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INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

 

Cost Management A strategic Emphasis 7th Edition by Edward Blocher – Test Bank 

 

 

Sample  Questions

 

Chapter 03

Basic Cost Management Concepts

 

Multiple Choice Questions

1. Since indirect cost cannot be conveniently or economically traced directly to a cost pool or cost object, the management accountant will:

A. Assign them by means of cost allocation.

 

B. Assign them where needed.

 

C. Assign them randomly to even out these costs.

 

D. Not assign them at all.

 

2. All indirect manufacturing costs are commonly combined into a single cost pool called:

A. Activity cost pools.

 

B. Value streams.

 

C. Resources.

 

D. Overhead.

 

E. Other manufacturing costs.

 

3. Variable costs within the relevant range for a firm are assumed:

A. Not to vary per unit.

 

B. Not to vary in total.

 

C. To be nonlinear.

 

D. To be curvilinear.

 

4. How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production level rises?

A. It will remain constant.

 

B. It will increase in direct proportion to the production increase.

 

C. It will increase, but inversely with the production increase.

 

D. It will decrease inversely and in direct proportion to the production increases.

 

E. It will decrease, but not in direct proportion to the production increase.

 

5. Structural cost drivers are to executional cost drivers as:

A. Long-term is to short-term.

 

B. Fixed is to variable.

 

C. Total is to partial.

 

D. Direct is to indirect.

 

6. Theoretically, a decision maker would probably be willing to buy cost management information if:

A. It is accurate.

 

B. It is consistent with management objectives.

 

C. It is timely.

 

D. Its value is equal to or greater than its cost.

 

7. Any product, service, or organizational unit to which costs are assigned for some management purpose is a(n):

A. Cost object.

 

B. Direct cost.

 

C. Indirect cost.

 

D. Cost driver.

 

E. Allocation base.

 

8. Which one of the following is not a type of cost driver?

A. Structural cost driver.

 

B. Executional cost driver.

 

C. Volume-Based cost driver.

 

D. Differential cost driver.

 

E. Activity-Based cost driver.

 

9. The range of the cost driver in which the actual value of the cost driver is expected to fall is called the:

A. Actual cost range.

 

B. Driver range.

 

C. Activity range.

 

D. Expected cost range.

 

E. Relevant range.

 

10. The change in total cost associated with each change in the quantity of the cost driver is:

A. Average cost.

 

B. Controllable cost.

 

C. Variable cost.

 

D. Unit cost.

 

11. The additional cost incurred as the cost driver increases by one unit is:

A. Average cost.

 

B. Controllable cost.

 

C. Variable cost.

 

D. Unit cost.

 

12. Strategic analysis uses which of the following to help a firm improve its competitive position through an analysis of product and production complexity?

A. Differential cost drivers.

 

B. Discretionary cost drivers.

 

C. Structural cost drivers.

 

D. Marginal cost drivers.

 

13. Which one of the following would not be found in a merchandising company?

A. Beginning inventory.

 

B. Cost of goods sold.

 

C. Ending inventory.

 

D. Gross profit.

 

E. Work-in-process.

 

14. The cost of goods that were finished and transferred out of work-in-process during the current period is:

A. Cost of goods sold.

 

B. Cost of goods available for use.

 

C. Cost of goods manufactured.

 

D. Cost of goods available for sale.

 

E. Cost of goods purchased.

 

15. Which of the following tend to be non-differential in the short term since they cannot be changed, but are more likely to be differential in the long term?

A. Fixed costs.

 

B. Variable costs.

 

C. Mixed costs.

 

D. Semivariable costs.

 

16. Assume the following information pertaining to Cub Company:

Prime costs $195,000
Conversion costs 221,000
Direct materials used 85,000
Beginning work in process 98,000
Ending work in process 81,000

Direct labor used is calculated to be:

A. $306,000.

 

B. $26,000.

 

C. $110,000.

 

D. $84,000.

 

E. $111,000.

 

17. Assume the following information pertaining to Cub Company:

Prime costs $195,000
Conversion costs 221,000
Direct materials used 85,000
Beginning work in process 98,000
Ending work in process 81,000

Factory overhead is calculated to be:

A. $306,000.

 

B. $26,000.

 

C. $110,000.

 

D. $84,000.

 

E. $111,000.

 

18. Assume the following information pertaining to Cub Company:

Prime costs $195,000
Conversion costs 221,000
Direct materials used 85,000
Beginning work in process 98,000
Ending work in process 81,000

Total manufacturing cost is calculated to be:

A. $306,000.

 

B. $26,000.

 

C. $110,000.

 

D. $331,000.

 

E. $111,000.

 

19. Assume the following information pertaining to Cub Company:

Prime costs $195,000
Conversion costs 221,000
Direct materials used 85,000
Beginning work in process 98,000
Ending work in process 81,000

Cost of goods manufactured is calculated to be:

A. $289,000.

 

B. $348,000.

 

C. $314,000.

 

D. $297,000.

 

E. $323,000.

 

20. Assume the following information pertaining to Moonbeam Company:

Beginning Ending
Finished goods inventory $130,000 $124,000
Work in process inventory 85,000 104,000
Direct materials 117,000 130,000

Costs incurred during the period are as follows:

Total manufacturing costs $896,000
Factory overhead 199,000
Direct materials used 156,000

Materials purchases are calculated to be:

A. $143,000.

 

B. $156,000.

 

C. $91,000.

 

D. $169,000.

 

E. $140,000.

 

21. Assume the following information pertaining to Moonbeam Company:

Beginning Ending
Finished goods inventory $130,000 $124,000
Work in process inventory 85,000 104,000
Direct materials 117,000 130,000

Costs incurred during the period are as follows:

Total manufacturing costs $896,000
Factory overhead 199,000
Direct materials used 156,000

Cost of goods sold is calculated to be:

A. $890,000.

 

B. $896,000.

 

C. $883,000.

 

D. $877,000.

 

E. $870,000.

 

22. The following information was taken from the accounting records of Elliott Manufacturing Corp. Unfortunately, some of the data were destroyed by a computer malfunction.

Sales Revenue $58,000
Finished Goods Inventory, Beginning 9,000
Finished Goods Inventory, Ending 6,000
Cost of Goods Sold ?
Gross Margin 25,000
Direct Materials Used 10,000
Selling and Administrative Expense ?
Operating Income 14,000
Work-in-Process Inventory, Beginning ?
Work-in-Process Inventory, Ending 5,000
Direct Labor Used 9,000
Factory Overhead 12,000
Total Manufacturing Cost ?
Cost of Goods Manufactured ?

Cost of goods sold is calculated to be:

A. $32,000.

 

B. $30,000.

 

C. $33,000.

 

D. $38,000.

 

E. $27,000.

 

23. The following information was taken from the accounting records of Elliott Manufacturing Corp. Unfortunately, some of the data were destroyed by a computer malfunction.

Sales Revenue $58,000
Finished Goods Inventory, Beginning 9,000
Finished Goods Inventory, Ending 6,000
Cost of Goods Sold ?
Gross Margin 25,000
Direct Materials Used 10,000
Selling and Administrative Expense ?
Operating Income 14,000
Work-in-Process Inventory, Beginning ?
Work-in-Process Inventory, Ending 5,000
Direct Labor Used 9,000
Factory Overhead 12,000
Total Manufacturing Cost ?
Cost of Goods Manufactured ?

