Chapter 2

Question 1

Cost

Answer 1

Is a resource sacrificed or forgone to achieve a specific objective

Question 2

Actual Cost

Answer 2

is the historical amount, or cost incurred, as distinguished from budgeted cost, which is the predicted or forecasted (future) amount of cost

Question 3

Cost object

Answer 3

is anything for which a measurement of cost is desired. For example, this can be a product, an assemblyline, a product line, or a department

Question 4

Cost accumulation

Answer 4

is the collection of cost data in some organized manner by means of an accounting system. Following accumulation, costs are assigned to the chosen cost object

Question 5

Cost Assignemnt

Answer 5

Involves tracing and allocating costs, depending on the type of cost involved.

Question 6

Direct costs of a cost object

Answer 6

are costs that are related to the cost object and can be traced to it in an economically feasible (cost effective) way.

Question 7

Cost tracing

Answer 7

the process of assigning direct costs to a cost object

Question 8

Direct Materials

Answer 8

are materials that go into the production of the product

Question 9

Direct Labor

Answer 9

the wages paid to workers who spend time working on the product

Question 10

Indirect costs of a cost object

Answer 10

are related to the cost object but cannot be traced in an economically feasible way. These costs are frequently referred to as factory overhead, manufacturing overhead, or some similar term. These costs include supervisor salaries, supplies, or other costs incurred in the factory that are not direct materials or direct labor. Indirect costs are assigned to a cost object by allocation

Question 11

Materiality of the cost

Answer 11

The smaller the amount of the cost, the less likely that it is economically feasible to trace that cost to a particular cost object

Question 12

Available information gathering technology

Answer 12

For example, bar code technology has made it possible to trace just about any raw material used in the manufacturing process

Question 13

Diesign of operations

Answer 13

A cost used exclusively for a specific cost object can be readily traced

Question 14

Can the same cost be direct or indeirect depending on the context?

Answer 14

Yes

Question 15

Variable cost

Answer 15

changes in total in proportion to changes in the activity level. For ex, if the number of units produced doubles, DM (a variable cost) would double in total. Note, however, that the VC per unit remains constant

Question 16

Total fixed costs

Answer 16

do not change with changes in the activity level. If units produced doubles, total fixed costs remain the same. However, when expressed on a per-unit basis, fixed costs would change with an increase in activity.

Question 17

Cost Driver

Answer 17

is a variable, such as the level or activity or volume that causally affects costs over a given span of time. Stated another way, there is a cause-and-effect relationship between the level of activity of the cost driver and the cost incurred

Question 18

Relevant Range

Answer 18

is the range of activity withing which costs behave as predicted. Outside this level of activity, costs behave differently.

Question 19

Costs may be classified as

Answer 19

Direct/Indirect, and Variable/Fixed

Question 20

Unit costs

Answer 20

are calculated by dividing total cost incurred by the number of units produced and are normally used in making decisions such as product mix and pricing. However, managers should usually think in terms of total costs for most decisions

Question 21

Period costs

Answer 21

are all costs on the income statement other than cost of goods sold. period costs are treated as expenses of the period in which they are incurred

Question 22

Direct materials used in the accounting period

Answer 22

Beg DM Inventory + Purchases of DM - Ending DM inventory

Question 23

Total Manufacturing costs incurred

Answer 23

DM used + Direct labor + Factory overhead or all indirect manufacturing costs

Question 24

COGM

Answer 24

Beg WIP + Total Manufacturing costs incurred - Ending WIP inventory

Question 25

COGS

Answer 25

Beginning finished goods inventory + COGM - Ending inventory of FG

Question 26

Gross margin

Answer 26

Sales - COGS

Question 27

Operating income (before taxes)

Answer 27

Gross margin - Non-manufacturing costs (period costs)

Question 28

Prime costs

Answer 28

is a term used to describe all direct costs or direct materials plus direct labor

Question 29

Conversion cost

Answer 29

is direct labor plus factory overhead. It is the cost of converting the materials into a finished prodcut

Question 30

Contribution margin

Answer 30

= Revenue - Variable Costs

Question 31

Contribution margin per unit

Answer 31

= per unit selling price less per unit variable costs or can be obtained by dividing contribution margin by the number of units sold

Question 32

contribution margin percentage

Answer 32

is the contribution margin per unit divided by selling price per unit or contribution margin divided by revenue

Question 33

Operating Income =

Answer 33

Revenue - VC - FC

(selling price* Quantity of units sold) - (Unit VC * Quantity of units sold) - FC

