MULTIPLE
CHOICE QUESTIONS
1. Which of the following statements is true?
A. The word "cost" has the same
meaning in all situations in which it is used.
B. Cost data, once classified and recorded for a
specific application, are appropriate for use in any application.
C. Different cost concepts and classifications
are used for different purposes.
D. All organizations incur the same types of
costs.
E. Costs incurred in one year are always
meaningful in the following year.
Answer:
C LO: 1 Type: RC
2. Product costs are:
A. expensed when incurred.
B. inventoried.
C. treated in the same manner as period costs.
D. treated in the same manner as advertising
costs.
E. subtracted from cost of goods sold.
Answer:
B LO: 2 Type: RC
3. Which of the following is a product cost?
A. Glass in an automobile.
B. Advertising.
C. The salary of the vice president-finance.
D. Rent on a factory.
E. Both "A" and "D."
Answer:
E LO: 2 Type: N
4. Which of the following would not be
classified as a product cost?
A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on the manufacturing plant.
E. Sales commissions.
Answer:
E LO: 2 Type: RC, N
5. The accounting records of Tacoma Company revealed
the following costs: direct materials used, $170,000; direct labor, $350,000;
manufacturing overhead, $400,000; and selling and administrative expenses, $220,000. Tacoma's product costs total:
A. $520,000.
B. $750,000.
C. $920,000.
D. $1,140,000.
E. some other amount.
Answer:
C LO: 2 Type: A
6. Costs that are expensed when incurred are
called:
A. product costs.
B. direct costs.
C. inventoriable costs.
D. period costs.
E. indirect costs.
Answer:
D LO: 2 Type: RC
7. Which of the following is a period cost?
A. Direct material.
B. Advertising expense.
C. Depreciation on cars driven by a firm's
president and treasurer.
D. Miscellaneous supplies used in production
activities.
E. Both "B" and "C."
Answer:
E LO: 2 Type: N
8. Which of the following is not a period
cost?
A. Legal costs.
B. Public relations costs.
C. Sales commissions.
D. Wages of assembly-line workers.
E. The salary of a company's chief financial
officer (CFO).
Answer: D LO: 2
Type: RC, N
9. The accounting records of Hill Corporation
revealed the following selected costs: Sales commissions, $40,000; plant
supervision, $94,000; and administrative expenses, $185,000. Hill's period costs total:
A. $40,000.
B. $94,000.
C. $185,000.
D. $225,000.
E. $319,000.
Answer:
D LO: 2 Type: A
10. Which of the following entities would most
likely have raw materials, work in process, and finished goods?
A. Exxon Corporation.
B. Macy's Department Store.
C. Wendy's.
D. Southwest Airlines.
E. Columbia University.
Answer:
A LO: 3 Type: N
11. Selling and administrative expenses would
likely appear on the balance sheet of:
A. The Gap.
B. Texas Instruments.
C. Turner Broadcasting System.
D. all of the above firms.
E. none of the above firms.
Answer:
E LO: 3 Type: N
12. Which of the following inventories would a
discount retailer such as Wal-Mart report as an asset?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Merchandise inventory.
E. All of the above.
Answer:
D LO: 3 Type: RC
13. Which of the following inventories would a
company ordinarily hold for sale?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Raw materials and finished goods.
E. Work in process and finished goods.
Answer:
C LO: 3 Type: RC
14. Zeno Corporation engages in mass
customization and direct sales, the latter by accepting customer orders over
the Internet. As a result, Zeno:
A. would probably begin the manufacturing
process upon receipt of a customer's order.
B. would typically have fairly low inventory
levels for the amount of sales revenue generated.
C. would typically have fairly high inventory
levels for the amount of sales revenue generated.
D. would likely find choices "A" and
"B" to be applicable.
E. would likely find choices "A" and
"C" to be applicable.
Answer:
D LO: 4 Type: RC
15. Companies that engage in mass customization:
A. tend to have a relatively low production
volume.
B. tend to have a high production volume that
involves highly standardized end-products.
C. tend to have a high production volume, many
standardized components, and customer-specified combinations of components.
D. tend to have a high production volume, many
unique components, and customer-specified combinations of components.
E. could be typified by the refining operations
of Shell Oil.
Answer:
C LO: 4 Type: RC
16. Midwest Motors manufactures automobiles. Which of the following would not be
classified as direct materials by the company?
A. Sheet metal used in the automobile's body.
B. Tires.
C. Interior leather.
D. CD player.
E. Wheel lubricant.
Answer:
E LO: 5 Type: N
17. Which of the following employees of a
commercial printer/publisher would be classified as direct labor?
A. Book binder.
B. Plant security guard.
C. Sales representative.
D. Plant supervisor.
E. Payroll supervisor.
Answer:
A LO: 5 Type: N
18. Norwood Appliance produces washers and dryers
in an assembly-line process. Labor costs
incurred during a recent period were: corporate executives, $100,000;
assembly-line workers, $80,000; security guards, $18,000; and plant supervisor,
$30,000. The total of Norwood's direct
labor cost was:
A. $80,000.
B. $98,000.
C. $110,000.
D. $128,000.
E. $228,000.
Answer:
A LO: 5 Type: A
19. Which of the following employees would not
be classified as indirect labor?
A. Custodian.
B. Salesperson.
C. Assembler of wooden furniture.
D. Plant security guard.
E. Choices "B" and "C."
Answer:
E LO: 5 Type: RC, N
20. Depreciation of factory equipment would be
classified as:
A. operating cost.
B. "other" cost.
C. manufacturing overhead.
D. depreciation expense.
E. administrative cost.
Answer:
C LO: 5 Type: RC
21. Which of the following costs is not a
component of manufacturing overhead?
A. Indirect materials.
B. Factory utilities.
C. Factory equipment.
D. Indirect labor.
E. Property taxes on the manufacturing plant.
Answer:
C LO: 5 Type: RC
22. The accounting records
of Westcott Company revealed the following costs:
|
Factory
utilities
|
$ 35,000
|
|
Wages of
assembly-line personnel
|
170,000
|
|
Customer
entertainment
|
45,000
|
|
Indirect
materials used
|
19,000
|
|
Depreciation
on salespersons' cars
|
51,000
|
|
Production
equipment rental costs
|
110,000
|
Costs
that would be considered in the calculation of manufacturing overhead total:
A. $164,000.
B. $215,000.
C. $385,000.
D. $430,000.
E. some other amount.
Answer:
A LO: 5 Type: A
23. Which of the following statements is (are)
correct?
