Chapter 01

CHAPTER 1: INTRODUCTION TO COST ACCOUNTING

MULTIPLE MULTIPLE CHOICE

1. The business business entity that converts purchased raw materials into into finished goods by using labor, labor, technology, and facilities is a: a. Manu Manufa fact ctur urer er.. b. Merchandiser. c. Serv Servic icee busi busine ness ss.. d. Not-fo Not-for-p r-prof rofit it serv service ice agency agency.. NS:  The business entity that converts purchased raw materials into finished goods by b y using labor, technology, and facilities is a manufacturer. !TS: 1 "#$: %asy &'(: #ntroduction NT NT: )S' nalytic nalytic * #M-'usiness pplications pplications

MS): 'loom+s: nowledge

. The busines businesss entity entity that that purchases purchases finish finished ed goods goods for resale resale is a: a: a. Manu Manufa fact ctur urer er.. b. Merchandiser. c. Serv Servic icee busi busine ness ss.. d. $or-p $or-prof rofit it servi service ce bus busine iness. ss. NS: ' The business entity that purchases finished goods for resale is a merchandiser. !TS: 1 "#$: %asy &'(: #ntroduction NT NT: )S' nalytic nalytic * #M-'usiness pplications pplications


. The type of merchandiser who purchases purchases goods from the producer and sells them to shops that sell them to the consumer is a: a. Manu Manufa fact ctur urer er.. b. /etailer. c. 0holesaler. d. Serv Servic icee busi busine ness ss.. NS: )  wholesaler purchases goods from the producer and sells them to the retailer. !TS: 1 "#$: %asy &'(: #ntroduction NT NT: )S' nalytic nalytic * #M-'usiness pplications pplications


. %2amples %2amples of service service businesse businessess inclu include: de: a. irlin irlines, es, archi architec tects ts,, and hair hair stylis stylists. ts. b. "epartment stores, poster poster shops, and wholesalers. wholesalers. c. ircraft ircraft produc producers, ers, home home build builders, ers, and and machin machinee tool tool ma3ers. ma3ers. d. None None of of thes thesee are are corr correc ect. t. NS:  %2amples of service businesses include airlines, architects, and hair stylists. !TS: 1 "#$: Moderate &'(: #ntroduction NT NT: )S' /eflective Thin3ing Thin3ing * #M-'usiness pplications pplications

MS): 'loom+s: 'loom+s: )omprehens )omprehension ion 4. #S& 5666 5666 is is a set set of internati international onal standards standards for: for: a. determ determini ining ng the the sellin selling g price price of a prod product uct.. b. cost control. c. 7ual 7ualit ity y mana manage gem ment. ent. d. planning, NS: ) #S& 5666 is a set of international standards for 7uality management. !TS: 1 "#$: %asy &'(: #ntroduction NT NT: )S' nalytic nalytic * #M-Strategic !lanning !lanning


8. 9nit cost cost information information is import important ant for ma3ing ma3ing all of the followin following g mar3eting mar3eting decisions decisions except: a. "eterm "etermini ining ng the the sellin selling g price price of a prod product uct.. b. 'idding on contracts. contracts. c. "etermining "etermining the the amount amount of adverti advertising sing needed needed to to promote promote the the product. product. d. "etermining "etermining the amount amount of of profit profit that that each produ product ct earns. earns. NS: ) 9nit cost information is used in determining selling price, bidding on contracts and determining product profitability, profitability, but would not have have a bearing on determining determining how much the product would would need to be advertised. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT NT: )S' nalytic nalytic * #M-Strategic Mar3eting Mar3eting T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: n nowledge . The process of establishing establishing ob;ectives ob;ectives or goals goals for the the firm and determining the the means by which they will be met is: a. cont contro roll lliing. ng. b. analys company>s operations to to determine whether the company>s ob;ectives are being achieved. %ffective control is achieved through through all of the following except: a. periodical periodically ly measuri measuring ng and and compa comparing ring company company result results. s. b. assigning responsibility responsibility for costs costs to employees responsible responsible for those costs. c. constantly constantly monitoring monitoring employ employees ees to ensure ensure they they do e2actly e2actly as as they are are told. told. d. ta3ing ta3ing necessary necessary correc corrective tive action action when when varianc variances es warrant warrant doing doing so. so. NS: )

MS): 'loom+s: 'loom+s: )omprehens )omprehension ion 4. #S& 5666 5666 is is a set set of internati international onal standards standards for: for: a. determ determini ining ng the the sellin selling g price price of a prod product uct.. b. cost control. c. 7ual 7ualit ity y mana manage gem ment. ent. d. planning, NS: ) #S& 5666 is a set of international standards for 7uality management. !TS: 1 "#$: %asy &'(: #ntroduction NT NT: )S' nalytic nalytic * #M-Strategic !lanning !lanning


8. 9nit cost cost information information is import important ant for ma3ing ma3ing all of the followin following g mar3eting mar3eting decisions decisions except: a. "eterm "etermini ining ng the the sellin selling g price price of a prod product uct.. b. 'idding on contracts. contracts. c. "etermining "etermining the the amount amount of adverti advertising sing needed needed to to promote promote the the product. product. d. "etermining "etermining the amount amount of of profit profit that that each produ product ct earns. earns. NS: ) 9nit cost information is used in determining selling price, bidding on contracts and determining product profitability, profitability, but would not have have a bearing on determining determining how much the product would would need to be advertised. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT NT: )S' nalytic nalytic * #M-Strategic Mar3eting Mar3eting T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: n nowledge . The process of establishing establishing ob;ectives ob;ectives or goals goals for the the firm and determining the the means by which they will be met is: a. cont contro roll lliing. ng. b. analys company>s operations to to determine whether the company>s ob;ectives are being achieved. %ffective control is achieved through through all of the following except: a. periodical periodically ly measuri measuring ng and and compa comparing ring company company result results. s. b. assigning responsibility responsibility for costs costs to employees responsible responsible for those costs. c. constantly constantly monitoring monitoring employ employees ees to ensure ensure they they do e2actly e2actly as as they are are told. told. d. ta3ing ta3ing necessary necessary correc corrective tive action action when when varianc variances es warrant warrant doing doing so. so. NS: )

