Cost

Question 1

Fabricating and finishing are the two production departments of a manufacturing company. Building operations and information services are service departments
that provide support to the two production departments as well as to each other. The company employs departmental overhead rates in the two production departments to allocate the service department costs to the production departments. Square footage is used to allocate building operations, and computer time is used to allocate information services. The costs of the service departments and relevant operating data for the departments are as follows:
Costs:
Labor and benefit costs: Building $ 200,000 Information services $ 300,000
Other traceable costs: Building $350,000 Information services $900,000
Total: Building $550,000 Information services $1,200.000
Operating data:
Square feet occupied: Building 5,000 Information services 10,000 Fabricating 16,000 Finishing 24,000
Computer time (in hours): Building 200 Fabricating 1,200 Finishing 600
If the company employs the step method to allocate the costs of the service departments and if information services are allocated first, then the total amount of service department costs (information services and building operations) allocated to finishing would be

Answer 1

$762,000

Question 2

Mighty, Inc. processes chickens for distribution to major grocery chains. The two major products resulting from the production process are white breast meat and legs. Joint costs of $60,000 are incurred during standard production runs each month, which produce a total of 100,000 pounds of white breast meat and 50,000 pounds of legs. Each pound of white breast meat sells for $2 and each pound of legs sells for $1. If there are no further processing costs incurred after the split-off point, what amount of the joint costs would be allocated to the white breast meat on a relative sales value basis?

Answer 2

$48,000

Question 3

Rebat Co. uses a job order cost system. The following debits (credit) appeared in Rebats work in process account for the month of April 2013:
April Description Amount
1 Balance $ 5,000
30 Direct materials 24,000
30 Direct manufacturing labor 20,000
30 Factory overhead 16,000
30 To finished goods (53,000)
Rebat applies overhead to production at a predetermined rate of 80% of direct manufacturing labor costs. Job No. 5, the only job still in process on April 30, 2013, has been charged with direct manufacturing labor of $5,000. What was the amount of direct materials charged to Job No. 5?

Answer 3

$3,000

Question 4

Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative (which is normally used in high-speed automated environments) of delaying journal entries until after the physical sequences have occurred is referred to as

Answer 4

Backflush costing.

Question 5

Under Tall Co.’s job order costing system manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During January 2013,
Tall’s transactions included the following
Direct materials issued to production $ 80,000
Indirect materials issued to production 8,000
Manufacturing overhead incurred 105,000
Manufacturing overhead applied 103,000
Direct labor costs 107,000
Tall had neither beginning nor ending work in process inventory. What was the cost of jobs completed in January 2013?

Answer 5

$290,000

Question 6

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

a. 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.
b. Activity-based costing differs from traditional costing systems in that products are less likely to be cross-subsidized.
c. Activity-based costing is useful for allocating marketing and distribution costs.
d. In activity-based costing, cost drivers are what cause cost to be incurred.

Answer 6

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 7

Paulson Company had inventories at the beginning and end of 2012 as follows:
1/1/12 12/31/12
Raw material (RM) $55,000 $65,000
Work in process (WIP) 96,000 80,000
Finished goods (FG) 50,000 85,000
During 2012 the following costs were incurred:
Raw materials purchased $400,000
Direct manufacturing labor payroll 220,000
Factory overhead 330,000
Paulson’s cost of goods sold for 2012 was

Answer 7

$921,000

Question 8

In a job cost system, manufacturing overhead is

Answer 8

An indirect cost of jobs and a conversion cost.

Question 9

West Co.’s 2012 manufacturing costs were as follows:
Direct materials and direct manufacturing labor $700,000
Other variable manufacturing costs 100,000
Depreciation of factory building and manufacturing equipment
80,000
Other fixed manufacturing overhead 18,000
What amount should be considered product cost for external reporting purposes?

Answer 9

$898,000

Question 10

A direct manufacturing labor over-time premium should be charged to a specific job when the overtime is caused by the

Answer 10

Customer’s requirement for early completion of job.