A. Overtime premiums should be treated as a
component of manufacturing overhead.
B. Overtime premiums should be treated as a
component of direct labor.
C. Idle time should be treated as a component of
direct labor.
D. Idle time should be accounted for as a
special type of loss.
E. Both "B" and "C" are
correct.
Answer:
A LO: 5 Type: RC
24. Conversion costs are:
A. direct material, direct labor, and
manufacturing overhead.
B. direct material and direct labor.
C. direct labor and manufacturing overhead.
D. prime costs.
E. period costs.
Answer:
C LO: 5 Type: RC
25. Prime costs are comprised of:
A. direct materials and manufacturing overhead.
B. direct labor and manufacturing overhead.
C. direct materials, direct labor, and
manufacturing overhead.
D. direct materials and direct labor.
E. direct materials and indirect materials.
Answer:
D LO: 5 Type: RC
26. Which of the following statements is true?
A. Product costs affect only the balance sheet.
B. Product costs affect only the income
statement.
C. Period costs affect only the balance sheet.
D. Period costs affect both the balance sheet
and the income statement.
E. Product costs eventually affect both the
balance sheet and the income statement.
Answer:
E LO: 6 Type: N
27. In a manufacturing company, the cost of goods
completed during the period would include which of the following elements?
A. Raw materials used.
B. Beginning finished goods inventory.
C. Marketing costs.
D. Depreciation of delivery trucks.
E. More than one of the above.
Answer:
A LO: 6 Type: RC
28. Which of the following equations is used to
calculate cost of goods sold during the period?
A. Beginning finished goods + cost of goods
manufactured + ending finished goods.
B. Beginning finished goods - ending finished
goods.
C. Beginning finished goods + cost of goods manufactured.
D. Beginning finished goods + cost of goods
manufactured - ending finished goods.
E. Beginning finished goods + ending finished
goods - cost of goods manufactured.
Answer:
D LO: 6 Type: RC
29. Work-in-process inventory is composed of:
A. direct material and direct labor.
B. direct labor and manufacturing overhead.
C. direct material and manufacturing overhead.
D. direct material only.
E. direct material, direct labor, and
manufacturing overhead.
Answer:
E LO: 6 Type: RC
30. Fort Walton Industries began July with a
finished-goods inventory of $48,000. The
finished-goods inventory at the end of July was $41,000 and the cost of goods
sold during the month was $125,000. The
cost of goods manufactured during July was:
A. $77,000.
B. $84,000.
C. $118,000.
D. $132,000.
E. some other amount.
Answer: C LO: 6
Type: A
31. Kansas Plating Company reported a cost of
goods manufactured of $260,000, with the firm's year-end balance sheet
revealing work in process and finished goods of $35,000 and $67,000,
respectively. If supplemental
information disclosed raw materials used in production of $40,000, direct labor
of $70,000, and manufacturing overhead of $120,000, the company's beginning
work in process must have been:
A. $5,000.
B. $37,000.
C. $65,000.
D. $97,000.
E. some other amount.
Answer:
C LO: 6 Type: A
32. The accounting records of Bronco Company
revealed the following information:
|
Raw materials
used
|
$ 60,000
|
|
Direct labor
|
125,000
|
|
Manufacturing
overhead
|
360,000
|
|
Work-in-process
inventory, 1/1
|
50,000
|
|
Finished-goods
inventory, 1/1
|
189,000
|
|
Work-in-process
inventory, 12/31
|
76,000
|
|
Finished-goods
inventory, 12/31
|
140,000
|
Bronco's
cost of goods manufactured is:
A. $519,000.
B. $522,000.
C. $568,000.
D. $571,000.
E. some other amount.
Answer:
A LO: 6 Type: A
33. The accounting records of Dolphin Company
revealed the following information:
|
Total
manufacturing costs
|
$530,000
|
|
Work-in-process
inventory, Jan. 1
|
56,000
|
|
Work-in-process
inventory, Dec. 31
|
78,000
|
|
Finished-goods
inventory, Jan. 1
|
146,000
|
|
Finished-goods
inventory, Dec. 31
|
123,000
|
Dolphin's
cost of goods sold is:
A. $508,000.
B. $529,000.
C. $531,000.
D. $553,000.
E. some other amount.
Answer:
C LO: 6 Type: A
34. For the year just ended, Cole Corporation's
manufacturing costs (raw materials used, direct labor, and manufacturing
overhead) totaled $1,500,000. Beginning
and ending work-in-process inventories were $60,000 and $90,000,
respectively. Cole's balance sheet also
revealed respective beginning and ending finished-goods inventories of $250,000
and $180,000. On the basis of this information,
how much would the company report as cost of goods manufactured (CGM) and cost
of goods sold (CGS)?
A. CGM, $1,430,000; CGS, $1,460,000.
B. CGM, $1,470,000; CGS, $1,540,000.
C. CGM, $1,530,000; CGS, $1,460,000.
D. CGM, $1,570,000; CGS, $1,540,000.
E. Some other amounts.
Answer:
B LO: 6 Type: A
35. Leggio Industries reported the following data
for the year just ended: sales revenue, $950,000; cost of goods sold, $420,000;
cost of goods manufactured, $330,000; and selling and administrative expenses,
$170,000. Leggio's gross margin would
be:
A. $30,000.
B. $200,000.
C. $360,000.
D. $530,000.
E. $620,000.
Answer:
D LO: 6 Type: A
36. Pumpkin Enterprises began operations on
January 1, 20x1, with all of its activities conducted from a single
facility. The company's accountant
concluded that the year's building depreciation should be allocated as follows:
selling activities, 20%; administrative activities, 35%; and manufacturing
activities, 45%. If Pumpkin sold 60% of
20x1 production during that year, what percentage of the depreciation would
appear (either directly or indirectly) on the 20x1 income statement?
A. 27%.
B. 45%.
C. 55%.
D. 82%.
E. 100%.
Answer:
D LO: 6 Type: A
37. An employee accidentally overstated the
year's advertising expense by $50,000.