0hile periodically measuring and comparing company results, assigning responsibility for those results to employees and ta3ing necessary corrective action are all part of control? it does not include constantly monitoring employees to ma3e sure they are following directions. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT NT: )S' nalytic nalytic * #M-!erformance Measurement Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: n nowledge 5. "an @ouis @ouis is the supervisor supervisor of the ssembly "epartment of 0iggerman 0iggerman )orporation. )orporation. Ae has control over and is responsible for manufacturing costs costs traced to the department. The ssembly ssembly "epartment is an e2ample of aBnC: a. cost ce center. b. inventory center. center. c. supe superv rvis ised ed wor3 wor3 cent center er.. d. wor3 wor3er er>s >s cent center er.. NS:  The criteria for a cost center are 1C a reasonable basis on which manufacturing costs may be traced and C a person who has control over and is accountable for many of the costs charged to that center. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT NT: )S' /eflective Thin3ing Thin3ing * #M-!erformance Measurement Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: )o )omprehension 16. 0hich of the the followi following ng items items of of cost cost would would be least li3ely to appear on a performance report based on responsibility accounting accounting for the supervisor of an assembly line in a large manufacturing situationD a. "irect la labor b. #ndirect materials c. Sell Sellin ing g e2pe e2pens nses es d. /epa /epair irss and and mai maint nten enan ance ce NS: ) Selling e2penses would be least li3ely to appear on a performance report, because the supervisor would not have responsibility for the sales function. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT NT: )S' /eflective Thin3ing Thin3ing * #M-!erformance Measurement Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: )o )omprehension 11. 11. 0hich of the the followi following ng items items of of cost cost would would be least li3ely to appear on a performance report based on responsibility accounting accounting for the supervisor of an assembly line in a large manufacturing situationD a. "irect la labor b. Supervisor+s salary c. Materials d. /epa /epair irss and and mai maint nten enan ance ce NS: '  supervisor+s supervisor+s salary would be least li3ely to appear on a performance report, because that person+s salary is determined by the company and is not controllable by the supervisor. supervisor. !TS: 1 "#$: )hallenging &'(: %2plain the uses of cost accounting information NT NT: )S' /eflective Thin3ing Thin3ing * #M-!erformance Measurement Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: )o )omprehension 1. /esponsibility accounting would most most li3ely hold a manager manager of a manufacturing unit unit responsible responsible for:

a. b. c. d.

cost of raw materials. 7uantity of raw materials used. the number of units ordered. amount of ta2es incurred.

NS: ' #n responsibility accounting the manager of a cost center is onl y responsible for those costs and activities that manager controls.  manufacturing manager would not li3ely be responsible for the cost of the materials Bthe purchasing manager would have that responsibilityC, the number of units ordered Bthat would be driven by demandC or the ta2es incurred. !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT: )S' /eflective Thin3ing * #M-!erformance Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: )omprehension 1. 0hich of the following statements best describes a characteristic of a performance report prepared for use by a production line department headD a. The costs in the report should include only those controllable by the department head. b. The report should be stated in dollars rather than in physical units so the department head 3nows the financial magnitude of any variances. c. The report should include information on all costs chargeable to the department, regardless of their origin or control. d. #t is more important that the report be precise than timely. NS:  The performance report should include only those costs controllable by the department head. #t should also be timely and should include production data as well as dollar amounts. !TS: 1 "#$: %asy &'(: %2plain the uses of cost accounting information NT: )S' nalytic * #M-!erformance Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: )omprehension 1.  budget: a. is a monthly financial statement issued to a company>s lenders. b. is management>s operating plan e2pressed in units and dollars. c. documents the production department>s schedule. d. is the basis for the annual sales forecast. NS: '  budget is management>s operating plan e2pressed in 7uantitative terms. !TS: 1 "#$: %asy &'(: %2plain the uses of cost accounting information NT: )S' nalytic * #M-'udget !reparation T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: nowledge 14. (oshua )ompany prepares monthly performance reports for each department. The budgeted amounts of wages for the $inishing "epartment for the month of ugust and for the eight-month period ended ugust 1 were E1,666 and E166,666, respectively. ctual wages paid through (uly were E51,466, and wages for the month of ugust were E11,=66. The month and year-to-date variances, respectively, for wages on the ugust performance report would be: a. E66 $? E=,466 $ b. E66 $? E,66 9 c. E66 9? E,66 9 d. E66 9? E=,466 $

NS: ' )alculation of monthly variance: 'udgeted wages for ugust ctual wages for ugust Fariance for ugust

E1,666 11,=66 E 66 $

)alculation of year-to-date variance: 'udgeted wages for the eight-month period ended ugust 1 E166,666 ctual wages for the eight-month period ended ugust 1 B51,466 G 11,=66C 16,66 Fariance for eight-month period ended ugust 1 E ,66 9 !TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT: )S' nalytic * #M-!erformance Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: pplication 18. The (anuary performance report for cab no. 4 of Teri>s Ta2i Service was as follows: %2pense 'udgeted ctual Fariance "river>s wages E,666 E1,=66 E66 $ Hasoline 66 6 6 $ Maintenance 66 66 66 9 #nsurance 166 116 16 9 Total E,866 E,4=6 E 6 $ BC !ossible reasonBsC for the variance in the driver>s wages could be: a.  new driver was assigned to cab no. 4 on (anuary 4, replacing one who retired after 6 years of service. b. The cab was in the shop for repairs for a few days. c. 'usiness was slow so cab no. 4 was idled for two days. d. ll of the above are possible reasons. NS: " The decrease in driver>s wages could be due to the driver wor3ing less time Bas in options b or cC or for less wages as in option a where a less e2perienced driver would li3ely be wor3ing for a lower rate. !TS: 1 "#$: )hallenging &'(: %2plain the uses of cost accounting information NT: )S' /eflective Thin3ing * #M-!erformance Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: nalysis 1. s a result of recent accounting scandals involving companies such as %nron and 0orld )om, the Sarbanes-&2ley ct of 66 was written to protect shareholders of public companies by improving a. management accounting. b. corporate governance. c. professional competence. d. the corporate legal process. NS: ' The Sarbanes-&2ley act was written primarily to improve the corporate governance of publicly held companies. !TS: 1 "#$: Moderate &'(: "escribe the ethical responsibilities and certification re7uirements for management accountants, as well as corporate governance. NT: )S' %thics * #M-'usiness pplications T&!: !rofessional %thics, )M )ertification and )orporate Hovernance