Question 11

A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows:
Product Separable costs Sales value
Ajac $ 8,000 $ 80,000
Bjac 22,000 40,000
Total $ 30,000 $ 120,000
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

Answer 11

$48,000

Question 12

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

Answer 12

Reciprocal allocation method.

Question 13

In a job-order cost system, the use of indirect materials would usually be reflected in the general ledger as an increase in

Answer 13

Factory overhead control.

Question 14

Book Co. uses the activity-based costing approach for cost allocation and product costing purposes. Printing, cutting, and binding functions make up the manufacturing process. Machinery and equipment are arranged in operating cells that produce a complete product starting with raw materials. Which of the following are characteristic of Book’s activity-based costing approach?
I. Cost drivers are used as a basis for cost allocation.
II. Costs are accumulated by department or function for purposes of product costing.
III. Activities that do not add value to the product are identified and reduced to the extent possible..

Answer 14

I and III

Question 15

Morton Company’s manufacturing costs for 2012 were as follows:
Direct materials $300,000
Direct manufacturing labor 400,000
Factory overhead:
Variable 80,000
Fixed 50,000
Prime costs totaled

Answer 15

$700,000

Question 16

Jackson Inc. is preparing a flexible budget for 2013 and requires a breakdown of the cost of steam used in its factory into the fixed and variable elements. The following data on the cost of steam used and direct manufacturing labor hours worked are available for the last 6 months of 2012:
Month Cost of steam Direct manufacturing labor hours
July $15,850 3,000
August 13,400 2,050
September 16,370 2,900
October 19,800 3,650
November 17,600 2,670
December 18,500 2,650
Assuming that Jackson uses the high-low points method of analysis, the estimated variable cost of steam per direct manufacturing labor hour should be

Answer 16

$4.00

Question 17

In its first year of operations, Magna Manufacturers had the following costs when it produced 100,000 and sold 80,000 units of its only product.
Manufacturing costs—Fixed $180,000
Variable 160,000
Selling & admin. costs—Fixed 90,000
Variable 40,000
How much lower would Magna’s net income be if it used variable costing instead of full absorption costing?

Answer 17

$36,000

Question 18

Weighted-average and first-in, first-out (FIFO) equivalent units would be the same in a period when which of the following occurs?

a. Both a beginning and an ending inventory exist but are not necessarily equal.
b. No ending inventory exists.
c. Beginning inventory units equal ending inventory units.
d. No beginning inventory exists.

Answer 18

No beginning inventory exists.

Question 19

A company uses a job-order cost system in accounting for its manufacturing operations. Because its processes are labor-oriented, it applies manufacturing overhead on the basis of direct labor hours (DLH).
Normal spoilage is defined as 4% of the units passing inspection. The company includes a provision for normal spoilage cost in its budgeted manufacturing
overhead and manufacturing overhead rate.
Data regarding a job consisting of 30,000 units are presented below.
Volume Data:
Total units in job 30,000
Units failing inspection (spoiled) 1,500
Good units passing inspection 28,500
Cost Data: Per unit Total cost
Direct materials $ 18.00 $ 540,000
Direct labor
2 DLH © $16.00/DLH 32.00 960,000
Manufacturing overhead
2 DLH @ $30.00/DLH 60.00 1,800,000
Total $110.00 $3,300,000
The 1,500 units that failed inspection required .25 DLH of direct labor hours per unit to rework the units into good units. What is the proper charge to the Loss from
Abnormal Spoilage account?

Answer 19

$4,140

Question 20

Pendall Company manufactures products Dee and Eff from a joint process. Product Dee has been allocated $2,500 of total joint costs of $20,000 for the 1,000 units produced. Dee can be sold at the split-off point for $3 per unit, or it can be processed further with additional costs of $1,000 and sold for $5 per unit. If Dee is processed further and sold, the result would be

Answer 20

An additional gain of $1,000 from further processing.

