Testbank to accompany
Accounting 8th Edition by John Hoggett, Lew Edwards John Medlin and Matthew Tilling Tilling
Prepared by
Barbara Burns
© John Wiley & ons !ustralia, Ltd "#$$
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Testbank to accompany Accounting 8e
Chapter 8: Multiple Choice
$% Which Which o these these statem statements ents is not not correc correct' t' a% !n e(pens e(pensee is the the cons consum umpt ption ion or loss loss o res resour ource cess that that wil willl resul resultt in a decr decrea ease se in in e)uit e)uity y b% ! cost that that pro*ides pro*ides uture uture economic economic beneits is treated treated as an asset asset c% To acc accou ount ntan ants ts the the term termss cost cost and and e(pe e(pens nsee alw alway ayss mea mean n the the same same thin thing g d% Many cost osts e*en *entual ually becom ecomee e(pe e(pens nsees !+WE ection .%$ "% -osts which which are not directly directly re)uired re)uired to produce a product but are e(pensed in the income statement in the period in which they are incurred are called/ a% 0roduct costs b% 0eriod costs c% 1ariable costs d% 2i(ed costs !+WE B ection .%" 3% 0roduct costs costs are integral to the production production o o a product product and are are e(pensed e(pensed in the period in in which/ a% The related units are sold b% The related related units are are produced produced c% The costs are paid d% The costs are incurred !+WE ! ection .%" 4% Which Which o these these is an e(ample e(ample o o a period period cost' cost' a% 5ire 5irect ct mat mater eria ials ls b% 0roduction super*isor6s super*is or6s salary c% 2actory rent d% 2rei 2reigh ghtt outw outwar ards ds !+WE 5 ection .%" 7% 2or which which purposes purposes do do product product costs costs need to be calculated calculated by a manuacture manuacturer' r' 8n*entory 0roit Management decision9
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Chapter 8: Accounting for Manufacturing
d%
+o
+o
;es
!+WE ! ection .%$ <% Whic Which h o thes thesee is not not a produc productt cost/ cost/ a% 2actory power b% Wages o actory actory wor:ers wor:ers c% Material us used in in pr production d% !d*ertising o a new product !+WE 5 ection .%" =% Which Which o these these is an e(ample e(ample o o a produc productt cost' cost' a% !ssembly line wor:er6s r6s wages b% >eneral oice printing and stationery s tationery c% 8nterest e( e(pense d% 5epreciation o o oice urniture !+WE ! ection .%" .% Which o these these would would normally normally be classiie classiied d as direct materials' materials' heet metal used Lubricants used on 0lastic used in ma:i ma:ing ng trac tracto tors rs prod produc ucti tion on mach machin iner ery y in ma:i ma:ing ng calculators a% ;es ;es ;es b% ;es +o ;es c% +o ;es +o d% +o +o +o ;es !+WE B ection .%3 ?% The The corr correc ectt sta state teme ment nt is/ is/ a% 8tem 8temss such such as as glue, glue, nail nailss and and scre screws ws becom becomee part part o o the the ini inishe shed d produ product ct but but are are usua usuall lly y classiied as actory o*erhead b% The cost cost o collecting collecting debts debts rom customers customers is classii classiied ed as part part o actory o*erhead o*erhead c% 0owe 0owerr use used d or or act actor ory y ligh lighti ting ng and and hea heati ting ng is is clas classi sii ied ed as as a per perio iod d cost cost d% !bso !bsorp rpti tion on cos costi ting ng spl split itss up ac acto tory ry cos costs ts int into o prod produc uctt and and peri period od cos costs ts !+WE ! ection .%3 $#% 8ssues that must be resol*ed resol*ed in accounting accounting or actory o*erhead are all o the ollowing ollowing
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Testbank to accompany Accounting 8e
d%
How to calculate prime cost
