that were 35 percent complete as to conversion costs. What are equivalent units for material, if material is added at the beginning of the process? a. 18,000 b. 22,000 c. 25,000 d. 27,000 ANS: B The material is added at the beginning of the process; therefore there are 22,000 equivalent units of

material.

DIF: Easy

OBJ: 6-2,6-4

54. Julia Company makes fabric-covered hatboxes. The company began September with 500 boxes in process that were 100 percent complete as to cardboard, 80 percent complete as to cloth, and 60 percent complete as to conversion costs. During the month, 3,300 boxes were started. On September 30, 350 boxes were in process (100 percent complete as to cardboard, 70 percent complete as to cloth, and 55 percent complete as to conversion costs). Using the FIFO method, what are equivalent units for cloth? a. 3,295 b. 3,395 c. 3,450 d. 3,595 ANS: A Beginning Work in Process (Ignored for FIFO) + Completion of Units in Process + Units Started and Completed + Ending Work in Process

500 500 2,950 350

0% 20% 100% 70%

Equivalent Units of Production

DIF: Moderate

3,295

OBJ: 6-2,6-4

Reed Company Reed Company. has the following information for November: Beginning Work in Process Inventory (70% complete as to conversion) Started Ending Work in Process Inventory (10% complete as to conversion)

100 2,950 245

6,000 units 24,000 units 8,500 units

Beginning WIP Inventory Costs: Material Conversion

$23,400 50,607

Current Period Costs: Material Conversion

$31,500 76,956

All material is added at the start of the process and all finished products are transferred out.

55. Refer to Reed Company. How many units were transferred out in November? a. 15,500 b. 18,000 c. 21,500 d. 24,000 ANS: C Beginning Work in Process Add: Units Started Deduct: Units Transferred Out Ending Work in Process

DIF: Easy

6,000 24,000 21,500 8,500

OBJ: 6-2

56. Refer to Reed Company. Assume that weighted average process costing is used. What is the cost per equivalent unit for material? a. $0.55 b. $1.05 c. $1.31 d. $1.83 ANS: D Material Costs: Beginning Current Period

$

23,400 31,500 54,900 ÷ 30,000 = units

DIF: Moderate

OBJ: 6-3

$ 1.83

57. Refer to Reed Company. Assume that FIFO process costing is used. What is the cost per equivalent unit for conversion? a. $3.44 b. $4.24 c. $5.71 d. $7.03 ANS: B Conversion Costs: Beginning (Ignored for FIFO) Current Period

$ $

Equivalent Units Beginning Inventory (6,000 * 30%) Started and Completed (15,500) Ending Inventory (8,500 * 10%)

76,956 76,956 1,800 15,500 850 18,150 equivalent units

Cost per equivalent unit DIF: Moderate

$ 4.24

OBJ: 6-4

Holiday Company The Holiday Company makes wreaths in two departments: Forming and Decorating. Forming began the month with 500 wreaths in process that were 100 percent complete as to material and 40 percent complete as to conversion. During the month, 6,500 wreaths were started. At month end, Forming had 2,100 wreaths that were still in process that were 100 percent complete as to material and 50 percent complete as to conversion. Assume Forming uses the weighted average method of process costing. Costs in the Forming Department are as follows: Beginning Work in Process Costs: Material Conversion Current Costs: Material Conversion

$1,000 1,500 $3,200 5,045

The Decorating Department had 600 wreaths in process at the beginning of the month that were 80 percent complete as to material and 90 percent complete as to conversion. The department had 300 units in ending Work in Process that were 50 percent complete as to material and 75 percent complete as to conversion. Decorating uses the FIFO method of process costing, and costs associated with Decorating are:

Beginning WIP Inventory: Transferred In Material Conversion Current Period: Transferred In Material Conversion

$1,170 4,320 6,210 ? $67,745 95,820

58. Refer to Holiday Company. How many units were transferred to Decorating during the month? a. 600 b. 4,900 c. 5,950 d. 7,000 ANS: B Wreaths completed from BWIP Wreaths started and completed

DIF: Easy

500 4400 4900

OBJ: 6-2

59. Refer to Holiday Company. What was the cost transferred out of Forming during the month? a. $5,341 b. $6,419 c. $8,245 d. $8,330 ANS: D Units Transferred Out 4,900

Cost per Eq. Unit 1.70

DIF: Moderate

Total $8,330

OBJ: 6-3

60. Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of equivalent units as to costs in Decorating for the transferred-in cost component. a. 7,400 b. 7,700 c. 8,000 d. 8,600 ANS: C The transferred-in cost component is the 8,000 units that were transferred in.

DIF: Moderate

OBJ: 6-4

61. Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of equivalent units in Decorating for material. a. 7,970 b. 8,000 c. 8,330 d. 8,450 ANS: A Materials: Decorating: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process

Units

% Eqiv. Complete Units 12 20% 0 600 100% 7,700

7,700

50%

300

Equivalent Units of Production

DIF: Moderate

150 7,970

OBJ: 6-4

62. Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of equivalent units in Decorating for conversion. a. 7,925 b. 7,985 c. 8,360 d. 8,465 ANS: B Conversion: Decorating: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process Equivalent Units of Production

DIF: Moderate

OBJ: 6-4

Units

% Equiv. Complete Units 600

7,700 300

10%

60

100% 7,700 75%

225 7,985

63. Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of $16,000. What is the material cost per equivalent unit in Decorating? a. $8.50 b. $8.65 c. $8.80 d. $9.04 ANS: A When FIFO is used, consider only current costs. Current Costs $67,745

Equiv Units 7,970

DIF: Moderate

Cost/ Equiv Unit $8.50

OBJ: 6-4

64. Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of $16,000. What is the conversion cost per equivalent unit in Decorating? a. $11.32 b. $11.46 c. $12.00 d. $12.78 ANS: C When FIFO is used, consider only current costs. Current Costs $95,820

Equiv Units 7,985

DIF: Moderate

Cost/ Equiv Unit $12.00

OBJ: 6-4

65. Refer to Holiday Company. Assume the material cost per EUP is $8.00 and the conversion cost per EUP is $15 in Decorating. What is the cost of completing the units in beginning inventory? a. $ 960 b. $ 1,380 c. $ 1,860 d. $11,940 ANS: C Costs to Complete Beg Inv Units Materials 600 Conversion 600 Total Costs to Complete

Percent to Cost per Complete Unit 20% $8 10% $15

Total $960 $900 $1,860

DIF: Moderate

OBJ: 6-4

Ryan Company Ryan Company adds material at the start to its production process and has the following information available for March: Beginning Work in Process Inventory (40% complete as to conversion) Started this period Ending Work in Process Inventory (25% complete as to conversion) Transferred out

7,000 units 32,000 units 2,500

units ?

66. Refer to Ryan Company. Compute the number of units started and completed in March. a. 29,500 b. 34,500 c. 36,500 d. 39,000 ANS: A Units started this period Less: Ending Work in Process

32,000 2,500

Units started and completed this period

29,500

DIF: Moderate

OBJ: 6-2

67. Refer to Ryan Company. Calculate equivalent units of production for material using FIFO. a. 32,000 b. 36,800 c. 37,125 d. 39,000 ANS: A Materials are added at the beginning of the process. 32,000 units were started in the current period; therefore there are 32,000 equivalent units for materials.