Question 21

When comparing absorption costing to variable costing, which of the following statements is not true?

a. Under absorption costing, operating profit is a function of both sales volume and production volume.
b. A manager who is evaluated based on variable costing operating profit would be tempted to increase production at the end of a period in order to get a more favorable review.
c. When sales volume is more than production volume, variable costing will result in higher operating profit.
d. Absorption costing enables managers to increase operating profits in the short run by increasing inventories.

Answer 21

A manager who is evaluated based on variable costing operating profit would be tempted to increase production at the end of a period in order to get a more favorable review.

Question 22

Cannon Cannery, Inc. estimated its factory overhead at $510,000 for 2012, based on a normal capacity of 100,000 direct manufacturing labor hours. Standard direct
manufacturing labor hours for the year totaled 105,000, while the factory overhead control account at the end of the year showed a balance of $540,000. How much
was the underapplied factory overhead for 2012?

Answer 22

$ 4,500

Question 23

Which of the following statement(s) is(are) true regarding the relationship between absorption costing net income and variable costing income?
I. When production exceeds sales, variable costing income exceeds absorption costing net income.
II. When sales exceeds production, absorption costing income exceeds variable costing net income.

Answer 23

Neither

Question 24

A basic assumption of activity-based costing (ABC) is that

Answer 24

Products or services require the performance of activities, and activities consume resources.

Question 25

A manufacturing company’s primary goals include product quality and customer satisfaction. The company sells a product, for which the market demand is strong, for
$50 per unit. Due to the capacity constraints in the Production Department, only 300,000 units can be produced per year. The current defective rate is 12% (i.e., of
the 300,000 units produced, only 264,000 units are sold and 36,000 units are scrapped). There is no revenue recovery when defective units are scrapped. The full
manufacturing cost of a unit is $29.50, including
Direct material $17.50
Direct labor 4.00
Fixed manufacturing overhead 8.00
The company’s designers have estimated that the defective rate can be reduced to 2% by using a different direct material. However, this will increase the direct material cost by $2.50 per unit to $20 per unit. The net benefit of using the new material to manufacture the product would be

Answer 25

$ 750,000

Question 26

Which of the following types of costs are prime costs?

a. Direct labor and overhead.
b. Direct materials and direct labor.
c. Direct materials, direct labor, and overhead.
d. Direct materials and overhead.

Answer 26

Direct materials and direct labor.

Question 27

Jonathan Mfg. adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and
$100,000, respectively. In addition, budgeted variable and fixed factory overhead were $50,000 and $25,000, respectively. Actual costs and hours for the year were
as follows:
Direct labor hours 21,000
Direct labor costs $110,000
Machine hours 35,000
For a particular job, 1,500 direct labor hours were used. Using direct labor hours as the cost driver, what amount of overhead should be applied to this job?

Answer 27

$5,625

Question 28

Selected information concerning the operations of a company for the year ended December 31 is as follows:
Units produced 20,000
Units sold 18,000
Direct materials used $80,000
Direct labor incurred $40,000
Fixed factory overhead $50,000
Variable factory overhead $24,000
Fixed selling and administrative expenses $60,000
Variable selling and administrative expenses $9,000
Finished goods inventory under variable (direct) costing is equal to

Answer 28

$14,400

Question 29

Which of the following is not a basic approach to allocating costs for costing inventory in joint-cost situations?

a. Flexible budget amounts.
b. Constant gross margin percentage net realizable value method.
c. Sales value at split-off.
d. Physical measures such as weights or volume.

Answer 29

Flexible budget amounts.

Question 30

For a manufacturing company, which of the following is an example of a period rather than a product cost?

a. Insurance on factory equipment.
b. Depreciation on factory equipment.
c. Wages of salespersons.
d. Wages of machine operators.

Answer 30

Wages of salespersons.

Question 31

In the computation of manufacturing cost per equivalent unite the weighted-average method of process costing considers

Answer 31

Current costs plus cost of beginning work in process inventory.

