M2-Cost Accounting: Part 2

Question 1

Normal spoilage is considered a necessary cost of production and is a product (inventoriable) cost. Abnormal spoilage is considered unnecessary and is a period cost. (true or false)

Answer 1

true

Question 2

Cost of Goods Manufactured uses applied overhead, not actual overhead. (true or false)

Answer 2

true

Question 3

Using the weighted average method, the cost per equivalent unit for materials is calculated as follows:

Answer 3

Weighted average = (Beginning cost + Current cost) / Equivalent Units of Production

Equivalent Units of Production (EQU) = [Units completed + (Ending WIP x % completed)]

Question 4

Indirect materials are included in factory overhead costs as they are used in the production process. Therefore, the issue of indirect materials would decrease stores control and increase factory overhead control. (true or false)

Answer 4

true

Indirect materials are a component of stores prior to being issued to the production department. When issued, the amount would decrease stores control.

Question 5

FIFO and weighted average produce the same equivalent units when there is no beginning inventory. FIFO is a three step process, while weighted average is a two-step process. The major difference between the two methods is consideration of beginning inventory amounts by FIFO. (true or false)

Answer 5

true

Question 6

Process costing is a method of allocating production costs to products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job. (true or false)

Answer 6

true

Question 7

Operation costing is a hybrid system that allows the company to use job order costing for some costs of production and process costing for other costs. (true or false)

Answer 7

true

Question 8

Activity-based costing is a system that accumulated all costs of overhead for each of the activities of the organization and then allocates those activity costs to the cost objects that caused the activity. (true or false)

Answer 8

true

Question 9

Job order costing is a method of allocating production costs to products and services that are identifiable as separate units and require greater or lesser amounts of work to complete. (true or false)

Answer 9

true

Question 10

Job costing is used in the production of tailor-made or unique goods, including:

Answer 10

• construction of buildings or ships
• aircraft assembly
• printing
• special purpose machinery (microcomputer manufacturer)
• public accounting firm
• management consulting firm
• repair shops
• industrial research projects

Question 11

Process costing is used where the product is composed of mass produced homogeneous units such as:

Answer 11

• gasoline and oil
• chemicals
• steel
• textiles (wallpaper)
• plastics
• paints
• flour
• meatpacking
• canneries
• rubber
• lumber
• food processing (beverage drink manufacturer)
• glass
• mining
• cement
• check clearing in banks
• mail sorting in post offices
• food preparation in fast food outlets
• premium handling in insurance companies