!+WE 5 ection .%3 $$% !s manuacturing manuacturing o*erhead costs cannot be traced to products a method must be de*eloped or assigning them to products% -ommon bases or assignment assignment are all o the ollowing e(cept/ a% 5irect labour cost b% 5irect labour hours hours c% Machine hours d% 5ire 5irect ct labo labour ur hours ours plus plus dire direcct machi achine ne hours ours !+WE 5 ection .%3 $"% 8 pro@ected pro@ected actory o*erhead is A$7# ### p%a% and pro@ected pro@ected direct labour labour hours are 3# ### hours p%a%, the o*erhead application rate is/ a% A7 per 5irect labour Hour b% A3# per 5irect labour Hour c% "#c per 5irect labour Hour d% A$7# ### !+WE ! ection .%3 $3% What is the correct order in which the low o costs in a manuacturing organisation organisation occurs' $% -harge -harge raw materials materials,, direct labour and and actory actory o*erhead o*erhead to wor: wor: in process process "% 0urcha 0urchase se stoc: stoc:ss o raw raw mater material ialss 3% Transer ranser ini inished shed goods goods to cost o sales sales 4% Transer ranser inish inished ed goods goods to stoc: stoc: o ini inished shed goods goods a% $, ", 3, 4 b% ", $, 4, 3 c% ", $, 3, 4 d% 4, 3, ", $ !+WE B ection .%3 $4% 5irect material material costs plus direct direct labour costs are :nown :nown as/ a% 0rime co costs b% -on*ersion costs c% 2i(ed co costs d% 0erio riod cos costs
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Chapter 8: Accounting for Manufacturing
a% b% c% d%
!ssigning !ssigning the o*erhead o*erhead on a basis that closely closely relates relates it to the wor: wor: perormed perormed !dding up the o*erhead o*erh ead 5irectl 5irectly y tracin tracing g the the o*erhe o*erhead ad to to produc products ts 0assing 0assing on the the o*erhead o*erhead costs costs to custom customers ers in the price price charg charged ed
!+WE ! ection .%3 $<% 8 e(pected actory actory o*erhead costs are A4## ### and e(pected e(pected direct labour labour hours are 4# ###, what is the o*erhead application rate per direct labour hour' a% A$# b% A$## c% A$ ### d% A$< !+WE ! ection .%3 $=% 5irect labour labour costs plus actory o*erhead o*erhead costs are :nown as/ a% 0rime co costs b% -on*ersion costs c% 5irec rect cost costss d% 1aria ariabl blee cost costss !+WE B ection .%3 $.% 1ariable ariable costs/ costs/ a% ema emain in cons consta tant nt in tota totall reg regar ardl dles esss o the the le*e le*ell o o outp output ut b% 8ncrease 8ncrease per unit unit as output increases increases c% 5ecrease pe per un unit as as ou output de decreases d% ema emain in cons consta tant nt per per uni unitt reg regar ardl dles esss o o the the le*e le*ell o o out outpu putt !+WE 5 ection .%4 $?% 8 total i(ed costs are A"7 ### what what is the per unit o*erhead cost or -o i 7# ### units are produced' !ssume units o production are used as the basis or applying o*erhead to product% a% A7# b% A7 c% A#%7# d% A#%#7 !+WE ection .%4
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Testbank to accompany Accounting 8e
c% d%
8ncr 8ncrea ease sess o on n a per per uni unitt bas basis is as * *ol olum umee inc incre reas ases es 5oes not rise as inlation changes
!+WE B ection .%4 "$% What type o business would calculate calculate cost o sales in the income statement as stoc: o inished goods at start purchases C stoc: o inished goods at end' a% ! ser* ser*ic icee busi busine ness ss b% ! manuacturer manuacturer c% ! retailer d% 0artn rtnershi rship p !+WE ection .%7 ""% 2or a manuacturer, manuacturer, i cost o goods manuactured is A<7" ###, stoc: o inished goods at start is A3< ### and stoc: o inished goods at end is A4# ###, calculate the cost o sales% a% A<7< ### b% A<4. ### c% A=". ### d% -annot -annot be calcul calculated ated with with the the inorma inormatio tion n a*ailable a*ailable !+WE B ection .%7 "3% When preparing preparing a -ost o >oods Manuactured Manuactured tatement tatement rom the ollowing inormation inormation the total cost o goods manuactured is/ 5irect materials A. !d*ertising e(penses 3 8ndirect labour $ 8ndirect materials 7 5irect labour " Dther manuacturing o*erhead 4 a% A"3 b% A"# c% A$= d% A$< !+WE B A. A$ A7 A" A4 ection .%7 "4%