Question 32

Bowie Inc., a manufacturer of earrings, has accumulated the following cost information for products A and B:
A B Total
Production volume 500 1,000
Engineering costs incurred $2,000 $3,000 $5,000
Engineering costs per batch $800 $1,500
Batch size 200 500
Total direct manufacturing labor hours 750 1,400 2,150
Direct manufacturing labor hours/unit 1.5 1.4
Assuming activity-based costing (ABC) is used, what is the engineering cost per unit for products A and B?

Answer 32

A: $ 4.00 B: $3.00

Question 33

A delivery company is implementing a system to compare the costs of purchasing and operating different vehicles in its fleet. Truck 415 is driven 125,000 miles per
year at a variable cost of $0.13 per mile. Truck 415 has a capacity of 28,000 pounds and delivers 250 full loads per year. What amount is the truck’s delivery cost
per pound?

Answer 33

$0.00232 per pound.

Question 34

Box Co. uses regression analysis to estimate the functional relationship between an independent variable (cost driver) and overhead cost. Assume that the following
equation is being used:
y = a + bx
What is the symbol for the independent variable?

Answer 34

X

Question 35

Three commonly employed systems for product costing are job order costing, operations costing, and process costing. Match the type of production environment with
the costing method used.
Job order costing Operations costing Process costing
A. Auto repair Clothing manufacturing Oil refining
B. Loan processing Drug manufacturing Custom printing
C. Custom printing Paint manufacturing Paper manufacturing
D. Engineering design Auto assembly Motion picture production

Answer 35

Auto repair Clothing manufacturing Oil refining

Question 36

In its July 2012 production, Gage Corp., which does not use a standard cost system, incurred total production costs of $800,000, of which Gage attributed $30,000 to
normal spoilage and $20,000 to abnormal spoilage. Gage should account for this spoilage as

Answer 36

Inventoriable cost of $30,000 and period cost of $20,000.

Question 37

Black, Inc. employs a weighted-average method in its process costing system. Black’s work in process inventory on June 30 consists of 40,000 units. These units are
100% complete with respect to materials and 60% complete with respect to conversion costs. The equivalent unit costs are $5.00 for materials and $7.00 for conversion costs. What is the total cost of the June 30 work in process inventory?

Answer 37

$368,000

Question 38

Which of the following statements is correct regarding absorption costing and variable costing?

a. Overhead costs are treated in the same manner under both costing methods.
b. If finished goods inventory increases absorption costing would result in higher income.
c. Gross margins are the same under both costing methods.
d. Variable manufacturing costs are lower under variable costing.

Answer 38

If finished goods inventory increases absorption costing would result in higher income.

Question 39

Using absorption costing, manufacturing overhead costs are best described as

Answer 39

Indirect product costs.

Question 40

In an income statement prepared as an internal report using the absorption costing method, which of the following terms should appear?

a. Gross profit (margin)
b. Neither
c. Contribution margin
d. Both

Answer 40

Gross profit (margin)

Question 41

Selected information concerning the operations of Kern Co. for the year ended December 31, 2012, is as follows:
Units produced 10,000
Units sold 9,000
Direct materials used $ 40,000
Direct manufacturing labor incurred $ 20,000
Fixed factory overhead $ 25,000
Variable factory overhead $ 12,000
Fixed selling and admin. Expenses $ 30,000
Variable selling and admin. Expenses $ 4,500
Finished goods inventory, January 1, 2012 None
There were no work in process inventories at the beginning and end of 2012. Which costing method, absorption or variable costing, would show a higher operating
income for 2012 and by what amount?
a. Absorption costing $2,500
b. Variable costing $2,500
c. Absorption costing $5,500
d. Variable costing $5,500

Answer 41

Absorption costing $2,500

Question 42

A management accountant performs a linear regression of maintenance cost vs. production using a computer spreadsheet. The regression output shows an
“intercept” value of $322,897. How should the accountant interpret this information?

Answer 42

y has a value of $322,897 when X equals zero.

Question 43

Merry Co. has two major categories of factory overhead: material handling and quality control. The costs expected for these categories for the coming year are as
follows:
Material handling $120,000
Quality inspection 200,000
The plan currently applies overhead based on direct labor hours. The estimated direct labor hours are 80,000 per year. The plant manager is asked to submit a bid and assembles the following data on a proposed job:
Direct materials $4,000
Direct labor (2,000 hours) 6,000
What amount is the estimated product cost on the proposed job?