Question 34

Break-even Units

Answer 34

= Fixed costs/ contribution margin per unit

Question 35

Break-even Revenue

Answer 35

= Fixed costs/ contribution margin percentage

Question 36

Quantity of units requred to be sold

Answer 36

=(FIxed Costs + Target Operating income)/ Contribution margin per unit

Question 37

$ Revenues needed

Answer 37

= (Fixed costs + Target operating income)/ Contribution margin %

Question 38

Margin of Safety

Answer 38

An indicator of risk, measures the distance between budged sales and break even sales

Question 39

MOS =

Answer 39

budgeted sales - BE Sales

Question 40

MOS ratio

Answer 40

removes the firm’s size from the output, and expresses itself in the form of a percentage

Question 41

MOS ratio =

Answer 41

MOS / Budgeted Sales

Question 42

Operating leverage

Answer 42

describes the effect that FC have on changes in Operating income as changes occur in units sold and contribution margin

Question 43

OL =

Answer 43

Contribution margin/ Operating income

Question 44

Y = F + VX

Answer 44

Y = total cost
F = Fixed cost
V = Variable cost per unit of cost diver
X = Total cost driver activity level

Question 45

A cause-and-effect relationship might arise as a result of

Answer 45

A physical relationship between the level of activity and the costs

A contractual agreement

Knowledge of operations

Question 46

High Low Method

Answer 46

Take the highest and lowest of cost DRIVER not the cost. Then plug into Y = F+ VX

Question 47

Evaluation of High- Low method

Answer 47

Simple to implement as you need only aggregate cost data

Only two data points and this is a major weakness

Does not take into account the hierarchical nature of costs

Question 48

As per GAAP, period costs for a manufacturing company are:

Answer 48

All non-manufacturing costs

Question 49

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of DC for the golf equipment line is_____

a. beverages provided daily in the plant break room
b. monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver
c. salaries of the clerical staff that work in the company administrative offices
d. overheads incurred in the producing both golf and soccer equipment

Answer 49

B. monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver

Question 50

Which of the following statements about the direct/indirect cost classification is true?

A) Indirect costs are always traced.
B) Indirect costs are always allocated.
C) The design of sales target affects the direct/indirect classification.
D) The direct/indirect classification depends on the cost control measures.
E) Indirect costs are always eliminated

Answer 50

B) Indirect costs are always allocated.

Question 51

Maize Plastics manufactures and sells 50,000 bottles per day. Fixed costs are $30,000 and the total variable costs for manufacturing 50,000 bottles are $10,000. Each bottle is sold for $1. How would the daily profit be affected if the daily volume of sales drops by 10%?

A) profits are reduced by $4,000 
B) profits are reduced by $1,000 
C) profits are reduced by $5,000
D) profits are reduced by $6,000 
E) profits are reduced by $2,000

Answer 51

A) profits are reduced by $4,000

Calculations:

New daily volume of sales= 50,000-(10% * 50,000) = 45,000
Variable cost per bottle = $10,000/50,000 = $0.2 per bottle
Comparative chart:

Sales units 50,000 45,000
Sales revenue (sales units * $1) $50,000 $45,000
- Fixed Costs (remain unchanged regardless of the quantity sold) $30,000 $30,000
- Variable Costs (sales units * $0.2) $10,000 $ 9,000
Profit $10,000 $6,000

								     Profits reduced by $4000

Question 52

When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will \_\_\_\_\_\_\_\_.
A) decrease to $12.80 per unit 
B) remain at $16 per unit 
C) decrease to $10 per unit 
D) total $160,000 
E) increase to $20 per unit

Answer 52

E) increase to $20 per unit

Total fixed costs: 20,000 units* $16 per unit = $320,000

Fixed cost per unit at 16,000 units = $320,000 / 16000 units = $20 per unit

Question 53

Which one of the following examples could be best classified as a direct cost?

A) the cost of electricity related to a product when cost of electricity is measured only at the factory level; the product line is the object.
B) the salary costs incurred for payroll check processing personnel; payroll check processing activity is the cost object.
C) the salary of a maintenance supervisor in the manufacturing plant; Product A is the cost object.
D) the cost incurred for electricity in the office; Accounting department is the cost object.
E) JSOM Dean’s salary; Undergraduate accounting program is the cost object.

Answer 53

B) the salary costs incurred for payroll check processing personnel; payroll check processing activity is the cost object.

Question 54

XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also increase.
E) Total manufacturing costs will decrease and unit manufacturing costs will also increase.

Answer 54

B) Total manufacturing costs will increase and unit manufacturing costs will decrease.

