7.3 Costing Techniques

Question 1

Which one of the following alternatives correctly classifies the business application to the appropriate costing system?

A. Job Costing System: Wallpaper manufacturer, Process Costing System: Oil refinery
B. Job Costing System: Aircraft assembly, Process Costing System: Public accounting firm
C. Job Costing System: Paint manufacturer, Process Costing System: Retail banking
D. Job Costing System: Print shop, Process Costing System: Beverage manufacturer

Answer 1

D. Job Costing System: Print shop, Process Costing System: Beverage manufacturer

A job costing system is used when products differ from one customer to the next, that is, when products are heterogeneous. A process costing system is used when similar products are mass produced on a continuous basis. A print shop, for example, would use a job costing system because each job will be unique. Each customer provides the specifications for the product desired. A beverage manufacturer, however, would use a process costing system because homogeneous units are produced continuously.

Question 2

A standard-cost system may be used in

Process Costing: Yes/No
Job-Order Costing: Yes/No
Activity-Based Costing: Yes/No

Answer 2

Process Costing: Yes
Job-Order Costing: Yes
Activity-Based Costing: Yes

Question 3

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is

A. Direct costing.
B. Activity-based costing.
C. Cycle-time costing.
D. Variable costing.

Answer 3

B. Activity-based costing.

An activity-based costing (ABC) system identifies the causal relationship between the incurrence of cost and the underlying activities that cause those costs. Under an ABC system, costs are applied to products on the basis of resources consumed (drivers).

Question 4

Consider the cost of goods sold calculation shown below.

Beginning inventory: $ 100,000
Plus cost of goods manufactured: 2,500,000
Less ending inventory: (125,000)
Plus variable overhead efficiency variance: 10,000
Cost of goods sold: $2,485,000

This is an example of which cost measurement technique?

A. Normal costing
B. Either actual costing or normal costing
C. Standard costing
D. Either normal costing or standard costing

Answer 4

D. Either normal costing or standard costing

In both normal and standard costing, immaterial efficiency variances are accounted for as an addition to cost of goods sold.