These These igur igures es ha*e ha*e been e(trac e(tracted ted rom rom the trial trial bala balance nce o o !B- Ltd or June "#$ "#$$/ $/ 5irect Materials A7 ### Light and 0ower 2actory $4 ###
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Chapter 8: Accounting for Manufacturing
a% b% c% d%
alesmens -ommission . ### 2actory Wages Wages 9 5irect3# 5irect 3# ### 9 8ndirect $# ### There was no opening or closing wor: in process% Total actory o*erhead e(penses are/ A37 ### A3# ### A<# ### A"# ###
!+WE B A$4 ### A< ### A$# ### ection .%7 "7% -alculate -alculate product product cost per per unit% 5irect materials per unit A7# 5ire 5irect ct labou labourr per per unit unit A3# 2actory o*erhead applied at "F3 o direct labour cost a% A$$# b% A$## c% A?# d% A.# !+WE B A7# A3# A"# ection .%7 "<% Mc Manuacturing reports the ollowing inormation or a recent year% year% 5etermine the cost o inished goods manuactured% A Wor: in process $ January = ### Wor: in process 3$ 5ecember $# ### 2inished goods in*entory $ January 7 ### 2inished goods in*entory 3$ 5ecember < ### 5irect materials used 3 ### 5irect labour " ### 2actory o*erhead " ### elling e(penses 3 ### >eneral and administrati*e e(penses 4 ###
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Testbank to accompany Accounting 8e
a% b% c% d%
Beginning wor: in process is A$$ 7## What is the direct material cost or the period' A$= 4## A$3 4## A? 4## A< 4##
!+WE A37 ### A= 7## 9 A$" =## 9 A. ?## 9 A$$ 7## ection .%7 ".%
a% b% c% d%
"#$# "#$# A"# ### 7 ### $# ###
"#$$ "#$$ 2inished goods in*entory A$# ### Wor: in process in*entory $# ### aw materials in*entory $7 ### 0urchases o raw materials $3 ### -ost o goods manuactured 7# ### The cost o raw materials transerred to production in "#$$ is/ A. ### A$# ### A$3 ### A$. ###
!+WE ! A$# ### A$3 ### 9 A$7 ### ection .%7 "?% Beore the application o o*erhead costs 1eccio -orporation has the ollowing costs traced to production/ 5irect Materials 5irect Labour -harged to production A3# ### A4# ###
a% b% c
!ssuming that o*erhead is applied at the rate o $##G o direct labour cost what is the amount o in*entory inished or the period assume no wor: in processI' A3# ### A4# ### A.# ###
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Chapter 8: Accounting for Manufacturing
!+WE 5 ection .%7 3
%$a% b% c% d%
2or March "#$$ 2inished goods purchases -ost o goods manuactured ales 8n*entories aw materials Wor: in process 2inished goods >ross proit or the month o March "#$$ is/ A7# ### A<# ### A77 ### A47 ###
A 7 ### 7# ### $## ### $ Mar $$ A$# ### "7 ### .# ###
3$ Mar $$ A$. ### 3" ### ?# ###
!+WE A$## ### C A7### A7# ### A.# ### 9 A?# ###K ection .%7 3"% 8n the general ledger the accounts used to determine determine the cost o goods manuactured manuactured are closed to the manuacturing summary account which is then closed to the/ a% 8nco 8ncome me sum summa mary ry acc accou ount nt b% -ost o sales account c% >ros >rosss pro proi itt acc accou ount nt d% 0ro 0roit it acco accoun untt !+WE ! ection .%< 33% The correct statement statement concerning concerning sustainable manuacturin manuacturing g is/ a% Manu Manuac actu turi ring ng in a sus susta tain inab able le way way alwa always ys in*ol in*ol*es *es highe higherr man manua uact cturi uring ng costs costs b% ecycling ecycling can occur within within the the production production process process or at the end o the product6 product6ss useul lie
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Testbank to accompany Accounting 8e
a% b% c% d%
$ " 3 4
!+WE 5 ection .%$ 37% The correct correct stateme statement nt is/ a% Manu Manuac actu turi ring ng o*erhe o*erhead ad cost costss are are trea treate ted d as as peri period od cost costss rat rather her than than produ product ct cost cost b% >T is treated treated as as a period period cost cost c% 2or 2or a reta retail iler er all all cos costs ts and and e(p e(pen ense sess are are trea treate ted d as as per perio iod d cos costs ts d% 0rod 0roduc uctt cos costs ts are are inc inclu lude ded d in in in* in*en ento tory ry unti untill the the prod produc uctt is is sol sold d !+WE 5 ection .%"