MS): 'loom+s: nowledge 1=. 0hich of the following is not a 3ey element of the Sarbanes &2ley ct to improve corporate governanceD a. The establishment of the !ublic )ompany ccounting &versight 'oard b. /e7uiring a company>s annual report to contain an internal control report that includes management>s opinion on the effectiveness of internal control c. Severe criminal penalties for retaliation against IwhistleblowersJ d. /e7uiring that the company>s performance reports are prepared in accordance with generally accepted accounting principles NS: " The Sarbanes-&2ley ct does not re7uire that companies prepare performance reports in accordance with generally accepted accounting principles. !TS: 1 "#$: Moderate &'(: "escribe the ethical responsibilities and certification re7uirements for management accountants, as well as corporate governance. NT: )S' %thics * #M-'usiness pplications T&!: !rofessional %thics, )M )ertification and )orporate Hovernance MS): 'loom+s: nowledge 15. )ost accounting differs from financial accounting in that financial accounting: a. #s mostly concerned with e2ternal financial reporting. b. #s mostly concerned with individual departments of the company. c. !rovides the additional information re7uired for special reports to management. d. !uts more emphasis on future operations. NS:  #tems BbC through BdC are characteristics of cost accounting, whereas #tem BaC is a feature of financial accounting. !TS: &'(: NT: T&!: MS):

1 "#$: Moderate "escribe the relationship of cost accounting to financial and management accounting )S' /eflective Thin3ing * #M-/eporting /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: )omprehension

6. Taylor @ogan is an accountant with the Tanner )orporation. Taylor>s duties include preparing reports that focus on both historical and estimated data needed to conduct ongoing operations and do longrange planning. Taylor is aBnC a. certified financial planner. b. management accountant. c. financial accountant. d. auditor. NS: '  management accountant prepares reports that focus on both historical and estimated data that are used to conduct ongoing operations and do long-range planning. $inancial accountants prepare financial statements needed by e2ternal users to evaluate a business, while auditors conduct e2aminations on those financial statements.  certified financial planner is a consultant that helps individuals with financial planning, including investment advice. !TS: 1 "#$: %asy &'(: "escribe the relationship of cost accounting to financial and management accounting

NT: )S' /eflective Thin3ing * #M-'usiness pplications T&!: /elationship of )ost ccounting to $inancial and Management ccounting MS): 'loom+s: )omprehension 1. The following data were ta3en from Mansfield Merchandisers on (anuary 1: Merchandise inventory, (anuary 1 E 56,666 Sales salaries 4,666 Merchandise inventory, (anuary 1 84,666 !urchases 486,666 0hat was the )ost of goods sold in (anuaryD a. E4=4,666 b. E846,666 c. E86,666 d. E44,666 NS:  Merchandise #nventory, (anuary 1 !lus !urchases Merchandise vailable for Sale @ess Merchandise #nventory, (anuary 1 )ost of Hoods Sold !TS: &'(: NT: T&!: MS):

E 56,666 486,666 E846,666 84,666 E4=4,666

1 "#$: Moderate "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: pplication

. 9mberg Merchandise )ompany>s cost of goods sold last month was E1,46,666. the Merchandise #nventory at the beginning of the month was E46,666 and there was E4,666 of Merchandise #nventory at the end of the month. 9mberg>s merchandise purchases were: a. E1,46,666 b. E1,4,666 c. E1,4,666 d. E1,84,666 NS: ) Merchandise purchases added to Merchandise #nventory at the beginning of the month results in the merchandise available for sale. t the end of the month, these goods either remain in Merchandise #nventory or are sold, which results in )ost of Hoods Sold, so the total of ending Merchandise #nventory and )ost of Hoods Sold is also the merchandise available for sale. Therefore, the e7uation can be rearranged to compute the merchandise purchases as follows: )ost of Hoods Sold !lus %nding Merchandise #nventory Merchandise vailable for Sale @ess 'eginning Merchandise #nventory Merchandise !urchases !TS: &'(: NT: T&!:

E1,46,666 4,666 1,84,666 46,666 E1,4,666

1 "#$: )hallenging "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting

MS): 'loom+s: pplication . shley )orp. had finished goods inventory of E46,666 and E86,666 at pril 1 and pril 6, respectively, and cost of goods manufactured of E14,666 in pril. )ost of goods sold in pril was: a. E184,666 b. E14,666 c. E1=4,666 d. E4,666 NS:  $inished Hoods #nventory, pril 1 !lus )ost of Hoods Manufactured $inished Hoods vailable for Sale $inished Hoods #nventory, pril 6 )ost of Hoods Sold !TS: &'(: NT: T&!: MS):

E 46,666 14,666 4,666 86,666 E184,666

1 "#$: Moderate "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: pplication

. The balance in !ost #ndustries> $inished Hoods account at "ecember 6 was E4,666. #ts "ecember cost of goods manufactured was E1,46,666, its total manufacturing costs were E1,466,666 and its cost of goods sold in "ecember was E1,44,666. 0hat was the balance in !ost>s $inished Hoods at "ecember 1D a. E=6,666 b. E6,666 c. E6,666 d. E46,666 NS: " )ost of goods manufactured added to $inished Hoods at the beginning of the month results in the finished goods available for sale. t the end of the month, these goods either remain in $inished Hoods or are sold, which results in )ost of Hoods Sold, so the total of ending $inished Hoods and )ost of Hoods Sold is also the finished goods available for sale. Therefore, the e7uation can be rearranged to compute the beginning balance in $inished Hoods as follows: )ost of Hoods Sold !lus $inished Hoods #nventory, "ecember 6 $inished Hoods vailable for Sale @ess )ost of Hoods Manufactured $inished Hoods #nventory, "ecember 1 !TS: &'(: NT: T&!: MS):