Cost of goods manufactured is calculated to be:

A. $32,000.

 

B. $30,000.

 

C. $33,000.

 

D. $38,000.

 

E. $27,000.

 

24. The following information was taken from the accounting records of Elliott Manufacturing Corp. Unfortunately, some of the data were destroyed by a computer malfunction.

Sales Revenue $58,000
Finished Goods Inventory, Beginning 9,000
Finished Goods Inventory, Ending 6,000
Cost of Goods Sold ?
Gross Margin 25,000
Direct Materials Used 10,000
Selling and Administrative Expense ?
Operating Income 14,000
Work-in-Process Inventory, Beginning ?
Work-in-Process Inventory, Ending 5,000
Direct Labor Used 9,000
Factory Overhead 12,000
Total Manufacturing Cost ?
Cost of Goods Manufactured ?

Selling and administrative expenses are calculated to be:

A. $4,000.

 

B. $9,000.

 

C. $11,000.

 

D. $12,000.

 

E. $16,000.

 

25. The following information was taken from the accounting records of Elliott Manufacturing Corp. Unfortunately, some of the data were destroyed by a computer malfunction.

Sales Revenue $58,000
Finished Goods Inventory, Beginning 9,000
Finished Goods Inventory, Ending 6,000
Cost of Goods Sold ?
Gross Margin 25,000
Direct Materials Used 10,000
Selling and Administrative Expense ?
Operating Income 14,000
Work-in-Process Inventory, Beginning ?
Work-in-Process Inventory, Ending 5,000
Direct Labor Used 9,000
Factory Overhead 12,000
Total Manufacturing Cost ?
Cost of Goods Manufactured ?

Work in process inventory, beginning, is calculated to be:

A. $4,000.

 

B. $9,000.

 

C. $11,000.

 

D. $12,000.

 

E. $16,000.

 

26. The following data pertains to Lam Co.’s manufacturing operations:

Inventories 4/1 4/30
Direct Materials $18,000 $15,000
Work in Process 9,000 6,000
Finished Goods 27,000 36,000

Additional information for the month of April:

Direct materials purchased $32,000
Direct labor $30,000
Direct labor rate per hour $10.00
Factor overhead incurred $40,000

Overhead is applied at $12 per direct labor hour.

For the month of April, prime cost incurred was:

A. $75,000.

 

B. $66,000.

 

C. $65,000.

 

D. $62,000.

 

27. The following data pertains to Lam Co.’s manufacturing operations:

Inventories 4/1 4/30
Direct Materials $18,000 $15,000
Work in Process 9,000 6,000
Finished Goods 27,000 36,000

Additional information for the month of April:

Direct materials purchased $32,000
Direct labor $30,000
Direct labor rate per hour $10.00
Factor overhead incurred $40,000

Overhead is applied at $12 per direct labor hour.

For the month of April, conversion cost incurred was:

A. $75,000.

 

B. $66,000.

 

C. $70,000.

 

D. $39,000.

 

28. The three attributes of cost information include accuracy, timeliness, and:

A. reliability.

 

B. relevance.

 

C. cost-benefit.

 

D. understandability.

 

29. When cost relationships are linear, total variable costs will vary in proportion to changes in:

A. Direct labor hours.

 

B. Total material cost.

 

C. Total overhead cost.

 

D. Volume of production.

 

E. Machine hours.

 

30. The term relevant range as used in cost accounting means the range over which:

A. Costs may fluctuate.

 

B. Cost relationships are approximately linear.

 

C. Production may vary.

 

D. Relevant costs are incurred.

 

31. If the volume of production is increased over the level planned, the cost per unit would be expected to:

A. Decrease for fixed costs and remain unchanged for variable costs.

 

B. Remain unchanged for fixed costs and increase for variable costs.

 

C. Decrease for fixed costs and increase for variable costs.

 

D. Increase for fixed costs and increase for variable costs.

 

32. When production levels are expected to decline within a relevant range, what effects would be anticipated with respect to each of the following?

Fixed Costs
per Unit
Variable Costs
per Unit
A) increase no change
B) increase increase
C) no change no change
D) no change increase

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

33. Which of the following is normally considered to be a product cost?

A. Insurance on a factory building.

 

B. Selling expenses.

 

C. President’s salary.

 

D. Miscellaneous office expense.

 

34. The Gray Company has a staff of five clerks in its general accounting department. Three clerks who work during the day perform sundry accounting tasks; the two clerks who work in the evening are responsible for (1) collecting the cost data for the various jobs in process, (2) verifying manufacturing material and labor reports, and (3) supplying production reports to the supervisors by the next morning. The salaries of these two clerks who work at night should be classified as:

A. Period costs.

 

B. Direct costs.

 

C. Product costs.

 

D. Indirect costs.

 

35. A manufacturer of machinery currently produces equipment for a single client. The client supplies all required raw material on a no-cost basis. The manufacturer contracts to complete the desired units from this raw material. The total production costs incurred by the manufacturer are correctly identified as:

A. Prime costs.

 

B. Conversion costs.

 

C. Variable production costs.

 

D. Factory overhead.

 

36. Certain workers are assigned the task of unpacking production materials received from suppliers. These workers place the material in a storage area pending subsequent use in the production process. The labor cost of such workers is normally classified as:

A. Direct labor.

 

B. Direct materials.

 

C. Indirect labor.

 

D. Indirect materials.

 

37. Prime cost and conversion cost share what common element of total cost?

A. Direct labor.

 

B. Direct materials.

 

C. Variable overhead.

 

D. Fixed overhead.

 

38. Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records.

Cost of Goods Sold $65,000
Work-in-Process Inventory, Beginning 10,500
Work-in-Process Inventory, Ending 9,000
Selling and Administrative Expense 15,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Used ?
Factory Overhead Applied 12,000
Operating Income 14,000
Direct Materials Inventory, Beginning 11,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Fisher, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day.

What is the amount of direct materials used?

A. $23,500.

 

B. $28,500.

 

C. $31,000.

 

D. $36,000.

 

39. Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records.

Cost of Goods Sold $65,000
Work-in-Process Inventory, Beginning 10,500
Work-in-Process Inventory, Ending 9,000
Selling and Administrative Expense 15,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Used ?
Factory Overhead Applied 12,000
Operating Income 14,000
Direct Materials Inventory, Beginning 11,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Fisher, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day.

What is the amount of direct materials purchased?

A. $23,500.

 

B. $28,500.

 

C. $31,000.

 

D. $36,000.

 

40. Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records.

Cost of Goods Sold $65,000
Work-in-Process Inventory, Beginning 10,500
Work-in-Process Inventory, Ending 9,000
Selling and Administrative Expense 15,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Used ?
Factory Overhead Applied 12,000
Operating Income 14,000
Direct Materials Inventory, Beginning 11,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Fisher, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day.

What is the amount in the finished goods inventory at the beginning of the year?

A. $10,500.

 

B. $15,000.

 

C. $20,000.

 

D. $25,000.

 

41. Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records.

Cost of Goods Sold $65,000
Work-in-Process Inventory, Beginning 10,500
Work-in-Process Inventory, Ending 9,000
Selling and Administrative Expense 15,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Used ?
Factory Overhead Applied 12,000
Operating Income 14,000
Direct Materials Inventory, Beginning 11,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Fisher, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day.

What is the amount of total manufacturing cost?

A. $50,500.

 

B. $52,000.

 

C. $56,400.

 

D. $58,500.

 

42. Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records.

