Cost accounting Part 1 Flashcards
Which of the following is true regarding inventoriable costs?
A. Inventoriable costs include only the prime costs of manufacturing a product.
B. Inventoriable costs include only the conversion costs of manufacturing a product.
C. Inventoriable costs are regarded as assets before the products are sold.
D. Inventoriable costs exclude fixed factory overhead
Choice “C” is correct. Inventoriable costs are assets until sold, when they become “cost
of goods sold.”
Choice “A” is incorrect. Prime costs include direct materials and direct labor, but not
factory overhead.
Choice “B” is incorrect. Conversion costs are direct labor and overhead, but exclude
direct material.
Choice “D” is incorrect. Fixed factory overhead is capitalized as part of inventoriable
costs.
Conversion costs do not include:
A. Direct materials.
B. Indirect labor.
C. Indirect materials.
D. Direct labor.
Choice “A” is correct. Conversion costs consist of direct labor and overhead.
Accordingly, conversion costs include all product costs except direct materials.
What kind of cost(s) is direct labor?
Direct labor is a prime cost, a conversion cost and a product cost.
Conversion cost pricing:
A. Places minimal emphasis on the cost of materials used in manufacturing aproduct.
B. Could be used when the customer furnishes the material used in manufacturing a product.
C. Places heavy emphasis on indirect costs and disregards consideration of direct costs.
D. Places heavy emphasis on direct costs and disregards consideration of indirect costs.
Choice “B” is correct.
Conversion cost pricing could be used when the customer furnishes the material used in manufacturing a product.
Choice “A” is incorrect. Conversion cost pricing places no (not minimal) emphasis on
the cost of materials used in manufacturing a product.
Choices “C” and “D” are incorrect. Conversion cost pricing places heavy emphasis on
indirect (overhead) costs and direct labor, but disregards consideration of direct
materials.
MCQ-08281
Which of the following choices shows the proper treatment of sales commissions and
abnormal spoilage charges when calculating a manufactured good’s inventoriable cost?
Sales Commissions /Abnormal Spoilage
A. Include /Include
B. Include / Exclude
C. Exclude / Include
D. Exclude / Exclude
Choice “D” is correct.
BOTH SALES COMISH AND ABNORMAL SPOILAGE ARE EXCLUDED FROM MANUFACTURED GOOD INVENTORY COSTS.
Product (inventoriable) costs include direct labor, direct material, and applied overhead. Direct material costs anticipate a provision for normal spoilage.
Sales commissions are selling and administrative expenses that are period (not product) costs, and abnormal spoilage is charged against income of the period as a separate component of cost of goods sold.
If a product required a great deal of electricity to produce, and crude oil prices increased,
which cost most likely increased?
CONERSION COST
Conversion costs include both direct labor and overhead. Increases in crude oil prices are likely to impact the cost of generating electricity (and,
by extension, the rate for electricity). Electricity is significant in manufacture of the product in the fact pattern and would likely increase the overhead costs of the manufacturer.
Prime costs are the sum of __________________.
direct materials and direct labor
______________ cost is assigned to goods that were either purchased or manufactured for resale.
Product
_____________________ are costs that are relevant to a particular decision.
Relevant costs
_________________ are costs that are not charged to a product (capitalized), which is why they are expensed.
Period costs
____________________ are costs that would have been saved or profits that would have been earned if another decision alternative had been selected.
Opportunity costs
Which of the following costs includes all the product costs?
A. Direct material and conversion costs.
B. Direct labor and conversion costs.
C. Manufacturing overhead and conversion costs.
D. Direct labor and prime costs
Choice “A” is correct.
Product costs consist of direct materials, direct labor, and factory (manufacturing) overhead. Materials and labor added together are prime costs, while
labor and overhead are conversion costs. Direct materials plus conversion costs
comprise all product costs
Madtack Company’s beginning and ending inventories for the month of November Year 1
are:
November 1 November 30
Direct materials $67,000 $62,000
Work-in-process 145,000 171,000
Finished goods 85,000 78,000
Production data for the month of November follows:
Direct labor $200,000
Actual factory overhead 132,000
Direct materials purchased 163,000
Transportation in 4,000
Purchase returns and allowances 2,000
Madtack uses one factory overhead control account and charges factory overhead to production at 70 percent of direct labor cost. The company does not formally recognize over/underapplied overhead until year-end.
Madtack Company’s prime cost for November is:
Choice “A” is correct. Prime costs are the sum of direct materials and direct labor.
Direct material is found by squeezing out the cost of goods in the account analysis format:
Beginning balance direct materials $67,000
Plus purchases 163,000
Plus transportation in 4,000
Less purchase returns and allowances 2,000
=Materials available 232,000
Less cost of materials used 170,000 ← SQUEEZE
Ending balance direct materials $62,000
NOTE: Materials avail of $232000 - Ending balance DM of $62k = $170,000 [cost of materials used aka SQUEEZE]
Direct materials $170,000
+
Direct labor (given) 200,000
=Prime cost $370,000
____________ costs (labor and overhead) are derived from the relationship between the finished goods and work in process inventory.
Conversion costs
Formula for conversion costs?????????????
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