Reference no: EM1351176
1. Which of the following is not a product cost?
a. The cost of commissions paid to sales staff
b. The cost of ordering production supplies
c. The cost of rent of the manufacturing facility
d. (a) and (c)
2. Dave Wilburn is a stockbroker. In this capacity, Dave is interested in which of the following kinds of information?
a. Information that pertains to the operations of a business such as time cards and work schedules
b. Information that is global and pertains to the business as a whole
c. Information that pertains to the subunits of a business organization
d. Both (a) and (c)
3. Which of the following is a characteristic of managerial accounting?
a. Users of the data re insiders such as managers and employees
b. Includes physical information about subunits of an organization
c. Is regulated only by the cost/benefit rule
d. All of the above are characteristics of managerial accounting
4. Which of the following statements concerning product versus general, selling, and administrative (GS&A) cost is true?
a. Products costs are usually spread between the balance sheet and the income statement
b. GSA&A costs never appear on the balance sheet
c. Product costs appear only on the income statement
d. GS&A costs are accumulated in an inventory account before appearing on the income statement
5. Which of the following statement is true?
a. A cost can be recognized as an expense immediately or accumulated in an asset account
b. A cost and an expense are different terms used to describe the same thing
c. An expense can be recognized immediately or accumulated in an asset account
d. Cost incurred for wages of production workers are expensed before they are accumulated in an inventory account
6. Delores Industries paid cash for the rental of manufacturing equipment. Select the answer that shows the effect that this event would have on the financial statements.
Assets = Liab. + Equity Rev - Exp. = Net Inc. Cash Flow
A - n/a - n/a - - n/a
B -+ n/a n/a n/a n/a n/a -OA
C - n/a - n/a n/a n/a -OA
D +- n/a n/a n/a n/a n/a n/a
a. A above
b. B above
c. C above
d. D above
7. The president of Warren Manufacturing Company is paid an incentive bonus that is equal to 5% of net income. During the current accounting period, Warrant expects to make 10,000 units of products and to sell 9,000 units. Warren recently incurred a $1,000,000 manufacturing design cost. There is a debate regarding whether this cost should be classified as a product cost or as an upstream cost. Warren is in a 30% tax bracket. Based on this information, select the true answer from the following choices:
a. The company president will be motivated to classify the cost as a product cost because his bonus will be $50,000 higher than it will be if the cost is classified as an upstream cost
b. Warren's income tax expense will be $70,000 more if the design cost is classified as a product cost that it will be if it is classified as an upstream cost
c. Warren's financial statements will portray a more favorable financial position if the design cost is classified as an upstream cost rather than a product cost
d. None of the statements is true
8. The account for Lanyards Manufacturing mistakenly classified a selling expense as a product cost during an accounting period in which the company sold more inventory than it produced. Sandy used a LIFO cost flow system. As a result of the this error:
a. Assets and net income will be overstated
b. Assets will be overstated and net income will be understated
c. Assets and net income will be understated
d. Assets and net income will be unaffected
The following information applies to Questions 9 - 11:
The accounting records of the Branch Arrow Corporation (BAC) contained the following information:
Raw Materials Used $40,000 Sales Revenue $192,000
Sales Salaries 12,000 Indirect Mfg. Costs 68,000
Depr. On Admin. Equip. 8,000 Depr. On Prod. Equip. 14,000
Wages Paid to Prod. Workers 60,000 Misc. GS&A Expenses 18,000
9. BAC's average product cost per unit is:
a. $16.40
b. $20.00
c. $33.60
d. $36.40
10. The balance in BAC's inventory account as of December 31 is:
a. $33,600
b. $36,400
c. $145,600
d. $182,000
11. The amount of net income appearing on BAC's December 31 income statement is:
a. $8,400
b. $26,400
c. $34,400
d. $46,400
The following information applies to Questions 12 and 13
During 2007, Aubrey Boat Company (ABC) incurred $280,000 of manufacturing costs and $84,000 of GS&A expenses. ABC made 14,000 units of product and sold 12,000 units.
