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Chapter 1: Introduction to Managerial Accounting True / False 1. Managerial accounting reports must be prepared according to generally accepted accounting principles. a. True b. False ANSWER: False 2. Managerial accounting uses only past data in reports to aid management in the decision-making process. a. True b. False ANSWER: False 3. Managerial accounting information includes both historical and estimated data. a. True b. False ANSWER: True 4. Although finance and accounting professionals often work within verticals and other horizontals, they do not normally report directly to the heads of those units or departments. a. True b. False ANSWER: True 5. The philosophy of focusing on “unexpected” good or bad performance is called management by exception. a. True b. False ANSWER: True 6. The functions reporting to the CFO sometimes are grouped together and referred to as corporate finance. a. True b. False ANSWER: True 7. In smaller companies, the term controller may be used to refer to the chief financial officer. a. True b. False ANSWER: True 8. The role of horizontals is to provide services, assistance, and advice to the various verticals and other horizontal departments. a. True b. False ANSWER: True 9. Horizontals are departments within a company that are responsible for developing products. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting a. True b. False ANSWER: False 10. While no two company structures are identical, most large companies are organized in terms of verticals and diagonals. a. True b. False ANSWER: False 11. Verticals prepare their own income statements. a. True b. False ANSWER: True 12. Managerial accounting reports are designed to meet the specific needs of a company’s management. a. True b. False ANSWER: True 13. Strategic planning is the process of monitoring operating results and comparing actual results with the expected results. a. True b. False ANSWER: False 14. Operational planning is the process of developing the company’s short-term objectives and actions needed to achieve the company’s long-term, strategic objectives. a. True b. False ANSWER: True 15. Control is the process of choosing goals and deciding how to achieve them. a. True b. False ANSWER: False 16. Evaluation is the process by which management monitors operations by comparing actual and expected results. a. True b. False ANSWER: True 17. A major focus of managerial accounting is the development of costing information. a. True b. False Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting ANSWER: True 18. Managerial accounting information is for external users as well as company managers. a. True b. False ANSWER: False 19. A report analyzing how many products need to be sold to cover operating costs is not typically a managerial accounting report. a. True b. False ANSWER: False 20. A report analyzing the dollar savings of purchasing new equipment to speed up the production process is a managerial accounting report. a. True b. False ANSWER: True 21. A performance report that identifies the amount of employee downtime is a financial accounting report. a. True b. False ANSWER: False 22. Managerial accounting provides useful information to managers on product costs. a. True b. False ANSWER: True 23. In a service company, the cost of services is accumulated and reported as inventory. a. True b. False ANSWER: False 24. A cost is a sacrifice made to obtain some benefit. a. True b. False ANSWER: True 25. Goods that are partway through the manufacturing process, but not yet complete, are referred to as materials inventory. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 26. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory overhead cost. a. True b. False ANSWER: True 27. The cost of materials entering directly into the manufacturing process is classified as factory overhead cost. a. True b. False ANSWER: False 28. The cost of wages paid to employees directly involved in converting materials to finished product is classified as direct labor cost. a. True b. False ANSWER: True 29. If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as direct materials cost. a. True b. False ANSWER: False 30. For a construction contractor, the wages of carpenters would be classified as overhead cost. a. True b. False ANSWER: False 31. For an automotive repair shop, the wages of mechanics would be classified as direct labor cost. a. True b. False ANSWER: True 32. Costs other than direct materials cost and direct labor cost incurred in the manufacturing process are classified as factory overhead cost. a. True b. False ANSWER: True 33. Depreciation on factory plant and equipment is an example of factory overhead cost. a. True b. False ANSWER: True 34. The cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting a. True b. False ANSWER: False 35. If the cost of materials is not a significant portion of the total product cost, the materials may be classified as part of factory overhead cost. a. True b. False ANSWER: True 36. Factory overhead cost is sometimes referred to as factory burden. a. True b. False ANSWER: True 37. Conversion cost is the combination of direct labor cost and factory overhead cost. a. True b. False ANSWER: True 38. Conversion cost is the combination of direct materials cost and factory overhead cost. a. True b. False ANSWER: False 39. Factory overhead is an example of a product cost. a. True b. False ANSWER: True 40. Direct labor costs are included in the conversion costs of a product. a. True b. False ANSWER: True 41. The costs of materials and labor that do not enter directly into the finished product are classified as factory overhead. a. True b. False ANSWER: True 42. The costs of materials and labor that do not enter directly into the finished product are classified as cost of goods sold. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 43. Indirect labor would be included in factory overhead. a. True b. False ANSWER: True 44. A cost object can be anything to which costs are assigned and will vary depending upon the decision-making needs of management. a. True b. False ANSWER: True 45. Direct costs are identified with and can be traced to a cost object. a. True b. False ANSWER: True 46. Indirect costs are identified with and can be traced to a cost object. a. True b. False ANSWER: False 47. Period (nonmanufacturing) costs are classified into two categories: selling and administrative. a. True b. False ANSWER: True 48. Prime costs are the combination of direct labor costs and factory overhead costs. a. True b. False ANSWER: False 49. Prime costs are the combination of direct materials and direct labor costs. a. True b. False ANSWER: True 50. Conversion costs are the combination of direct labor, direct materials, and factory overhead costs. a. True b. False ANSWER: False 51. Manufacturers use machinery and labor to convert direct materials into finished products. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 52. Period costs include direct materials and direct labor. a. True b. False ANSWER: False 53. Period costs can be found on both the balance sheet and the income statement. a. True b. False ANSWER: False 54. Product costs are not expensed until the product is sold. a. True b. False ANSWER: True 55. The plant manager’s salary in a manufacturing business would be considered an indirect cost. a. True b. False ANSWER: True 56. Operating expenses are product costs and are expensed when the product is sold. a. True b. False ANSWER: False 57. Period costs are operating costs that are expensed in the period in which the goods are sold. a. True b. False ANSWER: False 58. Factory overhead includes all manufacturing costs other than direct materials and direct labor. a. True b. False ANSWER: True 59. Labor costs that are directly traceable to the product are part of factory overhead. a. True b. False ANSWER: False 60. Product costs include direct labor and advertising expense. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 61. Indirect labor and indirect materials would be part of factory overhead. a. True b. False ANSWER: True 62. Prime costs consist of factory overhead and direct labor. a. True b. False ANSWER: False 63. Conversion costs consist of product costs and period costs. a. True b. False ANSWER: False 64. Prime costs consist of direct materials, indirect materials, and direct labor. a. True b. False ANSWER: False 65. Only the value of the inventory that is sold will appear on the income statement. a. True b. False ANSWER: True 66. On the balance sheet for a manufacturing business, the costs of direct materials, direct labor, and factory overhead are categorized as either materials inventory, work in process inventory, or finished goods inventory. a. True b. False ANSWER: True 67. The statement of cost of goods manufactured is an extension of the income statement for a manufacturing company. a. True b. False ANSWER: True 68. Lower utilization rates are considered favorable, while higher utilization rates are considered unfavorable. a. True b. False ANSWER: False Multiple Choice 69. In order to be useful to managers, managerial accounting reports should possess which of the following Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting characteristics? a. provide objective measures of past operations and subjective estimates about future decisions b. all of these choices c. be provided at any time management needs information d. be prepared to report information for any unit of the business to support decision making ANSWER: b 70. Which of the following is the primary criterion for the preparation of managerial accounting reports? a. relevance of the reports b. manager needs c. timing of the reports d. cost of the reports ANSWER: b 71. Which of the following is most associated with managerial accounting? a. must follow GAAP b. may rely on estimates and forecasts c. is prepared for users outside the organization d. always reports on the entire entity ANSWER: b 72. Which of the following is most associated with financial accounting reports? a. can have both objective and subjective information b. can be prepared periodically, or as needed c. prepared in accordance with GAAP d. can be prepared for the entity or segment ANSWER: c 73. Which of the following statements is false? a. There is no overlap between financial and managerial accounting. b. Managerial accounting sometimes relies on past information. c. Managerial accounting does not need to conform to GAAP. d. Financial accounting must conform to GAAP. ANSWER: a 74. Managerial accounting reports are a. prepared according to GAAP b. prepared according to management needs c. prepared periodically only d. related to the entire business entity only ANSWER: b 75. Which of the following individuals are charged with the responsibility of directing the day-to-day operations of a business? Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting a. investors b. managers c. shareholders d. customers ANSWER: b 76. Which of the following are basic functions of the management process? a. supervising and directing b. decision making and supervising c. organizing and directing d. strategic planning and control ANSWER: d 77. Which of the following terms is used to describe the process by which managers monitor operations and compare actual and expected results? a. measurement b. control c. evaluation d. strategic planning ANSWER: c 78. Accounting designed to meet the needs of decision makers inside the business is a. general accounting b. financial accounting c. managerial accounting d. external accounting ANSWER: c 79. Which of the following terms is used to describe the process of developing the organization’s long-term objectives? a. control b. strategic planning c. measurement d. evaluation ANSWER: b 80. The primary goal of managerial accounting is to provide information to a. investors b. creditors c. managers d. external auditors ANSWER: c 81. Which of the following is the primary guideline for preparing managerial accounting reports? a. usefulness to management Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting b. cost of preparation c. clarity d. GAAP ANSWER: a 82. Which of the following is a characteristic of useful managerial accounting reports? a. accurate b. all of these choices c. historical and estimated data d. prepared as needed ANSWER: b 83. Managers use managerial accounting information for which of the following purposes? a. all of these choices b. to analyze the performance of a company’s operations c. to support strategic planning decisions d. to determine the cost of manufacturing a product ANSWER: a 84. Financial accountants would prepare which of the following reports? a. performance report identifying amounts of scrap b. control report comparing direct material usage over time c. sales report targeting monthly sales and potential bonuses d. annual report for external regulators such as the SEC ANSWER: d 85. Which of the following would be least likely to be considered a managerial accounting report? a. report to analyze potential efficiencies and savings for the purchase of new production equipment b. schedule of total manufacturing costs incurred c. statement of cost of goods manufactured d. statement of stockholders’ equity ANSWER: d 86. Compute conversion costs given the following data: direct materials, $347,500; direct labor, $196,300; factory overhead, $187,900; and selling expenses, $45,290. a. $543,800 b. $187,900 c. $731,700 d. $384,200 ANSWER: d 87. Which of the following is false with regard to direct materials for a bakery? a. Flour and sugar would probably be direct materials. b. Eggs would probably be a direct material. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting c. Oil to lubricate factory machines would be an indirect material. d. Paper cupcake liners, that become part of the product, must be accounted for as direct materials. ANSWER: d 88. The cost of a manufactured product generally consists of which of the following costs? a. direct materials cost and factory overhead cost only b. direct labor cost and factory overhead cost only c. direct labor cost, direct materials cost, and factory overhead cost d. direct materials cost and direct labor cost only ANSWER: c 89. Which of the following must be true in order for materials to be classified as direct materials? a. They must be classified as both prime costs and conversion costs. b. They must be introduced into the process in both work in process inventories and finished goods inventories. c. They must be an integral part of the finished product but can be an insignificant portion of the total product cost. d. They must be an integral part of the finished product and a significant portion of the total product cost. ANSWER: d 90. Which of the following is an example of direct materials cost for an automobile manufacturer? a. cost of oil lubricants for factory machinery b. cost of assembly worker wages c. salary of production supervisor d. cost of interior upholstery ANSWER: d 91. A plant manager’s salary is a(n) a. direct cost and an indirect cost b. direct cost c. indirect cost d. period cost ANSWER: c 92. If the cost of a direct material is a small portion of total production cost, it may be classified as part of a. direct labor cost b. selling and administrative costs c. miscellaneous costs d. factory overhead cost ANSWER: d 93. The cost of wages paid to employees directly involved in the manufacturing process in converting materials into finished products is classified as a. factory overhead cost b. direct labor cost Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting c. miscellaneous costs d. direct materials cost ANSWER: b 94. Which of the following is an example of direct labor cost for a cell phone manufacturer? a. cost of oil lubricants for factory machinery b. cost of assembly worker wages c. salary of plant supervisor d. cost of phone components ANSWER: b 95. Costs other than direct materials cost and direct labor cost incurred in the manufacturing process are classified as a. factory overhead cost b. miscellaneous expense c. product costs d. period cost ANSWER: a 96. Which of the following is an example of a factory overhead cost? a. repair and maintenance cost on the administrative building b. factory heating and lighting cost c. insurance premiums on salespersons' automobiles d. president's salary ANSWER: b 97. Period costs include a. current assets on the balance sheet b. current liabilities on the balance sheet c. operating costs that are shown on the income statement when products are sold d. operating costs that are shown on the income statement in the period in which they are incurred ANSWER: d 98. Another term for factory overhead is a. surplus b. period cost c. supervisory cost d. factory burden ANSWER: d 99. Which of the following costs are conversion costs? a. direct labor cost and factory overhead cost b. direct materials cost and direct labor cost c. factory overhead cost d. direct materials cost and factory overhead cost Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting ANSWER: a 100. Which of the following terms refers to the cost of changing direct materials into a finished manufactured product? a. factory overhead cost b. period cost c. conversion cost d. direct labor cost ANSWER: c 101. Which of the following items would be classified as part of factory overhead? a. all of these choices b. amortization of manufacturing patents c. production supervisors' salaries d. factory supplies used ANSWER: a 102. Which of the following is part of factory overhead cost? a. sales commissions b. depreciation of factory equipment and machines c. depreciation of sales-person's vehicle d. direct materials used ANSWER: b 103. Which of the following manufacturing costs is an indirect cost of producing a product? a. oil lubricants used for factory machinery b. commissions for sales personnel c. hourly wages of an assembly worker d. memory chips for a microcomputer manufacturer ANSWER: a 104. Which of the following would most likely be considered an indirect material by a manufacturer? a. steel b. fabric c. glue d. lumber ANSWER: c 105. Prime costs are a. direct materials and factory overhead b. direct materials and direct labor c. direct labor and factory overhead d. period costs and factory overhead ANSWER: b Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 106. A product cost is a. expensed in the period in which the product is manufactured b. shown with current liabilities on the balance sheet c. shown with operating expenses on the income statement d. expensed in the period the product is sold ANSWER: d 107. Conversion costs are a. direct materials and direct labor b. direct materials and factory overhead c. factory overhead and direct labor d. direct materials and indirect labor ANSWER: c 108. Which of the following is not a conversion cost? a. plant janitor’s wages b. direct labor wages c. machine operator wages d. salesperson's salary and commission ANSWER: d 109. Darwin Company reports the following information: Sales Direct materials used Depreciation on factory equipment Indirect labor Direct labor Factory rent Factory utilities Sales salaries expense Office salaries expense Indirect materials
$76,500 7,300 4,700 5,900 10,500 4,200 1,200 15,600 8,900 1,200
Product costs are a. $24,500 b. $30,300 c. $29,200 d. $35,000 ANSWER: d 110. Product costs a. appear only on the balance sheet b. appear only on the income statement c. are expensed as costs are incurred for direct labor, direct materials, and factory overhead Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting d. appear on both the income statement and balance sheet ANSWER: d 111. Which of the following is a period cost? a. direct materials b. sales salaries expense c. direct labor d. factory overhead ANSWER: b 112. Indirect labor and indirect materials are classified as a. factory overhead and product costs b. factory overhead and period costs c. operating costs and period costs d. operating costs and product costs ANSWER: a 113. An example of a period cost is a. advertising expense b. indirect materials c. depreciation on factory equipment d. property taxes on plant facilities ANSWER: a 114. Direct labor and direct materials are a. product costs and expensed when the goods are sold b. product costs and expensed when incurred c. period costs and expensed when incurred d. period costs and expensed when the goods are sold ANSWER: a 115. Indirect costs incurred in a manufacturing environment that cannot be traced directly to a product are treated as a. period costs and expensed when incurred b. product costs and expensed when the goods are sold c. product costs and expensed when incurred d. period costs and expensed when the goods are sold ANSWER: b 116. Rent expense on a factory building would be treated as a a. period cost b. product cost c. none of these choices d. direct materials cost ANSWER: b Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 117. Insurance expense incurred on a factory building would be treated as a a. direct cost b. period cost c. product cost d. selling cost ANSWER: c (The following information is used for the next two questions.) Jensen Company reports the following: Direct materials used Direct labor incurred Factory overhead incurred Operating expenses
$345,000 250,000 400,000 175,000
118. Jensen Company’s period costs are a. $345,000 b. $250,000 c. $400,000 d. $175,000 ANSWER: d 119. Jensen Company’s product costs are a. $995,000 b. $920,000 c. $825,000 d. $770,000 ANSWER: a 120. Which of the following is a prime cost? a. wood used in furniture production b. insurance on factory equipment c. salaries of production supervisors d. property tax on factory building ANSWER: a 121. Factory overhead includes a. factory rent and direct labor b. direct materials and direct labor c. indirect materials and direct materials d. indirect labor and indirect materials ANSWER: d Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 122. Darwin Company reports the following information: Sales Direct materials used Depreciation on factory equipment Indirect labor Direct labor Factory rent Factory utilities Sales salaries expense Office salaries expense Indirect materials
$76,500 7,300 4,700 5,900 10,500 4,200 1,200 15,600 8,900 1,200
Period costs are a. $24,500 b. $30,300 c. $29,200 d. $35,000 ANSWER: a 123. Which of the following is an example of direct labor? a. maintenance personnel b. janitorial personnel c. machine operators d. plant managers ANSWER: c 124. Which of the following accounts will be found on the income statement? a. Inventory b. Work in Process c. Finished Goods d. Cost of Goods Sold ANSWER: d 125. Given the following data: Cost of materials used Direct labor costs Factory overhead Work in process, beginning Work in process, ending Finished goods, beginning Finished goods, ending
$45,000 48,000 39,000 28,000 18,000 28,000 18,000
What is cost of goods sold? a. $152,000 b. $142,000 Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting c. $10,000 d. $128,000 ANSWER: a 126. Given the following data: Beginning raw materials inventory Materials purchased Ending raw materials inventory
$30,000 65,000 40,000
What is the amount of raw materials used? a. $5,000 b. $55,000 c. $75,000 d. $30,000 ANSWER: b 127. A company manufactured 50,000 units of a product at a cost of $450,000. It sold 45,000 units at $15 each. The gross profit is a. $750,000 b. $240,000 c. $600,000 d. $270,000 ANSWER: d 128. The following information is taken from the financial records of Gunner Manufacturing: Cost of materials used Direct labor costs Factory overhead Work in process, beginning Work in process, ending
$45,000 48,000 39,000 18,000 28,000
What is the cost of goods manufactured? a. $178,000 b. $132,000 c. $122,000 d. $142,000 ANSWER: c 129. Goods that are partially completed by a manufacturer are a. merchandise inventory b. work in process inventory c. finished goods inventory d. materials inventory Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting ANSWER: b 130. The income statement for both a merchandiser and a manufacturer would include a. operating expenses b. direct materials c. direct labor incurred d. cost of goods manufactured ANSWER: a 131. On the income statement of a manufacturing company, which of the following replaces purchases in the "Cost of goods sold" section of a retail company? a. finished goods b. cost of merchandise available c. cost of goods manufactured d. work in process ANSWER: c 132. Cost of goods sold for a manufacturer equals cost of goods manufactured plus a. beginning work in process inventory minus ending work in process inventory b. ending work in process inventory minus beginning work in process inventory c. beginning finished goods inventory minus ending finished goods inventory d. ending finished goods inventory minus beginning finished goods inventory ANSWER: c 133. Given the following data: Work in process, beginning Work in process, ending Direct labor costs Cost of goods manufactured Factory overhead
$14,000 20,000 4,000 8,000 8,000