Fill-in the blanks
%$The actory oice and the )uality control departments are :nown as s departments and are considered to be part o the manuacturing process%
!+WE ser*ice or supportI ection .%3 "%
0 costs are e(pensed in the income statement in the period when they are incurred%
!+WE 0eriod ection .%" 3%
The cost o a inished product consists o three basic elements/ raw materials, d l, and actory o*erhead%
!+WE direct labour ection .%3
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Chapter 8: Accounting for Manufacturing
<%
8 budgeted o*erhead is A"#,### and estimated direct labour hours are "###, the o*erhead reco*ery rate is A per direct labour hour%
!+WE A$# ection .%3 =%
2i(ed costs per unit *ary directlyFin*erselyI with the le*el o acti*ity%
!+WE in*ersely ection .%4 .%
2or a manuacturing irm, at the end o the accounting period, all manuacturing costs are closed to the M ledger account%
!+WE Manuacturing ummary ection .%< ?%
8n comparing the income statement o a manuacturer and a retailer cost o goods manuactured ta:es the place o or a retailer%
!+WE purchases ection .%7 $#%
5eiciencies o using a periodic in*entory system or a manuacturer increase with the number o products and production departments, conse)uently such a system can only be used satisactoril satisactorily y by a s manuacturing manuacturing entity% entity%
!+WE small ection .%< Exam type questions !E"T#$% 8&'
Mungo and !ssociates pro*ide the ollowing inormation/ A !dministrati*e salaries " # # ##
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Testbank to accompany Accounting 8e
EN8E5/ aI bI cI dI
-alcula -alculate te total total manua manuactur cturing ing costs% costs% -alculate cost o goods goo ds manuactured% -alc -alcula ulate te cost cost o o sale sales% s% -alcula -alculate te proi proitt or loss ater ater ta( ta(
uestion 8&(
5uring the irst month o the current accounting period, -arlo Limited e(perienced a de*astating loss due to a ire% Many o the accounting records were lost and the company is now trying to re9create the lost inormation% 2ragments o data include the ollowing/
! portion o the budget indicates that the manuacturing o*erhead rate was A$# per direct labour hour% Job 44 was in process and had incurred A?,<## o direct materials and A$4,### o direct labour $,### hoursI% The company has a single hourly wage rate% 4,7## direct labour hours were wor:ed during the month% !ctual manuacturing o*erhead costs were were A4.,###% +o indirect materials were used% used% The materials in*entory account had a beginning balance o A".,### and an ending balance o A$.,###% A$.,## #% The inished goods in*entory account had a beginning balance o A$",### and an ending balance o A"<,###% A"<,## #% The wor: in progress in*entory account had a beginning balance o A$=,###% The cost o sales is A$=$,###
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Chapter 8: Accounting for Manufacturing
Total manuacturing costs
A ,###
O Materials Jan $I materials purchased 9 materials 5ec 3$I P 4#,### $<,### 3.,### P A$.,### bI -ost o goods manuactured Total manuacturing costs 0lus W80 in*entory January $ Total cost o W80 during the year Less W80 in*entory 5ecember 3$ -ost o goods manuactured
A <.,### ,### $3,### .",### $4,### A <.,###
cI -ost o sales 2inishe 2inished d goods goods in*entor in*entory y January January $ 0lus cost o goods manuactured Total cost o goods a*ailable or sale Less inished goods in*entory 5ecember 3$ -ost o sales
A =#,### "#,### "#,### <.,### ..,### $.,### A =#,###
dI 0roit ater ta(
A 4 ## #
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Testbank to accompany Accounting 8e
5irect materials used P A?3,<## Ending wor: in progress cost o goods completed 9 beginning wor: in progress 9 direct labour 9 applied o*erhead P A33,<## A$.7,### 9 A$=,### 9 A$4 ( 4,7## hoursI 9 A$# ( 4,7## hoursI dI 5irect materials purchased P A.3,<## Ending materials in*entory direct materials used 9 beginning materials in*entory P A$.,### A?3,<## 9 A".,###