Cost of Goods Sold $65,000
Work-in-Process Inventory, Beginning 10,500
Work-in-Process Inventory, Ending 9,000
Selling and Administrative Expense 15,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Used ?
Factory Overhead Applied 12,000
Operating Income 14,000
Direct Materials Inventory, Beginning 11,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 60,000

Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Fisher, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day.

What is the amount of net sales?

A. $68,500.

 

B. $94,000.

 

C. $72,500.

 

D. $75,000.

 

43. Tierney Construction, Inc. recently lost a portion of its financial records in an office theft. The following accounting information remained in the office files:

Cost of goods sold $80,000
Work in process inventory, January 1, 2013 18,500
Work in process inventory, December 31, 2013 14,500
Selling and Administrative Expenses 16,000
Net Income 30,000
Factory overhead 20,000
Direct materials inventory, January 1, 2013 26,000
Direct materials inventory, December 31, 2013 14,000
Cost of goods manufactured 98,000
Finished goods inventory, January 1, 2013 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The CFO of Tierney Construction, Inc. has asked you to recalculate the following accounts and to report to him by the end of tomorrow.

What should be the amount of direct materials used?

A. $15,000.

 

B. $29,000.

 

C. $20,000.

 

D. $24,000.

 

44. Tierney Construction, Inc. recently lost a portion of its financial records in an office theft. The following accounting information remained in the office files:

Cost of goods sold $80,000
Work in process inventory, January 1, 2013 18,500
Work in process inventory, December 31, 2013 14,500
Selling and Administrative Expenses 16,000
Net Income 30,000
Factory overhead 20,000
Direct materials inventory, January 1, 2013 26,000
Direct materials inventory, December 31, 2013 14,000
Cost of goods manufactured 98,000
Finished goods inventory, January 1, 2013 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The CFO of Tierney Construction, Inc. has asked you to recalculate the following accounts and to report to him by the end of tomorrow.

What should be the amount of direct materials purchased?

A. $28,000.

 

B. $19,000.

 

C. $15,000.

 

D. $12,000.

 

45. Tierney Construction, Inc. recently lost a portion of its financial records in an office theft. The following accounting information remained in the office files:

Cost of goods sold $80,000
Work in process inventory, January 1, 2013 18,500
Work in process inventory, December 31, 2013 14,500
Selling and Administrative Expenses 16,000
Net Income 30,000
Factory overhead 20,000
Direct materials inventory, January 1, 2013 26,000
Direct materials inventory, December 31, 2013 14,000
Cost of goods manufactured 98,000
Finished goods inventory, January 1, 2013 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The CFO of Tierney Construction, Inc. has asked you to recalculate the following accounts and to report to him by the end of tomorrow.

What should be the amount in the finished goods inventory at December 31, 2013?

A. $55,500.

 

B. $35,000.

 

C. $43,000.

 

D. $49,000.

 

46. Tierney Construction, Inc. recently lost a portion of its financial records in an office theft. The following accounting information remained in the office files:

Cost of goods sold $80,000
Work in process inventory, January 1, 2013 18,500
Work in process inventory, December 31, 2013 14,500
Selling and Administrative Expenses 16,000
Net Income 30,000
Factory overhead 20,000
Direct materials inventory, January 1, 2013 26,000
Direct materials inventory, December 31, 2013 14,000
Cost of goods manufactured 98,000
Finished goods inventory, January 1, 2013 31,000

Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The CFO of Tierney Construction, Inc. has asked you to recalculate the following accounts and to report to him by the end of tomorrow.

What should be the amount of total manufacturing cost?

A. $83,000.

 

B. $94,000.

 

C. $104,000.

 

D. $75,000.

 

47. Stephenson Company’s computer system recently crashed, erasing much of the Company’s financial data. The following accounting information was discovered soon afterwards on the CFO’s back-up computer disk.

Cost of Goods Sold $380,000
Work-in-Process Inventory, Beginning 30,000
Work-in-Process Inventory, Ending 40,000
Selling and Administrative Expense 50,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Purchased 171,000
Factory Overhead Applied 112,000
Operating Income 22,000
Direct Materials Inventory, Beginning 18,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 340,000
Direct Labor 55,000

The CFO of Stephenson Company has asked you to recalculate the following accounts and report to him by week’s end.

What should be the amount of direct materials used?

A. $112,000.

 

B. $183,000.

 

C. $189,000.

 

D. $204,000.

 

48. Stephenson Company’s computer system recently crashed, erasing much of the Company’s financial data. The following accounting information was discovered soon afterwards on the CFO’s back-up computer disk.

Cost of Goods Sold $380,000
Work-in-Process Inventory, Beginning 30,000
Work-in-Process Inventory, Ending 40,000
Selling and Administrative Expense 50,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Purchased 171,000
Factory Overhead Applied 112,000
Operating Income 22,000
Direct Materials Inventory, Beginning 18,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 340,000
Direct Labor 55,000

The CFO of Stephenson Company has asked you to recalculate the following accounts and report to him by week’s end.

What should be the amount of direct materials available for use?

A. $112,000.

 

B. $183,000.

 

C. $189,000.

 

D. $204,000.

 

49. Stephenson Company’s computer system recently crashed, erasing much of the Company’s financial data. The following accounting information was discovered soon afterwards on the CFO’s back-up computer disk.

Cost of Goods Sold $380,000
Work-in-Process Inventory, Beginning 30,000
Work-in-Process Inventory, Ending 40,000
Selling and Administrative Expense 50,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Purchased 171,000
Factory Overhead Applied 112,000
Operating Income 22,000
Direct Materials Inventory, Beginning 18,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 340,000
Direct Labor 55,000

The CFO of Stephenson Company has asked you to recalculate the following accounts and report to him by week’s end.

What should be the amount in the finished goods inventory at the beginning of the year?

A. $15,000.

 

B. $45,000.

 

C. $55,000.

 

D. $61,000.

 

50. Stephenson Company’s computer system recently crashed, erasing much of the Company’s financial data. The following accounting information was discovered soon afterwards on the CFO’s back-up computer disk.

Cost of Goods Sold $380,000
Work-in-Process Inventory, Beginning 30,000
Work-in-Process Inventory, Ending 40,000
Selling and Administrative Expense 50,000
Finished Goods Inventory, Ending 15,000
Finished Goods Inventory, Beginning ?
Direct Materials Purchased 171,000
Factory Overhead Applied 112,000
Operating Income 22,000
Direct Materials Inventory, Beginning 18,000
Direct Materials Inventory, Ending 6,000
Cost of Goods Manufactured 340,000
Direct Labor 55,000

The CFO of Stephenson Company has asked you to recalculate the following accounts and report to him by week’s end.

What should be the amount of total manufacturing cost?

A. $340,000.

 

B. $350,000.

 

C. $380,000.

 

D. $395,000.

 

51. If finished goods inventory has increased during the period, which of the following is always true?

A. Cost of goods sold is less than cost of goods manufactured.

 

B. Cost of goods sold is more than cost of goods manufactured.

 

C. Cost of goods manufactured is more than total manufacturing costs.

 

D. Cost of goods manufactured is less than total manufacturing costs.

 

52. Manufacturing firms use which of the following three inventory accounts?

A. Materials, Work-in-process, Transferred-out.

 

B. Materials, Work-in-process, Finished goods.

 

C. Materials, Finished goods, Transferred-out.

 

D. Work-in-process, Finished goods, Transferred-out.

 

53. Barnes Co. incurred the following costs during July:

Conversion costs $133,000
Prime costs $125,000
Manufacturing overhead $75,000

What was the amount of direct materials used and direct labor for July?