Direct materials used is a. $2,000 b. $4,000 c. $8,000 d. $14,000 ANSWER: a 134. Cost of goods manufactured is equal to a. total manufacturing costs plus ending materials inventory minus beginning materials inventory b. cost of goods sold plus beginning work in process inventory minus ending work in process inventory c. total manufacturing costs plus ending work in process inventory minus beginning work in process inventory d. total manufacturing costs plus beginning work in process inventory minus ending work in process inventory ANSWER: d Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 135. Finished goods inventory is reported on the a. income statement as a period cost b. balance sheet as a long-term asset c. balance sheet as a current asset d. income statement as revenue ANSWER: c 136. Beginning work in process is equal to a. cost of goods manufactured plus ending work in process minus manufacturing costs incurred during the current period b. cost of goods manufactured minus ending work in process plus manufacturing costs incurred during the current period c. ending work in process plus manufacturing costs incurred during the current period d. manufacturing costs incurred during the current period minus ending work in process ANSWER: a 137. Which of the following would be omitted from the “Current assets” section of the balance sheet? a. factory overhead b. materials inventory c. finished goods inventory d. work in process inventory ANSWER: a 138. Smith Company reports the following information: Cost of goods manufactured Direct materials used Direct labor incurred Work in process inventory, January 1
$68,250 27,000 25,000 11,000
Factory overhead is 75% of the cost of direct labor. Work in process inventory on December 31 is a. $16,250 b. $8,500 c. $18,750 d. $13,500 ANSWER: d 139. At the beginning of the current year, Grant Company’s work in process inventory account had a balance of $30,000. During the year, $68,000 of direct materials were used in production, and $66,000 of direct labor costs were incurred. Factory overhead for the year amounted to $90,000. Cost of goods manufactured is $230,000. The balance in work in process inventory on December 31 is a. $24,000 b. $44,000 c. $66,000 d. $36,000 ANSWER: a Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 140. A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and had $114,000 in factory overhead costs during the period. If beginning and ending work in process inventories were $28,000 and $32,000, respectively, the cost of goods manufactured was a. $218,000 b. $226,000 c. $190,000 d. $222,000 ANSWER: a 141. Cost of goods manufactured during the year is $240,000, and work in process inventory on December 31 is $50,000. Work in process inventory during the year decreased by 60%. Total manufacturing costs incurred are a. $190,000 b. $165,000 c. $290,000 d. $315,000 ANSWER: b 142. Work in process inventory on December 31 of the current year is $44,000. Work in process inventory increased by 60% during the year. Cost of goods manufactured amounts to $275,000. The total manufacturing costs incurred in the current year are a. $291,500 b. $302,000 c. $275,750 d. $233,750 ANSWER: a 143. Work in process inventory on December 31 is $42,000. Work in process inventory decreased by 40% during the year. Total manufacturing costs incurred amount to $260,000. The cost of goods manufactured is a. $232,000 b. $302,000 c. $288,000 d. $190,000 ANSWER: c 144. Work in process inventory increased by $20,000 during the current year. Cost of goods manufactured was $180,000. Total manufacturing costs incurred are a. $198,000 b. $160,000 c. $189,000 d. $200,000 ANSWER: d 145. Which of the following will be found on the income statement of a manufacturing company? a. cost of goods sold Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting b. materials c. work in process d. finished goods ANSWER: a 146. A company sells goods for $150,000 that cost $54,000 to manufacture. Which of the following statements is true? a. The company will recognize sales on the balance sheet of $150,000. b. The company will recognize $96,000 in gross profit on the balance sheet. c. The company will decrease finished goods by $54,000. d. The company will increase finished goods by $54,000. ANSWER: c 147. The cost of goods sold for Michaels Manufacturing in the current year was $233,000. The January 1 finished goods inventory balance was $31,600, and the December 31 finished goods inventory balance was $24,200. Cost of goods manufactured during the period was a. $233,000 b. $225,600 c. $288,800 d. $240,400 ANSWER: b 148. In the hotel industry, the occupancy rate is a measure of a. risk b. solvency c. profitability d. utilization ANSWER: d 149. Nearly _____ of U.S. economic activity is represented by services. a. 40% b. 50% c. 60% d. 80% ANSWER: d 150. SunnyRest Hotel has 300 rooms. During the month of March, it had 7,440 guests, each staying a single night. The occupancy rate for SunnyRest Hotel for the month of March was a. 80% b. 83% c. 98% d. 121% ANSWER: a 151. ShadyPalms Hotel has 100 rooms. During the month of February, it had 500 guests, each staying 5 nights, and 10 Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting guests, each staying 2 nights. The occupancy rate for ShadyPalms Hotel for the month of February (not a leap year) was a. 28% b. 84% c. 90% d. 111% ANSWER: c 152. Which of the following terms is used to describe the management process where managers develop and agree upon performance metrics on how well the company is achieving its objectives? a. control b. strategic planning c. measurement d. evaluation ANSWER: c 153. A lawn mower manufacturer would classify wheels as which type of cost? a. direct materials b. direct labor c. factory overhead d. nonmanufacturing cost ANSWER: a 154. A lawn mower manufacturer would classify grease for wheel axles as which type of cost? a. direct materials b. direct labor c. factory overhead d. nonmanufacturing cost ANSWER: c 155. A cake factory would classify which of the following as both a prime cost and a conversion cost? a. frosting b. wages of the baker c. sprinkles for the topping (considered an indirect material) d. depreciation on oven ANSWER: b 156. Which of the following is an indirect cost? a. labor for machine maintenance b. office equipment depreciation c. salespersons’ salaries d. all of these choices ANSWER: a 157. Which of the following is an indirect cost? Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting a. utilities on factory building b. factory equipment depreciation c. materials not traceable to specific items d. all of these choices ANSWER: d 158. Which of the following is factory overhead? a. utilities on factory building b. factory equipment depreciation c. materials not traceable to specific items d. all of these choices ANSWER: d 159. Which of the following is factory overhead? a. sales supplies used b. indirect materials used c. wages of assembly line personnel d. cost of primary material used to make a product ANSWER: b 160. Which of the following is an administrative expense? a. advertising expense b. rent on office facilities c. salespersons’ salaries d. sales supplies used ANSWER: b 161. Which of the following would be a period cost for a cake factory? a. flour b. baker’s wages c. frosting d. transportation out ANSWER: d 162. Which of the following is a period versus a product cost? a. direct materials used b. factory utilities c. salespersons' commissions d. salary of plant manager ANSWER: c 163. Which of the following is a product versus a period cost? a. depreciation on store equipment b. indirect materials used Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting c. salespersons' commissions d. advertising expense ANSWER: b 164. Which of the following is both a prime cost and a conversion cost for Cupcake Company? a. frosting b. baker’s wages c. sprinkles for decoration (indirect material) d. factory rent ANSWER: b 165. Which of the following is a direct cost for Bartel Corporation, a producer of bar stools for restaurants? a. wages for the bar stool assemblers b. factory supervisor’s salary c. lubricants used on the bar stool manufacturing equipment d. glue used in the assembly of the bar stools ANSWER: a 166. Which of the following is an indirect cost for Bartel Corporation, a producer of bar stools for restaurants? a. wages for the bar stool assemblers b. factory supervisor’s salary c. wood and steel used in the bar stools d. leather used for seat cushions ANSWER: b 167. Which of the following is a period cost for Bartow Corporation, a bicycle manufacturer? a. tires for the bicycles b. factory supervisor’s salary c. electricity costs to run the factory d. accountant salaries ANSWER: d Subjective Short Answer 168. Differentiate between financial and managerial accounting, addressing such issues as users, nature of information, guidelines for preparation, timeliness of reporting, and focus of reporting. ANSWER: Managerial Accounting Financial Accounting Users Management External users and company management Nature of information Objective and subjective Objective Guidelines for Prepared according to Prepared according to preparation management needs GAAP Timeliness of reporting Prepared at fixed Prepared at fixed intervals and on an as- intervals needed basis Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting Focus of reporting
Company as a whole or Company as a whole as a segment
169. Differentiate between: a. direct materials versus indirect materials b. direct labor versus indirect labor ANSWER: a. Direct materials must become a physical part of the finished product, and their costs must be separately and conveniently traceable through the manufacturing process to finished goods inventory. Examples include wood, leather, steel, etc. Indirect materials become part of the finished product, but their minor costs cannot conveniently be traced directly to particular finished products. They are included as part of factory overhead. b. Direct labor cost is the compensation of employees who physically convert materials into the company’s products and whose effort can be traced directly to finished goods inventory. Examples include machine operators and assemblers. Indirect labor is factory labor that is difficult to trace to specific products. Instead, the cost is included in factory overhead. Examples include forklift operators, janitors, and plant managers. 170. Putney Company reports the following information: Sales Direct materials used Depreciation on factory equipment Indirect labor Direct labor Factory rent Factory utilities Sales salaries expense Office salaries expense Indirect materials
$76,500 7,300 4,700 5,900 10,500 4,200 1,200 15,600 8,900 1,200
Compute: a. Product costs b. Period costs ANSWER: a. Product Costs = $7,300 + $4,700 + $5,900 + $10,500 + $4,200 + $1,200 + $1,200 = $35,000 b. Period Costs = $15,600 + $8,900 = $24,500 171. The following information is available for Carter Corporation: 1. Materials inventory decreased $4,000. 2. Materials inventory on December 31 was 50% of materials inventory on January 1. 3. Beginning work in process inventory was $145,000. 4. Ending finished goods inventory was $65,000. 5. Purchases of direct materials were $154,700. 6. Direct materials used were 2.5 times the cost of direct labor. 7. Total manufacturing costs incurred were $246,400, 80% of cost of goods manufactured and $156,000 less than cost of goods sold. Compute: a. Finished goods inventory on January 1 b. Work in process inventory on December 31 c. Direct labor incurred Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting d. Factory overhead incurred e. Materials inventory on January 1 f. Materials inventory on December 31 g. Direct materials used ANSWER: a. Cost of Goods Sold = $246,400 + $156,000 = $402,400 Cost of Goods Manufactured = $246,400/0.80 = $308,000 Finished Goods Inventory on January 1 = $402,400 + $65,000 – $308,000 = $159,400 b. Work in Process Inventory on December 31 $246,400 + $145,000 – $308,000 = $83,400 c. Direct Labor Incurred = $158,700 ÷ 2.5 = $63,480 d. Factory Overhead Incurred = $246,400 – $158,700 – $63,480 = $24,220 e. Materials Inventory on January 1: X = January 1 Materials Inventory $4,000 = 0.5X X = $8,000 f. Materials Inventory on December 31 = $8,000 – $4,000 = $4,000 g. Direct Materials Used = $8,000 + $154,700 – $4,000 = $158,700 172. Zoe Corporation has the following information for the month of March. Determine the (a) cost of goods manufactured and (b) cost of goods sold. Cost of materials placed in production Direct labor Factory overhead Work in process, March 1 Work in process, March 31 Finished goods inventory, March 1 Finished goods inventory, March 31 ANSWER: a. Beginning work in process inventory Direct materials Direct labor Factory overhead Total manufacturing costs incurred Total manufacturing costs Less ending work in process inventory Cost of goods manufactured b. Finished goods inventory, March 1 Cost of goods manufactured Cost of finished goods available for sale Less finished good inventory, March 31 Cost of goods sold Copyright Cengage Learning. Powered by Cognero.