Question 55

. The following information pertains to the Stratford Company which sells sports memorabilia:

Beginning merchandise inventory $ 80,000
Merchandise bought during the period 70,000
Operating expenses 45,000
Ending merchandise inventory 60,000

What is the cost of merchandise sold?

A) $ 45,000
B) $ 70,000
C) $ 80,000
D) $ 90,000
E) $ 115,000

Answer 55

D) $ 90,000
Opening inventory + purchases during the year – ending inventory = Cost of goods sold
80,000 + 70,000 – 60,000 = 90,000

Question 56

. The following information pertains to Smith’s Country Wood Shop:

Beginning finished goods, 1/1/20x1 $ 15,000
Ending finished goods, 12/31/20x1 10,000
Cost of goods manufactured 56,000
Sales 115,000

What is the gross margin for 20x1?

A) $ 55,500
B) $ 31,500
C) $ 51,000
D) $ 61,500
E) $ 54,000

Answer 56

E) $ 54,000
Gross margin= Sales – COGS
= 115,000 – (15,000+56,000-10,000)
=54,000

Question 57

Assuming a constant mix of 4 units of Zip for every 5 units of Zap, a per-unit selling price of $25.00 for Zip and $40.00 for Zap, variable costs per unit of $16.00 for Zip and $22.00 for Zap, and total fixed costs of $189,000, the break even point in units would be _____.

A) 4,000 units of Zip and 5,000 units of Zap
B) 6,000 units of Zip and 7,500 units of Zap
C) 10,000 units of Zip and 5,000 units of Zap
D) 54,000 units of Zip and 67,500 units of Zap

Answer 57

B) 6,000 units of Zip and 7,500 units of Zap

WACM = (4x9 + 5x18) / 9 = 14
Breakeven = 189,000/14 = 13,500 units total
Zip Units = (4/9) * 13,500 = 6,000; Zap units = (5/9) * 13,500 = 7,500

Question 58

Texpedia provides travel services on the Internet. In the first quarter of 2015, Texpedia reported an operating income of $4 million on sales revenue of $60 million. In the second quarter of 2015, sales revenue had increased to $80 million, and Texpedia had an operating income of $20 million. Assume that total fixed costs and the contribution margin % were the same during both quarters of the year.

12. Texpedia’s contribution margin % is

A) 60%
B) 70%
C) 50%
D) 80%

Answer 58

D) 80%

Contribution margin % = change in OI / Change in rev = (20-4) / (80-60) = 16/20 = 80%

Question 59

Texpedia provides travel services on the Internet. In the first quarter of 2015, Texpedia reported an operating income of $4 million on sales revenue of $60 million. In the second quarter of 2015, sales revenue had increased to $80 million, and Texpedia had an operating income of $20 million. Assume that total fixed costs and the contribution margin % were the same during both quarters of the year.
Texpedia’s Break-even revenue is

Answer 59

C) $55 million
Fixed costs (using second quarter) = 80 x 0.80 – 20 = $44 M.
Break-even Rev = $44 M/ 0.8 = $55 M

Question 60

14. Texpedia’s operating leverage for the second quarter is

A) 5.0
B) -3.5
C) 3.2
D) 4.4

Answer 60

C) 3.2

Operating Leverage = CM for second quarter / OI for second quarter = (80 x 0.8) / 20 = 3.2

Question 61

Consider a company whose current cost structure generates a contribution margin ratio of 60% on revenue. The current break-even revenue is $1,200,000. By increasing its fixed costs by $90,000 this company can increase its contribution margin ratio to 75%. If the company implements this change the new break-even revenue will be:

A) $900,000
B) $1,080,000
C) $1,100,000
D) $820,000

Answer 61

B) $1,080,000
Current fixed costs = 60% x 1,200,000 = $720,000
Revised fixed costs = $810,000
Revised BE volume = $810,000/0.75 = $1,080,000

Question 62

2) Assume that the relevant range of monthly production is 9,000 to 12,000 units. When 10,000 units are produced per month, fixed costs are $11 per unit. Therefore, when 11,000 units are produced, fixed costs will most likely ________.

A) decrease to $12.80 per unit 
B) remain at $11 per unit 
C) decrease to $10 per unit 
D) total $120,000 
E) increase to $20 per unit

Answer 62

C) decrease to $10 per unit

Question 63

3) When making decisions involving cost projections, it is best to use

Answer 63

C) total cost, rather than unit cost

Question 64

5) For a manufacturing company that experiences an increase in finished goods inventory during an accounting period (i.e. ending finished goods is higher than beginning finished goods) the cost of goods manufactured

A) Will be smaller than the cost of goods sold
B) Will be larger than the cost of goods sold
C) Will be larger than the gross margin
D) Will be smaller than the period costs

Answer 64

B) Will be larger than the cost of goods sold

Question 65

) The following information pertains to the Stratford Company which sells sports memorabilia:

Beginning merchandise inventory $ 80,000
Merchandise bought during the period 100,000
Operating expenses 45,000
Cost of merchandise sold 160,000

What is the value of the ending merchandise inventory?