Direct materials Direct labor
A. $43,000 $47,000
B. $47,000 $43,000
C. $58,000 $45,000
D. $67,000 $58,000

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

54. Woodcarving Co. incurred the following costs during May:

Conversion costs $460,000
Prime costs $390,000
Manufacturing overhead $315,000

What was the amount of direct materials and direct labor used in May?

Direct materials Direct labor
A.  $100,000  $295,000
B.  $105,000  $215,000
C.  $245.000  $145,000
D.  $70,000  $75,000

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

55. Jeffrey’s Bottling Co. incurred the following costs during November:

Conversion costs $             
Prime costs $220,000
Manufacturing overhead $175,000

If direct materials cost was $140,000 in November, what was the conversion cost for November?

A. $255,000

 

B. $240,000

 

C. $215,000

 

D. $235,000

 

56. Furniture Co. incurred the following costs during 2016:

Conversion costs $240,000
Prime costs $210,000
Manufacturing overhead $115,000

What was the amount of direct materials and direct labor used for the year?

Direct materials Direct labor
A.  $95,000  $100,000
B.  $105,000  $80,000
C.  $125,000  $90,000
D.  $85,000  $125,000

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

57. Factory overhead costs for a given period were 3 times as much as the direct material costs. Prime costs totaled $2,000. Conversion costs totaled $3,280. What are the direct labor costs for the period?

A. $1,220.

 

B. $1,360.

 

C. $1,410.

 

D. $1,540.

 

58. Factory overhead costs for a given period were 2 times as much as the direct material costs. Prime costs totaled $8,000. Conversion costs totaled $11,350. What are the direct labor costs for the period?

A. $4,650.

 

B. $3,560.

 

C. $4,200.

 

D. $3,860.

 

59. Factory overhead costs for a given period were 1.5 times as much as the direct material costs. Prime costs totaled $15,500. Conversion costs totaled $22,725. What are the direct labor costs for the period?

A. $1,200.

 

B. $1,050.

 

C. $1,075.

 

D. $1,155.

 

60. Consider the following for Columbia Street Manufacturing:

Change in finished goods inventory $985 increase
Change in work-in-process inventory $350 decrease
Total manufacturing costs $900

What are the cost of goods manufactured and cost of goods sold?

Cost of goods
manufactured
Cost of goods
sold
A.      $885    $1,050
B.      $1,250    $265
C.      $1,525    $925
D.      $1,250    $565

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

61. Consider the following for Guardian Manufacturing Company:

Change in finished goods inventory $315 increase
Change in work-in-process inventory $145 increase
Total manufacturing costs $630

What are the cost of goods manufactured and cost of goods sold?

Cost of goods
manufactured
Cost of goods
sold
A.    $470            $320
B.      $485      $170
C.      $505      $280
D.      $485           $370

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

62. In order to assure that accounting information is accurate and to avoid potentially costly mistakes in the decision making process, firms should:

A. Design and monitor an effective system of internal accounting controls.

 

B. Have the internal auditors and controller each check the accounting data before it is released to management.

 

C. Purchase an accounting system that is designed specifically for the industry in which the firm conducts business.

 

D. None of these answer choices are correct.

 

63. Which of the following best describes a fixed cost?

A. It may change in total when such change is unrelated to changes in production volume.

 

B. It may change in total when such change is related to changes in production volume.

 

C. It is constant per unit of change in production volume.

 

D. It may change in total when such change depends on production volume within the relevant range.

 

64. The income statement for a manufacturing company includes:

A. Indirect Labor, Factory Overhead, and Total Manufacturing Cost.

 

B. Total Manufacturing Cost and Cost of Goods Sold.

 

C. Indirect Materials, Factory Overhead, and Cost of Goods Manufactured.

 

D. Indirect Labor, Indirect Materials and Cost of Goods Sold.

 

65. The income statement for a merchandising company includes:

A. Direct Labor.

 

B. Factory Overhead.

 

C. Total Manufacturing Cost.

 

D. Cost of Goods Sold.

 

66. Which of the following should be considered a structural cost driver?

A. Scale.

 

B. Experience.

 

C. Complexity.

 

D. Technology.

 

E. All of these answer choices are correct.

 

67. A manager of a small manufacturing firm is interested in knowing what the company’s product costs are. Which of the following would be considered a product cost for the manager’s company?

A. Direct materials.

 

B. Product design cost.

 

C. Office expenses.

 

D. Selling expenses.

 

E. Advertising expense.

 

68. A manager of a large retail firm is interested in knowing what the company’s product costs are.
Which of the following would be considered a product cost for the manager’s company?

A. Direct materials.

 

B. Direct labor.

 

C. Factory overhead.

 

D. Transportation costs paid by the retailer to transport the purchased product to its distribution location.

 

69. The main objective(s) of internal accounting controls is/are:

A. To increase customer satisfaction.

 

B. To increase revenue.

 

C. To prevent or detect errors and fraudulent acts.

 

D. To facilitate new product lines.

 

E. To increase employee morale.

 

70. Direct materials and direct labor costs total $70,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #333, what is the total manufacturing cost for Job #333?

A. $20,000

 

B. $70,200

 

C. $70,000

 

D. $90,000

 

E. $100,000

 

71. Direct materials and direct labor costs total $40,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #202, what is the total manufacturing cost for Job #202?

A. $95,000

 

B. $75,000

 

C. $65,000

 

D. $60,000

 

E. $55,000

 

72. Which of the following would not be considered a cost pool?

A. Inventory manager

 

B. Revenue

 

C. Engineering department

 

D. Direct materials cost

 

73. A group of related products may be referenced as:

A. Cost objects

 

B. Cost drivers

 

C. Value streams

 

D. Cost pools

 

74. There is no convenient or economical way to trace a(n) _______ from the cost to the cost pool or from the cost pool to the cost object.

A. Direct cost

 

B. Indirect cost

 

C. Cost assignment

 

D. Cost allocation

 

75. Which of the following is not a correct pairing of the activity and the potential cost driver?

A. Provide cashier service-number of customers

 

B. Process loan applications-number of loan applications processed

 

C. Mail customer statements-number of accounts by customer type and size

 

D. Advise customers on banking services-number of ATM transactions

 

76. Which of the following is an example of an indirect cost?

A. Cost of downtime

 

B. Cost of labor

 

C. Cost of materials

 

D. Cost of packaging materials

 

77. Which of the following is not a product cost?

A. Direct materials costs

 

B. Selling costs

 

C. Direct labor costs

 

D. Factory overhead costs

 

78. Complete the inventory formula:
Beginning Inventory + ______ = ________ + Ending Inventory

A. Cost added; cost transferred out

 

B. Cost transferred out; cost added

 

C. Cost of goods sold; cost added

 

D. Cost added; cost of goods manufactured

 

79. Which of the following is not an example of a product cost?

A. Salary of manufacturing supervisor

 

B. Power for equipment

 

C. Depreciation on company-owned sales outlets

 

D. Depreciation on company-owned manufacturing plant

 

80. The total manufacturing cost consists of the costs for materials used, labor, and ________.

A. Overhead cost

 

B. Average cost

 

C. Step cost

 

D. Prime cost

 

81. The emphasis on effective _________ has ________ significantly in recent years in response to SEC requirements imposed by the Sarbanes-Oxley Act of 2002.