$69,000 27,000 34,000 15,000 19,500 25,000 23,000 $ 15,000 $69,000 27,000 34,000 130,000 $145,000 (19,500) $125,500 $ 25,000 125,500 $150,500 (23,000) $127,500 Page 28
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Chapter 1: Introduction to Managerial Accounting 173. Sienna Company has the following information for January: Cost of materials used in production Direct labor Factory overhead Work in process inventory, January 1 Work in process inventory, January 31
$20,000 15,000 24,000 2,900 3,500
Determine the cost of goods manufactured. ANSWER: Beginning work in process inventory Direct materials Direct labor Factory overhead Total manufacturing costs incurred Total manufacturing costs Less ending work in process inventory Cost of goods manufactured
$ 2,900 $20,000 15,000 24,000 59,000 $61,900 (3,500) $58,400
174. Magnus Industries has the following data: Beginning raw materials inventory Materials purchased Ending raw materials inventory
$75,000 40,000 60,000
Determine the cost of raw materials used. ANSWER: Raw Materials Used = $75,000 + $40,000 – $60,000 = $55,000 175. Watson Company has the following data: Work in process, beginning Work in process, ending Direct labor costs incurred Cost of goods manufactured Factory overhead
$18,000 25,000 5,000 9,000 7,000
Determine the amount of direct materials used. ANSWER: Direct Materials Used = ($25,000 – $18,000 + $9,000) – ($7,000 + $5,000) = $4,000 176. Laramie Technologies had the following data: Cost of materials used Direct labor costs Factory overhead Work in process, beginning Work in process, ending
$50,000 56,000 28,000 45,000 32,000
Determine the cost of goods manufactured. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting ANSWER: Cost of Goods Manufactured = $50,000 + $56,000 + $28,000 + ($45,000 – $32,000) = $147,000 177. Keeton Company had the following data: Cost of materials used Direct labor costs Factory overhead Work in process, beginning Work in process, ending Finished goods, beginning Finished goods, ending
$60,000 58,000 33,000 29,000 18,000 32,000 18,000
Determine the cost of goods sold. ANSWER: Cost of Goods Sold = $60,000 + $58,000 + $33,000 + ($29,000 – $18,000) + ($32,000 – $18,000) = $176,000 178. Zoe Corporation has the following information for the month of March: Purchases Materials inventory, March 1 Materials inventory, March 31 Direct labor Factory overhead Work in process inventory, March 1 Work in process inventory, March 31 Finished goods inventory, March 1 Finished goods inventory, March 31 Sales Sales and administrative expenses
$ 92,000 6,000 8,000 25,000 37,000 22,000 23,500 21,000 30,000 257,000 79,000
Prepare (a) a statement of cost of goods manufactured, (b) an income statement for the month ended March 31, and (c) the "Inventory" section of the balance sheet. ANSWER: a. Zoe Corporation Statement of Cost of Goods Manufactured For the Month Ended March 31 Beginning work in process inventory, March 1 Direct materials: Beginning materials inventory Purchases Cost of materials for use Less ending materials inventory Cost of direct materials used Direct labor Factory overhead Total manufacturing costs incurred Total manufacturing costs Less ending work in process inventory Copyright Cengage Learning. Powered by Cognero.
$ 22,000 $ 6,000 92,000 $98,000 (8,000) $90,000 25,000 37,000 152,000 $174,000 (23,500) Page 30
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Chapter 1: Introduction to Managerial Accounting $150,500
Cost of goods manufactured b. Zoe Corporation Income Statement For the Month Ended March 31 Sales Cost of goods sold: Beginning finished goods inventory Plus cost of goods manufactured Cost of finished goods available for sale Less ending finished goods inventory Cost of goods sold Gross profit Operating expenses: Sales and administrative expenses Net income c. Inventories: Finished goods Work in process Materials Total inventories
$257,000 $ 21,000 150,500 $171,500 (30,000) (141,500) $115,500 (79,000) $ 36,500
$30,000 23,500 8,000 $61,500
179. The following data (in thousands of dollars) have been taken from the accounting records of Rayburn Corporation for the current year. Sales Selling expenses Manufacturing overhead Direct labor Administrative expenses Purchases of direct materials Finished goods inventory, beginning Finished goods inventory, ending Direct materials inventory, beginning Direct materials inventory, ending Work in process inventory, beginning Work in process inventory, ending
$1,980 280 460 400 300 240 240 320 80 140 140 100
a. What was the cost of the direct materials used in production during the year? b. What was the cost of goods manufactured for the year? c. What was the cost of goods sold for the year? d. What was the net income for the year? Present all calculations in thousands of dollars. Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting ANSWER:
a. The cost of the direct materials used in production during the year is determined as follows: Direct materials inventory, beginning Purchases of direct materials Less direct materials inventory, ending Direct materials used in production
$ 80 240 (140) $180
b. The cost of goods manufactured (finished) during the year is determined as follows: Raw materials used in production Direct labor Manufacturing overhead Total manufacturing costs Plus: work in process inventory, beginning Total manufacturing costs Less: work in process inventory, ending Cost of goods manufactured
$ 180 400 460 $1,040 140 $1,180 (100) $1,080
c. The cost of goods sold for the year is determined as follows: Finished goods inventory, beginning Cost of goods manufactured Less: finished goods inventory, ending Cost of goods sold
$ 240 1,080 (320) $1,000
d. Net income for the year is determined as follows: Sales Cost of goods sold Gross profit Operating expenses: Administrative expenses Selling expenses Net income
$ 1,980 (1,000) $ 980 $300 280 $
(580) 400
180. Allen Company used $71,000 of direct materials and incurred $37,000 of direct labor costs during the current year. Indirect labor amounted to $2,700, while indirect materials used totaled $1,600. Other operating costs pertaining to the factory included utilities of $3,100, maintenance of $4,500, supplies of $1,800, depreciation of $7,900, and property taxes of $2,600. There was no beginning or ending finished goods inventory, but work in process inventory began the year with a $5,500 balance and ended the year with a $7,500 balance. Prepare a statement of cost of goods manufactured. ANSWER: Allen Company Statement of Cost of Goods Manufactured For the Year Ended December 31 Beginning work in process inventory $ 5,500 Direct materials $71,000 Direct labor 37,000 Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting Factory overhead: Indirect labor Indirect materials Utilities Maintenance Supplies Depreciation Property taxes Total manufacturing costs incurred Total manufacturing costs Less ending work in process inventory Cost of goods manufactured
$2,700 1,600 3,100 4,500 1,800 7,900 2,600 24,200 132,200 $137,700 (7,500) $130,200
181. Davis Manufacturing Company had the following data: Accounts receivable Materials inventory Work in process inventory Finished goods inventory
January 1 $27,000 22,500 70,200 3,000
December 31 $33,000 6,000 48,000 15,000
Collections on account were $625,000. Cost of goods sold was 68% of sales. Direct materials purchased amounted to $90,000. Factory overhead was 300% of the cost of direct labor. Compute: a. Sales revenue (all sales were on account) b. Cost of goods sold c. Cost of goods manufactured d. Direct materials used e. Direct labor incurred f. Factory overhead incurred ANSWER: a. Sales Revenue = $33,000 + $625,000 – $27,000 = $631,000 b. Cost of Goods Sold = $631,000 × 0.68 = $429,080 c. Cost of Goods Manufactured = $15,000 + $429,080 – $3,000 = $441,080 d. Direct Materials Used = $22,500 + $90,000 – $6,000 = $106,500 e. Direct Labor Incurred = $441,080 + $48,000 – $70,200 = $418,880 Total Manufacturing Costs Added $418,880 – $106,500 = $312,380 $312,380 = Factory Overhead + Direct Labor Let X = Direct Labor 3X + X = $312,380 4X = $312,380 Direct Labor = $78,095 f. Factory Overhead Incurred = $78,095 × 3 = $234,285 Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting 182. Taylor Industries had a fire and some of its accounting records were destroyed. Available information is presented below for the year ended December 31. Materials inventory, December 31 Direct materials purchased Direct materials used Cost of goods manufactured
$ 15,000 28,000 22,900 135,000
Additional information: Factory overhead is 150% of direct labor cost. Finished goods inventory decreased by $18,000 during the year. Work in process inventory increased by $12,000 during the year. Determine: a. Materials inventory, January 1 b. Direct labor cost c. Factory overhead incurred d. Cost of goods sold ANSWER: a. Materials Inventory, January 1 = $15,000 + $22,900 – $28,000 = $9,900 b. Direct Labor Cost = $135,000 + $12,000 = $147,000 Total Manufacturing Costs $147,000 – $22,900 = $124,100 Direct Labor and Factory Overhead Let X = Direct Labor Cost X + 1.5X = $124,100 2.5X = $124,100 Direct Labor = $49,640 c. Factory Overhead Incurred = $49,640 × 1.5 = $74,460 d. Cost of Goods Sold = $135,000 + $18,000 = $153,000 Essay 183. What is strategic planning? How does it overlap with operational planning? ANSWER: Strategic planning is developing long-term objectives for the company. For example, a company might set an objective of increasing its market share by developing new products or expanding into new markets. Strategic planning normally involves a time horizon of five to ten years. To achieve its long-term, strategic objectives, management sets a variety of short-term objectives and actions. The process of developing these short-term objectives and actions is often referred to as operational planning. For example, to develop new products, a company might increase its annual spending on research and development. 184. Differentiate between verticals and horizontals. ANSWER: Verticals are sometimes referred to as business units, because they are often structured as separate businesses within the parent company. These verticals normally develop products that are sold directly to customers. Verticals prepare their own income statements, also referred to as profit and loss (P&L) statements, which report their ongoing performance and profitability. Horizontals are departments within a company that are not responsible for developing products. The role of horizontals is to provide services to the various verticals and other horizontals. As such, horizontals do not report profit and loss (P&L) statements. Marketing, Human Resources, Information Technology, Legal, Copyright Cengage Learning. Powered by Cognero.