Which of the following correctly depicts the effect of this error?
A. Cost of goods manufactured will be overstated
by $50,000.
B. Cost of goods sold will be overstated by
$50,000.
C. Both cost of goods manufactured and cost of
goods sold will be overstated by $50,000.
D. Cost of goods sold will be overstated by
$50,000, and cost of goods manufactured will be understated by $50,000.
E. None of the above.
Answer:
E LO: 6 Type: A
38. Which of the following would likely be a cost
driver for the amount of direct materials used?
A. The number of units sold.
B. The number of direct labor hours worked.
C. The number of machine hours worked.
D. The number of employees working in the
factory.
E. The number of units produced.
Answer:
E LO: 7 Type: N
39. The choices below depict five costs of Benton
Corporation and a possible driver for each cost. Which of these choices likely contains an
inappropriate cost driver?
A. Gasoline consumed; number of miles driven.
B. Manufacturing overhead incurred in a heavily
automated facility; direct labor hours.
C. Sales commissions; gross sales revenue.
D. Building maintenance cost; building square
footage.
E. Personnel department cost; number of
employees.
Answer:
B LO: 7 Type: N
40. Variable costs are those costs that:
A. vary inversely with changes in activity.
B. vary directly with changes in activity.
C. remain constant as activity changes.
D. decrease on a per-unit basis as activity
increases.
E. increase on a per-unit basis as activity
increases.
Answer:
B LO: 8 Type: RC
41. As activity decreases, unit variable cost:
A. increases proportionately with activity.
B. decreases proportionately with activity.
C. remains constant.
D. increases by a fixed amount.
E. decreases by a fixed amount.
Answer:
C LO: 8 Type: RC
42. Which of the following is not an
example of a variable cost?
A. Straight-line depreciation on a machine that
has a five-year service life.
B. Wages of manufacturing workers whose pay is
based on hours worked.
C. Tires used in the production of tractors.
D. Aluminum used to make patio furniture.
E. Commissions paid to sales personnel.
Answer:
A LO: 8 Type: N
43. Fixed costs are those costs that:
A. vary directly with changes in activity.
B. vary inversely with changes in activity.
C. remain constant on a per-unit basis.
D. increase on a per-unit basis as activity
increases.
E. remain constant as activity changes.
Answer:
E LO: 8 Type: RC
44. The fixed cost per unit:
A. will increase as activity increases.
B. will increase as activity decreases.
C. will decrease as activity increases.
D. will remain constant.
E. will exhibit the behavior described in
choices "B" and "C."
Answer:
E LO: 8 Type: N
45. Which of the following is an example of a
fixed cost?
A. Paper used in the manufacture of textbooks.
B. Property taxes paid by a firm to the City of Los
Angeles.
C. The wages of part-time workers who are paid
$8 per hour.
D. Gasoline consumed by salespersons' cars.
E. Surgical supplies used in a hospital's
operating room.
Answer:
B LO: 8 Type: N
46. The variable costs per unit are $4 when a
company produces 10,000 units of product.
What are the variable costs per unit when 8,000 units are produced?
A. $4.00.
B. $4.50.
C. $5.00.
D. $5.50.
E. Some other amount.
Answer:
A LO: 8 Type: A
47. The fixed costs per unit are $10 when a
company produces 10,000 units of product.
What are the fixed costs per unit when 12,500 units are produced?
A. $4.
B. $6.
C. $8.
D. $10.
E. Some other amount.
Answer:
C LO: 8 Type: A
48. Total costs are $120,000 when 10,000 units
are produced; of this amount, variable costs are $48,000. What are the total costs when 12,000 units
are produced?
A. $57,600.
B. $72,000.
C. $120,000.
D. $129,600.
E. $144,000.
Answer:
D LO: 8 Type: A
49. Baxter Company, which pays a 10% commission
to its salespeople, reported sales revenues of $210,000 for the period just
ended. If fixed and variable sales
expenses totaled $56,000, what would these expenses total at sales of $168,000?
A. $16,800.
B. $35,000.
C. $44,800.
D. $51,800.
E. Some other amount.
Answer:
D LO: 8 Type: A
50. Which of the following would not be
characterized as a cost object?
A. An automobile manufactured by General Motors.
B. The New York Fire Department.
C. A Burger King restaurant located in Cleveland, Ohio.
D. A Delta Airlines flight from Atlanta to Miami.
E. All of the above are examples of cost objects.
Answer: E
LO: 9 Type: N
51. Costs that can be easily traced to a specific
department are called:
A. direct costs.
B. indirect costs.
C. product costs.
D. manufacturing costs.
E. processing costs.
Answer:
A LO: 9 Type: RC
52. Which of the following would not be
considered a direct cost with respect to the service department of a new car
dealership?
A. Wages of repair techniques.
B. Property taxes paid by the dealership.
C. Repair parts consumed.
D. Salary of the department manager.
E. Depreciation on new equipment used to analyze
engine problems.
Answer:
B LO: 9 Type: N
53. Indirect costs:
A. can be traced to a cost object.
B. cannot be traced to a particular cost object.
C. are not important.
D. are always variable costs.
E. may be indirect with respect to Disney World
but direct with respect to one its major components, Epcot Center.
Answer:
B LO: 9 Type: RC, N
54. The salary that is sacrificed by a college
student who pursues a degree full time is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. opportunity cost.
D. differential cost.
E. marginal cost.
Answer:
C LO: 10 Type: N
55. The tuition that will be paid next semester
by a college student who pursues a degree is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. indirect cost.
D. average cost.
E. marginal cost.
Answer:
B LO: 10 Type: N
56. Which of the following costs should be
ignored when choosing among alternatives?
A. Opportunity costs.
B. Sunk costs.
C. Out-of-pocket costs.
D. Differential costs.
E. None of the above.
Answer:
B LO: 10 Type: RC
57. If the total cost of alternative A is $50,000
and the total cost of alternative B is $34,000, then $16,000 is termed the:
A. opportunity cost.
B. average cost.
C. sunk cost.
D. out-of-pocket cost.
E. differential cost.
Answer:
E LO: 10 Type: N
Use the
following to answer questions 58-59:
Wee Care is a
nursery school for pre-kindergarten children.