A)	$ 180,000
B)	$ 340,000
C)	$ 120,000
D)	$   20,000
E)	$   40,000

Answer 65

D) $ 20,000

Question 66

A manufacturing plant produces two product lines: golf equipment and soccer equipment. When the chosen cost object is the golf equipment line and the cost driver is the number of golf drivers produced in a month, the monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver will most likely be classified by this plant as

A) Direct and Variable
B) Direct and Fixed
C) Indirect and Variable
D) Indirect and Fixed

Answer 66

B) Direct and Fixed

Question 67

8) When there is a change in the level of the underlying cost driver in the relevant range,

A) total fixed costs will be the same and total variable costs will change
B) total fixed cost and total variable costs both will change
C) total fixed costs and total variable costs will be the same
D) total variable costs will be the same and total fixed costs will change

Answer 67

A) total fixed costs will be the same and total variable costs will change

Question 68

Which one of the following examples could be best classified as an indirect cost?

A) The cost of factory administrative salaries related to a product when the salaries are measured only at the factory level; the product line is the object.
B) The printing costs incurred for payroll check processing; payroll check processing is the cost object.
C) The salary of a maintenance supervisor in the manufacturing plant; Manufacturing plant is the cost object.
D) Advertising charges for promoting brand X; Brand X is the cost object.

Answer 68

A) The cost of factory administrative salaries related to a product when the salaries are measured only at the factory level; the product line is the object.

Question 69

Biswas and Co., currently has monthly sales of $10,000,000, contribution margin of 50% and monthly fixed costs of $4,000,000. Assuming operations are within the relevant range, Biswas’ monthly operating income will increase by ______ if current sales increase by 10%.

A) 10%
B) 20%
C) 25%
D) 50%
E) an amount that cannot be derived based on the information presented

Answer 69

D) 50%
Calculation:
Sales 10,000,000 11,000,000
Less: Variable Cost (derived) 5,000,000 5,500,000
Contribution Margin 5,000,000 5,500,000
Less: Fixed Cost 4,000,000 4,000,000
Operating Income 1,000,000 1,500,000

Change in operating income= 1,500,000 – 1,000,000 = 5,00,000
% change = 5,00,000/ 1,000,000 * 100 = 50%

Question 70

) Jindal and Co., currently sells two related products, Zip and Zap in a sales mix ratio of 3:2. The per-unit selling prices are $25.00 for Zip and $40.00 for Zap; The variable costs per unit are $20.00 for Zip and $30.00 for Zap. Jindal is currently evaluating a simple, no additional cost, sales force reorganization that would lead to a sales mix of 4:3. With new sales mix, Jindal’s breakeven sales in terms of total number of units sold will

A) remain the same
B) increase
C) decrease
D) increase first but then decline
E) cannot say based on the information provided

Answer 70

C) decrease
Calculation:			Zip		Zap
S.P				$25		$40
Less: V.C.			$20		$30
Contribution p.u. 		$5		$10		

For Sales mix 3:2:
Total contribution from sales mix = Zip = $5 * 3 = $15
Zap = $10 * 2 = $20
= $35
WACM = $35/5 = $7
For Sales mix 4:3:
Total contribution from sales mix = Zip = $5 * 4 = $20
Zap = $10 * 3 = $30
= $50
WACM = $50/7 = $7.14
Therefore, 4:3 will generate a lower BE volume

Question 71

Consider a company whose current cost structure generates a contribution margin ratio of 50% on revenue. The current break-even revenue is $1,000,000. By increasing its fixed costs by $100,000 this company can increase its contribution margin ratio to 60%. If the company implements this change, the new break-even revenue will be:

A) $900,000
B) $1,080,000
C) $1,100,000
D) $1,000,000

Answer 71

D) $1,000,000
Calculation = Change in fixed cost / % Change in contribution margin
= 100,000/10%
= 1,000,000

Question 72

Cactus Jacks employs professional cleaners. Total budgeted costs were $648,000, of which $270,000 were indirect costs and the budgeted professional labor-hours were 54,000. Actual direct costs were $360,000 and actual hours were 45,000. What are the actual direct cost rate per professional labor hour and budgeted indirect-cost allocation rate per professional labor hour, respectively?

a. $12.00 per hour and $5.00 per hour
b. $8.00 per hour and $6.00 per hour
c. $8.00 per hour and $5.00 per hour
d. $7.00 per hour and $5.00 per hour

Answer 72

c. $8.00 per hour and $5.00 per hour

Actual Direct Costs/Actual Professional Labor Hours= $360,000/45,000 = $8
Budgeted Indirect Costs/Budgeted Professional Labor Hours= $270,000/54,000 = $5

Question 73

The spreading of under allocated or over allocated overhead among ending work-in-process, ending finished goods, and cost of goods sold is called:

A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) None of these answers are correct.