E1,44,666 4,666 1,==6,666 1,46,666 E 46,666

1 "#$: )hallenging "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: pplication

4. #nventory accounts for a manufacturer include all of the following except: a. Merchandise #nventory. b. $inished Hoods. c. 0or3 in !rocess.

d. Materials. NS:  #nventory accounts for a manufacturer include Materials, 0or3 in !rocess, and $inished Hoods. Merchandise #nventory is the inventory account for a merchandiser. !TS: &'(: NT: T&!: MS):

1 "#$: %asy "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: nowledge

8. $or a manufacturer, the total cost of manufactured goods completed but still on hand is: a. Merchandise #nventory. b. $inished Hoods. c. 0or3 in !rocess. d. Materials. NS: ' Merchandise #nventory refers to inventory held by a merchandising operation. $inished goods are goods completed, but still on hand, while 0or3 in !rocess are goods which have been started and are in various stages of production, but are not yet completed. Materials are items which have been purchased and on hand to be used in the manufacturing process, but have not yet been issued into production. !TS: &'(: NT: T&!: MS):


. $or a manufacturer, manufacturing costs incurred to date for goods in various stages of production, but not yet completed is: a. Merchandise #nventory. b. $inished Hoods. c. 0or3 in !rocess. d. Materials. NS: ) Merchandise #nventory refers to inventory held by a merchandising operation. $inished goods are goods completed, but still on hand, while 0or3 in !rocess are goods which have been started and are in various stages of production, but are not yet completed. Materials are items which have been purchased and on hand to be used in the manufacturing process, but have not yet been issued into production. !TS: &'(: NT: T&!: MS):


=. $or a manufacturer, the cost of all materials purchases and on hand to be used in the manufacturing process is: a. Merchandise #nventory. b. $inished Hoods.

c. 0or3 in !rocess. d. Materials. NS: " Merchandise #nventory refers to inventory held by a merchandising operation. $inished goods are goods completed, but still on hand, while 0or3 in !rocess are goods which have been started and are in various stages of production, but are not yet completed. Materials are items which have been purchased and on hand to be used in the manufacturing process, but have not yet been issued into production. !TS: &'(: NT: T&!: MS):


5. #n the financial statements, Materials should be categori
1 "#$: Moderate "escribe the relationship of cost accounting to financial and management accounting )S' /eflective Thin3ing * #M-/eporting /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: )omprehension

6. BnC KKKKKKKKKK re7uires estimating inventory balances during the year for interim financial statements and shutting down operations to count all inventory items at the end of the year. a. periodic inventory system b. inventory control account c. perpetual inventory system d. inventory cost method NS:   periodic inventory system re7uires a company to ma3e estimates of inventory balances throughout the year, and a complete physical count of inventory at the end of the year.  perpetual inventory system provides a continuous record of purchases, issues and inventory balances. The inventory balances are verified with periodic counts of selected inventory items throughout the year. !TS: &'(: NT: T&!: MS):


1. 0itt )ompany, li3e most manufacturers, maintains a continuous record of purchases, materials issued into production and balances of all goods in stoc3, so that inventory valuation data is available at any time. This is an e2ample of aBnC a. perpetual inventory system.

b. inventory control account. c. periodic inventory system. d. inventory cost method. NS:   perpetual inventory system maintains a continuous record of purchases, issues and inventory balances.  periodic inventory system re7uires a physical count of all inventory at the end of the year and estimates of inventory balances throughout the year when preparing interim financial statements. !TS: &'(: NT: T&!: MS):

1 "#$: %asy "escribe the relationship of cost accounting to financial and management accounting )S' /eflective Thin3ing * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: nowledge

. 0hich of the following is most li3ely to be considered an indirect material in the manufacture of a sofaD a. @umber b. Hlue c. $abric d. $oam rubber NS: ' 0hile glue would be included in the finished product, its cost would be relatively insignificant, therefore, it would not be cost effective to trace its cost to specific products. !TS: &'(: NT: T&!:

1 "#$: Moderate #dentify the three basic elements of manufacturing costs )S' /eflective Thin3ing * #M-)ost Management %lements of Manufacturing )osts MS): 'loom+s: )omprehension

. The Mac3e )ompany>s payroll summary showed the following in November: Sales department salaries Supervisor salaries ssembly wor3ers> wages Machine operators> wages Maintenance wor3ers> wages ccounting department salaries

E16,666 6,666 4,666 4,666 14,666 4,666

0hat is the amount that would be included in direct labor in NovemberD a. E4,666 b. E86,666 c. E54,666 d. E16,666 NS: ' ssembly wor3ers and machine operators would be considered direct labor. ssembly wor3ers> wages E4,666 Machine operators> wages 4,666 Total direct labor E86,666 The supervisors and maintenance wor3ers would be included in overhead, while the sales and accounting department salaries would be included in selling and administrative e2pense.

!TS: &'(: NT: T&!:


. The wages of which of the following employees would not be included in the product cost for a manufacturer of custom-built home coo3ing appliancesD a. shipping cler3 b. appliance body welder c. factory ;anitor d. shop floor supervisor NS:  The shipping cler3>s wages would be included in the #ncome Statement as a Selling %2pense. The others represent direct or indirect manufacturing costs that would be included in the cost of the product. !TS: &'(: NT: T&!:


4. The Shiplett )ompany>s payroll summary showed the following in November: Supervisors> salaries @egal department salaries Maintenance wor3ers> wages Machine operators> wages ssembly wor3ers> wages Sales department salaries

E6,666 16,666 6,666 6,666 46,666 6,666

0hat is the amount that would be included in factory overhead in NovemberD a. E6,666 b. E156,666 c. E6,666 d. E6,666 NS: ) The supervisors> salaries and maintenance wor3ers> wages would be included in factory overhead. Supervisors> salaries E6,666 Maintenance wor3ers> wages 6,666 Total indirect labor E6,666 The wages of the assembly wor3ers and machine operators would be included in direct labor, while the sales and accounting department salaries would be included in selling and administrative e2pense. !TS: &'(: NT: T&!:


8. $actory overhead includes: a. #ndirect labor but not indirect materials. b. #ndirect materials but not indirect labor.