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Chapter 1: Introduction to Managerial Accounting Facilities, Accounting, and Finance are normally horizontal departments within a company. 185. Differentiate between period and product costs and include examples of each type of cost. ANSWER: Period costs consist of selling and administrative expenses. Selling expenses are incurred in marketing the product and delivering the product to customers. Administrative expenses are incurred in managing the company and are not directly related to the manufacturing or selling functions. Selling expenses include advertising expenses, sales salaries expense, and commissions expense. Administrative expenses include office salaries expense, office supplies expense, and depreciation expense of the office building and equipment. Product costs consist of manufacturing costs: direct materials, direct labor, and factory overhead. Direct materials are the materials that go into the production of the product. The direct materials for a bakery include flour, sugar, eggs, and shortening. Direct labor costs are the wages or salaries of the employees that are actually assembling the product. Factory overhead would include the salaries of production supervisors, depreciation, insurance, and taxes on the manufacturing building and equipment.
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Chapter 2: Job Order Costing True / False 1. Cost systems measure, record, and report product costs. a. True b. False ANSWER: True 2. Job order costing provides for a separate record of the cost of each particular quantity of product that passes through the factory. a. True b. False ANSWER: True 3. Process costing provides for a separate record of the cost of each particular quantity of product that passes through the factory. a. True b. False ANSWER: False 4. Process costing provides product costs for each of the departments or processes within the factory. a. True b. False ANSWER: True 5. Process costing is best used by companies that manufacture units of product that are indistinguishable from each other and are manufactured using a continuous production process. a. True b. False ANSWER: True 6. Process costing is appropriate where few products are manufactured, and each product is made to customers' specifications. a. True b. False ANSWER: False 7. Job order costing would be appropriate for a crude oil refining business. a. True b. False ANSWER: False 8. Perpetual inventory controlling accounts and subsidiary ledgers are maintained for materials, work in process, and finished goods in job order costing. a. True b. False Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing ANSWER: True 9. When goods are sold, their costs are transferred from Work in Process to Finished Goods. a. True b. False ANSWER: False 10. The materials requisition serves as the source document for debiting the accounts in the materials ledger. a. True b. False ANSWER: False 11. Materials are transferred from the storeroom to the factory in response to materials requisitions. a. True b. False ANSWER: True 12. The document that serves as the basis for recording direct labor on a job cost sheet is the time ticket. a. True b. False ANSWER: True 13. Depreciation expense on factory equipment is part of factory overhead cost. a. True b. False ANSWER: True 14. Factory overhead is applied to production using a predetermined overhead rate. a. True b. False ANSWER: True 15. If factory overhead applied exceeds the actual costs, the factory overhead account will have a credit balance. a. True b. False ANSWER: True 16. If factory overhead applied exceeds the actual costs, overhead is said to be underapplied. a. True b. False ANSWER: False 17. If the underapplied factory overhead amount is immaterial, it is transferred to Cost of Goods Sold at the end of the fiscal year. a. True Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing b. False ANSWER: True 18. In job order costing, each account in the work in process subsidiary ledger is called a job cost sheet. a. True b. False ANSWER: True 19. In job order costing, the finished goods account is the controlling account for the factory overhead ledger. a. True b. False ANSWER: False 20. The inventory accounts generally maintained by a manufacturing firm are only Finished Goods and Materials. a. True b. False ANSWER: False 21. Generally accepted accounting principles require companies to use only one factory overhead rate for product costing. a. True b. False ANSWER: False 22. Activity-based costing is a method of accumulating and allocating factory overhead costs for each type of factory overhead activity. a. True b. False ANSWER: True 23. Interim financial statements for a manufacturing business would report overapplied factory overhead as a deferred item on the balance sheet. a. True b. False ANSWER: True 24. The debit to Factory Overhead for the cost of indirect materials is obtained from the summary of the materials requisitions. a. True b. False ANSWER: True 25. Indirect materials are any materials needed to make a product that can be directly traced to the product. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing 26. Nonmanufacturing costs are generally classified into two categories: selling and administrative. a. True b. False ANSWER: True 27. The current year's advertising costs are normally considered period costs. a. True b. False ANSWER: True 28. Direct labor cost is an example of a period cost. a. True b. False ANSWER: False 29. A manufacturing business reports just two types of inventory on its balance sheet: work in process inventory and finished goods inventory. a. True b. False ANSWER: False 30. On the balance sheet for a manufacturing business, the cost of direct materials, direct labor, and factory overhead, which have entered into the manufacturing process but are associated with products that have not been finished, are reported as direct materials inventory. a. True b. False ANSWER: False 31. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on the balance sheet as inventory. a. True b. False ANSWER: True 32. A receiving report is prepared when purchased materials are first received by the manufacturing department. a. True b. False ANSWER: False 33. Period costs are costs that are incurred for the production requirements of a certain period. a. True b. False ANSWER: False
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Chapter 2: Job Order Costing 34. Job order costing is inappropriate for service organizations. a. True b. False ANSWER: False 35. A law firm would use job order costing to accumulate all of the costs associated with a particular client engagement, such as lawyer time, copying charges, filing fees, and overhead. a. True b. False ANSWER: True 36. Job order costing can be used only for companies that manufacture a product. a. True b. False ANSWER: False 37. The direct labor and overhead costs of providing services to clients are accumulated in a work in process account. a. True b. False ANSWER: True 38. In a job order costing system for a service business, materials costs are normally included as part of overhead. a. True b. False ANSWER: True 39. A service organization will not use job order costing because it has no direct materials. a. True b. False ANSWER: False 40. Using job order costing, service organizations are able to bill customers on a weekly or monthly basis, even when the job has not been completed. a. True b. False ANSWER: True 41. Job order costing can be used to compare unit costs of similar jobs to determine if costs are staying within expected ranges. a. True b. False ANSWER: True 42. Job cost sheets can provide information to managers on unit cost trends, the cost impact of continuous improvement in the manufacturing process, the cost impact of materials changes, and the cost impact of direct materials price or direct Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing labor rate changes over time. a. True b. False ANSWER: True 43. Information about costs developed through a job order costing system cannot be used to evaluate an organization’s cost performance. a. True b. False ANSWER: False 44. Hybrid costing would be appropriate for a company that manufactures classes of products that are unique from one another but share a variety of common components. a. True b. False ANSWER: True Multiple Choice 45. Which of the following are the two main types of costing systems for manufacturing operations? a. process costing and operations costing b. job order costing and process costing c. job order costing and hybrid costing d. process costing and hybrid costing ANSWER: b 46. Which of the following would most likely use job order costing? a. paper mill b. swimming pool installer c. company that manufactures chlorine for swimming pools d. oil refinery ANSWER: b 47. Which of the following would most likely use process costing? a. custom furniture manufacturer b. auto body repair shop c. law firm d. lawn fertilizer manufacturer ANSWER: d 48. Which of the following systems provides for a separate record of the cost of each particular quantity of product that passes through the factory? a. job order costing b. general costing c. replacement costing Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing d. process costing ANSWER: a 49. For which of the following businesses would job order costing be appropriate? a. canned soup processor b. oil refinery c. lumber mill d. hospital ANSWER: d 50. For which of the following businesses would process costing be appropriate? a. custom cabinet maker b. landscaper c. paper mill d. catering firm ANSWER: c 51. Which of the following is a characteristic of process costing? a. It accumulates costs for each manufacturing department within the factory. b. It provides a separate record for the cost of each quantity of product that passes through the factory. c. It is best suited for industries that manufacture custom goods. d. It uses only one work in process account. ANSWER: a 52. A manufacturer of which of the following products would most likely use job order costing? a. cell phone b. highlighter pen c. graduation invitation d. recliner ANSWER: c 53. Another name for hybrid costing is a. job order costing b. operations costing c. process costing d. inventory tracking system ANSWER: b 54. Which of the following costs is included in finished goods inventory? a. direct labor b. factory overhead c. all of these choices d. direct materials ANSWER: c Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing 55. Which of the following is the correct flow of manufacturing costs? a. raw materials, work in process, finished goods, cost of goods sold b. raw materials, finished goods, cost of goods sold, work in process c. work in process, finished goods, raw materials, cost of goods sold d. cost of goods sold, raw materials, work in process, finished goods ANSWER: a 56. In job order costing, on which of the following would labor costs be initially recorded? a. clock cards b. job cost sheets c. time tickets d. payroll register ANSWER: c 57. Thomlin Company forecasts that total factory overhead for the current year will be $15,500,000 with 250,000 total machine hours. Year to date, the actual factory overhead is $16,000,000 and the actual machine hours are 330,000 hours. The predetermined factory overhead rate based on machine hours is a. $48 per machine hour b. $62 per machine hour c. $45 per machine hour d. $50 per machine hour ANSWER: b 58. Thomlin Company forecasts that total factory overhead for the current year will be $15,000,000 with 300,000 total machine hours. Year to date, the actual factory overhead is $16,000,000 and the actual machine hours are 330,000 hours. If Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is a. $1,000,000 overapplied b. $1,000,000 underapplied c. $500,000 overapplied d. $500,000 underapplied ANSWER: c 59. At the end of the year, factory overhead applied was $42,000,000. Actual factory overhead was $40,300,000. Closing over/underapplied overhead into Cost of Goods Sold would cause net income to a. increase by $1,700,000 b. decrease by $1,700,000 c. increase by $3,400,000 d. decrease by $3,400,000 ANSWER: a 60. Which of the following is a period cost? a. depreciation on factory lunchroom furniture b. salary of telephone receptionist in the sales office Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing c. salary of a security guard for the factory parking lot d. computer chips used by a computer manufacturer ANSWER: b 61. Which of the following is a product cost? a. salary of a sales manager b. advertising for a particular product c. drill bits for a drill press used in the plant assembly area d. salary of the company receptionist ANSWER: c 62. The document authorizing the issuance of materials from the storeroom is a a. materials requisition b. purchase requisition c. receiving report d. purchase order ANSWER: a 63. The source document for the data for debiting Work in Process for direct materials is a a. purchase order b. purchase requisition c. materials requisition d. receiving report ANSWER: c 64. In job order costing, the journal entry for the flow of direct materials into production consists of a a. debit to Work in Process and a credit to Materials b. debit to Materials and a credit to Work in Process c. debit to Factory Overhead and a credit to Materials d. debit to Work in Process and a credit to Supplies ANSWER: a 65. A summary of the materials requisitions completed during a period serves as the basis for transferring the cost of the materials from the controlling account in the general ledger to the controlling accounts for a. Work in Process and Cost of Goods Sold b. Work in Process and Factory Overhead c. Finished Goods and Cost of Goods Sold d. Work in Process and Finished Goods ANSWER: b 66. In job order costing, when goods that have been ordered are received, the receiving department personnel count the goods, inspect the goods, and complete a a. purchase order b. sales invoice Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing c. receiving report d. purchase requisition ANSWER: c 67. In job order costing, the amount of time spent by an employee on an individual job is recorded on a(n) a. pay stub b. in-and-out card c. time ticket d. employees' earnings record ANSWER: c 68. The basis for the journal entry recording direct labor for the period is a summary of the a. job order cost sheets b. time tickets c. employees' earnings records d. clock cards ANSWER: b 69. In job order costing, the journal entry for the flow of direct labor costs into production consists of a a. debit to Factory Overhead and a credit to Work in Process b. debit to Finished Goods and a credit to Wages Payable c. debit to Work in Process and a credit to Wages Payable d. debit to Factory Overhead and a credit to Wages Payable ANSWER: c 70. At the end of July, the first month of the current fiscal year, the factory overhead account had a debit balance. Which of the following describes the nature of this balance and how it would be reported on the interim balance sheet? a. overapplied, deferred credit b. underapplied, deferred debit c. underapplied, deferred credit d. overapplied, deferred debit ANSWER: b 71. At the end of the fiscal year, the balance in Factory Overhead is small. The balance will be a. transferred to Work in Process b. transferred to Cost of Goods Sold c. transferred to Finished Goods d. allocated between Work in Process and Finished Goods ANSWER: b 72. Selected accounts with amounts omitted are as follows: Aug. 1 Balance 31 Direct materials
Work in Process 275,000 Aug. 31 X
Copyright Cengage Learning. Powered by Cognero.