The school has determined that the following biweekly revenues and costs
occur at different levels of enrollment:
|
Number of
Students Enrolled
|
Total Revenue
|
Total Costs
|
||
|
10
|
$3,000
|
|
$2,100
|
|
|
15
|
4,500
|
|
2,700
|
|
|
16
|
4,800
|
|
2,800
|
|
|
20
|
6,000
|
|
3,200
|
|
|
21
|
6,300
|
|
3,255
|
|
58. The marginal cost when the twenty-first
student enrolls in the school is:
A. $55.
B. $155.
C. $300.
D. $3,045.
E. $3,255.
Answer:
A LO: 10 Type: A
59. The average cost per student when 16 students
enroll in the school is:
A. $100.
B. $125.
C. $175.
D. $300.
E. $400.
Answer:
C LO: 10 Type: A
60.
The costs that
follow all have applicability for a manufacturing enterprise. Which of the choices listed correctly denotes
the costs’ applicability for a service provider?
|
|
Period Cost
|
Uncontrollable Cost
|
Opportunity Cost
|
|
A.
|
Applicable
|
Applicable
|
Not
applicable
|
|
B.
|
Applicable
|
Not applicable
|
Applicable
|
|
C.
|
Applicable
|
Applicable
|
Applicable
|
|
D.
|
Not applicable
|
Applicable
|
Applicable
|
|
E.
|
Not applicable
|
Applicable
|
Not
applicable
|
Answer: C LO: 10
Type: RC
EXERCISES
Cost Concepts; Different Types of
Entities
61.
Consider the
three firms that follow: (1) Continental Airlines, (2) BMW, and (3)
Target. These firms, examples of service
providers, manufacturers, and merchandisers, tend to have different
characteristics with respect to costs and financial-statement disclosures.
Required:
Determine which of the preceding firms (1, 2, and/or
3) would likely:
A. Disclose operating expenses on the income statement.
B. Have product costs.
C. Have period costs.
D. Disclose cost of cost good sold on the income
statement.
E. Have no meaningful investment in inventory.
F. Maintain raw-material, work-in-process, and
finished-goods inventories.
G. Have variable and fixed costs.
LO:
2, 3, 8 Type: N
Answer:
A. 1, 2, 3 E. 1
B. 2, 3 F. 2
C. 1, 2, 3 G. 1, 2, 3
D.
2, 3
Content of
Financial Statements and Reports
62. Consider
the following cost items:
1. Sales commissions earned by a company's sales force.
2. Raw materials purchased during the period.
3. Current year's depreciation on a firm's manufacturing facilities.
4. Year-end completed production of a carpet manufacturer.
5. The cost of products sold to customers of an apparel store.
6. Wages earned by machine operators in a manufacturing plant.
7. Income taxes incurred by an airline.
8. Marketing costs of an electronics manufacturer.
9. Indirect labor costs incurred by a manufacturer of office
equipment.
Required:
A. Evaluate the costs just cited and
determine whether the associated dollar amounts would be found on the firm's
balance sheet, income statement, or schedule of cost of goods manufactured.
B. What major asset will normally be
insignificant for service enterprises and relatively substantial for retailers,
wholesalers, and manufacturers? Briefly
discuss.
C. Briefly explain the similarity and
difference between the merchandise inventory of a retailer and the
finished-goods inventory of a manufacturer.
LO: 3,
6 Type: N
Answer:
A. 1. Income statement
2. Schedule of cost of goods manufactured
3. Schedule of cost of goods manufactured
4. Balance sheet
5. Income statement
6. Schedule of cost of goods manufactured
7. Income statement
8. Income statement
9. Schedule of cost of goods manufactured
B. The asset that differs among these
businesses is inventory. Service
businesses typically carry no (or very little) inventory. Retailers and wholesalers normally stock
considerable inventory. Manufacturers also
carry significant inventories, typically subdivided in three categories: raw
materials, work in process, and finished goods.
C. The similarity: Both inventories are
carried for sale by the respective businesses.
The difference: Retailers purchase merchandise inventory; in contrast,
manufacturing firms produce their goods.
Identification
of Product Costs and Period Costs, Cost Behavior
63. Eastside Manufacturing produces small
electric engines. Identify the following
costs as direct materials (DM), direct labor (DL), manufacturing overhead
(MOH), or a period cost (PC). Also
indicate whether the cost is variable (V) or fixed (F) with respect to
behavior.
A. Commissions
paid to salespeople
B. Straight-line
depreciation on the factory building
C. Salary of the plant
supervisor
D. Wages of the
assembly-line workers
E. Machine lubricant used
in production activities
F. Engine casings used in
production activities
G. Advertising placed in
trade journals
H. Lease payments for the
president's automobile
I. Property taxes paid on
the factory facilities
LO: 2, 5,
8 Type: N
Answer:
A.
PC, V
B.
MOH,
F
C.
MOH,
F
D.
DL, V
E.
MOH,
V
F.
DM, V
G.
PC, F
H.
PC, F
I.
MOH,
F
Identification of Product Costs and Period
Costs, Cost Behavior
64. Consider the following items:
A. Tomatoes used in the
manufacture of Heinz ketchup
B. Administrative salaries
of executives employed by Southwest Airlines
C. Wages of assembly-line
workers at a Ford plant
D. Marketing expenditures of
the Los Angeles Dodgers baseball club
E. Commissions paid to
Coca-Cola's salespeople
F. Straight-line
depreciation on manufacturing equipment owned by Dell Computer
G. Shipping charges incurred
by Office Depot on out-going orders
H. Speakers used in Sony
home-theater systems
I. Insurance costs related
to a Mary Kay Cosmetics' manufacturing plant
Required:
Complete
the table that follows and classify each of the costs listed as (1) a product
or period cost and (2) a variable or fixed cost by placing an "X" in
the appropriate column.
|
|
Product
or Period Cost
|
Variable
or Fixed Cost
|
||
|
Item
|
Product
|
Period
|
Variable
|
Fixed
|
|
A
|
|
|
|
|
|
B
|
|
|
|
|
|
C
|
|
|
|
|
|
D
|
|
|
|
|
|
E
|
|
|
|
|
|
F
|
|
|
|
|
|
G
|
|
|
|
|
|
H
|
|
|
|
|
|
I
|
|
|
|
|
LO: 2, 5,
8 Type: N
Answer:
|
|
Product
or Period Cost
|
Variable
or Fixed Cost
|
||
|
Item
|
Product
|
Period
|
Variable
|
Fixed
|
|
A
|
X
|
|
X
|
|
|
B
|
|
X
|
|
X
|
|
C
|
X
|
|
X
|
|
|
D
|
|
X
|
|
X
|
|
E
|
|
X
|
X
|
|
|
F
|
X
|
|
|
X
|
|
G
|
|
X
|
X
|
|
|
H
|
X
|
|
X
|
|
|
I
|
X
|
|
|
X
|
Identification
of Various Cost Concepts
65.