c. ll manufacturing costs, e2cept indirect materials and indirect labor. d. ll manufacturing costs, e2cept direct materials and direct labor. NS: " $actory overhead includes all manufacturing costs e2cept direct materials and direct labor. !TS: &'(: NT: T&!:

1 "#$: %asy #dentify the three basic elements of manufacturing costs )S' nalytic * #M-)ost Management %lements of Manufacturing )osts MS): 'loom+s: nowledge

.  typical factory overhead cost is: a. $reight out. b. Stationery and printing. c. "epreciation on machinery and e7uipment. d. !ostage. NS: ) "epreciation on machinery and e7uipment is a factory overhead cost because it is a manufacturing cost that is not direct labor or direct material. The other three items are mar3eting or administrative e2penses. !TS: &'(: NT: T&!:


=. $actory overhead would include: a. 0ages of office cler3. b. Sales manager>s salary. c. Supervisor>s salary. d. Ta2 accountant>s salary. NS: ) The supervisor>s salary is considered indirect labor because the supervisor is re7uired for the manufacturing process, but does not wor3 directly on the units being manufactured. #ndirect labor is included in factory overhead. The office cler3>s wages, sales manager>s salary and ta2 accountant>s salary are mar3eting or administrative costs. !TS: &'(: NT: T&!:


5. The term Lprime costL refers to: a. The sum of direct labor costs and all factory overhead costs. b. The sum of direct material costs and direct labor costs. c. ll costs associated with manufacturing other than direct labor costs and direct material costs. d. Manufacturing costs incurred to produce units of output. NS: ' The term Lprime costL refers to the sum of direct materials costs and direct labor costs. !TS: 1

"#$:

%asy

&'(: #dentify the three basic elements of manufacturing costs NT: )S' nalytic * #M-)ost Management T&!: %lements of Manufacturing )osts MS): 'loom+s: nowledge 6. The following data are from 'urton )orporation, a manufacturer, for the month of September: "irect materials used Supervisors> salaries Machine operators> wages Sales office rent and utilities Machine depreciation Secretary to the )hief %2ecutive &fficer salary $actory insurance

E14,666 8,666 66,666 ,666 4,666 ,666 14,666

)ompute the prime costs. a. b. c. d.

E,666 E14,666 E4,666 E48,666

NS: ) !rime costs include direct materials and direct labor. &f the salaries and wages listed, only the wages of the machine operators would be considered direct labor as they are the only employees listed who would actually wor3 on the products themselves. "irect materials used Machine operators> wages Total prime costs !TS: &'(: NT: T&!:

E14,666 66,666 E4,666


1. The term Lconversion costsL refers to: a. The sum of direct labor costs and all factory overhead costs. b. The sum of direct material costs and direct labor costs. c. ll costs associated with manufacturing other than direct labor costs. d. "irect labor costs incurred to produce units of output. NS:  The term Lconversion costsL refers to the sum of direct labor costs and all factory overhead costs. !TS: &'(: NT: T&!:

1 "#$: %asy #dentify the three basic elements of manufacturing costs )S' nalytic * #M-)ost Management %lements of Manufacturing )osts MS): 'loom+s: nowledge

. The following data are from 'a3er )ompany, a manufacturer, for the month of &ctober: Machine operators> wages Supervisors> salaries $actory insurance

E166,666 ,666 ,466

Secretary to the )hief %2ecutive &fficer salary Machine depreciation Sales office rent and utilities "irect materials used

1,466 1,466 11,666 8,466

)ompute the conversion costs. a. b. c. d.

E18,466 E16,466 E16,466 E1=,666

NS: " )onversion costs include direct labor and factory overhead costs, including indirect labor. &f the salaries and wages listed, only the machine operators are considered direct labor as they are the only employees listed who would actually wor3 on the products themselves. The supervisors are considered factory overhead because their efforts are essential to the manufacturing process, however they do not actually wor3 on the products themselves. The sales office costs and the salary of the secretary would be mar3eting and administrative e2penses as they do not contribute to the manufacturing process. Machine operators> wages Supervisors> salaries Machine depreciation $actory insurance Total conversion costs !TS: &'(: NT: T&!:

E166,666 ,666 1,466 ,466 E1=,666


. !ayroll is debited and 0ages !ayable is credited to: a. !ay the payroll ta2es. b. /ecord the payroll. c. !ay the payroll. d. "istribute the payroll. NS: ' 0hen the payroll is recorded, !ayroll is debited and 0ages !ayable is credited. 0hen payroll ta2es are paid, the various liability accounts are debited and )ash is credited. 0hen the payroll is paid, 0ages !ayable is debited and )ash is credited. 0hen the payroll is distributed, 0or3 in !rocess, $actory &verhead, and Selling and dministrative %2penses are debited and !ayroll is credited. !TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: )omprehension . 0hich of the following is not a cost that is accumulated in 0or3 in !rocessD a. "irect materials b. dministrative e2pense c. "irect labor d. $actory overhead NS: '

dministrative e2pense is not a manufacturing cost, so it would not be included in 0or3 in !rocess. !TS: 1 "#$: %asy &'(: #llustrate basic cost accounting procedures NT: )S' /eflective Thin3ing * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: )omprehension 4. The entry to record depreciation of the production e7uipment would be: a. "ebit - "epreciation %2pense - %7uipment )redit - ccumulated "epreciation - %7uipment b. "ebit - "epreciation %2pense - %7uipment )redit - $actory &verhead c. "ebit - $actory &verhead )redit - ccumulated "epreciation - %7uipment d. "ebit - 0or3-in-!rocess )redit - ccumulated "epreciation - %7uipment NS: ) $actory depreciation and other factory e2penses are debited to the $actory &verhead account as they are incurred. !TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 8. t a certain level of operations, per unit costs and selling price are as follows: manufacturing costs, E46? selling and administrative e2penses, E16? selling price, E=6. Hiven this information, the mar3-on percentage to manufacturing cost used to determine selling price must have been: a. 6 percent. b. 86 percent. c.  percent. d. 4 percent. NS: ' Selling price - Manufacturing costs Manufacturing costs

E=6 - E46 E46

 Mar3-on percentage

 86

!TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication . rnold $urniture )ompany produced ,666 chairs in (uly. The manufacturing costs were: "irect materials "irect labor $actory overhead Selling e2pense dministrative e2pense The cost per tent is:

E4,666 11,666 1,666 4,666 8,666

a. b. c. d.