A. Cost allocation; decreased

 

B. Internal accounting controls; increased

 

C. Profitability; increased

 

D. Cost drivers; decreased

 

 

Essay Questions

82. Williams Company is an East Coast producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that Williams sells for $270. Six weeks after increasing production to supply the increased orders, the assistant controller notices some unusual unit cost data in the monthly report she is preparing. Prior and current month unit values are given below:

Filter This Month Last Month Change
Average total cost $167.20 $171.14 -$3.96
Cost of last unit produced 104.90 101.22 +3.68

Required:

(1) Suggest some possible causes for the decline in average total cost.
(2) Assume now the opposite change has occurred, namely, average total cost has risen $3.96 per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to explain these changes.

 

 

 

 

83. Roadmaster Equipment is an up-scale, higher-priced, specialty road construction equipment maker based in Irvine, California. The management accountant for Roadmaster compiled information for various levels of output in units:

Output
3,000 6,000 9,000
Variable production costs $162,000,000
Fixed production costs 235,000,000
Variable selling costs 36,000,000
Fixed selling costs 15,000,000
Total costs
Selling price per unit 155,000 155,000 155,000
Unit cost
Profit per unit

Required:

Rounding all calculations to the nearest dollar, fill in the blanks with the correct figures.

 

 

 

 

84. Choco Chocolata is a cookie company in Juarez, Mexico that produces and sells American-style chocolate chip cookies with extremely high quality and service. The owner would like to identify the various costs incurred during each year in order to plan and control the costs in the business. Chocolata’s costs are the following (in thousands of pesos):

Utilities for the bakery $2,100
Paper used in packaging product 180
Salaries and wages in the bakery 23,500
Cookie ingredients 43,500
Bakery labor fringe benefits 1,300
Administrative costs 2,300
Bakery equipment maintenance 800
Depreciation of bakery plant and equipment 2,200
Uniforms for bakers 750
Insurance for the bakery 900
Rent for administration offices 18,500
Advertising 3,500
Boxes, bags, and cups used in the bakery 1,100
Office Manager’s salary 13,000
Overtime premiums 2,600
Idle Time 500

Required:

(1) What is the total amount of product costs?
(2) What is the total amount of period costs?

 

 

 

 

85. Young Fashions Company produces children’s clothing. During the current year, the company incurred the following costs:

Factory rent $144,000
Direct labor used 525,000
Factory utilities 120,000
Direct materials purchases 850,000
Indirect materials 106,000
Indirect labor 96,000

Inventories for the year were:

January 1 December 31
Direct materials $220,000 $155,000
Work in process 160,000 128,000
Finished goods 320,000 310,000

Required:

Prepare a statement of cost of goods manufactured and cost of goods sold.

 

 

 

 

86. The following costs are incurred by the Oakland Company, a manufacturer of furniture.

1) wood and fabric used in furniture
2) depreciation on machinery
3) property taxes on the factory
4) labor costs to manufacture the furniture
5) electricity cost to operate the machinery
6) factory rent
7) production supervisor’s salary
8) sandpaper and other supplies
9) fire insurance on factory
10) commissions paid to salespersons

Required:

Classify each cost as either variable or fixed.

 

 

 

 

87. A portion of the costs incurred by business organizations is designated as direct labor cost. As used in practice, the term direct labor cost has a wide variety of meanings. Unless the meaning intended in a given context is clear, misunderstanding and confusion are likely to ensue. If a user does not understand the elements included in direct labor cost, erroneous interpretations of the numbers might occur and could result in poor management decisions. Measurement of direct labor costs has two aspects: (1) the quantity of labor effort that is to be included, that is, the types of hours or other units of time that are to be counted; and (2) the unit price by which each of these quantities is multiplied to arrive at a monetary cost.

Required:

1) Distinguish between direct labor and indirect labor.
2) Presented below are labor cost elements that a company has been classified as direct labor, factory overhead, or either direct labor or factory overhead depending upon the situation.

• Direct labor-Included in the company’s direct labor are cost production efficiency bonuses and certain benefits for direct labor workers such as FICA (employer’s portion), group life insurance, vacation pay, and workers’ compensation insurance.
• Factory overhead-The company’s calculation of manufacturing overhead includes the cost of the following: wage continuation plans, the company sponsored cafeteria, the personnel department, and recreational facilities.
• Direct labor or factory overhead-The costs that the company includes in this category are maintenance expense, overtime premiums, and shift premiums.
• Explain the reasoning used by the company in classifying the cost elements in each of the three categories.

 

 

 

 

88. Lester-Sung, Inc. is a large general construction firm in the commercial building industry. The following is a list of costs incurred by this company:

1) The cost of an employee for 8 hours at $6.00 an hour.
2) The cost of insurance for the employees.
3) The cost of 1,000 board feet of 2×4 lumber.
4) The CEO’s salary.

Required:

Classify each cost above using the following categories:

(a) General, selling, and administrative cost
(b) Direct material
(c) Direct labor
(d) Overhead cost

 

 

 

 

89. Advanced Technical Services Ltd., has many products and services in the medical field. The Clinical Division of the company does research and testing of consumer products on human participants in controlled clinical studies.

Required:

Determine for each cost below whether it is best classified as a fixed, variable, or step-fixed cost.

(1) Director’s salary
(2) Part-time help
(3) Payment on purchase of medical equipment
(4) Allocation of company-wide advertising
(5) Patches used on participants’ arms during the study
(6) Stipends paid to participants

 

 

 

 

90. The following data relates to the Solar Products Company for the fiscal year ended December 31:

Direct Materials Inventory, Beginning $60
Direct Materials Inventory, Ending 40
Direct Materials Purchases 290
Direct Labor 33
Finished Goods Inventory, Beginning 90
Finished Goods Inventory, Ending 100
Factory Overhead 155
Work-in-Process Inventory, Beginning 80
Work-in-Process Inventory, Ending 60

Required:

Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.

 

 

 

 

91. The following information applies to the Johnson Tools Company for the year.

Factory Rent $330,000
Direct Materials Inventory, Beginning 96,000
Direct Materials Inventory, Ending 87,000
Direct Materials Purchases 654,000
Direct Labor-Wages 425,000
Indirect Labor-Wages 28,000
Finished Goods Inventory, Beginning 25,000
Finished Goods Inventory, Ending 44,000
Indirect Materials 66,000
Plant Utilities 40,000
General and Administrative 101,350
Work-in-Process Inventory, Beginning 27,000
Work-in-Process Inventory, Ending 33,000
Marketing Expenses 225,000
Sales Revenue 2,550.000

Required:

Prepare a statement of cost of goods manufactured and an income statement for the year.

 

 

 

 

92. A computer virus destroyed some of the accounting records for Hampton Furniture Company for the periods of 2014-2016. The following information was salvaged from the computer system.

12/31/14 12/31/15 12/31/16
Beginning direct materials $50,250 F $45,210
Purchases of direct materials A 65,250 70,125
Ending direct materials 34,165 45,210 L
Direct materials used 91,385 54,205 M
Direct labor B 155,050 162,000
Manufacturing overhead 115,325 G 127,145
Total manufacturing costs C 319,255 364,130
Beginning wok-in-process inventory 36,450 H 29,635
Ending work-in-process inventory 21,985 29,635 N
Costs of goods manufactured 386,700 I 362,920
Beginning finished goods inventory 37,000 J 42,500
Ending finished goods inventory D 42,500 39,550
Cost of goods sold 337,050 315,755 O
Net sales 550,000 495,000 P
Selling and Administrative Expenses 135,950 K 130,130
Net income E 46,250 39,000

Required:

Determine the correct amounts for items A through P.