12. Based on the above information, the balance in the inventory account shown on ABC's 12/31/2007 balance sheet is:
a. $24,000
b. $40,000
c. $280,000
d. $220,000
13. Based on the above information, the amount of expense shown on ABC's 12/31/2007 income statement is:
a. $84,000
b. $240,000
c. $324,000
d. None of the above
The following information applies to Questions 14 and 15:
Hunan Industries makes baby bottles. During the most recent accounting period, HI paid $90,000 for raw materials, $78,000 for labor, and $82,000 for overhead costs that were incurred to start and complete 125,000 boxes of bottles. GS&A expenses amounted to $120,000.
14. Assuming Hunan Industries (HI) desires to earn a gross profit that is equal to 60% of product cost, the selling prices per box of bottles should be:
a. $3.20
b. $3.00
c. $2.60
d. $2.00
15. If HI sells 110,000 boxes of bottles should be:
a. $22,000
b. $13,200
c. $12,000
d. None of the above
16. When volume increases:
a. Fixed cost in total increases and fixed cost per unit decreases
b. Fixed cost in total remains constant and fixed costs per unit decreases
c. Fixed cost in total and fixed cost per unit remain constant
d. None of the above
17. When volume increases:
a. Variable cost in total increases and variable cost per unit decreases
b. Variable cost in total remains constant and variable cost per unit decreases
c. Variable cost in total and variable cost per unit increase
d. None of the above
18. At a point when volume reached 4,000 units, fixed costs amounted to $20,000 and total cost amounted to $60,000. If volume were to increase to a level of 5,000 units, total cost would be:
a. $70,000
b. $60,000
c. $100,000
d. None of the above
The following information pertains to Questions 19 - 22
Jay's Reel and Tackle Company operates a chain of convenience stores that are located on lakes throughout the United States. The company pays rent of $12,000 a year for each store. Inventory is purchased as needed. The managers of each shop are paid a salary of $1,200 a month and all other employees are paid on an hourly basis.
19. Relative to the number of volume of sales, the cost of rent at each store is what kind of cost?
a. Variable cost
b. Mixed cost
c. Historical cost
d. Fixed cost
20. Relative to the number of stores, the cost of rent is which kind of cost?
a. Variable cost
b. Mixed cost
c. Accumulated cost
d. Fixed cost
21. The cost of inventory relative to the volume of sales in a particular shop and relative to the volume of sales in the entire chain of stores are which kind of cost, respectively?
a. Variable cost/fixed cost
b. Fixed cost/fixed cost
c. Variable cost/variable cost
d. Fixed cost/variable cost
22. Relative to the number of hours worked, total employee compensation cost for a particular store and for a chain of store is which kind of cost, respectively?
a. Variable cost/variable cost
b. Fixed cost/fixed cost
c. Mixed cost/mixed cost
d. Fixed cost/variable cost
23. Within the relevant range, the total cost remains constant when volume increases. However, when volume exceeds the relevant range, the total cost increases. The type of cost behavior is called:
a. Variable cost behavior
b. Mixed cost behavior
c. Fixed cost behavior
d. Allocated cost behavior
24. Operating leverage is possible when the organizational cost structure is:
a. Purely fixed
b. Purely variable
c. Mixed
d. (a) or (c)
25. Lorna Co. sells me's sports coats. The average sales price is $475, and the average cost per coat is $225. Fixed costs are $4,220,000. If Lorna sells 25,000 coats, the contribution margin will be:
a. $7,655,000
b. $6,250,000
c. $5,625,000
d. $2,030,000
26. Maxine Office Company sells business card files at a price of $7.00 each. The card files cost $4.00 each. Maxine sold $10,000 during its most recent accounting period. Fixed cost amounted to $20,000. If the number of units sold increases by 10%, profitability will increase by which of the following amounts:
a. 10%
b. 20%
c. 30%
d. 40%
27. Wright Company sells water containers. The price and cost of the container is $75 and $40, respectively. Fixed costs are $210,000. Wright sells approximately 8,000 containers per year. Based on this information, the magnitude of operating leverage is:
a. 3 times
b. 4 times
c. 5 times
d. 6 times
28. Complete the following table assuming the cost is a fixed cost:
Units of Product Sold 15 20 25
Total Expected Cost $7,500 "X"
Average Per Unit $ 500 "Y"
The amount in the cells labeled "X and "Y" is, respectively:
a. $7,500 and $500
b. $12,500 and $625
c. $12,500 and $500
d. $7,500 and $300
29. Complete the following table assuming the cost is a variable cost:
Units of Product Sold 15 20 25
Total Expected Cost $7,500 "X"
Average Per Unit $ 500 "Y"
The amount in the cells labeled "X and "Y" is, respectively:
e. $7,500 and $500
f. $12,500 and $625
g. $12,500 and $500
h. $7,500 and $300
30. The following income statement was produced when the volume of sales was 200 units.
Sales Revenue $1,000
Variable Cost (600)
Contribution Margin $ 400
Fixed Cost (150)
Net Income $ 250_
If the volume reaches 250 units, net income will be:
a. $350
b. $500
c. $550
d. None of the above
31. Select the most appropriate allocation base and determine the amount of this month's $3,600 office rental payment to Department C.
Department Number of Employees Square Feet
A 24 6,000
B 16 3,000
C 10 9,000
a. $1,200
b. $1,800
c. $3,600
d. $1,000
32. The Artic Company expects to incur $4,000 per month of fixed overhead costs during the first three months of the year, and $10 per unit of variable overhead costs. Expected production for January, February, and March is 4,000, 5,000 and 3,000, respectively. Based on this information, the pre-determined overhead rate for the first three months of the year is:
a. $0.80 per unit
b. $11.00 per unit
c. $10.00 per unit
d. $0.33 per unit
33. A factor having a "cause and effect" relationship with a cost objective is called a:
a. Joint product
b. Relevant cost
c. Cost driver
d. Indirect cost
34. Production workers at Esop Manufacturing Company provided 1,400 hours of labor in February and 1,100 in March. Esop expects to use 15,600 hours of labor during the year and expects to pay an annual insurance premium of $39,000 sometime in April. How much of the insurance cost should be allocated to products made in February and to those made in March?
January February
A $2,000 $5,500
B $3,500 $1,250
C $4,000 $1,750
D $3,500 $2,750
a. A above
b. B above
c. C above
d. D above
35. Theodore's Department Store is attempted to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost?
a. Cost of goods sold
b. Salary of store manager
c. Cost of operating Theodore's company jet
d. Supplies used by employees working in the men's department
36. Depending on the circumstances, the cost of employee compensation could be classified as:
a. Product cost
b. Indirect cost
c. Relevant cost
d. All of the above
37. Allocation is used to assign cost to:
a. Cost objects
b. Cost drivers
c. Cost pools
d. All of the above
38. What is the formula for determining the allocation rate?
a. (total cost to be allocated)/(cost driver)
b. (cost driver)/total cost to be allocated)
c. (allocation rate)/(cost driver)
d. (cost driver-allocation rate)/(total cost to be allocated)
39. Heroes Company expects to incur $133,000 of fringe benefits cost during the next accounting period. The company produces two products, one known as Compound A and the other as Compound B. Making a unit of Compound A requires 5 hours of labor. Making a unit of Compound B requires 9 hours of labor. The company expects to make 500 units of one product and 900 units of the other product. Each unit of both products is expected to require $70 of raw materials cost. Total direct labor hours are expected to be $26,600. Which of the following statements is true?
a. Number of units of product would be the most appropriate allocation base for the fringe benefits cost
b. The predetermined overhead rate for the fringe benefits cost should be $95 per unit
c. The predetermined overhead rate for the fringe benefits cost should be $5 per direct labor hour
d. (a) and (b)
40. Based on the following history of production information, which allocation base would you choose to use for your company (i.e., what is the cost driver)?