E1.4. E1.66. E5.66. E8.4.

NS: ' "irect materials "irect labor $actory overhead Total manufacturing costs

E4,666 11,666 1,666 E=,666

E=,666 O ,666 units  E1.66 cost per unit !TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication =. Mountain )ompany produced 6,666 blan3ets in (une to be sold during the holiday season. The manufacturing costs were: "irect materials "irect labor $actory overhead

E14,666 44,666 86,666

Management has decided that the mar3-on percentage necessary to cover the product>s share of selling and administrative e2penses and to earn a satisfactory profit is 6. The selling price per blan3et should be: a. b. c. d.

E1.66. E14.86. E.86. E1.6.

NS: ' "irect materials "irect labor $actory overhead Total manufacturing costs

E14,666 44,666 86,666 E6,666

E6,666 O 6,666 units  E1.66 cost per unit E1.66 2 6  E.86 G E1.66  E14.86 !TS: 1 "#$: )hallenging &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M '-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 5. The statement of costs of goods manufactured shows: a. &ffice supplies used in accounting office. b. "eprecation of factory building. c. Salary of sales manager. d. /ent paid on finished goods warehouse. NS: '

The depreciation of the factory building is a cost necessary to manufacture goods. The office supplies, sales manager>s salary and warehouse rent are mar3eting and administrative costs and would not be included in the Statement of )ost of Hoods Manufactured. !TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' /eflective Thin3ing * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: )omprehension 46. Selected data concerning the past fiscal year+s operations B666+s omittedC of the Stanley Manufacturing )ompany are presented below: #NF%NT&/#%S Materials 0or3 in process $inished goods &ther data: "irect materials used Total manufacturing costs charged to production during the year Bincludes direct materials, direct labor, and factory overheadC )ost of goods available for sale Selling and general e2penses

'eginning E 56 46 166

%nding E =4 84 56 E84

8=6 84 46

ssuming Stanley does not use indirect materials, the cost of materials purchased during the year amounted to: a. E44. b. E46. c. E84. d. E86. NS: " Materials purchased added to Materials inventory at the beginning of the month results in the materials available for use. "uring the year, the materials are used or they remain in the Materials inventory at the end of the year, so the total of materials used and ending Materials inventory is also the total of the amount of materials available. Therefore, the e7uation can be rearranged to compute the materials purchases as follows: "irect materials used dd ending inventory of materials Materials available during the year @ess beginning inventory of materials !urchases of materials during the year

E84 =4 E46 56 E86

!TS: 1 "#$: )hallenging &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 41. Selected data concerning the past fiscal year+s operations B666+s omittedC of raig $abricators are presented below: #NF%NT&/#%S Materials

'eginning E1=6

%nding E 16

0or3 in process $inished goods &ther data: "irect materials used Total manufacturing costs charged to production during the year Bincludes direct materials, direct labor, and factory overheadC )ost of goods available for sale Selling and general e2penses

166 66

16 1=6 E 6

1,86 1,46 466

The cost of goods manufactured during the year was: a. E1,16. b. E1,6. c. E1,6. d. E1,6. NS: ' 'eginning wor3 in process inventory dd total manufacturing costs during the year Total @ess ending wor3 in process inventory )ost of goods manufactured during the year

E 166 1,86 E1,86 16 E1,6

!TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 4. Selected data concerning the past fiscal year+s operations B666+s omittedC of Aercules Mills are presented below: #NF%NT&/#%S Materials 0or3 in process $inished goods &ther data: "irect materials used Total manufacturing costs charged to production during the year Bincludes direct materials, direct labor, and factory overheadC )ost of goods available for sale Selling and general e2penses

'eginning E 1= 16 6

%nding E 1 1 1= E 

18 14 46

The cost of goods sold during the year was: a. E14. b. E18. c. E14. d. E144. NS:  'eginning finished goods inventory dd cost of goods manufactured during the year BE18 G E16 - E1C Total cost of goods available for sale @ess ending finished goods inventory

E 6 1 E14 1=

)ost of goods sold during the year

E14

!TS: 1 "#$: )hallenging &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 4. 0hich of the following production operations would be most li3ely to employ a ;ob order system of cost accountingD a. )andy manufacturing b. )rude oil refining c. !rinting business cards d. $lour milling NS: ) !rinting would be most li3ely to employ a ;ob order system of cost accounting due to the number of custom ;obs involved. The manufacture of candy, the vulcani
1 "#$: Moderate "istinguish between the two basic types of cost accounting systems )S' /eflective Thin3ing * #M-)ost Management T&!: )ost ccounting Systems 'loom+s: )omprehension

4.  law firm wanting to trac3 the costs of serving different clients may use a: a. process cost system. b. ;ob order cost system. c. cost control system. d. standard cost system. NS: ' !rofessional firms use ;ob order cost systems to trac3 the costs of serving different clients. !TS: &'(: NT: MS):


44. 0hen should process costing techni7ues be used in assigning costs to productsD a. #n situations where standard costing techni7ues should not be used b. #f products manufactured are substantially identical c. 0hen production is only partially completed during the accounting period d. #f products are manufactured on the basis of each order received NS: ' !rocess costing techni7ues should be used in assigning costs to products if the product is composed of mass-produced units that are substantially identical. !TS: &'(: NT: MS):

1 "#$: %asy "istinguish between the two basic types of cost accounting systems )S' nalytic * #M '-)ost Management T&!: )ost ccounting Systems 'loom+s: nowledge

48. n industry that would most li3ely use process costing procedures is: a. 'everage.

b. Aome )onstruction. c. !rinting. d. Shipbuilding. NS:  'everage production usually consists of continuous output of homogeneous products for which process costing is used. The other three industries would utili