 

 

 

 

93. Dave’s Lighting Inc. produces lamps for the construction industry. During the year, the company incurred the following costs:

Factory rent $80,000
Direct labor used 425,000
Factory utilities 50,000
Direct materials purchases 600,000
Indirect materials 150,000
Indirect labor 90,000

Inventories for the year were:

January 1 December 31
Direct materials $100,000 $75,000
Work in process 20,000 10,000
Finished goods 250,000 215,000

Required:

Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.

 

 

 

 

94. The following information applies to the McAdoo Company for the year.

Factory Rent $90,000
Direct Materials Inventory, Beginning 55,000
Direct Materials Inventory, Ending 50,000
Direct Materials Purchases 350,000
Direct Labor-Wages 580,000
Indirect Labor-Wages 35,000
Finished Goods Inventory, Beginning 50,000
Finished Goods Inventory, Ending 75,000
Indirect Materials 65,000
Plant Utilities 15,000
General and Administrative 110,000
Work-in-Process Inventory, Beginning 50,000
Work-in-Process Inventory, Ending 55,000
Marketing Expenses 210,000
Sales Revenue 1,950,000

Required:

Prepare a statement of cost of goods manufactured and an income statement for the year.

 

 

 

 

95. Consider the following information for Blue Water Equipment, Inc., a manufacturer of sailboat rigging, blocks, and cordage.

Advertising expenses $16,000
Depreciation expense-admin. office 73,000
Depreciation expense-plant 197,000
Depreciation expense-delivery trucks 34,000
Direct materials inventory, beginning 33,000
Direct materials inventory, ending 28,000
Direct materials purchases 190,000
Direct labor 345,000
Indirect labor 128,000
Finished goods inventory, beginning 66,000
Finished goods inventory, ending 43,000
Insurance on plant 44,000
Heat and light for plant 23,000
Repairs on plant building 34,000
Supervisor’s salary-plant 85,000
Supplies-plant 21,000
Supplies-administrative office 42,000
Work-in-process inventory, beginning 14,000
Work-in-process inventory, ending 11,000
Sales representatives’ salaries 216,000
Sales revenue 1,675,000

Required:

Prepare a statement of cost of goods manufactured and an income statement for Blue Water Equipment, Inc. for the year ending December 31, 20XX.

 

 

 

 

96. Greenbelt Hospital has the following activities in its value chain of providing service to each inpatient admission:

1. Schedule patient.
2. Verify insurance.
3. Admit patient.
4. Prepare patient’s room.
5. Review doctor’s report.
6. Feed patient.
7. Order tests.
8. Move to/from laboratory.
9. Administer lab tests.
10. Order pharmaceuticals.
11. Complete patient report.
12. Check patient’s vital signs.
13. Prepare patient for operation.
14. Move to/from operating room.
15. Operate.
16. Collect charges.
17. Discharge patient.
18. Bill insurance.

Required:

Assume that the cost object is the individual patient. Determine the appropriate cost driver(s) for each activity.

 

 

 

 

97. The following information pertains to the Petrie Company:

Prime costs $180,000
Conversion costs 215,000
Direct materials used 95,000
Beginning work in process 75,000
Ending work in process 65,000

Required:

Determine the cost of goods manufactured.

 

 

 

 

98. The following information was taken from the accounting records of Tomek Manufacturing Company. Unfortunately, some of the data were destroyed by a computer malfunction.

Case A Case B
Sales $150,000 ?
Finished goods inventory, Jan. 1, 2013 35,000 28,000
Finished goods inventory, Dec. 31, 2013 40,000 ?
Cost of goods sold ? 61,000
Gross margin 25,000 23,000
Selling and administrative expenses ? 1,000
Operating income 10,000 22,000
Work in process, Jan. 1, 2013 ? 14,000
Direct materials used 18,000 8,000
Direct labor 35,000 9,000
Factory overhead 50,000 ?
Total manufacturing costs ? 35,000
Work in process, Dec. 31, 2013 22,000 ?
Cost of goods manufactured ? 45,000

Required:

Calculate the unknowns indicated by question marks.

 

 

 

Chapter 05

Activity-Based Costing and Customer Profitability Analysis

 

Multiple Choice Questions

1. The major limitation of volume-based costing systems is the use of volume-based:

A. Criteria.

 

B. Standards.

 

C. Rates.

 

D. Variances.

 

E. Restrictions.

 

2. Volume-based rates produce inaccurate product cost when:

A. A large portion of factory overhead cost is not volume-based.

 

B. Firms produce a diverse mix of products.

 

C. Large volumes of a product are manufactured.

 

D. Both a lack of volume-based overhead and there is a large range of products.

 

E. None of these answer choices are correct.

 

3. If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under the:

A. Activity-based costing

 

B. Volume-based costing

 

C. Overhead costing

 

D. Process costing

 

4. Volume-based overhead rates may cause undesirable strategic effects such as:

A. Incorrect decisions.

 

B. Unprofitable cross-subsidization of products.

 

C. Ineffective management of operations for process improvement.

 

D. All of these answer choices are correct.

 

5. Activity-based costing (ABC) differs from other costing approaches in that it more accurately measures the cost of activities that are:

A. Not proportional to the volume of outputs produced.

 

B. Directly proportional to the volume of outputs produced.

 

C. Inversely proportional to the volume of outputs produced.

 

D. Non-value adding.

 

6. In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant studies:

A. The cost drivers and managers in the plant.

 

B. The advice of operation-level managers.

 

C. The resources, activities, and cost drivers in the operation.

 

D. The cost allocation methods applicable to the firm.

 

E. The implementation problems for an ABC system.

 

7. Effective implementation of activity-based costing (ABC) requires:

A. Normally the assistance of a consultant.

 

B. A sophisticated and expensive computer system.

 

C. Support of top management and key employees.

 

D. Capturing properly the complexity of the data.

 

E. ABC has no significant implementation issues.

 

8. Elimination of low-value-added activities in a firm should:

A. Be discouraged because of potential harmful effects.

 

B. Not affect customer value.

 

C. Not have priority because low-value-added activities have little effect on a firm’s performance.

 

D. Have priority only when a firm is operating at a loss.

 

E. Happen naturally if the firm is well-managed.

 

9. When gathering activity data, which of the following would not be a question that ABC project team members typically ask employees or managers?