Answer 43

$18,000

Question 44

Fabricating and finishing are the two production departments or a manufacturing company. building operations and information services are service departments
that provide support to the two production departments as well as to each other. The company employs departmental overhead rates in the two production
departments to allocate the service department costs to the production departments. Square footage is used to allocate building operations, and computer time is
used to allocate information services. The costs of the service departments and relevant operating data for the departments are as follows:
Costs:
Labor and benefit costs Building operations $200,000 Information services $ 300,000
Other traceable costs Building operations 350,000 Information services 900,000
Total Building operations $ 550,000 Information services $1,200,000
Operating data:
Square feet occupied Building operations 5,000 Information systems 10,000 Fabricating 16,000 Finishing 24,000
Computer time (in hours) Building operations 200 Fabricating If the company employs the direct method to allocate the costs of the service departments, then the amount of building operations costs allocated to fabricating
would be

Answer 44

$220,000

Question 45

A professional organization is planning to conduct a series of one-day continuing education programs in various cities. The projected costs related to these programs are
Promotional advertising $1,250 per program
Instructor’s fee $ 750 per program
Instructional materials $ 12 per participant
Hotel Charges:
Room rental and setup fee $ 400 per program
Continental breakfast $ 10 per participant
Lunch $ 25 per participant
Refreshment breaks $ 8 per participant
The hotel requires a $200 nonrefundable deposit on the room rental and setup fee 75 days prior to the program. At about the same time, the promotional
advertising materials are developed, prepared, and mailed to potential participants, and a 20% payment is made to ensure the services of an instructor. The
instructor keeps this 20% payment even if the program is canceled and receives the balance of the fee at the conclusion of the program. The remaining hotel fees
and charges, as well as the cost of instructional materials, are paid at the conclusion of the program.
The capacity for each program is 100 persons, but past attendance for similar programs has averaged 80 persons.
The cost-estimating equation for calculating the costs for a one-day continuing education program is

Answer 45

$2,400 plus ($55 times the number of participants)

Question 46

A manufacturing company properly classifies and accounts for one product as a by-product rather than as a main product because it

Answer 46

Has low sales value when compared to the main products.

Question 47

In developing a variable factory overhead application rate for use in a process costing system which of the following could be used in the denominator

a. Estimated factory overhead.
b. Actual direct manufacturing labor hours.
c. Actual factory overhead.
d. Estimated direct manufacturing Iabor hours.

Answer 47

Estimated direct manufacturing Iabor hours.

Question 48

For purposes of allocating joint costs to joint products, the sales price at point of sale reduced by cost to complete after split-off is assumed to be equal to the

Answer 48

Relative sales value at split-off.

Question 49

A major justification for investments in computer integrated manufacturing (dM) projects is

Answer 49

Reduction in the costs of spoilage, reworked units, and scrap.

Question 50

Unlike the traditional full-absorption cost system activity-based costing (ABC) assigns

Answer 50

Costs to individual products based on various activities involved.

Question 51

A CPA would recommend implementing an activity-based costing system under which of the following circumstances?

a. Most of the client’s costs currently are classified as direct costs.
b. The client produced products that heterogeneously consume resources.
c. The client produced many different products that homogeneously consume resources.
d. The client is a single-product manufacturer.

Answer 51

The client produced products that heterogeneously consume resources.

Question 52

Boyle, Inc. makes two products, X and Y, that require allocation of indirect manufacturing costs. The following data was compiled by the accountant before making
any allocations:
Product X Product Y
Quantity produced 10,000 20,000
Direct manufacturing labor hours 15,000 5,000
Setup hours 500 1,500
The total cost of setting up manufacturing processes and equipment is $400,000. The company uses a job-costing system with a single indirect cost rate. Under this system, allocated costs were $300,000 and $100,000 for X and Y, respectively. If an activity-based system is used, what would be the allocated costs for each
product?