Goods finished
1,030,000 Page 10
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Chapter 2: Job Order Costing 31 Direct labor 31 Factory overhead Aug. 1–31 Costs incurred
450,000 X Factory Overhead 145,000 Aug. 1 Balance 31 Applied (30% of direct labor cost)
15,000 X
If the balance of Work in Process on August 31 is $220,000, what was the amount debited to Work in Process for direct materials in August? a. $390,000 b. $170,000 c. $525,000 d. $580,000 ANSWER: a 73. Selected accounts with some amounts omitted are as follows: Aug. 1 Balance 31 Direct materials 31 Direct labor 31 Factory overhead
Aug. 1–31 Costs incurred
Work in Process 275,000 Aug. 31 Goods finished X 450,000 X Factory Overhead Aug. 145,000 Balance 1 31
1,030,000
15,000
Applied
X
If the balance of Work in Process on August 31 is $220,000, what was the amount debited to Work in Process for factory overhead in August, assuming a factory overhead rate of 30% of direct labor costs? a. $135,000 b. $10,000 c. $120,000 d. $70,000 ANSWER: a 74. Selected accounts with some amounts omitted are as follows: Oct. 1 31 31 31 Oct. 1 31
Balance Direct materials Direct labor Factory overhead
Work in Process 20,000 Oct. 31 96,700 201,000 X
Balance Goods finished
Finished Goods 52,000 360,000
Goods finished
X
If the balance of Work in Process on October 31 is $21,000, what was the amount of factory overhead applied in October? a. $63,300 Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing b. $21,300 c. $42,300 d. $11,300 ANSWER: a 75. If the amount of factory overhead cost incurred exceeds the amount applied, the factory overhead account will have a a. debit balance and be underapplied b. credit balance and be underapplied c. credit balance and be overapplied d. debit balance and be overapplied ANSWER: a 76. Journalizing the entry for the indirect labor costs incurred for general factory use would include a debit to a. Factory Overhead b. Wages Payable c. Wages Expense d. Cost of Goods Sold ANSWER: a 77. Journalizing the entry for the application of factory overhead costs to jobs would include a credit to a. Factory Overhead b. Wages Payable c. Work in Process d. Cost of Goods Sold ANSWER: a 78. Journalizing the entry for a job completed would include a debit to a. Factory Overhead b. Finished Goods c. Work in Process d. Cost of Goods Sold ANSWER: b 79. Journalizing the entry for a job completed would include a credit to a. Factory Overhead b. Finished Goods c. Work in Process d. Cost of Goods Sold ANSWER: c 80. Journalizing the entries for jobs shipped and customers billed would include a debit to a. Accounts Payable b. Cash c. Finished Goods Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing d. Cost of Goods Sold ANSWER: d 81. Journalizing the entries for jobs shipped and customers billed would include a credit to a. Accounts Payable b. Cash c. Finished Goods d. Cost of Goods Sold ANSWER: c 82. The finished goods account is the controlling account for the a. cost ledger b. materials ledger c. work in process ledger d. stock ledger ANSWER: d 83. The controlling account for the job cost sheets is a. Finished Goods b. Materials c. Work in Process d. Cost of Goods Sold ANSWER: c 84. Reynolds Manufacturers Inc. has estimated total factory overhead costs of $95,000 and expected direct labor hours of 9,500 for the current fiscal year. If Job 117 incurs 2,300 direct labor hours, Work in Process will be debited and Factory Overhead will be credited for a. $21,850 b. $2,300 c. $95,000 d. $23,000 ANSWER: d 85. A widely used activity base for developing factory overhead rates in highly automated settings is a. direct labor hours b. direct labor dollars c. direct materials d. machine hours ANSWER: d 86. When Job 117 was completed, direct materials totaled $4,400; direct labor, $5,600; and factory overhead, $2,400. A total of 1,000 units were produced at a per-unit cost of a. $12,400 b. $1,240 Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing c. $124 d. $12.40 ANSWER: d 87. The journal entries for the cost and sale of a finished good on account are a. debit Cost of Goods Sold, credit Finished Goods; debit Accounts Payable, credit Sales b. debit Cost of Goods Sold, credit Finished Goods; debit Accounts Receivable, credit Sales c. debit Sales Expense, credit Finished Goods; debit Cash, credit Accounts Receivable d. debit Work in Process, credit Finished Goods; debit Accounts Receivable, credit Sales ANSWER: b 88. Which of the following would be an inappropriate activity base for allocating factory overhead costs? a. salaries of supervisors b. direct labor hours c. machine hours d. direct labor cost ANSWER: a 89. Materials purchased on account during the month totaled $190,000. Materials requisitioned and placed in production totaled $165,000. The journal entry for the materials purchased on account is a. Materials 165,000 Accounts Payable 165,000 b. Materials 190,000 Accounts Payable 190,000 c. Materials 190,000 Cash 190,000 d. Accounts Payable 190,000 Materials 190,000 ANSWER: b 90. Materials purchased on account during the month amounted to $190,000. Materials requisitioned and placed in production totaled $156,000. The journal entry for the materials requisitioned by the production department is a. Materials 156,000 Work in Process 156,000 b. Work in Process 190,000 Materials 190,000 c. Work in Process 156,000 Materials 156,000 d. Work in Process 156,000 Cash 156,000 ANSWER: c 91. During the period, labor costs incurred on account amounted to $175,000, including $150,000 for production orders and $25,000 for general factory use (indirect labor). In addition, factory overhead charged to production was $32,000. The journal entry for the direct labor costs is a. Work in Process 150,000 Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing Wages Payable b. Work in Process Wages Payable c. Wages Payable Work in Process d. Wages Payable Work in Process ANSWER: a
150,000 175,000 175,000 175,000 175,000 150,000 150,000
92. During the period, labor costs incurred on account amounted to $175,000, including $150,000 for production orders and $25,000 for general factory use. Factory overhead applied to production was $32,000. The journal entry for the actual factory overhead costs incurred is a. Accounts Payable 25,000 Factory Overhead 25,000 b. Factory Overhead 32,000 Accounts Payable 32,000 c. Work in Process 25,000 Wages Payable 25,000 d. Factory Overhead 25,000 Wages Payable 25,000 ANSWER: d 93. During the period, labor costs incurred on account amounted to $175,000, including $150,000 for production orders and $25,000 for general factory use. Factory overhead applied to production was $23,000. The journal entry for the factory overhead applied to production is a. Work in Process 25,000 Factory Overhead 25,000 b. Factory Overhead 23,000 Work in Process 23,000 c. Work in Process 23,000 Factory Overhead 23,000 d. Factory Overhead 25,000 Accounts Payable 25,000 ANSWER: c 94. The cost of production of completed and transferred goods during the period amounted to $540,000, and the finished products shipped to customers had total production costs of $375,000. The journal entry for the transfer of costs from work in process to finished goods is a. Finished Goods 375,000 Work in Process 375,000 b. Finished Goods 540,000 Work in Process 540,000 c. Work in Process 540,000 Finished Goods 540,000 d. Work in Process 375,000 Finished Goods 375,000 ANSWER: b Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing 95. The cost of production of completed and transferred goods during the period amounted to $540,000, and the finished products shipped to customers had production costs of $375,000. The journal entry for the transfer of costs from finished goods to cost of goods sold is a. Finished Goods 540,000 Cost of Goods Sold 540,000 b. Finished Goods 375,000 Cost of Goods Sold 375,000 c. Cost of Goods Sold 375,000 Finished Goods 375,000 d. Cost of Goods Sold 540,000 Finished Goods 540,000 ANSWER: c 96. Costs that are incurred in generating revenues during the period, but not involved in the manufacturing process, are referred to as a. period costs b. conversion costs c. factory overhead costs d. product costs ANSWER: a 97. Costs that are treated as assets until the product is sold are a. product costs b. period costs c. administrative expenses d. selling expenses ANSWER: a 98. The period costs of a textbook printer would include a. wages of a press operator b. factory insurance costs c. CEO salary expense d. paper costs ANSWER: c 99. Which of the following types of inventories does a manufacturing business report on the balance sheet? a. finished goods inventory and work in process inventory only b. direct materials inventory and work in process inventory only c. direct materials inventory, work in process inventory, and finished goods inventory d. direct materials inventory and finished goods inventory only ANSWER: c 100. For a manufacturing business, products that are in the process of being manufactured are referred to as a. supplies inventory Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing b. work in process inventory c. finished goods inventory d. direct materials inventory ANSWER: b 101. The journal entry for the purchase of $45,000 of raw materials is a. Materials 45,000 Accounts Receivable 45,000 b. Materials 45,000 Accounts Payable 45,000 c. Inventory 45,000 Accounts Receivable 45,000 d. Inventory 45,000 Cash 45,000 ANSWER: b 102. The journal entry for the transfer of 1,600 units of Part No. 1177, with a value of $2.50 each, to work in process is a. Materials 4,000 Work in Process 4,000 b. Work in Process 4,000 Factory Overhead 4,000 c. Work in Process 4,000 Materials 4,000 d. Work in Process 4,000 Cash 4,000 ANSWER: c 103. Which of the following represents the factory overhead applied to a product? a. predetermined factory overhead rate times estimated activity base b. actual factory overhead rate times estimated activity base c. predetermined factory overhead rate times actual activity base d. actual factory overhead rate times actual activity base ANSWER: c 104. Which of the following is the formula to compute the predetermined factory overhead rate? a. estimated total factory overhead costs divided by estimated activity base b. actual total factory overhead costs divided by estimated activity base c. estimated total factory overhead costs divided by actual activity base d. actual total factory overhead costs divided by actual activity base ANSWER: a 105. Aspen Technologies has the following budget data: Estimated direct labor hours Estimated direct labor dollars Estimated factory overhead costs Copyright Cengage Learning. Powered by Cognero.