A. Time spent performing the activity

 

B. Resources required for the activity

 

C. Where the activity takes place

 

D. Value the activity has for the customer

 

10. Successful activity-based costing (ABC) implementation depends upon the firm:

A. Having support of consultants with needed expertise.

 

B. Having a thorough activity analysis.

 

C. Starting with a relatively simple system.

 

D. Having well-trained managers.

 

E. Having adequate computer resources.

 

11. A measure of the quantity of resources consumed by an activity is:

A. A quantity driver.

 

B. A resource consumption cost driver.

 

C. Not a cost driver.

 

D. An activity consumption cost driver.

 

E. A consumption cost driver.

 

12. A measure of frequency and intensity of demands placed on activities by cost objects is:

A. A quantity driver.

 

B. A resource consumption cost driver.

 

C. Not a cost driver.

 

D. An activity consumption cost driver.

 

E. A consumption cost driver.

 

13. An activity that is performed for each unit of production is a(n):

A. Product-level activity.

 

B. Facility-level activity.

 

C. Unit-level activity.

 

D. Performance-level activity.

 

E. Batch-level activity.

 

14. An activity that is performed to support the production of a new custom-order product is a:

A. Product-level activity.

 

B. Facility-level activity.

 

C. Unit-level activity.

 

D. Customer-support activity.

 

E. Batch-level activity.

 

15. Which one of the following is not a unit-level cost driver?

A. Direct labor hours.

 

B. Direct material dollars.

 

C. Machine hours.

 

D. Production orders.

 

16. The management of activities to improve the value received by the customer and the competitiveness of the organization is:

A. Cost driver analysis.

 

B. Customer profitability analysis.

 

C. Activity-based management.

 

D. Performance measurement.

 

E. Activity analysis.

 

17. The examination of the efficiency of each of a firm’s activities is:

A. Activity analysis.

 

B. Pareto analysis.

 

C. Activity-based management.

 

D. Performance measurement.

 

E. Attribute-based management.

 

18. Which one of the following is a high value-added activity?

A. Set-up.

 

B. Rework.

 

C. Repair.

 

D. Storage.

 

E. Processing.

 

19. In regard to selling activities, which one of the following would not be a cost driver for selling expense?

A. Number of invoices.

 

B. Number of sales calls.

 

C. Number of production runs.

 

D. Number of shipments.

 

20. Which one of the following is not a recommendation for a successful implementation of ABC/M?

A. Obtain support of management and personnel.

 

B. Complete an activity analysis.

 

C. Start with a relatively simple system.

 

D. Use ABC/M on a job that will succeed.

 

E. All of these answer choices are features of successful ABC/M implementations.

 

21. Which of the following activities is a facility-level activity?

A. Plant management salaries.

 

B. Depreciation on a highly specialized piece of production equipment.

 

C. Direct labor.

 

D. Product design.

 

E. Materials handling.

 

22. A company using a volume-based overhead assignment (allocation) method will tend to:

A. Overstate the cost of low volume products.

 

B. Understate the cost of low volume products.

 

C. Understate the cost of high volume products.

 

D. Understate the cost of all products.

 

E. Either understate or overstate the cost of high volume products depending on the specific manufacturing factors involved.

 

23. Which of the following is a batch-level cost driver?

A. Output units.

 

B. Number of engineering change orders.

 

C. Number of materials handling transactions.

 

D. Square feet of plant area occupied.

 

E. Number of employees.

 

24. Which of the following activities is a facility-level activity?

A. Materials handling.

 

B. Plant maintenance.

 

C. Product inspection.

 

D. Design engineering.

 

E. Purchase orders.

 

25. In an organization that makes furniture, which of the following is a high value-added activity?

A. Using direct materials in production.

 

B. Inspecting production.

 

C. Storing finished goods inventory.

 

D. Moving work-in-process inventory between work stations.

 

E. Reworking the product to repair defects.

 

26. Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:

A. Overhead costs are traced to departments, then costs are traced to products.

 

B. Overhead costs are traced to activities, then costs are traced to products.

 

C. Overhead costs are traced to activities, then costs are traced to departments and then allocated to products.

 

D. Overhead costs are traced from resources to cost objects.

 

27. Which of the following is a batch-level cost driver?

A. Output units.

 

B. Number of employees.

 

C. Number of orders.

 

D. Number of parts.

 

E. Machine hours.

 

28. Which of the following has the weakest linkage between activity and cost driver?

Activity Cost Driver
A) Machine setup Number of setups
B) Machine maintenance Machine hours
C) Lighting on shop floor Number of kilowatt-hours
D) Quality control Square feet of floor space
E) Materials Handling Weight of materials in process

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

E. Option E

 

29. A volume-based rate is an appropriate overhead application base when:

A. Several well-differentiated products are manufactured.

 

B. Direct labor costs are large.

 

C. Direct material costs are large relative to direct labor costs incurred.

 

D. Only one product is manufactured.

 

E. Manufacturing is process-based.

 

30. Which of the following would likely be the most appropriate cost driver of electric power used by machines?

A. Number of units.

 

B. Machine size.

 

C. Number of machine hours.

 

D. Number of production runs.

 

E. Purchase cost of machines.

 

31. Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:

A. Overapply overhead to the product line.

 

B. Underapply overhead to the product line.

 

C. Understate direct labor costs.

 

D. Overstate direct labor costs.

 

E. Either over- or under-apply overhead to the product line depending on many other factors.

 

32. Which of the following is an example of a high-value-added activity?

A. Shipping the customer’s order.

 

B. Scheduling the customer order for production.

 

C. Inspecting goods to ensure the right quantity is being shipped.

 

D. E-mailing a customer to assure that a complaint will be resolved expeditiously.

 

E. More than one of these answer choices is a high-value-added activity.

 

33. Engineering change orders, maintenance of equipment used in manufacturing, and product design costs are examples of:

A. Unit costs.

 

B. Batch costs.

 

C. Product-level costs.

 

D. Facility-level costs.

 

E. Unit, batch, and customer-sustaining costs, respectively.

 

34. In an activity-based costing system, overhead costs are divided into separate:

A. Cost objects.

 

B. Activity cost pools.

 

C. Resource consumption and activity consumption cost drivers.

 

D. Product-line cost pools.

 

E. Plantwide or departmental cost pools.

 

35. Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?

A. Machine hours.

 

B. Direct labor hours.

 

C. Number of production runs.

 

D. Number of products.

 

E. Number of purchase orders.

 

36. A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:

A. Overstate overhead of the product.

 

B. Understate overhead of the product.

 

C. Overapply overhead to the period.

 

D. Underapply overhead to the period.

 

E. Have no effect on overhead of the product.

 

37. Activity-based costing for manufacturing operations is used to assign:

A. Direct material and direct labor costs to products.

 

B. Direct labor and manufacturing overhead costs to products.

 

C. Manufacturing overhead costs to products.

 

D. Selling and general administrative overhead costs to products.

 

E. Selling and general administrative overhead and manufacturing overhead costs to products.

 

38. The use of activity-based costing is most appropriate for:

A. Firms that manufacture multiple product lines.

 

B. Firms that have very low manufacturing overhead costs relative to other costs of production.

 

C. Firms with high levels of production activity.

 

D. Firms that are labor intensive.

 

E. Firms that manufacture a small number of product lines.

 

39. Which of the following is a benefit of activity-based costing?

A. Reduced overhead costs.

 

B. More accurate measures of production volume.

 

C. Facilitate better product pricing decisions.

 

D. Having fewer cost drivers than volume-based costing systems.

 

E. More streamlined manufacturing processes.

 

40. Which of the following is not normally associated with activity-based costing?

A. Activity cost pools.

 

B. Multiple cost drivers.

 

C. Reduction of non-value-adding costs.

 

D. High direct labor costs relative to manufacturing overhead costs.

 

E. Improved decision-making and pricing.

 

41. Which of the following is not considered a benefit of activity-based costing?

A. Decreased production activity levels.

 

B. Improved understanding of cost of capacity.

 

C. A better understanding of processes.

 

D. Improved planning.

 

E. Improved strategic decisions.

 

42. Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?