Answer 52

Product X $100,000 Product Y $300,000

Question 53

Axe Co. has a job-order cost system. The following debits (credits) appeared in the work in process account for the month of March 2012:

March Description Amount
1 Balance 2,000
31 Direct materials 12,000
31 Direct manufacturing labor 8,000
31 Factory overhead 6,400
31 To finished goods (24,000)

Axe applies overhead to production at a predetermined rate of 80% based on direct manufacturing labor cost. Job No. 9, the only job still in process at the end of March 2012, has been charged with direct manufacturing labor of $1,000. The amount of direct materials charged to Job No. 9 was

Answer 53

$2,600

Question 54

Which of the following costing methods provide(s) the added benefit of usefulness for external reporting purposes?
I. Variable.
II. Absorption.

Answer 54

Absorption

Question 55

Lane Co. produces main products Kul and Wu. The process also yields by-product Zef. Net realizable value of by-product Zef is subtracted from joint production cost
of Kul and Wu. The following information pertains to production in July 2012 at a joint cost of $54,000:
Product Units produced Market value Additional cost after split-off
Product Units Market Value Additional cost
Kul 1,000 $40,000 $0
Wu 1,500 $35,000 0
Zef 500 $7,000 3,000
If Lane uses the net realizable value method for allocating joint cost, how much of the joint cost should be allocated to product Kul?

Answer 55

$26,667

Question 56

At the end of a company’s first year of operations, 2,000 units of inventory are on hand. Variable costs are $100 per unit, and fixed manufacturing costs are $30 per
unit. The use of absorption costing, rather than variable costing, would result in a higher net income of what amount?

Answer 56

$ 60,000

Question 57

A company is attempting to determine if there is a cause and effect relationship between scrap value and output produced. The following exhibit presents the
company’s scrap data for the last fiscal year:
Scrap Value as a Percent of Standard Dollar Value of Output Produced
Month Standard $ amount output Percent scrap (%)
Nov. 11 $1,500,000 4.5
Dec. 11 $1,650,000 2.5
Jan. 12 $1,600,000 3.0
Feb. 12 $1,550,000 2.5
Mar. 12 $1,650,000 1.5
Apr. 12 $1,500,000 4.0
May 12 $1,400,000 2.5
Jun. 12 $1,300,000 3.5
Jul. 12 $1,650,000 5.5
Aug. 12 $1,000,000 4.5
Sep. 12 $1,400,000 3.5
Oct. 12 $1,600,000 2.5
Based on the above data, the company’s scrap value in relation to the standard dollar value of output produced appears to be

Answer 57

Unrelated to the standard dollar value of output.

Question 58

Which of the following non-value-added costs associated with manufactured work in process inventory is most significant?

a. The cost of moving, handling, and storing any individual product.
b. The cost of additional resources consumed to produce any individual product.
c. The cost of labor that cannot be traced to any individual product.
d. The cost of materials that cannot be traced to any individual product.

Answer 58

The cost of moving, handling, and storing any individual product.

Question 59

A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for four months of the current year are presented
in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased
from 20 to 21 individuals during the month of May.
Activity measures March April May June
Sales orders 2,000 1,800 2,400 2,300
Units sold 55,000 60,000 70,000 65,000
Dollar sales $1,150,000 $1,200,000 $1,330,000 $1,275,000
Marketing costs
Advertising $ 190,000 $ 200,000 $ 190,000 $ 190,000
Sales salaries 20,000 20,000 21,000 21,000
Commissions 23,000 24,000 26,600 25,500
Shipping costs 93,000 100,000 114,000 107,000
Total costs $ 326,000 $ 344,000 $ 351,600 $ 343,500
In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs?
Advertising Sales salaries
a. Mixed cost Fixed cost
b. Fixed cost Variable cost
c. Mixed cost Mixed cost
d. Fixed cost Fixed cost