DIF: Easy

OBJ: 6-2,6-4

68. Refer to Ryan Company. Calculate equivalent units of production for conversion using FIFO. a. 30,125 b. 34,325 c. 37,125 d. 39,000 ANS: B Equivalent Units Beginning Inventory (7,000 * 60%) Started and Completed (29,500)

4,200 29,500

Ending Inventory (2,500 * 25%)

DIF: Moderate

625 34,325 equivalent units

OBJ: 6-2,6-4

69. Refer to Ryan Company. Calculate equivalent units of production for material using weighted average. a. 32,000 b. 34,325 c. 37,125 d. 39,000 ANS: D Equivalent Units Beginning Inventory (7,000 units) Started this Period (32,000)

DIF: Easy

7,000 32,000 39,000 equivalent units

OBJ: 6-2,6-3

70. Refer to Ryan Company. Calculate equivalent units of production for conversion using weighted average. a. 34,325 b. 37,125 c. 38,375 d. 39,925 ANS: B Equivalent Units Beginning Inventory (7,000 * 100%) Started and Completed (29,500) Ending Inventory (2,500 * 25%)

DIF: Moderate

7,000 29,500 625 37,125 equivalent units

OBJ: 6-2,6-3

Maxwell Company Maxwell Company adds material at the start of production. The following production information is available for June: Beginning Work in Process Inventory (45% complete as to conversion) Started this period Ending Work in Process Inventory (80% complete as to conversion)

10,000 units 120,000 units 8,200

Beginning Work in Process Inventory Costs: $24,500 Material 68,905 Conversion

units

Current Period Costs: Material Conversion

$ 75,600 130,053

71. Refer to Maxwell Company. How many units must be accounted for? a. 118,200 b. 128,200 c. 130,000 d. 138,200 ANS: C Beginning Work in Process Units Started Total Units

DIF: Easy

10,000 120,000 130,000

OBJ: 6-2

72. Refer to Maxwell Company. What is the total cost to account for? a. $ 93,405 b. $205,653 c. $274,558 d. $299,058 ANS: D BWIP: Materials BWIP: Conversion Current Period: Materials Current Period: Conversion Total Costs

DIF: Easy

$ 24,500 68,905 75,600 130,053 $299,058

OBJ: 6-2

73. Refer to Maxwell Company. How many units were started and completed in the period? a. 111,800 b. 120,000 c. 121,800 d. 130,000 ANS: A Units started this period Less: Ending Work in Process Units started and completed this period

DIF: Easy

OBJ: 6-2

120,000 8,200 111,800

74. Refer to Maxwell Company. What are the equivalent units for material using the weighted average method? a. 120,000 b. 123,860 c. 128,360 d. 130,000 ANS: D Equivalent Units Beginning Inventory (10,000 * 100%) Started and Completed (111,800) Ending Inventory (8,200 * 25%)

DIF: Easy

10,000 111,800 8,200 130,000 equivalent units

OBJ: 6-3

75. Refer to Maxwell Company. What are the equivalent units for material using the FIFO method? a. 111,800 b. 120,000 c. 125,500 d. 130,000 ANS: B Equivalent Units Beginning Inventory (Ignored for FIFO) Started and Completed (111,800) Ending Inventory (8,200 * 25%)

DIF: Easy

0 111,800 8,200 120,000 equivalent units

OBJ: 6-4

76. Refer to Maxwell Company. What are the equivalent units for conversion using the weighted average method? a. 120,000 b. 123,440 c. 128,360 d. 130,000 ANS: C Beginning Work in Process + Completion of Units in Process + Units Started and Completed + Ending Work in Process Equivalent Units of Production

DIF: Moderate

OBJ: 6-2,6-3

10,000 10,000 111,800 8,200

45% 55% 100% 80%

4,500 5,500 111,800 6,560 128,360

77. Refer to Maxwell Company. What are the equivalent units for conversion using the FIFO method? a. 118,360 b. 122,860 c. 123,860 d. 128,360 ANS: C Beginning Work in Process (ignored) + Completion of Units in Process + Units Started and Completed + Ending Work in Process Equivalent Units of Production

DIF: Moderate

10,000 10,000 111,800 8,200

0% 55% 100% 80%

5,500 111,800 6,560 123,860

OBJ: 6-2,6-4

78. Refer to Maxwell Company. What is the material cost per equivalent unit using the weighted average method? a. $.58 b. $.62 c. $.77 d. $.82 ANS: C Material Costs: Beginning Current Period

$ 24,500 75,600 100,100 ÷ 130,000 = units

DIF: Moderate

$ 0.77 per unit

OBJ: 6-3

79. Refer to Maxwell Company. What is the conversion cost per equivalent unit using the weighted average method? a. $1.01 b. $1.05 c. $1.55 d. $1.61 ANS: B Conversion Costs: Beginning Current Period

$ 68,905 130,053 198,958 ÷ 128,360 = units

DIF: Moderate

OBJ: 6-3

$ 1.55 per unit

80. Refer to Maxwell Company. What is the cost of units completed using the weighted average? a. $237,510 b. $266,742 c. $278,400 d. $282,576 ANS: D Units Completed 121,800

DIF: Difficult

Costs per Equivalent Unit (1.55 + .77) = $2.32

Total $282,576

OBJ: 6-3

81. Refer to Maxwell Company. What is the conversion cost per equivalent unit using the FIFO method? a. $1.05 b. $.95 c. $1.61 d. $1.55 ANS: A Conversion Costs: Beginning (Ignored) Current Period

130,053 130,053 ÷ 123,860 = $ 1.05 units

DIF: Moderate

per unit

OBJ: 6-4

82. Refer to Maxwell Company. What is the cost of all units transferred out using the FIFO method? a. $204,624 b. $191,289 c. $287,004 d. $298,029 ANS: C Units Completed 121,800

DIF: Difficult

Costs per Equivalent Unit (1.05 + .63) = $1.68

OBJ: 6-4

Total $204,624

Cherub Co. Beginning inventory (30% complete as to Material B and 60% complete for conversion) Started this cycle Ending inventory (50% complete as to Material B and 80% complete for conversion)

700

units

2,000 500

units units

Beginning inventory costs: Material A Material B Conversion

$14,270 5,950 5,640

Current Period costs: Material A Material B Conversion

$40,000 70,000 98,100

Material A is added at the start of production, while Material B is added uniformly throughout the process. 83. Refer to Cherub Company. Assuming a weighted average method of process costing, compute EUP units for Materials A and B. a. 2,700 and 2,280, respectively b. 2,700 and 2,450, respectively c. 2,000 and 2,240, respectively d. 2,240 and 2,700, respectively ANS: B Weighted Average Beginning Work in Process Units Started and Completed Ending Work in Process EUP Materials

DIF: Easy

Material A 700 1500 500 2700

Material B 700 1500 250 2450

OBJ: 6-2,6-3

84. Refer to Cherub Company Assuming a FIFO method of process costing, compute EUP units for Materials A and B. a. 2,700 and 2,280, respectively b. 2,700 and 2,450, respectively c. 2,000 and 2,240, respectively d. 2,450 and 2,880, respectively ANS: C FIFO Beginning Work in Process Units Started and Completed Ending Work in Process EUP Materials

Material A 0 1500 500 2000

Material B 490 1500 250 2240

DIF: Moderate

OBJ: 6-2,6-4

85. Refer to Cherub Company Assuming a weighted average method of process costing, compute EUP for conversion. a. 2,600 b. 2,180 c. 2,000 d. 2,700 ANS: A Weighted Average Beginning Work in Process Units Started and Completed Ending Work in Process

DIF: Moderate

700 1500 400 2600

OBJ: 6-2,6-3

86. Refer to Cherub Company Assuming a FIFO method of process costing, compute EUP for conversion. a. 2,240 b. 2,180 c. 2,280 d. 2,700 ANS: B FIFO Beginning Work in Process (700 * 40%) Units Started and Completed Ending Work in Process (500 * 80%)

DIF: Moderate

280 1500 400 2180

OBJ: 6-2,6-4

87. Refer to Cherub Company Assuming a weighted average method of process costing, compute the average cost per unit for Material A. a. $20.10 b. $20.00 c. $31.25 d. $31.00 ANS: A Weighted Average: Material A Beginning Current Period