2001 2002 2003
Unit Produced 20,000 40,000 80,000
Direct Labor Hours 15,000 12,000 10,000
Direct Materials Costs $140,000 $130,000 $120,000
Actual Overhead Costs $40,000 $80,000 $160,000
a. Direct material costs
b. Units
c. Direct Labor Hours
d. All three bases, materials costs, labor hours, or units would be equally appropriate
41. Which of the following is the least logical cost driver for allocating indirect materials cost to three custom-built houses that are different with respect to size?
a. Square footage of floor space
b. Direct labor hours
c. Number of houses
d. Expected sales price measured in dollars
42. JLC Company uses a cost-plus pricing strategy. JLC uses a predetermined overhead rate to allocate fixed manufacturing overhead cost to production on a monthly basis. At the end of the account period it was determined that actual overhead cost was more than the estimated overhead cost; however, the actual volume of production was exactly as expected. Based on this information alone:
a. Products were overpriced during the accounting period
b. Products were prices accurately during the accounting period
c. Products were under priced during the accounting period
d. The answer cannot be determined from the information provided
Use the following information to answer Questions 43 - 45:
Gordon Manufacturing makes two products, Zulu and Horatio. They are processed from the same material initially and then, after split off, Zulu is further process separately. Additional information is as follows:
Zulu Horatio
Units Produced and Sold 180 Units 60 Units
Unit Selling price at Split-off $ 1,200 $60
Additional Cost if Process Further $30,000
Unit Selling Price after Additional Processing $ 1,400
Joint Costs $108,864
43. The joint cost allocated to each product using the number of units produced and sold would be:
Zulu Horatio
A $81,648 $27,216
B $30,000 $78,864
C $72,864 $36,000
D $93,312 $15,552
a. A above
b. B above
c. C above
d. D above
44. The joint cost allocated to Zulu using the sales value at the split-off point would be:
a. $81,648
b. $93,312
c. $15,552
d. $17,143
45. If Zulu is further processed, profitability would change by what amount?
a. ($6,000)
b. ($36,000)
c. $36,000
d. $6,000
Use the following information to answer Questions 46 - 49
The ABC Company was started on January 1, 2002. The company incurred the following transactions during the year. (Assume all transactions are for cash unless otherwise indicated)
? Acquired $5,000 of capital from the owners
? Purchased $1,400 of direct raw materials
? Used $1,000 of the direct raw materials in the production process
? Paid production workers $1,800 cash
? Paid $1,600 for manufacturing overhead (assume applied and actual overhead are the same)
? Stared and completed 100 units of inventory
? Sold 80 units at a price of $60 each
? Paid $800 for selling and administrative expenses
46. The amount of finished goods inventory on ABC's balance sheet at the end of the accounting period would be:
a. $3,520
b. $4,000
c. $880
d. None of the above
47. The amount of cost of goods sold recognized by ABC is:
a. $3,520
b. $4,000
c. $880
d. None of the above
48. The amount of net income recognized by ABC is:
a. $1,280
b. $480
c. $2,080
d. $1,500
49. Peoria Company (PC) allocates overhead costs based on direct labor hours. PC estimated direct labor hours to be 80 hours and total overhead cost to be $560,000. if actual direct labor worked in February was 7,000 hours, how much overhead cost would be allocated to work in process for the month?