The
following selected costs were extracted from the accounting records of Los
Angeles Machining (LAM):
1. Direct materials used in
production
2. Wages of machine
operators
3. Factory utilities
4. Sales commissions
5. Salary of LAM's
president
6. Factory depreciation
7. Wages of plant security
guards
8. Uncollectible accounts
expense
9. Machine lubricant used
in production
Required:
By the use of numbers, identify the costs that would be used to
calculate:
A.
cost
of goods manufactured.
B.
manufacturing
overhead.
C.
total
period costs.
D.
total
conversion costs.
E.
total
direct costs of LAM's credit and collections department.
F.
LAM's
inventory valuation.
LO: 2, 5,
6, 9 Type: N
Answer:
A.
1, 2,
3, 6, 7, 9
B.
3, 6,
7, 9
C.
4, 5,
8
D.
2, 3,
6, 7, 9
E.
8
F.
1, 2,
3, 6, 7, 9
Cost of Goods Manufactured
and Cost of Goods Sold
66. Panama Manufacturing had the following data
for the period just ended:
|
Work
in process, Jan. 1
|
$ 21,000
|
|
Work
in process, Dec. 31
|
40,000
|
|
Finished
goods, Jan. 1
|
70,000
|
|
Finished
goods, Dec. 31
|
61,000
|
|
Direct
materials used
|
126,000
|
|
Direct
labor
|
260,000
|
|
Factory
depreciation
|
80,000
|
|
Sales
|
945,000
|
|
Advertising
expense
|
52,000
|
|
Factory
utilities
|
27,000
|
|
Indirect
materials
|
19,000
|
|
Indirect
labor
|
35,000
|
Required:
A.
Calculate
Panama's cost of goods manufactured.
B.
Calculate
Panama's cost of goods sold.
LO: 6 Type: A
Answer:
|
A.
|
Direct materials used
|
$126,000
|
|
|
Direct labor
|
260,000
|
|
|
Manufacturing overhead:
|
|
|
|
Factory depreciation
|
80,000
|
|
|
Factory utilities
|
27,000
|
|
|
Indirect materials
|
19,000
|
|
|
Indirect labor
|
35,000
|
|
|
Total manufacturing costs
|
$547,000
|
|
|
Add: Work in process, Jan. 1
|
21,000
|
|
|
|
$568,000
|
|
|
Deduct: Work in process, Dec. 31
|
40,000
|
|
|
Cost of goods manufactured
|
$528,000
|
|
|
|
|
|
B.
|
Finished goods, Jan. 1
|
$ 70,000
|
|
|
Add: Cost of goods manufactured
|
528,000
|
|
|
Goods available for sale
|
$598,000
|
|
|
Deduct: Finished goods, Dec. 31
|
61,000
|
|
|
Cost of goods sold
|
$537,000
|
Income-Related
Computations
67. Hampton Company had the following inventory
balances at the beginning and end of the year:
|
|
January 1
|
December 31
|
|
|
Raw
material
|
$ 50,000
|
$ 35,000
|
|
|
Work
in process
|
130,000
|
170,000
|
|
|
Finished
goods
|
280,000
|
255,000
|
|
During
the year, the company purchased $100,000 of raw material and spent $340,000 on
direct labor. Other data: manufacturing
overhead incurred, $450,000; sales, $1,560,000; selling and administrative
expenses, $90,000; income tax rate, 30%.
Required:
A.
Calculate
cost of goods manufactured.
B.
Calculate
cost of goods sold.
C.
Determine
Hampton's net income.
LO: 6 Type: A
Answer:
|
A.
|
Direct materials used:
|
|
|
|
|
|
Raw materials, Jan. 1
|
$ 50,000
|
|
|
|
|
Add: Purchases
|
100,000
|
|
|
|
|
Raw materials available for use
|
$150,000
|
|
|
|
|
Deduct: Raw material, Dec. 31
|
35,000
|
|
|
|
|
Raw material used
|
|
$ 115,000
|
|
|
|
Direct labor
|
|
340,000
|
|
|
|
Manufacturing overhead
|
|
450,000
|
|
|
|
Total manufacturing costs
|
|
$ 905,000
|
|
|
|
Add: Work in process, Jan. 1
|
|
130,000
|
|
|
|
|
|
$1,035,000
|
|
|
|
Deduct: Work in process, Dec. 31
|
|
170,000
|
|
|
|
Cost of goods manufactured
|
|
$ 865,000
|
|
|
|
|
|
|
|
|
B.
|
Finished goods, Jan. 1
|
|
$ 280,000
|
|
|
|
Add: Cost of goods manufactured
|
|
865,000
|
|
|
|
Cost of goods available for sale
|
|
$1,145,000
|
|
|
|
Deduct: Finished goods, Dec. 31
|
|
255,000
|
|
|
|
Cost of goods sold
|
|
$ 890,000
|
|
|
|
|
|
||
|
C.
|
Sales revenue
|
$1,560,000
|
||
|
|
Less: Cost of goods sold
|
890,000
|
||
|
|
Gross margin
|
$ 670,000
|
||
|
|
Less: Selling and administrative expenses
|
90,000
|
||
|
|
Income before taxes
|
$ 580,000
|
||
|
|
Income tax expense ($580,000 x 30%)
|
174,000
|
||
|
|
Net income
|
$ 406,000
|
||
Elements of
Financial Statements
68. The following selected information was
extracted from the 20x3 accounting records of Miami Products:
|
Raw
materials used
|
$284,000
|
|
Direct
labor
|
178,000
|
|
Indirect
labor
|
35,000
|
|
Selling
and administrative salaries
|
250,000
|
|
Building
depreciation*
|
330,000
|
|
Other
selling and administrative expenses
|
80,000
|
|
Other
factory costs
|
620,000
|
*Seventy
percent of the company's building was devoted to production activities; the
remaining 30% was used for selling and administrative functions.