Answer 73

B) the proration approach

Question 74

. A ________ is a grouping of individual indirect cost items.

A) cost allocation base
B) cost assignment
C) cost pool
D) job-costing system

Answer 74

Cost pool

Question 75

The cost allocation base

A) is a grouping of individual indirect cost items.
B) are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way.
C) is anything for which a measurement of costs is desired.
D) is a systematic way to link an indirect cost or group of indirect costs to cost objects.

Answer 75

D) is a systematic way to link an indirect cost or group of indirect costs to cost objects.

Question 76

. ________ costing is used by a business to price unique products for different jobs.

A) Actual
B) Job
C) Process
D) Traditional

Answer 76

JOb

Question 77

. ________ costing is used by a business to price unique products for different jobs.

A) Actual
B) Job
C) Process
D) Traditional

Answer 77

D) Companies in all sectors in the economy may use job-costing.

Question 78

. The budgeted indirect-cost rate for each cost pool is computed as

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.
B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs.
C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base.
D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base.

Answer 78

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.

Question 79

8. In a normal costing system, the Manufacturing Overhead Control account:

A) is increased by allocated manufacturing overhead
B) is credited with amounts transferred to Work-in-Process
C) is decreased by allocated manufacturing overhead
D) is debited with actual overhead costs

Answer 79

D) is debited with actual overhead costs

Question 80

All of the following increase (are debited to) the Work-in-Process Control account EXCEPT:

A) actual plant insurance costs
B) direct materials
C) allocated manufacturing overhead costs
D) direct manufacturing labor

Answer 80

A) actual plant insurance costs

Question 81

Joni’s Kitty Supplies applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $60 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of the Toy Mouse product. Estimates for this order include: Direct materials $18,000; 400 direct manufacturing labor-hours at a labor rate of $20 per hour; and a 20% markup rate on total manufacturing costs. The bid price for this special order is:

A) $50,000
B) $60,000
C) $80,000
D) $96,000

Answer 81

B) $60,000

Explanation: (DU $18,000 + DML (400 × $20) + MOH 24,000) × 120% = $60,000

Question 82

Inventory at the beginning of August in a particular department contained 10,000 units of goods that were 40% complete for conversion. 25,000 units were completed and transferred out of the department during August. 2,000 were still in process at the end of August and were 50% complete for conversion. Assume there was no spoilage. The equivalent units to be used to get the average conversion costs per unit for the period under the FIFO method are:

a. 24,400
b. 19,600
c. 22,000
d. Cannot be determined with the given data.

Answer 82

c. 22,000
Under FIFO we need to calculate equivalent units based on work done during the current period for conversion costs. Department first finished the remaining 60% work on the 10,000 units, then finished an extra 15,000 (=25,000-10,000) 100% and the sent these 25,000 units out of the department. It still had in inventory 2000 units which were completed 50% during August.
Therefore EU for conversion costs = (10,000 x 0.6) + 15,000 + (2,000 x 0.5) = 22,000.
An alternative way to look at this is =( 25,000 + (2000 x 0.5)) – (10,000 x 0.4) = 22,000
(work done during current period = work completed up to date – work done before current period).

Question 83

Woodcraft Furniture had 90,000 foam cushions in beginning inventory in process as of May 1 (80% converted) and 20,000 cushions in process as of May 31 (50% converted) in its finishing department. During the month, 140,000 cushions were transferred out to finished goods warehouse from the Finishing department. Assume there was no spoilage. The equivalent units to be used to calculate average conversion costs for May for the Finishing department using the Weighted Average method are:

a. 66,000 cushions
b. 166,000 cushions
c. 132,000 cushions
d. 150,000 cushions

Answer 83

d. 150,000 cushions
Under WA, we need to calculate equivalent units based on all the work done until date for conversion costs. The finishing department sent out 140,000 (which was 100% completed for conversion work in that department) and it also had in inventory 20,000 cushions which were 50% complete.
Therefore EU for conversion costs = 140,000 + (20,000 x 0.5) = 150,000.