$

14,270 40,000 54,270 ÷ 2,700 = units

$

20.10 per unit

DIF: Moderate

OBJ: 6-2,6-3

88. Refer to Cherub Company Assuming a FIFO method of process costing, compute the average cost per EUP for Material A. a. $31.25 b. $20.10 c. $20.00 d. $31.00 ANS: C Material A Costs (Current Period) $40,000

DIF: Moderate

Equivalent Units 2,000

Average Cost per EUP $20.00

OBJ: 6-2,6-4

89. Refer to Cherub Company Assuming a FIFO method of process costing, compute the average cost per EUP for Material B. a. $20.10 b. $31.25 c. $20.00 d. $31.00 ANS: B Material B Costs (Current Period) $70,000

DIF: Moderate

Equivalent Units 2,240

Average Cost per EUP $31.25

OBJ: 6-2,6-4

90. Refer to Cherub Company Assuming a weighted average method of process costing, compute the average cost per EUP for Material B. a. $20.00 b. $31.25 c. $20.10 d. $31.00 ANS: D Material B Costs (Beginning Inventory and Current Period) $75,950

DIF: Moderate

Equivalent Units

Average Cost per EUP

2,450

$31.00

OBJ: 6-2,6-3

91. Refer to Cherub Company Assuming a FIFO method of process costing, compute the average cost per EUP for conversion. a. $45.50 b. $45.00 c. $43.03 d. $47.59 ANS: B Conversion Costs (Current Period) $98,100

Equivalent Units 2,180

DIF: Moderate

Average Cost per EUP $45.00

OBJ: 6-2,6-4

92. Refer to Cherub Company Assuming a weighted average method of process costing, compute the average cost per EUP for conversion. a. $39.90 b. $45.00 c. $43.03 d. $47.59 ANS: A Conversion Costs Equivalent (Beginning WIP and Units Current Period) $98,100 + $5,640 2,600

DIF: Moderate

Average Cost per EUP $39.90

OBJ: 6-2,6-3

Talmidge Company The following information is available for Talmidge Company for the current year: Beginning Work in Process (75% complete) Started Ending Work in Process (60% complete) Abnormal spoilage Normal spoilage (continuous) Transferred out

Costs of Beginning Work in Process: $25,100 Material 50,000 Conversion Current Costs: 16,000 units $120,000 Material 2,500 units 300,000 Conversion 14,500 units 75,000 units

5,000 units 66,000 units

All materials are added at the start of production.

93. Refer to Talmidge Company. Using weighted average, what are equivalent units for material? a. 82,000 b. 89,500 c. 84,500 d. 70,000 ANS: C Materials: Weighted Average Beginning Work in Process + Units Started and Completed + Ending Work in Process + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

Units % Complete 14,500 100% 51,500 100% 16,000 100% 2,500 100%

Eq. Units 14,500 51,500 16,000 2,500 84,500

OBJ: 6-2,6-3,6-8

94. Refer to Talmidge Company. Using weighted average, what are equivalent units for conversion costs? a. 80,600 b. 78,100 c. 83,100 d. 75,600 ANS: B Conversion: Weighted Average Beginning Work in Process + Units Started and Completed + Ending Work in Process + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

Units % Complete 14,500 100% 51,500 100% 16,000 60% 2,500 100%

Eq Units 14,500 51,500 9,600 2,500 78,100

OBJ: 6-2,6-3,6-8

95. Refer to Talmidge Company. What is the cost per equivalent unit for material using weighted average? a. $1.72 b. $1.62 c. $1.77 d. $2.07 ANS: A Weighted Average: Materials Beginning Current Period

DIF: Moderate

$

OBJ: 6-2,6-3

25,100 120,000 145,100 ÷ 84,500 = units

$ 1.72 per unit

96. Refer to Talmidge Company. What is the cost per equivalent unit for conversion costs using weighted average? a. $4.62 b. $4.21 c. $4.48 d. $4.34 ANS: C Weighted Average: Conversion Beginning Current Period

DIF: Moderate

$

50,000 300,000 350,000 ÷ 78,100 = units

$ 4.48 per unit

OBJ: 6-2,6-3

97. Refer to Talmidge Company. What is the cost assigned to normal spoilage using weighted average? a. $31,000 b. $15,500 c. $30,850 d. None of the responses are correct ANS: D No costs are assigned to normal, continuous spoilage. Higher costs are assigned to good units produced.

DIF: Easy

OBJ: 6-8

98. Refer to Talmidge Company. Assume that the cost per EUP for material and conversion are $1.75 and $4.55, respectively. What is the cost assigned to ending Work in Process? a. $100,800 b. $87,430 c. $103,180 d. $71,680 ANS: D Equivalent Cost per Units Equivalent Unit 16,000 $1.75 9,600 $4.55

DIF: Easy

OBJ: 6-2,6-3

Total $28,000 $43,680 $71,680

99. Refer to Talmidge Company. Using FIFO, what are equivalent units for material? a. 75,000 b. 72,500 c. 84,500 d. 70,000 ANS: D Materials: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

51,500 16,000 2,500

0% 100% 100% 100%

51,500 16,000 2,500 70,000

OBJ: 6-2,6-4,6-8

100. Refer to Talmidge Company. Using FIFO, what are equivalent units for conversion costs? a. 72,225 b. 67,225 c. 69,725 d. 78,100 ANS: B Conversion: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

14,500 51,500 16,000 2,500

25% 100% 60% 100%

3,625 51,500 9,600 2,500 67,225

OBJ: 6-2,6-3,6-8

101. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for material? a. $1.42 b. $1.66 c. $1.71 d. $1.60 ANS: C FIFO: Materials Current Period

DIF: Easy

$

OBJ: 6-2,6-4

120,000 120,000 ÷ 70,000 = units

$ 1.71 per unit

102. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for conversion costs? a. $4.46 b. $4.15 c. $4.30 d. $3.84 ANS: A FIFO: Conversion Current Period

DIF: Easy

$

300,000 300,000 ÷ 67,225 = units

$ 4.46 per unit

OBJ: 6-2,6-4

103. Refer to Talmidge Company. Assume that the FIFO EUP cost for material and conversion are $1.50 and $4.75, respectively. Using FIFO what is the total cost assigned to the units transferred out? a. $414,194 b. $339,094 c. $445,444 d. $396,975 ANS: A Transferred Out Units: FIFO Beginning Work in Process + Completion of Beginning Inventory +Units Started and Completed Equivalent Units of Production

DIF: Difficult

Equiv Cost per Units Equiv Unit (14,500 * 25%) 3,625 51,500

4.75 6.25

Total 75,100 17,219 321,875 414,194

OBJ: 6-2,6-4

Bowman Company Bowman Company has the following information for July: Units started Beginning Work in Process: (35% complete) Normal spoilage (discrete) Abnormal spoilage Ending Work in Process: (70% complete) Transferred out Beginning Work in Process Costs: Material Conversion

100,000 20,000 3,500 5,000 14,500 97,000

units units units units units units

$15,000 10,000

All materials are added at the start of the production process. Bowman Company inspects goods at 75 percent completion as to conversion.