Miami's
beginning and ending work-in-process inventories amounted to $306,000 and
$245,000, respectively. The company's
beginning and ending finished-goods inventories were $450,000 and $440,000,
respectively.
Required:
A.
Calculate
Miami's manufacturing overhead for the year.
B.
Calculate
Miami's cost of goods manufactured.
C.
Compute
the company's cost of goods sold.
LO: 5,
6 Type: A
Answer:
|
A.
|
Indirect labor
|
$ 35,000
|
|
|
|
Building depreciation ($330,000 x 70%)
|
231,000
|
|
|
|
Other factory costs
|
620,000
|
|
|
|
Total
|
$ 886,000
|
|
|
|
|
|
|
|
B.
|
Raw material used
|
$ 284,000
|
|
|
|
Direct labor
|
178,000
|
|
|
|
Manufacturing overhead
|
886,000
|
|
|
|
Total manufacturing costs
|
$1,348,000
|
|
|
|
Add: Work in process, beg.
|
306,000
|
|
|
|
|
$1,654,000
|
|
|
|
Deduct: Work in process, end.
|
245,000
|
|
|
|
Cost of goods manufactured
|
$1,409,000
|
|
|
|
|
|
|
|
C.
|
Finished goods, beg.
|
$ 450,000
|
|
|
|
Add: Cost of goods manufactured
|
1,409,000
|
|
|
|
Cost of goods available for sale
|
$1,859,000
|
|
|
|
Deduct: Finished goods, end.
|
440,000
|
|
|
|
Cost of goods sold
|
$1,419,000
|
|
Income and
Financial-Schedule Calculations: Working Backwards
69. The selected amounts that follow were taken
from Kentucky Corporation's accounting records:
|
Raw material
used
|
$ 27,000
|
|
Direct labor
|
35,000
|
|
Total
manufacturing costs
|
104,000
|
|
Work-in-process
inventory, 1/1
|
19,000
|
|
Cost of goods
manufactured
|
100,000
|
|
Cost of goods
available for sale
|
175,000
|
|
Finished-goods
inventory, 12/31
|
60,000
|
|
Sales revenue
|
300,000
|
|
Selling and
administrative expenses
|
125,000
|
|
Income tax
expense
|
18,000
|
Required:
Compute
the following:
A.
Manufacturing
overhead.
B.
Work-in-process
inventory, 12/31.
C.
Finished-goods
inventory, 1/1.
D.
Cost
of goods sold.
E.
Gross
margin.
F.
Net
income.
LO: 6 Type: A
Answer:
|
A.
|
Total
manufacturing costs
|
|
$104,000
|
|
|
Less: Raw material used
|
$27,000
|
|
|
|
Direct labor
|
35,000
|
62,000
|
|
|
Manufacturing
overhead
|
|
$ 42,000
|
|
B.
|
Total manufacturing
costs
|
|
$104,000
|
|
|
Add: Work-in-process inventory, 1/1
|
|
19,000
|
|
|
|
|
$123,000
|
|
|
Less: Cost of goods manufactured
|
|
100,000
|
|
|
Work-in-process
inventory, 12/31
|
|
$ 23,000
|
|
C.
|
Cost of goods
available for sale
|
|
$175,000
|
|
|
Less: Cost of goods manufactured
|
|
100,000
|
|
|
Finished-goods
inventory, 1/1
|
|
$ 75,000
|
|
D.
|
Cost of goods
available for sale
|
|
$175,000
|
|
|
Less: Finished-goods inventory, 12/31
|
|
60,000
|
|
|
Cost of goods
sold
|
|
$115,000
|
|
E.
|
Sales revenue
|
|
$300,000
|
|
|
Less: Cost of goods sold
|
|
115,000
|
|
|
Gross margin
|
|
$185,000
|
|
|
|
|
|
|
F.
|
Gross margin
|
|
$185,000
|
|
|
Less: Selling and administrative expenses
|
$125,000
|
|
|
|
Income tax expense
|
18,000
|
143,000
|
|
|
Net income
|
|
$ 42,000
|
Flow of
Costs, Missing Values
70. The Morton Company recorded the following
transactions for February 20x1:
|
|
Materials
|
Work in Process
|
Finished Goods
|
|
Purchases
|
$100,000
|
|
|
|
Beginning
inventory
|
18,000
|
$ 8,000
|
$ E
|
|
Ending
inventory
|
A
|
20,000
|
30,000
|
|
Direct
materials used
|
|
90,000
|
|
|
Direct
labor
|
|
B
|
|
|
Manufacturing
overhead
(includes indirect materials used of
$10,000)
|
|
115,000
|
|
|
Transferred
to finished goods
|
|
C
|
|
|
Cost
of goods sold
|
|
|
D
|
Sales
were $560,000, with sales prices determined by adding a 40% markup to the
firm's manufacturing cost. The total
cost of direct materials used, direct labor, and manufacturing overhead during
the month was $285,000.
Required:
Calculate
the missing values.
LO: 6 Type: A
Answer:
|
Item A:
|
|
|
Beginning
materials
|
$ 18,000
|
|
Add:
Purchases
|
100,000
|
|
Less:
Direct materials used
|
(90,000)
|
|
Less:
Indirect materials used
|
(10,000)
|
|
Ending
materials
|
$ 18,000
|
Item B:
|
|
|
Total
production costs
|
$ 285,000
|
|
Less:
Direct materials used
|
(90,000)
|
|
Less:
Manufacturing overhead
|
(115,000)
|
|
Direct
labor
|
$ 80,000
|
|
Item C:
|
|
|
Beginning
work in process
|
$ 8,000
|
|
Add:
Total production costs
|
285,000
|
|
Less:
Ending work in process
|
(20,000)
|
|
Transferred
to finished goods
|
$273,000
|
|
Item D:
|
|
|
Sales
|
$560,000
|
|
Divided
by rate
|
¸140%
|
|
Cost
of goods sold
|
$400,000
|
|
Item E:
|
|
|
Ending
finished goods
|
$ 30,000
|
|
Add:
Cost of goods sold
|
400,000
|
|
Less:
Transferred to finished goods
|
(273,000)
|
|
Beginning
finished goods
|
$157,000
|
Fixed and
Variable Cost Behavior
71. Mighty Muffler, Inc., operates an automobile
service facility. The table below shows
the cost incurred during a month when 600 mufflers were replaced.