4.  standard cost system is one: a. that provides a separate record of cost for each special-order product. b. that uses predetermined costs to furnish a measurement that helps management ma3e decisions regarding the efficiency of operations. c. that accumulates costs for each department or process in the factory. d. where costs are accumulated on a ;ob cost sheet. NS: '  standard cost system uses predetermined standard costs to furnish a measurement that helps management ma3e decisions regarding the efficiency of operations. !TS: &'(: NT: MS):

1 "#$: Moderate "istinguish between the two basic types of cost accounting systems )S' nalytic * #M-)ost Management T&!: )ost ccounting Systems 'loom+s: nowledge

4=. #n ;ob order costing, the basic document for accumulating the cost of each ;ob is the: a. (ob cost sheet. b. /e7uisition sheet. c. !urchase order. d. #nvoice. NS:  #n ;ob order costing, the basic document to accumulate the cost of each ;ob is the ;ob cost sheet. !TS: 1 "#$: %asy &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: nowledge 45. 9nder a ;ob order cost system of accounting, the entry to distribute payroll to the appropriate accounts would be: a. "ebit-!ayroll )redit-0ages !ayable b. "ebit-0or3 in !rocess "ebit-$actory &verhead "ebit-Selling and dministrative %2pense )redit-!ayroll c. "ebit-0or3 in !rocess "ebit-$inished Hoods "ebit-)ost of Hoods Sold )redit-!ayroll

d. "ebit-0or3 in !rocess "ebit-$actory &verhead "ebit-Selling and dministrative %2pense )redit-0ages !ayable NS: ' !ayroll is credited when the amounts are distributed to the appropriate accounts. Those accounts include 0or3 in !rocess for direct labor, $actory &verhead for indirect labor and Selling and dministrative %2pense for salaries and wages incurred outside of the factory. !TS: 1 "#$: Moderate &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: )omprehension 86. 9nder a ;ob order system of cost accounting, the dollar amount of the entry to transfer inventory from 0or3 in !rocess to $inished Hoods is the sum of the costs charged to all ;obs: a. #n process during the period. b. )ompleted and sold during the period. c. )ompleted during the period. d. Started in process during the period. NS: ) 0hen ;obs are completed during the period, $inished Hoods is debited and 0or3 in !rocess is credited for the cost of the completed ;obs. !TS: 1 "#$: Moderate &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: )omprehension 81. 9nder a ;ob order system of cost accounting, )ost of Hoods Sold is debited and $inished Hoods is credited for a: a. Transfer of materials to the factory. b. Shipment of completed goods to the customer. c. Transfer of completed production to the finished goods storeroom. d. !urchase of goods on account. NS: ' 0hen completed goods are shipped to customers, )ost of Hoods Sold is debited and $inished Hoods is credited. !TS: 1 "#$: %asy &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: )omprehension 8. The #nstitute of Management ccountants B#MC Statement of !rofessional !ractice includes all of the following standards except: a. )onfidentiality. b. )ommitment. c. #ntegrity. d. )ompetence. NS: ' The four #M !rofessional Standards are: )ompetence, )onfidentiality, #ntegrity and )redibility. !TS: 1

"#$:

%asy

&'(: "escribe the ethical responsibilities and certification re7uirements for management accountants, as well as corporate governance. NT: )S' %thics * #M -'usiness pplications T&!: ppendi2 MS): 'loom+s: nowledge 8. ccording to the #nstitute of Management ccountants B#MC Statement of %thical !rofessional !ractice, performing professional duties in accordance with relevant laws, regulations and technical standards is a component of which standardD a. )ompetence b. )onfidentiality c. #ntegrity d. )redibility NS:  !erforming technical duties in accordance with relevant laws, regulations and technical standards is a component of the competence standard. !TS: 1 "#$: Moderate &'(: "escribe the ethical responsibilities and certification re7uirements for management accountants, as well as corporate governance. NT: )S' %thics * #M-'usiness pplications T&!: ppendi2 MS): 'loom+s: nowledge 8. (oey 'ruce is a cost accountant at ') #ndustries. (oey told Tanner Scott, his financial advisor, that he was wor3ing on a pro;ect to determine the feasibility of a merger of ') #ndustries with @eft Huard )ompany, a ma;or competitor. 0hich of the #nstitute of Management ccountant>s B#MC ethical standards may have been violatedD a. )ompetence b. )onfidentiality c. #ntegrity d. )redibility NS: ' The #M Statement of !rofessional !ractice>s )onfidentiality standard, members have the responsibility to 3eep information confidential e2cept when disclosure is authori
!TS: 1 "#$: Moderate &'(: "escribe the ethical responsibilities and certification re7uirements for management accountants, as well as corporate governance. NT: )S' %thics * #M-'usiness pplications T&!: ppendi2 MS): 'loom+s: nowledge 88. Tom (ones, a management accountant, was faced with an ethical conflict at the office. ccording to the #nstitute of Management ccountants> B#MC Statement of !rofessional !ractice, the first action Tom should pursue is to: a. follow his organis established policies on the resolution of such conflict. b. contact the local newspaper. c. contact the company>s audit committee. d. consult an attorney. NS:  0hen faced with ethical issues, one should follow the organis established policies on the resolution of such conflict. #f these policies do not resolve the ethical conflict, one should consider discussing the matter with one>s supervisor or, if it appears he or she is involved, other internal sources. #t is not appropriate to contact parties outside the organi
1. !repare a performance report showing both month and year-to-date data for !ost Manufacturing>s Machining "epartment for $ebruary, 61P using the following data: (anuary $ebruary 'udgeted "ata: Machinists> wages E8,66 E4,866 Supplies ,66 ,666 "epreciation ,666 ,666 9tilities 1,466 1,66 ctual "ata: Machinists> wages Supplies "epreciation 9tilities

E8,16 ,66 ,666 1,4=6

E4,846 ,1=6 ,666 1,56

NS: !ost Manufacturing - Machining "epartment !erformance /eport $or !eriod %nded $ebruary =, 61P %2pense