104. Refer to Bowman Company. What are equivalent units of production for material, assuming FIFO? a. 100,000 b. 96,500 c. 95,000 d. 120,000 ANS: A Materials: FIFO Beginning Work in Process + Units Started and Completed + Normal Spoilage--Discrete + Abnormal Spoilage + Ending Work in Process Equivalent Units of Production

DIF: Moderate

77,000 3,500 5,000 14,500

0% 100% 100% 100% 100%

77,000 3,500 5,000 14,500 100,000

OBJ: 6-2,6-4,6-8

105. Refer to Bowman Company. What are equivalent units of production for conversion costs, assuming FIFO? a. 108,900 b. 103,900 c. 108,650 d. 106,525 ANS: D Conversion: FIFO Beginning Work in Process + Units Started and Completed +Normal Spoilage--Discrete + Abnormal Spoilage + Ending Work in Process Equivalent Units of Production

DIF: Moderate

20,000 77,000 3,500 5,000 14,500

65% 100% 75% 75% 70%

13,000 77,000 2,625 3,750 10,150 106,525

OBJ: 6-2,6-4,6-8

106. Refer to Bowman Company. Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. What is the amount of the period cost for July using FIFO? a. $0 b. $9,375 c. $10,625 d. $12,500 ANS: C Abnormal spoilage is a period cost. Materials Conversion Costs Total Abnormal Spoilage

5,000 * $1.00/unit 3,750 * $1.50/unit

$5,000 5,625 $10,625

DIF: Moderate

OBJ: 6-2,6-8

107. Refer to Bowman Company. Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. Using FIFO, what is the total cost assigned to the transferred-out units (rounded to the nearest dollar)? a. $245,750 b. $244,438 c. $237,000 d. $224,938 ANS: B Transferred Out Units: FIFO Beginning Work in Process + Completion of Beginning Inventory + Units Started and Completed +Normal Spoilage--Discrete-Materials +Normal Spoilage--Discrete-Conversion Equivalent Units of Production

DIF: Difficult

(20,000 * 65%)

13,000 77,000 3,500 2,625

1.50 2.50 1.00 1.50

25,000 19,500 192,500 3,500 3,938 244,438

OBJ: 6-2,6-4,6-8

108. Refer to Bowman Company. What are equivalent units of production for material assuming weighted average is used? a. 107,000 b. 116,500 c. 120,000 d. 115,000 ANS: C Materials: Weighted Average Beginning Work in Process + Units Started and Completed + Normal Spoilage--Discrete + Abnormal Spoilage + Ending Work in Process Equivalent Units of Production

DIF: Easy

20,000 77,000 3,500 5,000 14,500

100% 100% 100% 100% 100%

20,000 77,000 3,500 5,000 14,500 120,000

OBJ: 6-2,6-3,6-8

109. Refer to Bowman Company. What are equivalent units of production for conversion costs assuming weighted average is used? a. 113,525 b. 114,400 c. 114,775 d. 115,650 ANS: A Conversion: Weighted Average Beginning Work in Process + Units Started and Completed

20,000 77,000

100% 100%

20,000 77,000

+Normal Spoilage--Discrete + Abnormal Spoilage + Ending Work in Process Equivalent Units of Production

DIF: Easy

3,500 5,000 14,500

75% 75% 70%

2,625 3,750 10,150 113,525

OBJ: 6-2,6-3,6-8

110. Refer to Bowman Company. Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. What is the cost assigned to normal spoilage, using weighted average, and where is it assigned? Value a. b. c. d.

$7,437.50 $7,437.50 $8,750.00 $8,750.00

Assigned To Units transferred out and Ending Inventory Units transferred out Units transferred out and Ending Inventory Units transferred out

ANS: B Equivalent Units 3,500 2,625

Cost per Equivalent Unit $1.00 $1.50

Total $3,500.00 3,937.50 $7,437.50

This amount is transferred out.

DIF: Easy

OBJ: 6-2,6-3,6-8

111. Refer to Bowman Company. Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. Assuming that weighted average is used, what is the cost assigned to ending inventory? a. $29,725.00 b. $37,162.50 c. $38,475.00 d. $36,250.00 ANS: A Ending Inventory: Weighted Average Materials Conversion (14,500 * 70%) Total

DIF: Easy

OBJ: 6-2,6-3

14,500 $1.00 10,150 1.50

$

14,500.00 15,225.00 $ 29,725.00

Jones Company The following information is available for Jones Company for April: Started this month Beginning WIP (40% complete) Normal spoilage (discrete) Abnormal spoilage Ending WIP (70% complete) Transferred out Beginning Work in Process Costs: Material Conversion Current Costs: Material Conversion

80,000

units

7,500 units 1,100 units 900 units 13,000 units 72,500 units

$10,400 13,800 $120,000 350,000

All materials are added at the start of production and the inspection point is at the end of the process. 112. Refer to Jones Company. What are equivalent units of production for material using FIFO? a. 80,000 b. 79,100 c. 78,900 d. 87,500 ANS: A Materials: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process + Normal Spoilage (discrete) + Abnormal Spoilage Equivalent Units of Production

DIF: Moderate

65, 000 13, 000 1, 100 900

0%

-

100%

65,000

100%

13,000

100%

1,100

100%

900 80,000

OBJ: 6-2,6-4,6-8

113. Refer to Jones Company. What are equivalent units of production for conversion costs using FIFO? a. 79,700 b. 79,500 c. 81,100 d. 80,600

ANS: D % Units Complete

Conversion: FIFO Beginning Work in Process + Units Started and Completed + Ending Work in Process + Normal Spoilage (discrete) + Abnormal Spoilage Equivalent Units of Production

DIF: Moderate

7, 500 65, 000 13, 000 1, 100 900

EUP

60%

4,500

100%

65,000

70%

9,100

100%

1,100

100%

900 80,600

OBJ: 6-2,6-4,6-8

114. Refer to Jones Company. What are equivalent units of production for material using weighted average? a. 86,600 b. 87,500 c. 86,400 d. 85,500 ANS: B Materials: Weighted Average Beginning Work in Process + Units Started and Completed + Ending Work in Process + Normal Spoilage (discrete) + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

OBJ: 6-2,6-3,6-8

Units

% Complete

EUP

7,500 65, 000 13, 000 1, 100

100%

7 ,500

100%

65,000

100%

13,000

100%

1,100

900

100%

900 87,500

115. Refer to Jones Company. What are equivalent units of production for conversion costs using weighted average? a. 83,600 b. 82,700 c. 82,500 d. 81,600 ANS: A Conversion: FIFO

% Units Complete

7, 500 65, 000 13, 000 1, 100

Beginning Work in Process + Units Started and Completed + Ending Work in Process + Normal Spoilage (discrete) + Abnormal Spoilage Equivalent Units of Production

DIF: Easy

900

EUP

100%

7,500

100%

65,000

70%

9,100

100%

1,100

100%

900 83,600

OBJ: 6-2,6-3,6-8

116. Refer to Jones Company. What is cost per equivalent unit for material using FIFO? a. $1.63 b. $1.37 c. $1.50 d. $1.56 ANS: C FIFO: Materials Current Period

DIF: Easy

$ 120,000 120,000 ÷ 80,000 = $ 1.50 units per unit

OBJ: 6-2,6-4

117. Refer to Jones Company. What is cost per equivalent unit for conversion costs using FIFO? a. $4.00 b. $4.19 c. $4.34 d. $4.38 ANS: C FIFO: Conversion Current Period $ 350,000 350,000 ÷ 80,600 = $

4.34

units

DIF: Easy

per unit

OBJ: 6-2,6-4

118. Refer to Jones Company. What is cost per equivalent unit for material using weighted average? a. $1.49 b. $1.63 c. $1.56 d. $1.44 ANS: A Weighted Average: Materials Beginning $ 10,400 Current Period 120,000 130,400 ÷ 87,500 = $ 1.49 units per unit

DIF: Easy

OBJ: 6-2,6-3

119. Refer to Jones Company. What is cost per equivalent unit for conversion costs using weighted average? a. $4.19 b. $4.41 c. $4.55 d. $4.35 ANS: D Weighted Average: Conversion Beginning $ 13,800 Current Period 350,000 363,800 ÷ 83,600 = $ 4.35 units per unit