|
|
Number of Muffler Replacements
|
||
|
|
500
|
600
|
700
|
|
Total
costs:
|
|
|
|
|
Fixed costs
|
A
|
$ 8,400
|
C
|
|
Variable costs
|
B
|
6,000
|
D
|
|
Total
costs
|
E
|
$14,400
|
F
|
|
Cost
per muffler replacement:
|
|||
|
Fixed cost
|
G
|
H
|
I
|
|
Variable cost
|
J
|
K
|
L
|
|
Total
cost per muffler replacement
|
M
|
N
|
O
|
Required:
Fill
in the missing amounts, labeled A through O, in the table.
LO: 8 Type: A
Answer:
|
|
Number of
Muffler Replacements
|
||
|
|
500
|
600
|
700
|
|
Total
costs:
|
|
|
|
|
Fixed costs
|
$ 8,400.00
|
$ 8,400.00
|
$ 8,400.00
|
|
Variable costs
|
5,000.00
|
6,000.00
|
7,000.00
|
|
Total
costs
|
$13,400.00
|
$14,400.00
|
$15,400.00
|
|
Cost
per muffler replacement:
|
|||
|
Fixed cost
|
$ 16.80
|
$ 14.00
|
$ 12.00
|
|
Variable cost
|
10.00
|
10.00
|
10.00
|
|
Total
cost per muffler replacement
|
$
26.80
|
$
24.00
|
$
22.00
|
Explanatory notes:
A and C each equal $8,400, since fixed costs do not vary
with activity.
J, K, and L each equal $10 ($6,000 ÷ 600), since variable
cost per replacement remains
constant.
B equals $5,000 (500 x $10)
D equals $7,000 (700 x $10)
G equals $16.80 ($8,400 ÷ 500)
H equals $14.00 ($8,400 ÷ 600)
I equals $12.00 ($8,400 ÷ 700)
Fixed and
Variable Cost Behavior
72. Global
Systems began business on January 1 of the current year, producing a single
product that is popular with home builders.
Demand was very strong, allowing the company to sell its entire
manufacturing output of 80,000 units.
The following unit costs were incurred:
|
Manufacturing costs:
|
|
|
Direct materials
|
$15
|
|
Direct labor
|
8
|
|
Variable overhead
|
11
|
|
Fixed overhead
|
6
|
|
Selling and administrative
costs:
|
|
|
Variable
|
5
|
|
Fixed
|
2
|
Global
anticipates an increase in productive output to 100,000 units and sales of
95,000 units in the next accounting period.
The company uses appropriate drivers to determine cost behavior and
estimates.
Required:
A.
Assuming that
present cost behavior patterns continue, compute the total expected costs in
the upcoming accounting period.
B.
George Levy is
about to prepare a graph that shows the unit cost behavior for variable
selling and administrative cost. If the
graph’s horizontal axis is volume and the vertical axis is dollars, briefly
describe what George’s graph should look like.
C.
Determine whether
the following costs are variable or fixed in terms of behavior:
1. Yearly lease payments for a state-of-the-art cutting
machine.
2.
A fee paid to a
consultant who provided advice about quality issues. The fee was based on the number of consulting
hours provided.
3. Cost of an awards dinner for "star"
salespeople.
LO: 7, 8
Type: A, N
Answer:
|
A.
|
Direct materials
(100,000 x $15)
|
$1,500,000
|
||
|
|
Direct labor (100,000 x
$8)
|
800,000
|
||
|
|
Variable overhead
(100,000 x $11)
|
1,100,000
|
||
|
|
Fixed overhead (80,000
x $6)
|
480,000
|
||
|
|
Variable selling and
administrative (95,000 x $5)
|
475,000
|
||
|
|
Fixed selling and
administrative (80,000 x $2)
|
160,000
|
||
|
|
Total costs
|
$4,515,000
|
||
|
B.
|
The variable selling and administrative costs are
constant at $5 per unit. Thus, the
graph is a straight, horizontal line.
|
|||
|
C.
|
1.
|
Fixed
|
||
|
|
2.
|
Variable
|
||
|
|
3.
|
Variable
|
||
Elements of
Financial Statements, Cost Behavior
73. KC Manufacturing, which began operations on
January 1 of the current year, produces an industrial scraper that sells for
$325 per unit. Information related to
the current year's activities follows.
|
Number
of scrapers produced
|
20,000
|
|
Number
of scrapers sold
|
17,000
|
|
Variable
costs per unit:
|
|
|
Direct materials
|
$25
|
|
Direct labor
|
35
|
|
Manufacturing overhead
|
60
|
|
Annual
fixed costs:
|
|
|
Manufacturing overhead
|
$400,000
|
|
Selling and administrative
|
140,000
|
KC
carries its finished-goods inventory at the average unit cost of
production. There was no work in process
at year-end.
Required:
A.
Compute
the company's average unit cost of production.
B.
Determine
the cost of the December 31 finished-goods inventory.
C.
Compute
the company's cost of goods sold.
D.
If
next year's production increases to 23,000 units and general cost behavior
patterns do not change, what is the likely effect on:
1.
The
direct-labor cost of $35 per unit? Why?
2.
The
fixed manufacturing overhead cost of $400,000?
Why?