Answer 59

Fixed cost Fixed cost

Question 60

A professional organization is planning to conduct a series of one-day continuing education programs in various cities. The projected costs related to these programs are
Promotional advertising $1,250 per program
Instructor’s fee $ 750 per program
Instructional materials $ 12 per participant
Hotel Charges:
Room rental and setup fee $ 400 per program
Continental breakfast $ 10 per participant
Lunch $ 25 per participant
Refreshment breaks $ 8 per participant
The hotel requires a $200 nonrefundable deposit on the room rental and setup fee 75 days prior to the program. At about the same time, the promotional
advertising materials are developed, prepared, and mailed to potential participants, and a 20% payment is made to ensure the services of an instructor. The
instructor keeps this 20% payment even if the program is canceled and receives the balance of the fee at the conclusion of the program. The remaining hotel fees
and charges, as well as the cost of instructional materials, are paid at the conclusion of the program.
The capacity for each program is 100 persons, but past attendance for similar programs has averaged 80 persons.
Approximately ten days before the scheduled date of one program, only 25 individuals had registered for the program. All fees had been paid as scheduled. The director of the program decided to review the costs to determine whether the program should be canceled. Which of the following cost-estimation equations should be used to determine the additional costs that would be incurred if the program were not canceled?
a. $1,600 plus ($55 times the number of participants).
b. $800 plus ($55 times the number of participants).
c. $2,400 plus ($55 times the number of participants).
d. $119 times the number of participants.

Answer 60

$800 plus ($55 times the number of participants).

Question 61

Hartwell Company distributes service department overhead costs directly to producing departments without allocation to the other service department. Information for the month of January 2012 is as follows:
Service departments
Maintenance Utilities
Overhead costs incurred $18,700 $9,000
Service provided to:
Maintenance department 10%
Utilities department 20%
Producing department A 40% 30%
Producing department B 40% 60%
Total 100% 100%
The amount of utilities department costs distributed to producing department B for January 2012 should be

Answer 61

$6,000

Question 62

DJ Co. has a job-order cost system. The following debits (credits) appeared in the Work in Process account for the month of March:
March 1, balance $12,000
March 31, direct materials 40,000
March 31, direct labor 30,000
March 31, manufacturing overhead applied 27,000
March 31, to finished goods (100,000)
DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?

Answer 62

$4,250

Question 63

What is the cost of ending inventory given the following factors?
Beginning inventory $ 5,000
Total production costs 60,000
Costs of goods sold 55,000
Direct labor 40,000

Answer 63

$10,000

Question 64

The variable portion of the semivariable cost of electricity for a manufacturing plant is a

a. Conversion cost
b. Both
c. Period cost
d. Neither

Answer 64

Conversion cost

Question 65

A company employs a process costing system for its two-department manufacturing operation using the first-in-first-out (FIFO) inventory method. When units are completed in department 1, they are transferred to department 2 for completion. Inspection takes place in department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.
Generally the number of defective units (that is, those failing inspection) is below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for department 2, in units for the current month, is presented below.
Physical flow
(output units)
Beginning inventory
(60% complete with respect to conversion) 20,000
Units transferred in from department 180,000
Total units to account for 200,000
Units completed in department 2 during the month 170,000
Units found to be defective at inspection 5,000
Ending inventory
(80% complete with respect to conversion) 25,000
Total units accounted for 200,000

The equivalent units for direct materials for the current month would be

Answer 65

195,000 units.

Question 66

In the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales for was increased from 20 to 21 individuals during the month of May.
Activity measures March April May June
Sales orders 2,000 1,800 2,400 2,300
Units sold 55,000 60,000 70,000 65,000
Dollar sales $1,150,000 $1,200,000 $1,330,000 $1,275,000
Marketing costs
Advertising $ 190,000 $ 200,000 $ 190,000 $ 190,000
Sales salaries 20,000 20,000 21,000 21,000
Commissions 23,000 24,000 26,600 25,500
Shipping costs 93,000 100,000 114,000 107,000
Total costs $ 326,000 $ 344,000 $ 351,600 $ 343,500
In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs?
Advertising Sales salaries
a. Mixed cost Fixed cost
b. Fixed cost Variable cost
c. Mixed cost Mixed cost
d. Fixed cost Fixed cost

Answer 66

Fixed cost Fixed cost

Question 67

The following is selected information from the records of Ray, Inc.:
Purchases of raw materials $ 6,000
Raw materials, beginning 500
Raw materials, ending 800
Work-in-process, beginning O
Work-in-process, ending O
Cost of goods sold 12,000
Finished goods, beginning 1,200
Finished goods, ending 1,400
What is the total amount of conversion costs?