DIF: Easy

OBJ: 6-2,6-3

120. Refer to Jones Company. What is the cost assigned to ending inventory using FIFO? a. $75,920 b. $58,994 c. $56,420 d. $53,144 ANS: B Ending Inventory: FIFO Materials Conversion (13,000 * 70%)

13,000 9,1 00

$ 1.50 4.34

$

19,500.00 39,494.00

Total

DIF: Moderate

$ 58,994.00

OBJ: 6-2,6-4

121. Refer to Jones Company. What is the cost assigned to abnormal spoilage using FIFO? a. $1,350 b. $3,906 c. $5,256 d. $6,424 ANS: C Abnormal Spoiled Units 900

DIF: Moderate

Price per Equivalent Unit Total $5.84 $5,256

OBJ: 6-2,6-4,6-8

122. Refer to Jones Company. What is the cost assigned to normal spoilage and how is it classified using weighted average? a. $6,193 allocated between WIP and Transferred Out b. $6,424 allocated between WIP and Transferred Out c. $6,193 assigned to loss account d. $6,424 assigned to units Transferred Out ANS: D Normal Spoiled Units 1,100

Price per Equivalent Unit Total $5.84 $6,424 Transferred Out

DIF: Moderate

OBJ: 6-2,6-4,6-8

123. Refer to Jones Company. What is the total cost assigned to goods transferred out using weighted average? a. $435,080 b. $429,824 c. $428,656 d. $423,400 ANS: B Goods Transferred Out 73,600

DIF: Difficult

Price per Equivalent Unit Total $5.84 $429,824

OBJ: 6-2,6-3

1.Which of the following is not an ordering cost? a. cost of receiving inventory b. cost of preparing the order c. cost of the merchandise ordered d. cost of storing the inventory ANS: D

DIF: Easy

OBJ: 17-2

2. The cost of receiving inventory is regarded as a. an ordering cost. b. a carrying cost. c. a purchasing cost. d. a cost of not carrying goods in stock. ANS: A

DIF: Easy

OBJ: 17-2

3. A _____________ system of production control is paced by product demand. a. EOQ b. ABC c. push d. pull ANS: D

DIF: Easy

OBJ: 17-3

4. Which of the following statements is false concerning electronic data interchange? a. Electronic data interchange (EDI) is essential in a pull system. b. One of the benefits realized by EDI organizations is a faster processing of transactions. c. Electronic data interchange is essential in a push system. d. Electronic data interchange refers to computer-to-computer exchange of information. ANS: C

DIF: Moderate

OBJ: 17-6

5. _____________ is a "pull" system of production and inventory control. a. EDI b. EOQ c. JIT d. ABC ANS: C

DIF: Easy

OBJ: 17-6

6. In a JIT system, the quality of each product begins with a. a company's vendors. b. employees. c. inspection of finished goods inventory. d. a good product warranty. ANS: A

DIF: Easy

OBJ: 17-6

7. Reducing setup time is a major aspect of a. all push inventory systems. b. the determination of safety stock quantities. c. a JIT system. d. an EOQ system. ANS: C

DIF: Easy

OBJ: 17-6

8. Reducing inventory to the lowest possible levels is a major focus of a. JIT. b. push inventory systems. c. EOQ. d. ABC. ANS: A

DIF: Easy

OBJ: 17-6

9. JIT is a philosophy concerned with a. when to do something. b. how to do something. c. where to do something. d. how much of something should be done. ANS: A

DIF: Easy

OBJ: 17-6

10. When JIT is implemented, which of the following changes in the accounting system would not be expected? a. fewer cost allocations b. elimination of standard costs c. combining labor and overhead into one product cost category d. combing raw material and materials in work-in-process into one product cost category ANS: B

DIF: Moderate

OBJ: 17-6

11. Striving for flexibility in the number of products that can be produced in a short period of time is characteristic of a. EOQ systems. b. push systems in general. c. JIT. d. pull systems in general. ANS: C

DIF: Easy

OBJ: 17-6

12. Just-in-time (JIT) inventory systems a. result in a greater number of suppliers for each production process. b. focus on a "push" type of production system. c. can only be used with automated production processes. d. result in inventories being either greatly reduced or eliminated. ANS: D

DIF: Easy

OBJ: 17-6

13. The JIT philosophy does not focus on a. standardizing parts used in products. b. eliminating waste in the production process. c. finding the absolute lowest price for purchased parts. d. improving quality of output. ANS: C

DIF: Easy

OBJ: 17-6

14. In a JIT manufacturing environment, product costing information is least important for use in a. work in process inventory valuation. b. pricing decisions. c. product profitability analysis. d. make-or-buy decisions. ANS: A

DIF: Moderate

OBJ: 17-6

15. With JIT manufacturing, which of the following costs would be considered an indirect product cost? a. cost of specific-purpose equipment b. cost of equipment maintenance c. property taxes on the plant d. salary of a manufacturing cell worker ANS: C

DIF: Easy

OBJ: 17-6

16. With JIT manufacturing, which of the following costs would be considered a direct product cost? a. insurance on the plant b. repair parts for machinery c. janitors' salaries d. salary of the plant supervisor ANS: B

DIF: Moderate

OBJ: 17-6

17. Which of the following statements is not true? a. JIT manufacturing strives for zero inventories. b. JIT manufacturing strives for zero defects. c. JIT manufacturing uses manufacturing cells. d. JIT manufacturing utilizes long lead time and few deliveries. ANS: D

DIF: Easy

OBJ: 17-6

18. The JIT environment has caused a reassessment of product costing techniques. Which of the following statements is true with respect to this reassessment? a. Traditional cost allocations based on direct labor are being questioned and criticized.

b. The federal government, through the SEC, is responsible for the reassessment. c. The reassessment is caused by the replacement of machine hours with labor hours. d. None of the above is true. ANS: A

DIF: Moderate

OBJ: 17-6

19. When a firm adopts the just-in-time method of management, a. employees are retrained on different equipment, but the plant layout generally remains unchanged. b. new machinery and equipment must be purchased from franchised JIT dealers. c. machinery and equipment are moved into small autonomous production lines called islands or cells. d. new, more efficient machinery and equipment are purchased and installed in the original plant layout. ANS: C

DIF: Moderate

OBJ: 17-6

20. Which of the following describes the effect on direct labor when management adopts the JIT philosophy? a. Each direct labor person performs a single task, thereby allowing that person to reach his or her theoretical potential. b. Because each person runs a single machine in a JIT environment, there are more employees classified as direct labor. c. The environment becomes more labor-intensive. d. Machine operators are expected to run several different types of machines, help set up for production runs, and identify and repair machinery needing maintenance. ANS: D

DIF: Moderate

OBJ: 17-6

21. JIT concepts a. can be effectively implemented in organizations that are only partially automated. b. are only appropriate for use with CIM systems. c. involve shifting from a capital-intensive to a labor-intensive process. d. require full computerization of the JIT manufacturing process. ANS: A

DIF: Easy

OBJ: 17-6

22. According to JIT philosophy, a. inventories of finished goods always should be available to meet customer demand. b. push-through manufacturing flows are the most efficient. c. maintaining inventories wastes resources and frequently covers up poor work or other problems. d. long production runs and large production lot sizes take advantage of economies of scale. ANS: C

DIF: Moderate

OBJ: 17-6

23. Accounting for product costs in a JIT environment a. uses a job order costing system. b. classifies processing costs as raw (or direct) material, direct labor, and overhead. c. is more complex than in other types of manufacturing environments. d. follows process costing procedures whereby costs are accumulated by the process (cell) and attached to units processed for the period. ANS: D