a. $0
b. $49,000
c. $56,000
d. $480,000
50. In which account is the actual amount of depreciation on manufacturing equipment initially recorded?
a. Depreciation expense
b. Work in Process Inventory
c. Manufacturing Overhead
d. Cost of goods sold
51. At the beginning of 2004 XYZ Company estimated total overhead cost to be $41,200. XYZ uses direct labor hours as the allocation base for overhead costs. The company expected to use 10,000 direct labor hours during 2004 and actually used 800 hours of direct labor in the month of January. If actual overhead costs amount to $5,000 during January, the balance in the manufacturing overhead account on January 31 would be:
a. $1,704
b. $5,000
c. $3,296
d. None of the above
52. The following information was drawn from the records of A Co.: gross margin was $200, sales were $1,400, ending finished inventory was $300, and cost of goods manufactured (i.e. amount transferred from work in process to finished goods) was $800. Based on this information, the beginning balance is finished goods inventory must have been:
a. $750
b. $800
c. $700
d. $850
53. ABC Company paid cash for wages of production workers. The recognition of this event will act to:
a. No affect assets, equity, or net income, and decrease cash flow
b. Not affect assets, decrease net income and cash flow
c. Decrease assets, equity, net income, and cash flow
d. Decrease assets, net income, and net cash flow from investing activities
54. Which of the following statements is true?
a. The recognition of salaries paid to production workers acts to increase the work in process account
b. The recognition of estimated overhead cost acts to increase the work in process account
c. The transfer of product costs to finished goods inventory acts to decrease the amount of work in process inventory
d. All of the statements are true
55. When a company recognizes depreciation on manufacturing equipment:
a. Total assets increase
b. Total assets, equity, and net income decrease
c. Total assets, equity, and net income are not affected
d. None of the above
56. Eastern Company purchased direct materials on account. The materials cost will be recognized as an expense when:
a. The materials are purchased
b. The goods made with the materials are sold
c. The cash is paid to settle the associated accounts payable
d. The manufacturing process is complete
57. If manufacturing overhead is underapplied, the entry to close the overhead account at the end of the accounting period will act to:
a. Increase net income
b. Decrease net income
c. Not affect net income
d. Increase cash flow from operating activities
58. Which of the following describes the flow of product costs through a manufacturing?
a. Raw materials to finished goods to work in process to cost of goods sold
b. Cost of goods sold to new materials to finished goods to work in process
c. Raw materials to work in process to finished goods to cost of goods sold
d. Work in process to raw materials to finished goods to cost of goods sold
59. The following information was drawn from the records of Birch Bah (BB): beginning balance in work in process inventory was $9,000; ending balance in work in process was $10,000. During the period, BB transferred $26,000 of raw materials to work in process. Labor costs amounted to $32,000 and overhead amounted $33,000. Based on this information, what was the amount of cost transferred from work in process to finished goods inventory?
a. $90,000
b. $91,000
c. $89,000
d. None of the above
60. Boring Company experienced an account event that affected its financial statements as indicated below:
Assets = Liab. + Equity Rev - Exp. = Net Inc. Cash Flow
A + - n/a n/a n/a n/a n/a n/a
Which of the following accounting events could have caused these effects on Boring Company's statements?
a. Paid cash to purchase raw materials inventory
b. Transferred cost from work in process to finished goods inventory
c. Recognized revenue from merchandise sold for cash
d. (a) and (b)
61. Which of the following businesses is most likely to use a job order cost system?
a. A hospital
b. An auto manufacturing company
c. A paint manufacturer
d. A bank
62. The cost of goods transferred from one department to another is called:
a. Transportation cost
b. Transfer-in cost
c. Finished goods cost
d. None of the above
63. LMN's accountant made the following entry into the accounting records:
Work in Process Assembly Department xxx
Work in Process Cutting Department xxx
Which of the following describes the effect of this entry on the accounting equation?
a. Total assets and total liabilities increase
b. Total assets are unaffected, but total equity increases
c. Total assets and total equity are unaffected
d. Total assets decrease and total liabilities increase
64. Sung Company paid cash wages to production workers. Which of the following choices correctly describes how this event will affect the company's financial statements?
a. Total assets will increase if the company uses a job-order system, but will decrease if the company uses a process-cost system
b. Total assets will not be affected regardless if the company uses a job-order system or a process-cost system
c. Total equity will increase if the company uses a process-cost system but will decrease if it uses a job-order system
d. (a) and (c)
65. BRE Electronics install TV satellite dishes. The company is currently working on two jobs. The job order cost sheets for Job 508 and Job 509 provide the following information.