A. Machinery depreciation expense.

 

B. Machinery maintenance work orders.

 

C. Machinery down-time.

 

D. Machine hours.

 

E. Machine productivity.

 

43. Which of the following activity cost pools would most likely be allocated based on the number of production runs?

A. Machinery set-up costs.

 

B. Raw materials warehousing costs.

 

C. Factory heating costs.

 

D. Factory janitorial costs.

 

E. Indirect labor costs.

 

44. Which of the following is most likely to be the cost driver for the packaging and shipping activity?

A. Number of setups.

 

B. Number of components.

 

C. Number of orders.

 

D. Hours of testing.

 

E. Number of production runs.

 

45. Activity-based costing systems:

A. Accumulate overhead costs by departments.

 

B. Are less complex and therefore less costly than volume-based systems.

 

C. Can be used in manufacturing firms only.

 

D. Have separate overhead rates for each activity.

 

E. Eliminate multiple-stage cost allocation.

 

46. Which of the following is not true regarding activity-based costing (ABC) systems?

A. ABC can provide more accurate product costs.

 

B. ABC identifies more costs as indirect costs than do traditional volume-based systems.

 

C. ABC is likely to be more time-consuming than volume-based systems.

 

D. ABC is used in both manufacturing and non-manufacturing companies.

 

E. ABC is likely to have more overhead rates than volume-based systems.

 

47. All of the following are low-value-added activities except:

A. Processing.

 

B. Reworking.

 

C. Moving.

 

D. Inspection.

 

E. Warranty service.

 

48. Which of the following cost pools are used to classify costs under activity-based costing?

Unit Batch Product Facility
A) Yes Yes Yes No
B) Yes Yes Yes Yes
C) No Yes Yes No
D) Yes No Yes Yes
E) Yes Yes No No

 

A. Option A

 

B. Option B

 

C. Option C

 

D. Option D

 

E. Option E

 

49. Purchase order, set-up, and inspection costs are examples of:

A. Unit-level costs.

 

B. Batch-level costs.

 

C. Product-level costs.

 

D. Facility-level costs.

 

E. Department-level costs.

 

50. Which of the following would not be considered a facility-level activity?

A. Providing security for the plant.

 

B. Factory property taxes and insurance.

 

C. Closing the books each month.

 

D. Placing purchase orders.

 

51. Costs at the unit-level of activity should be allocated to products using cost drivers that are:

A. Customer-oriented.

 

B. Design-related.

 

C. Volume-related.

 

D. Product-related.

 

E. Order-related.

 

52. If a costing system uses a single base to allocate overhead costs that are results of several production activities:

A. Products that use relatively more of this base tend to be undercosted.

 

B. Products that use relatively less of this base tend to be overcosted.

 

C. Products that use relatively more of this base tend to be overcosted.

 

D. Products may be over- or under-costed, depending on the activity level.

 

E. Products may be over- or under-costed, depending on the overhead rate.

 

53. Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as:

A. Output-unit-level costs.

 

B. Batch-level costs.

 

C. Product-level costs.

 

D. Facility-level costs.

 

E. Vendor costs.

 

54. The cost of sales visits is a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-sustaining cost.

 

55. Freight charges based on number of units shipped to customers is a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-level cost.

 

56. Processing sales returns and allowances is usually classified as a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-level cost.

 

57. Invoicing cost is an example of a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-level cost.

 

58. The cost to process monthly statements is an example of a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-level cost.

 

59. The costs of operating a regional warehouse is an example of a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-level cost.

 

60. General corporate sales expenditures are:

A. Customer unit-level costs.

 

B. Customer batch-level costs.

 

C. Customer-sustaining costs.

 

D. Distribution-channel costs.

 

E. Sales-sustaining costs.

 

61. The general sales manager’s salary is an example of a:

A. Customer unit-level cost.

 

B. Customer batch-level cost.

 

C. Customer-sustaining cost.

 

D. Distribution-channel cost.

 

E. Sales-sustaining cost.

 

62. Which of the following is a description of categorizing related customer costs into cost pools on the basis of cost drivers?

A. Customer revenue analysis.

 

B. Customer cost analysis.

 

C. Customer profitability analysis.

 

D. Customer value assessment.

 

E. Customer equity analysis.

 

63. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

If Wings uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job #971 is:

A. $990.

 

B. $1,020.

 

C. $1,600.

 

D. $3,460.

 

E. $6,400.

 

64. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

Using ABC, the materials handling overhead cost assigned to Job #971 is:

A. $2,300.

 

B. $990.

 

C. $6,500.

 

D. $690.

 

E. $1,020.

 

65. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

Using ABC, overhead cost assigned to Job #971 for machine setup is:

A. $2,300.

 

B. $990.

 

C. $6,500.

 

D. $690.

 

E. $1,020.

 

66. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

Using ABC, overhead cost assigned to Job #971 for machine repair is:

A. $2,300.

 

B. $990.

 

C. $6,500.

 

D. $690.

 

E. $1,020.

 

67. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

Using ABC, overhead cost assigned to Job #971 for inspections is:

A. $2,300.

 

B. $990.

 

C. $6,500.

 

D. $690.

 

E. $1,020.

 

68. Wings Co. budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead:

Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver
Materials handling $160,000 3,200 pounds Weight of materials
Machine setup 13,200 390 setups Number of setups
Machine repair 1,380 30,000 machine hours Machine hours
Inspections 10,560 160 inspections Number of inspections

Requirements for Job #971 which manufactured 4 units of product:

Direct labor 20 hours
Direct materials 130 pounds
Machine setup 30 setups
Machine hours 15,000 machine hours
Inspections 15 inspections

The total overhead of Job #971 under the ABC costing is:

A. $95.

 

B. $380.

 

C. $1,520.

 

D. $2,300.

 

E. $9,200.

 

69. National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.

Model Annual Sales in Units
High F 10,000
Great P 16,000

National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

High F Great P
Direct materials $38.00 $25.40
Direct labor $17.52 $13.14

 

Budget factory overhead:
Engineering and Design 2,409 engineering hours $404,712
Quality Control 12,848 inspection hours 269,808
Machinery 33,726 machine hours 539,616
Miscellaneous Overhead 26,400 direct labor hours    134,904
Total $1,349,040

National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:

High F Great P
Engineering and design hours 969 1,440
Quality control inspection hours 5,648 7,200
Machine hours 20,286 13,440
Labor hours 12,000 14,400

What is the overhead application rate using the firm’s volume-based costing system (rounded to the nearest percent or cents)?

A. 350 percent of direct labor cost.

 

B. $51.89 per direct labor-hour.

 

C. 68 per cent of direct labor cost.

 

D. 5,189 percent of direct labor cost.

 

E. 5,110 percent of direct labor cost.

 

70. National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders.

Model Annual Sales in Units
High F 10,000
Great P 16,000

National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows:

High F Great P
Direct materials $38.00 $25.40
Direct labor $17.52 $13.14

 

Budget factory overhead:
Engineering and Design 2,409 engineering hours $404,712
Quality Control 12,848 inspection hours 269,808
Machinery 33,726 machine hours 539,616
Miscellaneous Overhead 26,400 direct labor hours    134,904
Total $1,349,040

National’s controller had been researching activity-based costing and decided to switch to it. A special study determined National’s two products have the following budgeted activities:

High F Great P
Engineering and design hours 969 1,440
Quality control inspection hours 5,648 7,200
Machine hours 20,286 13,440
Labor hours 12,000 14,400

Using the firm’s volume-based costing, applied factory overhead per unit for the High F model is (rounded to the nearest cent):

A. $61.32.

 

B. $65.43.

 

C. $43.42.

 

D. $45.99.

 

E. $54.04.