DIF: Moderate

OBJ: 17-6

24. An implication of the demand-pull nature of the JIT production process is that a. finished goods inventories must be available to meet customer demand, although raw material is delivered on an as-needed basis. b. more storage space for inventories is necessary. c. finished products are packaged and shipped to customers immediately, thus requiring minimal finished goods inventories. d. problem areas become less visible as inventories are reduced. ANS: C

DIF: Moderate

OBJ: 17-6

25. In accounting for JIT operations, the Raw Material Inventory account a. is closely monitored to ensure that materials are always on hand in time. b. can be expected to have a larger balance than with traditional manufacturing methods. c. is combined with the Work In Process Inventory account. d. is combined with the Finished Goods Inventory account. ANS: C

DIF: Easy

OBJ: 17-6

26. A kanban plays an important role in a. JIT. b. EOQ. c. ABC. d. CPM. ANS: A

DIF: Easy

OBJ: 17-6

27. ____________________ may involve relocation or plant modernization by a vendor. a. Focused factory arrangements b. Economic order quantity c. Multiprocess handling d. Activity-based management ANS: B

DIF: Moderate

OBJ: 17-9

28. The term "cell" is used to describe a. a grouping of one or more automated machines within a company. b. a storage bin for "C" type inventory in an ABC inventory system. c. files in a CAD/CAM system. d. a factory's area of conversion activity. ANS: A

DIF: Easy

OBJ: 17-6

29. In a production cell, a. an individual worker may be expected to operate several different machines, do setups, and perform preventive maintenance on the equipment. b. each worker becomes an expert in the operation of a single piece of equipment. c. machines are arranged so that similar machines are grouped together. d. clear separation is maintained between those workers who operate the machinery and those workers who set up and maintain the machinery. ANS: A

DIF: Moderate

OBJ: 17-6

30. U-shaped groupings of workers and machines that improve materials handling and flow are known as a. manufacturing cells. b. efficiency stations. c. multi-flow modules. d. productivity islands. ANS: A

DIF: Easy

OBJ: 17-6

31. For workers in a multiprocess handling situation, which of the following happens? More flexibility a. b. c. d.

Less process involvement

no no yes yes

ANS: D

no yes yes no

DIF: Easy

OBJ: 17-6

32. The process of _________ occurs when equipment is programmed to stop when a certain situation arises. a. throughput b. automation c. backflushing d. information sharing ANS: B

DIF: Easy

OBJ: 17-6

33. The connection of two or more flexible manufacturing systems via a host computer and a networking information system is known as computer integrated manufacturing a. b. c. d.

yes yes no no

ANS: B

electronic data interchange yes no no yes

DIF: Easy

OBJ: 17-7

34. A key element of Japan's success in world markets is a. the elimination of waste in all operations. b. automation of the billing function. c. inefficient labor forces in competing countries. d. the verification procedures incorporated into computer programs. ANS: A

DIF: Easy

OBJ: 17-7

35. Backflush costing is concerned with which of the following? Standard costs a. b. c. d.

yes no yes no

ANS: C

Minimal variances from standards no no yes yes

DIF: Easy

OBJ: 17-6

36. Which of the following areas offers an opportunity to eliminate waste? a. raw material and labor b. space and production time c. recordkeeping and working capital d. all of the above ANS: D

DIF: Easy

OBJ: 17-7

37. Flexible manufacturing systems are a. designed to provide more flexibility in a firm's manufacturing process by using computeraided machinery. b. the same as computer-aided design systems. c. commonly used by firms that need to make large quantities of one product. d. are very complicated and cause increased defect rates in output. ANS: A

DIF: Easy

OBJ: 17-7

38. Kaizen means a. doing it the Japanese way. b. continuous improvement. c. employee empowerment. d. implementation of a centralized organizational structure. ANS: B

DIF: Easy

OBJ: 17-5

39. The process that determines an allowable product cost while setting market price and allowing for an acceptable profit margin is known as a. target costing. b. product life cycle costing. c. activity-based costing. d. responsibility costing. ANS: A

DIF: Easy

OBJ: 17-5

40. The peak level of unit sales will occur in which stage of the product life cycle? a. growth b. maturity c. decline d. introduction ANS: B

DIF: Easy

OBJ: 17-4

41. For product life cycle costing, R&D costs are a. expensed as incurred. b. capitalized and allocated over the life cycle. c. deducted as period costs. d. charged to specific departments as incurred. ANS: B

DIF: Easy

OBJ: 17-4

42. An important focus in product life cycle costing is a. the activity base. b. the target cost. c. the cost driver. d. variable costs. ANS: B

DIF: Easy

OBJ: 17-4

43. Projected sales price minus a reasonable profit equals a. the standard cost. b. contribution margin. c. projected Cost of Goods Sold. d. target cost. ANS: D

DIF: Easy

OBJ: 17-5

44. Approximately what percentage of future product costs is determined in the development stage of the product life cycle? a. 30% b. 50% c. 70% d. 90% ANS: D

DIF: Easy

OBJ: 17-4

45. Which of the following fluctuate over the product life cycle? a. sales price per unit b. the types of costs that are incurred c. product profitability d. all of the above ANS: D

DIF: Easy

OBJ: 17-4

46. In which of the following stages of the product life cycle would operating losses not be expected? a. growth b. development c. introduction d. decline ANS: A

DIF: Easy

OBJ: 17-4

47. During which stage of the product life cycle will a company witness the highest profit? a. development b. maturity c. growth d. decline ANS: C

DIF: Easy

OBJ: 17-4

48. Cost tables are databases that provide information on which of the following? a. design specifications b. manufacturing processes c. impact on product costs when different inputs resources are used d. all of the above ANS: D

DIF: Easy

OBJ: 17-5

49. Ongoing efforts to reduce costs, increase product quality, and/or improve production process once manufacturing has begun is known as a. cost management. b. kaizen costing. c. target costing. d. life-cycle costing. ANS: B

DIF: Easy

OBJ: 17-5

50. Kaizen costing is used for which of the following types of products? New products a. b. c. d.

yes no no yes

ANS: B

Existing products yes yes no no

DIF: Easy

OBJ: 17-5

51. A mandate to reduce costs, increase product quality, and/or improve production processes through continuous improvement is known as a. kaizen costing. b. activity-based costing. c. the theory of constraints. d. mass customization. ANS: A

DIF: Easy

OBJ: 17-5

52. If life-cycle costs exceed the target cost of a product, managers will strive to reduce a. the cost of special orders. b. the level of activities that are non-value-added. c. product variety. d. period costs. ANS: B

DIF: Easy

OBJ: 17-5

53. The projected sales price for a new product (which is still in the development stage of the product life cycle) is $50. The company has estimated the life-cycle cost to be $30 and the first-year cost to be $60. On this type of product, the company requires a $12 per unit profit. What is the target cost of the new product? a. $60 b. $30 c. $38 d. $42 ANS: C

DIF: Easy

OBJ: 17-5

54. The theory of constraints can a. identify what limitations exist with raw material suppliers. b. follows a methodology similar to linear programming. c. be ignored since it assumes too many estimates in the production cycle. d. show where bottlenecks exist and sets the limit of output to these bottlenecks. ANS: D

DIF: Easy

OBJ: 17-8

55. Placing quality inspection points ahead of bottlenecks will reduce a. product flow. b. the number of defective products. c. the influence of constraints on production flow. d. the critical path time. ANS: C

DIF: Moderate

OBJ: 17-8

56. Quality inspection points should a. precede bottlenecks. b. follow bottlenecks. c. be placed at the end of all production processes. d. be placed at random points in the manufacturing process. ANS: A

DIF: Easy

OBJ: 17-8

57. The flow of goods through a production process cannot be at a faster rate than the slowest bottleneck is the definition for a. mass customization. b. business process reengineering. c. the theory of constraints. d. the Pareto principle. ANS: C

DIF: Easy

OBJ: 17-8

58. Bottlenecks are a. machine constraints in the production line. b. machine constraints that restrict the production cycle so idle time at other processes occurs. c. useful for identifying any production spot slowdown. d. restrictions on raw material sources but not the quantity of output. ANS: B

DIF: Easy

OBJ: 17-8

59. In analyzing production flow, a bottleneck is a. an intermediate inventory. b. always off the critical path. c. a capacity constraint. d. related to a non-value-adding activity. ANS: C

DIF: Easy

OBJ: 17-8

60. Product profit margins are typically judged on a Period-by-period basis a. b. c. d.

Life-cycle basis

yes yes no no

ANS: B

yes no yes no

DIF: Easy

OBJ: 17-4

61. Which approaches to costing should be associated with each of the following life-cycle stages? Development a. b. c. d.