Job 508 Job 509
Direct Materials $ 60 $50
Direct Labor $100 $80
BRE applies overhead jobs at $0.70 per direct labor dollar. Job 509 is finished and has been sold for $300. BRE gross margin on Job 509 is:
a. $300
b. $130
c. $186
d. $114
66. Which of the following companies is most likely to use a process-cost system?
a. Ship building
b. Home construction
c. Swimming pool construction
d. Soft drink bottling
67. Country Rocking Chairs (CRC) makes rocking chairs. The chairs are processed through two departments. Raw lumber is placed into the cutting department where it is made into chair parts. The chair parts are transferred to the assembly department where the chairs are put together. The transfer-in cost for the assembly department would include:
a. The cost of raw lumber
b. The cost of labor and overhead incurred in the cutting department
c. The cost of overhead incurred in the assembly department
d. (a) and (b)
Use the following information to answer Questions 68 and 69:
A review of Briarwood Manufacturing Company (BMC) work in process inventory account indicated the following activity measure in units:
Beginning Inventory 8,000
Started 56,000
Ending Inventory 6,000
The ending inventory was estimated to be 80% complete. Product cost in the work in process account at the beginning of the period amounted to $48,000. There was $517,200 of product cost added to the work in process account during the period.
68. What is the number of equivalent units in Briarwood ending work in process inventory?
a. 6,000
b. 1,200
c. 4,800
d. None of the above
69. The amount of cost in ending work in process inventory is:
a. $72,000
b. $54,000
c. $62,800
d. $43,200
Use the following information to answer Questions 70 and 71:
The following information was drawn from the accounting records of Rex Strip Corporation (RSC). As the data suggest, RSC uses a job-order costing system:
Job 104 Job 105 Job 106
Direct Materials $3,500 $4,200 $3,300
Direct Labor $2,800 $3,600 $1,900
The predetermined overhead rate is set at 120% if direct labor costs. At the end of the accounting periods, Jobs 104 and 105 had been completed and sold. Job 106 was still under construction.
70. The balance in the work in process inventory is:
a. $7,480
b. $5,200
c. $7,100
d. None of the above
71. Determine the gross margin recognized on Job 105, assuming it is sold for $18,000. (Ignore any overapplied or underapplied overhead.)
a. $12,120
b. $5,200
c. $7,480
d. $5,880
Use the following information to answer Questions 72 and 73:
The Stone and Masonry Company make stone retainer walls for commercial and residential properties. The company had two walls under construction during the month of February. The data apply to these two jobs:
Job 401 Job 402
Direct Materials $ 12,000 $24,000
Direct Labor $26,000 $36,000
At the beginning of the year the Company's accountant estimated that the total annual overhead cost would amount to $360,000 and that the annual direct labor cost would amount to $500,000.
72. The amount of overhead applied to the work in process account during the month of February is:
a. $25,920
b. $62,000
c. $44,640
d. None of the above
73. If actual annual labor costs amount to $520,000 and actual annual overhead costs amount to $370,000, overhead will be:
a. Overapplied by $10,000
b. Overapplied by $4,400
c. Underapplied by $44,400
d. Underapplied by $10,000
74. Richmond Software Systems (RSS) uses a process cost system. The following data apply to the company's most recent accounting period: RSS started the accounting period with 5,000 units of product in beginning inventory. The company started work on 60,000 units of product during the period. At the end of the period there were 4,000 units of product in work in process inventory. These units were estimated to be 60% complete. Based on this information, the total number of equivalent units (units completed plus units in ending inventory) is:
a. $63,400
b. $65,000
c. $69,000
d. $61,000