LO: 5, 6,
8 Type: A
Answer:
|
A.
|
Fixed manufacturing overhead per unit:
|
|||
|
|
$400,000 ¸ 20,000 scrapers produced = $20
|
|||
|
|
Average unit
manufacturing cost:
|
|||
|
|
Direct materials
|
$
25
|
||
|
|
Direct labor
|
35
|
||
|
|
Variable manufacturing overhead
|
60
|
||
|
|
Fixed manufacturing overhead
|
20
|
||
|
|
Average unit cost
|
$140
|
||
|
B.
|
Production (units)
|
20,000
|
||
|
|
Sales (units)
|
17,000
|
||
|
|
Ending finished-goods
inventory (units)
|
3,000
|
||
|
|
3,000 units x $140 =
$420,000
|
|||
|
C.
|
Finished goods, Jan. 1
|
$
---
|
||
|
|
Add: Cost of goods
manufactured (20,000 units x $140)
|
2,800,000
|
||
|
|
Cost of goods available
for sale
|
$2,800,000
|
||
|
|
Deduct: Finished goods,
Dec. 31
|
420,000
|
||
|
|
Cost of goods sold
|
$2,380,000
|
||
|
|
|
|
||
|
D.
|
1.
|
No change. Direct labor is a variable cost, and the
cost per unit will remain constant.
|
||
|
|
2.
|
No change. Despite the increase in the number of units
produced, this is a fixed cost, which remains the same in total.
|
||
Economic
Characteristics of Costs
74. The following terms are used to describe
various economic characteristics of costs:
Opportunity cost Differential
cost
Out-of-pocket
cost Marginal cost
Sunk
cost Average cost
Required:
Choose one of the preceding terms to characterize each of
the amounts described below. Each term may be used only once.
A. The cost of including one extra child in a
day-care center.
B. The cost of merchandise inventory
purchased five years ago. The goods are
now obsolete.
C. The cost of feeding 300 children in a
public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost?
D. The management of a high-rise office
building uses 3,000 square feet of space in the building for its own administrative
functions. This space could be rented
for $30,000. What economic term
describes this $30,000 of lost rental revenue?
E. The cost of building an automated assembly
line in a factory is $700,000; a manually operated assembly line would cost
$250,000. What economic term is used to
describe the $450,000 variation between these two amounts?
F. Refer to the preceding question and assume
that the firm is currently building the assembly line for $700,000. What economic term is used to describe the
$700,000 construction cost?
LO:
10 Type: N
Answer:
A.
Marginal
cost
B. Sunk cost
C. Average cost
D. Opportunity cost
E. Differential cost
F. Out-of-pocket cost
DISCUSSION QUESTIONS
Product Costs and Period
Costs
75. Madison Corporation has a single facility
that it uses for manufacturing, sales, and administrative activities. Should the company's building depreciation
charge be expensed in its entirety or is a different accounting procedure
appropriate? Explain.
LO: 2 Type: N
Answer:
The
company's depreciation charge is, in part, a period cost and, in part, a
product cost. The portion that relates
to selling and administrative activities should be expensed when incurred. In contrast, the portion that relates to
manufacturing should be attached to the goods produced, with the costs now
inventoried on the balance sheet.
Product
Costs and Period Costs, Cost Flows
76. Manufacturers have established a cost
classification called product costs.
Define the term "product cost" and note where these costs
appear in the financial statements. Be
specific.
LO: 2,
5 Type: RC
Answer:
Product
costs are costs that relate to the manufacturing process and consist of direct
materials, direct labor, and manufacturing overhead. Simply stated, these are costs incurred to
make a product.
Product
costs are attached to the units produced (i.e., work in process) and, thus,
inventoried on the balance sheet. These
costs are later charged to finished goods when the goods are completed. Another
transfer occurs when the finished units are sold, with the costs now
transferred to cost of goods sold on the income statement.
Financial
Statements of Service, Retailing, and Manufacturing Firms
77. The income statements and balance sheets of
service, retailing, and manufacturing businesses tend to differ.
Required:
A.
Which
of these businesses will disclose a cost-of-goods-sold figure on the income
statement? Why?
B.
Briefly
describe the difference between a retailing firm and manufacturer's disclosure
of inventories on the balance sheet.
LO: 3 Type: RC
Answer:
A.
Retailers
and manufacturers will disclose a cost-of-goods-sold figure because both of
these entities sell goods. Service businesses, in contrast, do not given that
such firms provide services.
B.
A
retailer will typically disclose inventories as one-line item entitled
merchandise inventories. Manufacturers, on the other hand, carry three
different types of inventories: raw materials, work in process, and finished
goods.
Definition
of Cost Terms
78. Briefly define and discuss the terms in each
of the pairs that follow.
A.
Direct
and indirect costs
B.
Direct
materials and indirect materials
C.
Manufacturing
overhead and direct labor
LO: 5,
9 Type: RC
Answer:
A.
Direct
costs are logically and practically related (i.e., easily traceable) to a
particular cost object. An indirect
cost, on the other hand, is not. Whether
a cost is direct or indirect depends on the cost object under
consideration. A cost may be easily
traceable to a company, for example, but not easily traced to a department of
that firm.
B. Direct materials form an integral part of
the finished product and, at the same time, are easily traced to that product. Indirect materials, which are part of
manufacturing overhead, generally do not meet these guidelines. Note, though, that some indirect material may
be easily traced to the product (e.g., five squirts of wood glue in a piece of
furniture) but it may be too costly to do so.
C. Manufacturing overhead consists of
indirect materials, indirect labor, plant depreciation, factory utilities, and
other factory-related costs. This cost
component reflects all manufacturing costs other than direct materials and
direct labor. Direct labor, in contrast,
consists of wages of those employees who work directly on the goods in
production (machine operators, assembly-line workers, and so forth).
Behavior of Fixed and
Variable Costs
79. In discussing the operation of his
automobile, a doctor once observed that gasoline is a fixed cost because the
cost per gallon is relatively stable.
Insurance, on the other hand, is a variable cost because the cost per
mile varies inversely with the number of miles driven. Comment on the doctor's observation.
LO: 8 Type: N
Answer:
The
doctor's observations are incorrect, as gasoline is a variable cost and
insurance is a fixed cost. Gasoline cost
will increase with the number of miles driven, whereas insurance outlays will
remain the same. The doctor seems to
have confused the "total" perspective, as defined by accountants,
with the notion of per-unit cost behavior.
Economic
Characteristics of Costs, Relevance for Decisions
80. Describe the economic characteristics of sunk
costs and opportunity costs, and explain the impact that these costs may have
on decisions.
LO:
10 Type: RC
Answer:
Sunk costs
have already been incurred. They are
part of history and cannot be altered.
Therefore, sunk costs are not relevant for any current or future
management decision.
Opportunity
costs, in contrast, are relevant for current and future decisions. Such costs are defined as the net benefits
from a decision alternative that was not selected—that is, the benefits were
sacrificed to pursue another option.
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