Kaizen Target Target Kaizen

ANS: C

Introduction

Maturity

Target Standard Kaizen Standard

Standard Kaizen Standard Target

DIF: Moderate

OBJ: 17-5

62. In the introduction stage of a product's life-cycle, which of the following type of costs typically may create losses rather than profits? a. advertising b. assembly c. design d. overhead ANS: A

DIF: Moderate

OBJ: 17-4

63. Most studies have indicated that what percent of a product's total life-cycle costs are determined in the development/design stage? a. 60%-70% b. 70%-80% c. 80%-90% d. 90%-95% ANS: C

DIF: Easy

OBJ: 17-4

64. Which of the following costing methods is the most effective in controlling a product's total life-cycle cost? a. kaizen costing b. target costing c. standard costing d. process costing ANS: B

DIF: Moderate

OBJ: 17-5

65. Which of the following formulas is the best representation of the concept of target costing? a. target cost + profit margin = selling price b. selling price - target cost = profit margin c. selling price - profit margin = target cost d. target cost - standard cost = profit margin ANS: C

DIF: Easy

OBJ: 17-5

66. Successful product development should include a. kaizen costing. b. value engineering. c. kanban implementation. d. all of the above. ANS: B

DIF: Moderate

OBJ: 17-5

67. Value engineering seeks to obtain increased a. product life-cycle and reduced direct labor inputs. b. planning team membership and reduced time-to-market. c. product performance ratio and reduced substitute goods. d. product functionality and reduced costs. ANS: D

DIF: Difficult

OBJ: 17-5

68. Target costing a. can be applied to services if they are sufficiently uniform. b. can be applied to services only if they are automated. c. can be applied to services that are performed in a manufacturing environment. d. cannot be applied to services. ANS: A

DIF: Moderate

OBJ: 17-5

69. Kaizen costing helps to a. reduce product costs of products in the design and development stage. b. keep the target cost as the primary focus after a product enters production. c. keep profit margin relatively stable as product price declines over the product life cycle. d. reduce the cost of engineering change orders during each stage of the product life cycle. ANS: C

DIF: Difficult

OBJ: 17-5

70. In which life-cycle stage are product quality improvements and stable selling prices likely to occur? a. introduction b. growth c. maturity d. decline ANS: B

DIF: Moderate

OBJ: 17-4

71. From a cost management view, research and development cost represents a. a life-cycle investment b. a period expense. c. an unearned revenue. d. a risk reserve. ANS: A

DIF: Moderate

OBJ: 17-4

72. Life-cycle costing is especially important in which of the following types of companies? Computers a. b. c. d.

yes no yes yes

Furniture

Textbooks

yes yes no no

ANS: C

Automobiles

yes yes no yes

DIF: Moderate

yes no yes yes

OBJ: 17-4

73. Kanban is the Japanese word for a. production. b. just-in-time. c. card. d. target costing. ANS: C

DIF: Easy

OBJ: 17-6

74. JIT seeks to a. reduce production cost while increasing quality. b. radically redesign the production process for effectiveness. c. modify all non-value-added activities. d. all of the above. ANS: A

DIF: Difficult

OBJ: 17-6

75. The JIT philosophy indicates that inventory, as well as which of the following, should be eliminated? Suppliers a. b. c. d.

yes yes no no

Storage yes yes no yes

Employees yes no yes no

Business-ValueAdded Activities yes no no yes

ANS: D

DIF: Moderate

OBJ: 17-6

76. Companies have often produced significant amounts of unwanted inventory because of a. variable overhead allocation methodologies. b. fixed overhead allocation methodologies. c. variable and fixed overhead allocation methodologies. d. the financial accounting requirement to expense research and development as incurred. ANS: B

DIF: Moderate

OBJ: 17-6

77. Goods will flow through a production process at the rate of the a. slowest part of the process. b. fastest part of the process. c. average of all the parts of the process. d. time standards set using externally calibrated benchmarks. ANS: A

DIF: Moderate

OBJ: 17-8

78. A machine constraint creates a. an autonomation. b. a bottleneck. c. a push inventory system. d. the need for third-party logistics. ANS: B

DIF: Easy

OBJ: 17-8

79. In a production process with a machine constraint, if a quality control point is to be established, it should be set up a. within the machine's processes. b. directly after the machine has performed its functions. c. immediately before the machine. d. at the end of the production process. ANS: C

DIF: Easy

OBJ: 17-8

80. Managing constraints is a process of a. backflush costing. b. design for manufacturability. c. just-in-time redesign. d. continuous improvement. ANS: D

DIF: Moderate

OBJ: 17-8

81. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs for a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces, what is the cost per order? a. $40 b. $20 c. $5 d. $25 ANS: B

EOQ = 100 = 10,000 = 500x $20 = x DIF: Moderate

OBJ: 17-9

82. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs for a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces, what would be the estimate for Precious Jewels’ total carrying costs for the coming year? a. $200 b. $250 c. $100 d. $1,000 ANS: C 500 oz/100 oz = 5 orders per year * $20 per order cost = $100 DIF: Moderate

OBJ: 17-9

83. A firm estimates that its annual carrying cost for material X is $.30 per lb. If the firm requires 50,000 lbs. per year, and ordering costs are $100 per order, what is the EOQ (rounded to the nearest pound)? a. 5,774 lbs. b. 4,082 lbs. c. 1,732 lbs. d. 1,225 lbs. ANS: A EOQ = EOQ = 5,774 lbs. DIF: Moderate

OBJ: 17-9

Zedlar Corporation Zedlar Corporation's EOQ for Material A is 500 units. This EOQ is based on: Annual demand Ordering costs

5,000 units $12.50

84. Refer to Zedlar Corporation. What is the annual carrying cost per unit for Material A? a. $0.50 b. $2.00 c. $2.50 d. $5.00 ANS: A EOQ = 500 units =

CC = $0.50 DIF: Moderate

OBJ: 17-9

85. Refer to Zedlar Corporation. What are Zedlar’s Corp.'s total annual ordering costs for Material A? a. $6,000 b. $600 c. $125 d. $1,000 ANS: C # of orders per year = 5,000/500 = 10 orders per year 10 orders per year * $12.50 = $125.00 DIF: Moderate

OBJ: 17-9

Clear Day Corporation Clear Day Corporation manufactures various glass products including a car window. The setup cost to produce the car window is $1,200. The cost to carry a window in inventory is $3 per year. Annual demand for the car window is 12,000 units. 86. Refer to Clear Day Corporation. What is the most economical production run (rounded to the nearest unit)? a. 6,000 units b. 3,000 units c. 9,295 units d. 3,098 units ANS: D EOQ = EOQ = 3,098 units DIF: Moderate