Question 84

Inventory at the beginning of October in the last processing department of a company contained 50,000 units of goods that were partially complete. 70,000 units were completed and transferred out of the department during October. There was no ending inventory. Assume there was no spoilage. Which of the following statements is TRUE?

Answer 84

c. The equivalent units for transferred-in costs under FIFO for this department is 20,000
Transferred-in-costs are always 100% wherever the units are in the last processing department because they capture work done in all the previous departments through which the product had passed. Under FIFO, transferred in costs for October should be averaged over units transferred into the department during October. If 70,000 was transferred out and 50,000 of that came from the beginning inventory and there was no ending inventory the equivalent units for transferred-in costs under FIFO for this department is simply 70,000-50,000 = 20,000

Question 85

Inventory at the beginning of October in the last processing department of a company contained 20,000 units of goods that were partially complete. 50,000 units were completed and transferred out of the department during October. There was no ending inventory. Assume there was no spoilage. Which of the following statements is TRUE?

a. The equivalent units for transferred-in costs under weighted average method is 50,000
b. The equivalent units for transferred-in costs under weighted average method is 30,000
c. The equivalent units for transferred-in costs under weighted average method is 20,000
d. The equivalent units for transferred-in costs under weighted average method cannot be determined with the given data.

Answer 85

a. The equivalent units for transferred-in costs under weighted average method is 50,000
Under WA, transferred in costs for October should be averaged over all units completed to date. If 50,000 was transferred out and there was no ending inventory the equivalent units for transferred-in costs under WA method for this department is simply 50,000.

Question 86

Operating income can differ materially between the results for the weighted-average and FIFO methods when:

a. Direct materials or conversion costs per unit vary significantly from period to period
b. The physical inventory levels of work in process are large relative to the total number of units transferred out
c. Neither of these answers is correct.
d. Both of these answers is correct.

Answer 86

d. Both of these answers is correct.

Question 87

G&G manufacturing company has two processes: Assembly followed by Packaging. The following details are with respect to the Packaging process for the month of January, 20xx. There was no beginning inventory. Transferred-in costs from the Assembly department during the month of January was $2,000,000. 10,000 units were packed and sent to the Finished Goods warehouse during January. 2,500 units were still in process in the Packaging department as of end of January. There was no spoilage. What was the transferred-in cost per equivalent unit for the Packaging department for the month of January, 20xx?

a. $200
b. $160
c. $800
d. Cannot be determined with the given data.

Answer 87

b. $160
There was no beginning inventory. So FIFO or WA method will produce the same result. Simply average the transferred-in costs of $2,000,000 over 10,000 (transferred out units) +2,500 (ending inventory) = 12,500 units. You get 2,000,000/12,500 = $160.

Question 88

For a given department, which of the following items is most likely to be a component of “transferred-in costs from the prior processing department” under FIFO?
A) Conversion costs incurred by the given department
B) The cost of materials requisitioned and used by the given department
C) Value of the beginning inventory in the prior processing department
D) Conversion costs incurred by the next processing department

Answer 88

C) Value of the beginning inventory in the prior processing department

Question 89

1) Consider two companies A and B. A uses the cumulative average time learning model whereas B uses the incremental unit time learning model. They both use a 80% learning curve. Assume that the amount of labor time for the first unit is the same for both companies. The estimated total labor time for the first N units will always be

a) higher for A than B
b) lower for A than b
c) the same for both companies
d) cannot say based on the information provided

Answer 89

b) lower for A than b

Question 90

2) The High-Low method for a one-cost driver model of the type,
Total cost = a + b* quantity of cost driver, calculates the slope coefficient b as

a) Difference between costs for highest and lowest cost observations divided by difference between cost driver quantities associated with these observations
b) Difference between costs associated with highest and lowest observations of the cost driver divided by difference between the highest and lowest observations of the cost driver
c) Cost for the highest observation divided by the highest observation for the cost driver
d) Cost for the highest observation divided by the lowest observation for the cost driver

Answer 90

b) Difference between costs associated with highest and lowest observations of the cost driver divided by difference between the highest and lowest observations of the cost driver

Question 91

In normal job costing, the budgeted indirect-cost rate for each cost pool is computed as

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.
B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs.
C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base.
D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base.

Answer 91

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base.