15,000 $90,000 $198,000 Page 17
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Chapter 2: Job Order Costing If factory overhead is to be applied based on direct labor hours, the predetermined factory overhead rate is a. $7.50 b. $13.20 c. $2.20 d. $16.50 ANSWER: b 106. A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that total factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. What is the amount of over- or underapplied factory overhead at the end of the year? a. $6,000 overapplied b. $6,000 underapplied c. $54,800 overapplied d. $54,800 underapplied ANSWER: c 107. The following budget data are available for Sharp Company: Estimated direct labor hours Estimated direct labor dollars Estimated factory overhead costs Actual direct labor hours Actual direct labor dollars Actual factory overhead costs
12,000 $90,000 $179,000 11,500 $92,000 $180,000
If factory overhead is to be applied based on direct labor dollars, the predetermined factory overhead rate is a. 199% b. 196% c. $14.92 d. $15.65 ANSWER: a 108. A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that total factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. What is the predetermined factory overhead rate per direct labor hour? a. $12.00 b. $10.00 c. $12.57 d. $10.48 ANSWER: a 109. A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that total factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. The journal entry to apply the factory Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing overhead costs for the year would include a a. debit to Factory Overhead for $360,000 b. credit to Factory Overhead for $432,000 c. debit to Factory Overhead for $377,200 d. credit to Factory Overhead for $360,000 ANSWER: b 110. The following budget data are available for Sharp Company: Estimated direct labor hours Estimated direct labor dollars Estimated factory overhead costs Actual direct labor hours Actual direct labor dollars Actual factory overhead costs
12,000 $90,000 $180,000 11,500 $92,000 $181,000
If factory overhead is applied based on direct labor hours, the amount of overhead to be applied is a. $180,000 b. $181,000 c. $172,500 d. $184,000 ANSWER: c Adams Company is a manufacturing company that has worked on several production jobs during the first quarter of the year. The jobs for the quarter are as follows: Job 356 Job 357 Job 358 Job 359 Job 360
Balance $ 450 1,235 378 689 456
Jobs 356, 357, 358, and 359 were completed. Jobs 356 and 357 were sold at a profit of $500 on each job. 111. What is the ending balance of Work in Process for Adams Company at the end of the first quarter? a. $0 b. $456 c. $3,208 d. $2,752 ANSWER: b 112. What is the ending balance of Cost of Goods Sold for Adams Company at the end of the first quarter? a. $456 b. $2,685 c. $1,685 d. $685 Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing ANSWER: c 113. What is the ending balance of Finished Goods for Adams Company at the end of the first quarter? a. $456 b. $1,067 c. $1,685 d. $2,752 ANSWER: b 114. What is the balance of Sales for Adams Company at the end of the first quarter? a. $1,685 b. $2,685 c. $1,000 d. $685 ANSWER: b 115. What is the gross profit for Adams Company at the end of the first quarter? a. $1,685 b. $2,685 c. $1,000 d. $685 ANSWER: c 116. A separate account for each material is found in a a. general ledger b. materials ledger c. receiving report d. job cost sheet ANSWER: b 117. The materials requisition is used to a. release materials from the storeroom to the factory b. release finished goods to the Shipping Department c. record the acquisition of materials from a vendor d. record and electronically transmit materials data in place of a receiving report ANSWER: a 118. Period costs are a. found on the balance sheet b. not involved in the production process c. classified as direct labor, direct materials, or factory overhead d. found on the job order cost sheets ANSWER: b Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing 119. Cavy Company estimates that the total factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. If the actual factory overhead for April totaled $141,800, determine the over- or underapplied amount for the month. a. $7,575 underapplied b. $35,220 underapplied c. $7,575 overapplied d. $35,220 overapplied ANSWER: c 120. Period costs are classified as either a. selling expenses or production expenses b. administrative expenses or production expenses c. selling expenses or administrative expenses d. general expenses or selling expenses ANSWER: c 121. Winston Company estimates that the total factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 50,000 hours. The total machine hours for the year were 54,300. The actual factory overhead for the year was $1,375,000. Determine the over- or underapplied amount for the year. a. $17,500 overapplied b. $17,500 underapplied c. $118,250 overapplied d. $118,250 underapplied ANSWER: b 122. Sanders Inc. has applied $567,988 of factory overhead to jobs. Actual factory overhead at the end of the year is $575,000. The adjustment for over- or underapplied factory overhead is a. $7,012 overapplied, increase Cost of Goods Sold b. $7,012 underapplied, increase Cost of Goods Sold c. $7,012 overapplied, decrease Cost of Goods Sold d. $7,012 underapplied, decrease Cost of Goods Sold ANSWER: b 123. Which of the following statements is false regarding product costs? a. Product costs are found on the balance sheet until they are sold. b. Product costs consist of direct labor, direct materials, and factory overhead. c. Product costs can be found in three accounts on the balance sheet. d. Product costs include sales and administrative expenses. ANSWER: d 124. When a service business uses job order costing, the details concerning the costs incurred for clients are accumulated in a work in process account and supported by a a. stock ledger Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing b. materials ledger c. cost ledger d. creditors ledger ANSWER: c 125. Each document in the cost ledger of a service business is called a a. finished goods sheet b. stock record c. materials requisition d. job cost sheet ANSWER: d 126. Which of the following would be missing in the accounting system of a service provider? a. cost ledger b. finished goods ledger c. deferred revenue account d. job cost sheets ANSWER: b 127. A service provider and a manufacturer both use job order costing. Which of the following entries would only be found on the books of the manufacturer? a. a debit to Work in Process and a credit to Materials b. a debit to Work in Process and a credit to Wages Payable c. a debit to Work in Process and a credit to Overhead d. a debit to Cost of Services and a credit to Work in Process ANSWER: a 128. In a job order costing system used by a service business, which of the following items would normally be included as part of overhead? a. materials and supplies b. materials and direct labor c. direct labor and supplies d. administrative expenses and supervisor salaries ANSWER: a 129. The direct labor and overhead costs of providing services to clients are accumulated in a. Finished Services Expense b. Work in Process c. Administrative Salaries Expense d. Overhead ANSWER: b 130. When a job is completed in a service organization that uses job order costing, the job costs are transferred to the a. work in process account Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing b. cost of services account c. finished goods account d. cost of goods sold account ANSWER: b 131. A difference in quantity of materials used on two comparable jobs may be caused by a. inadequately trained employees b. poor quality materials c. incorrect instructions attached to the job d. all of these choices ANSWER: d 132. The following data were compiled from job cost sheets for similar products: Direct Labor Date Job Direct Rate Completed No. Count Labor Hours per Hour May 4 Job 108 10 10 $20.00 May 20 Job 120 20 18 20.00 June 4 Job 160 16 13 20.00 June 30 Job 200 18 14 20.00 July 10 Job 218 28 22 20.00 July 18 Job 230 30 23 20.00
Total Direct Labor Cost $200.00 360.00 260.00 280.00 440.00 460.00
Direct Labor Cost per Unit $20.00 18.00 16.25 15.56 15.71 15.33
Direct Labor Hours per Unit 1.00 0.90 0.81 0.78 0.79 0.77
Based on the trends you can observe in the data, which of the following is likely true? a. Production processes are becoming more efficient. b. Increased production efficiencies are exactly offsetting increased labor costs. c. Increased labor costs are outweighing increases in production efficiencies. d. In the wake of increasing labor costs, management needs to address production inefficiencies. ANSWER: a 133. When applied factory overhead is more than actual factory overhead, the result is called a. unbalanced factory overhead b. underapplied factory overhead c. overapplied factory overhead d. unreconciled factory overhead ANSWER: c 134. Which of the following is typically used by companies that make custom products? a. job order costing b. process costing c. hybrid costing d. operations costing Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing ANSWER: a 135. Which of the following is typically used by companies whose products are indistinguishable from each other? a. job order costing b. process costing c. hybrid costing d. operations costing ANSWER: b 136. When applied factory overhead is less than actual factory overhead, the result is called a. unbalanced factory overhead b. underapplied factory overhead c. overapplied factory overhead d. unreconciled factory overhead ANSWER: b 137. Which of the following is a product cost that is included in factory overhead? a. factory depreciation b. machine operator's wages c. salespersons' commissions d. wood ANSWER: a 138. Which of the following is a product cost that is included in direct labor? a. factory supervisor’s salary b. president’s salary c. salespersons' commissions d. assembler’s wages ANSWER: d 139. Which of the following is a product cost that is included in direct materials? a. office supplies b. machine operator's wages c. plastic parts d. maintenance supplies ANSWER: c 140. Which of the following describes cost allocation? a. process by which factory overhead is assigned to a cost object b. serves as the basis for recording direct labor on a job cost sheet c. serves as the basis for recording materials used d. completed when materials that have been ordered are received and inspected ANSWER: a Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing 141. Which of the following describes time tickets? a. make up the work in process subsidiary ledger b. serve as the basis for recording direct labor on a job cost sheet c. serves as the basis for recording materials used d. completed when materials that have been ordered are received and inspected ANSWER: c 142. The salary of the director of internal auditing would be classified as a a. product cost—direct labor b. product cost—factory overhead c. period cost—selling expense d. period cost—administrative expense ANSWER: d 143. The long-distance telephone bill for calls made by salespersons would be classified as a a. product cost—direct labor b. product cost—factory overhead c. period cost—selling expense d. period cost—administrative expense ANSWER: c 144. Electricity used to operate factory machinery would be classified as a a. product cost—direct labor b. product cost—factory overhead c. period cost—selling expense d. period cost—administrative expense ANSWER: b 145. Steel for a construction contractor would be classified as a a. product cost—direct labor b. product cost—factory overhead c. period cost—selling expense d. period cost—administrative expense ANSWER: a Subjective Short Answer 146. Define and discuss the two main types of cost systems for manufacturing operations. ANSWER: The two main types of cost systems are job order costing and process costing. Each system differs in how it accumulates and records costs. Job order costing provides product costs for each quantity of product that is manufactured. Each quantity of product that is produced is called a job. This type of system is used by companies that manufacture custom products or batches of similar products. Process costing provides product costs for each manufacturing department or process. Process costing is used by companies that manufacture products that are indistinguishable from each other and manufactured using a Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing continuous process. 