Answer 67

$6,500

Question 68

When using the first-in, first-out method of process costing, total equivalent units of production for a given period of time is equal to the number of units

Answer 68

In work in process at the beginning of the period times the percent of work necessary to complete the items, plus the number of units started during the period, less the number of units remaining in work in process at the end of the period times the percent of work necessary to complete the items.

Question 69

During the current year, the following manufacturing activity took place for a company’s products:
Beginnïng work in process 70% complete 10,000 units
Units started into production during the year 150,000 units
Units completed during the year 140,000 units
Ending work in process 25% complete 20,000 units
What was the number of equivalent units produced using the first-in, first-out method?

Answer 69

138,000

Question 70

Which of the following is assigned to goods that were either purchased or manufactured for resale?

Answer 70

Product cost.

Question 71

A company with three products classifies its costs as belonging to five functions: design, production, marketing, distribution, and customer services. For pricing
purposes, all company costs are assigned to the three products. The direct costs of each of the five functions are traced directly to the three products. The indirect
costs of each of the five business functions are collected into five separate cost pools and then assigned to the three products using appropriate allocation bases. The
allocation base that would most likely be the best for allocating the indirect costs of the distribution function is

Answer 71

Number of shipments.

Question 72

A manufacturing company employs a process cost system. The company’s product passes through both Department 1 and Department 2 in order to be completed.
Conversion costs are incurred uniformly throughout the process in Department 2. The direct material is added in Department 2 when conversion is 80% complete.
This direct material is a preservative that does not change the volume. Spoiled units are discovered at the final inspection and are recognized then for costing
purposes. The physical flow of units for the current month is presented below.
Beginning work in process in Department 2
(90% complete with respect to conversion costs) 14,000
Transferred in from Department 1 76,000
Completed and transferred to finished goods 80,000
Spoiled units—all normal 1,500
Ending work in process in Department 2
(60% complete with respect to conversion costs) 8,500
If the manufacturing company uses the weighted-average method, the equivalent units for direct materials in Department 2 for the current month would be

Answer 72

81,500

Question 73

Mason Company uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The
rate for the current year is 200% of direct-labor dollars. This rate was calculated last December and will be used throughout the current year. Mason had one job,
No. 150, in process on August 1 with raw materials costs of $2,000 and direct-labor costs of $3,000. During August, raw materials and direct labor added to jobs
were as follows:
No. 150 No. 151 No. 152
Raw materials $ X $4,000 $1,000
Direct labor 1,500 5,000 2,500
Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Job Nos. 150 and 151. For August, manufacturing
overhead was

Answer 73

Underapplied by $2,000

Question 74

A manufacturing company employs a process cost system. The company’s product passes through both Department 1 and Department 2 in order to be
completed. Conversion costs are incurred uniformly throughout the process in Department 2. The direct material is added in Department 2 when conversion is
80% complete. This direct material is a preservative that does not change the volume. Spoiled units are discovered at the final inspection and are recognized then
for costing purposes. The physical flow of units for the current month is presented below.
Beginning work in process in Department 2
(90% complete with respect to conversion costs) 14,000
Transferred in from Department 1 76,000
Completed and transferred to finished goods 80,000
Spoiled units—all normal 1,500
Ending work in process in Department 2
(60% complete with respect to conversion costs) 8,500
If the manufacturing company uses the FIFO (first-in, first-out) method, the equivalent units for conversion costs in Department 2 for the current month would be

Answer 74

74,000