Question 92

In a normal costing system, the manufacturing overhead allocated account:

A) is credited with the amount of allocated manufacturing overhead
B) is debited with amounts transferred to Work-in-Process
C) is decreased by allocated manufacturing overhead
D) is debited with actual overhead costs

Answer 92

A) is credited with the amount of allocated manufacturing overhead

Question 93

All of the following increase (are debited to) the Factory overhead control account EXCEPT:

A) actual plant insurance costs
B) direct materials
C) factory manager’s salary
D) factory landscape maintenance costs

Answer 93

B) direct materials

Question 94

Northern Defense manufactures drones. It has just started the manufacture of a new type of drone. The first unit took a total of 1,000 labor hours. Labor hours for subsequent units are assumed to follow a 80% cumulative average time learning model. The predicted total labor time for the first 8 units (this includes the first unit) is

a) 6,400 hours
b) 5,120 hours
c) 4,096 hours
d) 6,000 hours
e) None of the above

Answer 94

c) 4,096 hours

Question 95

TYPE A: Cactus Jacks employs professional cleaners. Total budgeted costs for 2018 were $840,000, of which $300,000 were indirect costs and the budgeted professional labor-hours were 60,000. Actual direct costs were $450,000 and actual hours were 45,000. What are the actual direct cost rate per professional labor hour and budgeted indirect-cost allocation rate per professional labor hour, respectively?

A)	$10.00 per hour and $5.00 per hour
B)	$10.00 per hour and $9.00 per hour
C)	$5.00 per hour and $10.00 per hour
D)	$14.00 per hour and $5.00 per hour
E)	None of the above

Answer 95

A) $10.00 per hour and $5.00 per hour

Question 96

Jindal and company manufactures custom trailer homes and started its operations on January 1, 2017. It uses a simple normal job-costing system with direct labor hours as the single allocation base. Budgeted manufacturing overhead and budgeted labor hours were, respectively, estimated as $144,000 and 12,000 hours at the beginning of the year. During the year, the company worked on three trailer homes for three different customers. The actual materials and labor costs for these jobs are provided below. Job A was still in process at the end of 2017, Job B was completed but not delivered to the customer and Job C was sold in September 2017. The actual manufacturing overhead expenses for 2017 were $156,000.

Job Direct materials Direct labor hours Direct labor cost
A $ 20,000 1,000 $10,000
B $ 80,000 4,000 $40,000
C $100,000 5,000 $50,000

10. The budgeted manufacturing overhead rate for Jindal for 2018 was

a. $10 per direct labor hour
b. $15.60 per direct labor hour
c. $12 per direct labor hour
d. $10.80 per direct labor hour
e. $13 per direct labor hour

Answer 96

c. $12 per direct labor hour

Question 97

Jindal and company manufactures custom trailer homes and started its operations on January 1, 2017. It uses a simple normal job-costing system with direct labor hours as the single allocation base. Budgeted manufacturing overhead and budgeted labor hours were, respectively, estimated as $144,000 and 12,000 hours at the beginning of the year. During the year, the company worked on three trailer homes for three different customers. The actual materials and labor costs for these jobs are provided below. Job A was still in process at the end of 2017, Job B was completed but not delivered to the customer and Job C was sold in September 2017. The actual manufacturing overhead expenses for 2017 were $156,000.

Job Direct materials Direct labor hours Direct labor cost
A $ 20,000 1,000 $10,000
B $ 80,000 4,000 $40,000
C $100,000 5,000 $50,000

1. Jindal _____ allocated overhead to the jobs to the extent of ______

a. over ; $ 48,000
b. under; $ 48,000
c. over; $ 36,000
d. under; $56,000
e. under; $36,000

Answer 97

e. under; $36,000

Question 98

Jindal and company manufactures custom trailer homes and started its operations on January 1, 2017. It uses a simple normal job-costing system with direct labor hours as the single allocation base. Budgeted manufacturing overhead and budgeted labor hours were, respectively, estimated as $144,000 and 12,000 hours at the beginning of the year. During the year, the company worked on three trailer homes for three different customers. The actual materials and labor costs for these jobs are provided below. Job A was still in process at the end of 2017, Job B was completed but not delivered to the customer and Job C was sold in September 2017. The actual manufacturing overhead expenses for 2017 were $156,000.