OBJ: 17-9

87. Refer to Clear Day Corporation. If the annual demand for the car window was to increase to 15,000 units, a. the number of setups would decrease. b. the total carrying costs would increase. c. the economic order quantity would decline. d. all of the above would occur. ANS: B

DIF: Easy

OBJ: 17-9

88. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If ordering costs are $200 and carrying costs are $.50 per unit per year, what is the estimated total annual usage? a. 6,000 units b. 28,800 units c. 7,200 units d. 2,400 units ANS: C EOQ = 2,400 units = AU = 7,200 units DIF: Moderate

OBJ: 17-9

89. A company annually consumes 10,000 units of Part C. The carrying cost of this part is $2 per year and the ordering costs are $100. The company uses an order quantity of 500 units. By how much could the company reduce its total costs if it purchased the economic order quantity instead of 500 units? a. $500 b. $2,000 c. $2,500 d. $0 ANS: A EOQ = EOQ = 1,000 units At present, 20 orders are placed for a total annual cost of $2,000. If the EOQ is used, 10 orders will be placed at a cost of $1,000 Because an average of an additional 250 units will be on hand, carrying costs will increase by $500. The net difference is a savings of $500. DIF: Moderate

OBJ: 17-9

90. A company annually consumes 10,000 units of Part C. The carrying cost of this part is $2 per year and the ordering costs are $100. The company uses an order quantity of 500 units. If the company operates 200 days per year, and the lead time for ordering Part C is 5 days, what is the order point? a. 250 units b. 1,000 units c. 500 units d. 2,000 units ANS: A Order point = Daily use * Lead time = (10,000/200) * 5 = 250 units DIF: Moderate

OBJ: 17-9

91. Which of the following tells management "when" to order? a. safety stock level b. order point c. the economic order quantity d. the Pareto inventory analysis ANS: B

DIF: Easy

OBJ: 17-9

92. Which of the following affects the order point? a. daily usage b. lead time c. safety stock d. all of the above ANS: D

DIF: Easy

OBJ: 17-9

93. A decrease in the lead time would reduce the a. order point. b. safety stock. c. economic order quantity. d. ordering costs. ANS: A

DIF: Easy

OBJ: 17-9

94. The size of the safety stock is directly affected by all of the following, except the a. cost of a stockout. b. probability of a stockout. c. carrying cost of stock. d. economic order quantity. ANS: D

DIF: Easy

OBJ: 17-9

95. If no safety stock is carried, the average inventory is equal to the a. order point/2. b. order point x 2. c. economic order quantity/2. d. economic order quantity x 2. ANS: C

DIF: Easy

OBJ: 17-9

96. The role of safety stock in an organization is to a. reduce the lead time for an order to be received. b. reduce the probability of a stockout. c. reduce the order point. d. decrease the economic order quantity. ANS: B

DIF: Easy

OBJ: 17-9

97. The optimal size of the safety stock is defined by the point where the a. costs of carrying the safety stock equal stockout costs. b. setup costs equal stockout costs. c. ordering costs equal stockout costs. d. reorder point equals safety stock.

ANS: A

DIF: Moderate

OBJ: 17-9

98. If a company carries safety stock and its annual carrying costs per unit are $0.30, what formula yields the total annual carrying costs? a. $0.30 x [(EOQ/2) + Safety stock)] b. $0.30 x (EOQ + Safety stock) c. $0.30 x [(EOQ x 2) + Safety stock)] d. $0.30 x (EOQ - Safety stock) ANS: A

DIF: Easy

OBJ: 17-9

Douglas Corporation Douglas Corporation operates its factory 300 days per year. Its annual consumption of Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business days. 99. Refer to Douglas Corporation. What is the order point for Material Y? a. 10,000 gallons b. 38,000 gallons c. 48,000 gallons d. 58,000 gallons ANS: D Order point = (Daily use * Lead time) + Safety Stock = (4,000 * 12) + 10,000 = 58,000 gallons DIF: Moderate

OBJ: 17-9

100. Refer to Douglas Corporation. If the EOQ for Material Y is 30,000 gallons, and the carrying cost per gallon per year is $.25, what is the total annual carrying cost for Material Y? a. $3,750 b. $7,500 c. $6,250 d. $10,000 ANS: C Annual carrying cost = [(EOQ/2) + Safety stock] * per unit carrying cost = (15,000 + 10,000) * $0.25 = $6,250 DIF: Moderate

OBJ: 17-9

101. Atkins Corporation consumes 1,200,000 gallons of Material Y per year. Its order quantity is 30,000 gallons. It maintains a safety stock of 10,000 gallons and its annual carrying costs are $0.25 per gallon per year. If the ordering cost is $20 per order, what are the total annual ordering costs? a. $600 b. $800 c. $8,300 d. $1,200 ANS: B Annual ordering costs = (1,200,000/30,000) * $20 = 40 orders * $20 = $800 DIF: Moderate

OBJ: 17-9

Rawson Corporation Rawson Corporation’s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of T at 500 lbs., and its order point is 1,500 lbs. 102. Refer to Rawson Corporation. What is the lead time assuming daily usage is 50 lbs.? a. 30 days b. 100 days c. 10 days d. 20 days ANS: D Order point = (Daily use * Lead time) + Safety Stock 1,500 = (50 * LT) + 500 1,000 = (50 * LT) 20 = LT DIF: Moderate

OBJ: 17-9

103. Refer to Rawson Corporation. What would be the total annual carrying costs assuming the carrying cost per unit is $0.20? a. $1,000 b. $600 c. $100 d. $1,100 ANS: B (5,000units/2) + 500 units = 3,000 units *$0.20/unit = $600 DIF: Moderate

OBJ: 17-9

104. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking into account the safety stock) is 8,000 pounds. What is the apparent order quantity? a. 16,000 lbs. b. 6,000 lbs. c. 10,000 lbs. d. 21,000 lbs. ANS: B (8,000 - 5,000) lbs * 2 = 6,000 lbs. DIF: Moderate

OBJ: 17-9

105. In an Pareto inventory analysis, the items that are most likely to be controlled with a red-line system are the a. A items. b. B items. c. C items. d. items on a perpetual inventory. ANS: C

DIF: Easy

OBJ: 17-9

106. Which of the following might be appropriate for items in the "C" category of an Pareto inventory analysis? a. a red-line system b. a two-bin system c. a periodic inventory system d. all of the above ANS: D

DIF: Moderate

OBJ: 17-9

107. The __________________ would not affect the economic order quantity. a. company's weighted average cost of capital b. cost of purchase requisition forms c. cost of insuring inventory d. cost of a stockout ANS: D

DIF: Moderate

OBJ: 17-9

108. All other factors equal, a decrease in the order quantity will a. decrease the annual carrying costs. b. decrease the annual ordering costs. c. increase the lead time. d. reduce the safety stock. ANS: A

DIF: Easy

OBJ: 17-9

109. The economic order quantity is not affected by the a. estimate of the annual material consumption. b. cost of insuring a unit of inventory for a year. c. cost of purchase-order forms. d. safety stock level. ANS: D

DIF: Easy

OBJ: 17-9

110. A decrease in the price of a raw material could result in a(n) a. increase in the lead time. b. increase in the EOQ. c. decrease in the order point. d. increase in the setup costs. ANS: B

DIF: Moderate

OBJ: 17-9

111. The number of orders that will be submitted each year for raw material is given by which formula? a. Economic order quantity x order point b. Total annual material needs/economic order quantity c. Order point/economic order quantity d. Total annual material needs/safety stock ANS: B

DIF: Easy

OBJ: 17-9

112. The economic production run quantity directly affects the a. order point for raw material inventories. b. safety stock for finished goods inventory. c. level of finished goods inventory. d. lead time for producing finished goods inventory. ANS: C

DIF: Moderate

OBJ: 17-9