147. Journalize the entries for the following transactions: 1. Mar. 10: 500 units of raw materials were purchased on account at $4.00 per unit. 2. Mar. 15: 250 units of raw materials were requisitioned at $4.50 per unit for production, Job 872. 3. Mar. 25: 215 units of raw materials were requisitioned at $5.00 per unit for production, Job 879. ANSWER:
Mar. 10 Materials Accounts Payable
2,000
15 Work in Process Materials
1,125
25 Work in Process Materials
1,075
2,000
1,125
1,075
148. Cavy Company accumulated 560 hours of direct labor on Job 345 and 800 hours on Job 777. The direct labor was incurred at a rate of $20 per direct labor hour for Job 345 and $21 per direct labor for Job 777. Journalize the entry for the flow of labor costs into production. ANSWER: Work in Process 28,000* Wages Payable 28,000 *(560 × $20) + (800 × $21) = $28,000 149. During April, Cavy Company incurred factory overhead as follows: Indirect materials Factory supervision labor Utilities Depreciation (factory) Small tools Equipment rental
$11,000 4,000 500 700 300 750
Journalize the entry for the factory overhead incurred during April. ANSWER: Factory Overhead 17,250 Materials Wages Payable Utilities Payable Accumulated Depreciation Small Tools Equipment Rental Payable
11,000 4,000 500 700 300 750
150. Cavy Company estimates that total factory overhead costs will be $660,000 for the year. The company has decided that the basis for applying factory overhead should be direct labor hours, which are estimated to be 100,000 hours. a. Compute the predetermined factory overhead rate. b. Determine the amount of factory overhead applied to Job 345 if the amount of direct labor hours is 560 and to Job 777 if the amount of direct labor hours is 800. c. Journalize the entry for the factory overhead applied if Jobs 345 and 777 are the only jobs for the period. Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing ANSWER: a. $660,000 ÷ 100,000 = $6.60 b. Job 345: 560 hrs. × $6.60 = $3,696 Job 777: 800 hrs. × $6.60 = $5,280 c. Work in Process Factory Overhead
8,976 8,976
151. Cavy Company estimates that total factory overhead costs for the following year will be $1,470,000. The company has decided that the basis for applying factory overhead should be machine hours, which are estimated to be 40,000 hours. Compute the predetermined factory overhead rate. ANSWER: $1,470,000 ÷ 40,000 = $36.75 per machine hour 152. Cavy Company estimates that total factory overhead costs for the following year will be $1,250,000. The company has determined that the basis for applying factory overhead will be machine hours, which are estimated to be 40,000 hours. There are 4,780 machine hours for all of the jobs in the month of April. What amount of factory overhead will be applied to the jobs for April? ANSWER: Predetermined factory overhead rate: $1,250,000 ÷ 40,000 hours = $31.25 per machine hour Applied factory overhead for April: 4,780 hours × $31.25 = $149,375 153. Cavy Company estimates that total factory overhead costs for the following year will be $1,470,000. The company has decided that the basis for applying factory overhead should be machine hours, which are estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. Journalize the entry for the factory overhead applied in April. ANSWER: Work in Process 175,665* Factory Overhead 175,665 *($1,470,000 ÷ 40,000) × 4,780 154. At the end of April, Cavy Company had completed Jobs 766 and 765. The individual job cost sheets reveal the following information: Job 765 Job 766
Direct Materials $5,670 8,900
Direct Labor $3,500 4,775
Machine Hours 27 44
Job 765 produced 152 units, and Job 766 consisted of 250 units. Assuming that factory overhead is applied using machine hours at a rate of $200 per hour, determine (a) the balance on each job cost sheet and (b) the cost per unit for each job at the end of April (rounded to the nearest cent). ANSWER: a. Job 765 = $14,570 [$5,670 + $3,500 + (27 × $200)] Job 766 = $22,475 [$8,900 + $4,775 + (44 × $200)] b. Job 765 = $95.86 ($14,570 ÷ 152) Job 766 = $89.90 ($22,475 ÷ 250) 155. Cavy Company completed 26,000 units during the year at a cost of $2,139,800. The beginning finished goods inventory was 5,000 units valued at $405,000. Assuming a FIFO cost flow, determine the cost of goods sold for 20,000 Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing units. ANSWER: $405,000 + [15,000 × ($2,139,800 ÷ 26,000)] = $1,639,500 156. Cavy Company estimates that total factory overhead costs for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which are estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. If the actual factory overhead for April totaled $141,800, determine the over- or underapplied amount for the month. ANSWER: $1,250,000 ÷ 40,000 = $31.25 per machine hour $31.25 × 4,780 machine hours = $149,375 factory overhead applied $141,800 – $149,375 = $7,575 overapplied 157. Winston Company estimates that total factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which are estimated to be 50,000 hours. The actual total machine hours for the year were 54,300 hours. The actual factory overhead for the year was $1,375,000. a. Determine the total factory overhead applied. b. Compute the over- or underapplied factory overhead for the year. c. Journalize the entry to transfer the over- or underapplied factory overhead to Cost of Goods Sold. ANSWER: a. $1,250,000 ÷ 50,000 = $25 per machine hour 54,300 machine hours × $25 = $1,357,500 factory overhead applied b. $1,375,000 actual – $1,357,500 applied = $17,500 underapplied c. Cost of Goods Sold Factory Overhead
17,500 17,500
158. Winston Company estimates that total factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which are estimated to be 50,000 hours. The total machine hours for the year were 54,300. The actual factory overhead for the year was $1,348,800. a. Determine the total factory overhead applied. b. Compute the over- or underapplied factory overhead for the year. c. Journalize the entry to transfer the over- or underapplied factory overhead to Cost of Goods Sold. ANSWER: a. $1,250,000 ÷ 50,000 = $25 per machine hour 54,300 machine hours × $25 = $1,357,500 factory overhead applied b. $1,348,800 actual – $1,357,500 applied = $8,700 overapplied c. Factory Overhead Cost of Goods Sold
8,700 8,700
159. Cranston Company estimates the following factory overhead costs for the coming year: Equipment depreciation Equipment maintenance Supervisory salaries Factory rent Total
$160,000 60,000 40,000 100,000 $360,000
Cranston is also budgeting $600,000 in direct labor costs and estimating 15,000 machine hours for the coming year. Copyright Cengage Learning. Powered by Cognero.
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Chapter 2: Job Order Costing a. Compute the predetermined factory overhead rate using direct labor costs as the allocation base. b. Compute the predetermined factory overhead rate using machine hours as the allocation base. ANSWER: a. $360,000 ÷ $600,000 = 60% of direct labor costs b. $360,000 ÷ 15,000 machine hours = $24 per machine hour 160. Flagler Company allocates factory overhead based on machine hours. It estimated total factory overhead costs for the year to be $420,000. Estimated machine hours were 50,000. Actual hours and costs for the year were 46,000 machine hours and $380,000 of factory overhead. a. Compute the predetermined factory overhead rate for the year. b. Determine the factory overhead applied for the year. c. Compute the under- or overapplied factory overhead for the year. ANSWER: a. $420,000 ÷ 50,000 = $8.40 per machine hour b. $8.40 × 46,000 machine hours = $386,400 factory overhead applied c. $380,000 – $386,400 = $6,400 overapplied 161. Jase Company allocates factory overhead based on a predetermined overhead rate of $9 per direct labor hour. Job J904 required 8 tons of direct materials at a cost of $600 per ton and took employees who earn $21 per hour a total of 80 hours to complete. What is the total cost of Job J904? ANSWER: Direct materials 8 tons × $600 $4,800 Direct labor 80 hours × $21 1,680 Manufacturing overhead 80 hours × $9 720 Total cost of J904 $7,200 162. Technics Inc., a manufacturing company, utilizes job order costing. Each division establishes its own estimates regarding factory overhead, which are as follows: Total estimated overhead Total estimated machine hours Total estimated direct labor costs
Division A $128,000 16,000 $155,000
Division B $261,000 72,500 $290,000
If Division A allocates factory overhead on the basis of machine hours and Division B allocates factory overhead as a percentage of direct labor costs, what would the predetermined factory overhead rate be for each division? ANSWER: Division A: $128,000 ÷ 16,000 = $8 per machine hour Division B: $261,000 ÷ $290,000 = 90% of direct labor costs 163. Crain Company estimated 35,000 direct labor hours and incurred 40,000 of actual direct labor hours. It estimated total factory overhead costs of $735,000 and incurred $780,000 of actual factory overhead costs. What is Crain’s predetermined factory overhead rate? Was overhead over- or underapplied for the year? By how much? ANSWER: Predetermined factory overhead rate: $735,000 ÷ 35,000 = $21 per direct labor hour Applied factory overhead ($21 × 40,000) Actual factory overhead Overapplied factory overhead
$840,000 (780,000) $ 60,000
164. National Survey Company uses job order costing. Copyright Cengage Learning. Powered by Cognero.
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