Job Direct materials Direct labor hours Direct labor cost
A $ 20,000 1,000 $10,000
B $ 80,000 4,000 $40,000
C $100,000 5,000 $50,000

Jindal prorates under/over allocated overhead to WIP, FG and COGS accounts at the end of the year based on the amount of allocated overhead in these accounts. This process will lead to

a. WIP, FG and COGS being, respectively, adjusted with 30%, 30% and 40% of under/over allocated overhead
b. WIP, FG and COGS being, respectively, adjusted with 20%, 30% and 50% of under/over allocated overhead
c. WIP, FG and COGS being, respectively, adjusted with 10%, 50% and 40% of under/over allocated overhead
d. WIP, FG and COGS being, respectively, adjusted with 10%, 40% and 50% of under/over allocated overhead
e. WIP, FG and COGS being, respectively, adjusted with 0%, 0% and 100% of under/over allocated overhead

Answer 98

d. WIP, FG and COGS being, respectively, adjusted with 10%, 40% and 50% of under/over allocated overhead

Question 99

Inventory at the beginning of August in a particular department contained 10,000 units of a product that were 40% complete for conversion. Work was started on 30,000 additional units during August. 28,000 good units were completed and transferred out of the department during August. 7,000 were still in process at the end of August and were 50% complete for conversion. Normal spoilage as a percentage of good units for this department is 15%. Inspection is carried out at the end of the department.

1.Number of units classified as abnormal spoilage for August for this department is

a. 200
b. 5,000
c. 800
d. 4,200
e. 4,000

Answer 99

c. 800

Question 100

Inventory at the beginning of August in a particular department contained 10,000 units of a product that were 40% complete for conversion. Work was started on 30,000 additional units during August. 28,000 good units were completed and transferred out of the department during August. 7,000 were still in process at the end of August and were 50% complete for conversion. Normal spoilage as a percentage of good units for this department is 15%. Inspection is carried out at the end of the department

The equivalent units to be used to get the average conversion costs per unit for the period under the Weighted Average method are:

a. 31,500
b. 36,000
c. 36,500
d. 32,500
e. 40,000

Answer 100

c. 36,500

Question 101

Which of the following statements is TRUE?

A) When normal spoilage occurs because of the specifications of a specific job, the manufacturing overhead allocated to the job is reduced
B) When spoilage is abnormal, it is treated as manufacturing overhead
C) When spoilage is abnormal, a specific job is charged for the spoilage reduced by the current disposal value of the spoilage.
D) When spoilage is abnormal, it is treated as a separate line item in the income statement and recorded as loss from abnormal spoilage

Answer 101

D) When spoilage is abnormal, it is treated as a separate line item in the income statement and recorded as loss from abnormal spoilage

Question 102

Which of the following journal entries could most appropriately record the cash sale of scrap when the company policy is to view scrap sales as a reduction of overhead expense?

A) Cash XXX
Sales of reworked Goods XXX

B) Sales of Scrap XXX
Account Receivable XXX

C) Manufacturing Dept Overhead Control XXX
Account Payable XXX

D) Cash XXX
Manufacturing Dept Overhead Control XXX

Answer 102

D) Cash XXX
Manufacturing Dept Overhead Control XXX

Question 103

Johnson and Company manufactures custom-made furniture on a job-order basis. It uses a normal costing system in its factory. It treats the costs associated with spoilage and reworked units as arising due to the specifications of a particular job. During January 2014, Job 90J, for the production of 200 executive chairs, was charged with total manufacturing costs of $4,800 during production. Final inspection of Job 90J disclosed 20 chairs with defective castors. New castors were manually attached to these chairs at a total cost of $200 (cost of castors $140 and direct labor $60). 10 other chairs broke in the compression test and the cushions salvaged from these chairs were sold for a total cash value of $60. These 10 broken chairs were considered to be normal spoilage. The per unit cost of the 190 good chairs in Job 90J is:
A) $18
B) $28
C) $26
D) Cannot be determined using the information given

Answer 103

C) $26

Question 104

Misleading cost numbers are most likely the result of misallocating:

A) direct material costs
B) direct manufacturing labor costs
C) indirect costs
D) All of these answers are correct.

Answer 104

C) indirect costs

Question 105

Refining a cost system requires:

A) classifying as many costs as indirect costs as is feasible
B) choosing cost allocation bases that can be only subjectively measured
C) identifying all the major activities that consume resources in the organization
D) seeking a lesser level of detail

Answer 105

C) identifying all the major activities that consume resources in the organization

Question 106

Which of the following statements about activity-based costing is NOT true?

A) Activity-based costing is useful for allocating marketing and distribution costs as well as indirect manufacturing costs.
B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C) Activity-based costing seeks to distinguish batch-level, product-sustaining, and facility-sustaining costs, especially when they are not proportionate to one another.
D) Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.

Answer 106

B) Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

Question 107

With traditional costing systems, products manufactured in small batches and in small annual volumes may be ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A) overcosted
B) fairly costed
C) undercosted
D) ignored

Answer 107

C) undercosted

Question 108

R&D Costs incurred to support distinct products would most likely be classified in an ABC system as a:

A) output unit-level cost
B) batch-level cost
C) product-sustaining cost
D) facility-sustaining cost

Answer 108

C) product-sustaining cost