'udget $ebru Qear-toary "ate

ctual $ebruary

Fariance Qear-to- $ebruary "ate

Qear-to"ate

Machinists> wages Supplies "epreciation 9tilities Total

E 4,866 ,666 ,666 1,66 E1,666

E11,=66 8,66 ,666 ,566 E,566

E 4,846 ,1=6 ,666 1,56 E1,6

E11,6 8,=6 ,666 ,56 E4,6

E 46 9 1=6 9 -16 $ E 6 9

E 6 $ =6 9 -6 9 E 6 9

!TS: 1 "#$: Moderate &'(: %2plain the uses of cost accounting information NT: )S' nalytic * #M-!erformance Measurement T&!: 9ses of )ost ccounting #nformation MS): 'loom+s: pplication . The following data were ta3en from the general ledger of "ata )orp., a retailer of computers and accessories: Merchandise #nventory, ugust 1 Merchandise #nventory, ugust 1 !urchases

E ,666 58,666 1,8=,666

)ompute the cost of goods sold for the month of ugust. NS: Merchandise #nventory, ugust 1 !lus !urchases Merchandise vailable for Sale @ess Merchandise #nventory, ugust 1 )ost of Hoods Sold !TS: &'(: NT: T&!: MS):

E ,666 1,8=,666 ,66,666 58,666 E1,11,666

1 "#$: %asy "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: )omprehension

. The following data were ta3en from the general ledger and other data of !rice $abricators on (uly 1: 0or3 in !rocess, (uly 1 $inished Hoods, (uly 1 Materials purchased in (uly )ost of goods manufactured in (uly Mar3eting and administrative costs in (uly $inished Hoods, (uly 1 0or3 in !rocess, (uly 1

E 5,666 =,666 1,666 8,666 8,666 =,666 4,666

)ompute the cost of goods sold for !rice $abricators, selecting the appropriate items from the list provided. NS: $inished Hoods #nventory, (uly 1 !lus )ost of Hoods Manufactured )ost of Hoods vailable for Sale @ess $inished Hoods #nventory, (uly 1 )ost of Hoods Sold !TS: 1

"#$:

Moderate

E =,666 8,666 4,666 =,666 E86,666

&'(: NT: T&!: MS):

"escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: pplication

. The following data were ta3en from Middletown Merchandisers on (uly 1, for the first month of its fiscal year: Merchandise #nventory, (uly 1 E 4,666 !urchases 4,666 )ost of Hoods Sold 46,666 )ompute the inventory at (uly 1. NS: )ost of Hoods Sold !lus Merchandise #nventory, (uly 1 %7uals )ost of Hoods vailable for Sale @ess !urchases %7uals Merchandise #nventory, (uly 1 !TS: &'(: NT: T&!: MS):

E46,666 4,666 E4,666 4,666 E 6,666

1 "#$: Moderate "escribe the relationship of cost accounting to financial and management accounting )S' nalytic * #M-)ost Management /elationship of )ost ccounting to $inancial and Management ccounting 'loom+s: )omprehension

4. )ampus )arriers )o. manufactures and sells bac3pac3s to college students. )ampus )arriers operates a factory in Small Town and two stores in )ollege Town and 9niversity )ity. )lassify the following costs incurred by )ampus )arriers as "irect Materials, "irect @abor, $actory &verhead or Selling and dministrative %2pense. a. /ent paid to lease the store in )ollege Town. b. )anvas fabric. c. 0ages paid to students distributing advertising fliers in 9niversity )ity. d. Sewing machine operator>s wages. e. 'uilding depreciation on the factory building. f. Thread. g. The cost of transporting the bac3pac3s from the factory in Small Town to the 9niversity )ity store. h. "epreciation of the rac3s and shelves at the )ollege Town Store. i. $actory manager>s salary. ;. Security guard at the factory. 3. Store manager>s salary.

l. %lectricity to power sewing machines. m. %lectricity to light the )ollege Town store. NS: a. Selling and administrative e2pense would include costs related to stores. b. "irect material - canvas would be used to ma3e bac3 pac3s. c. Selling and administrative e2pense would include advertising. d. "irect labor - sewing machine operators are ItouchJ labor. e. $actory overhead - depreciation is a factory e2pense that cannot be traced directly to the products. f. $actory overhead. 0hile thread is included in the final product, the cost is insignificant and would be accounted for as an indirect cost. g. Selling and administrative e2pense. Transportation is incurred outside of the factory. h. Selling and administrative e2pense would include costs relating to the stores. i. $actory overhead - the factory manager>s salary is a factory cost that cannot be traced directly to products. ;. $actory overhead - the security guard>s salary is a factory cost that cannot be traced directly to products. 3. Selling and administrative e2pense would include all costs related to the stores. l. $actory overhead - electricity to run the machines is a factory cost that cannot be traced directly to products.. m. Selling and administrative e2pense would include all costs related to the stores. !TS: &'(: NT: T&!:


8. The following inventory data relate to the /eta )ompany: #NF%NT&/#%S $inished goods 0or3 in process "irect materials

'eginning E=6,666 84,666 86,666

%nding E166,666 6,666 8,666

/evenues and costs for the period: Sales )ost of goods available for sale Total manufacturing costs $actory overhead "irect materials used Selling and administrative e2penses )ompute the following for the year: a. "irect materials purchased b. "irect labor costs incurred c. )ost of goods sold d. Hross profit NS: BaC

E6,666 846,666 44,666 14,666 18,666 41,666

"irect materials used during the period dd inventory of direct materials at the end of the period "irect materials available during the period @ess inventory of direct materials at the beginning of the period "irect materials purchased during the period

E18,666 8,666 E=,666 86,666 E18=,666

BbC Total manufacturing costs incurred during the period @ess: "irect materials used $actory overhead incurred "irect labor costs incurred during the period

E44,666 E18,666 14,666

1=,666 E4,666

BcC )ost of goods available for sale @ess finished goods inventory at the end of the period )ost of goods sold during the period

E846,666 166,666 E446,666

BdC Sales )ost of goods sold Hross profit

E6,666 446,666 E156,666

!TS: 1 "#$: Moderate &'(: #dentify the three basic elements of manufacturing costs * #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: %lements of Manufacturing )osts * #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication . The following inventory data relate to the naheim @td.: #NF%NT&/#%S $inished goods 0or3 in process "irect materials

'eginning E186,666 16,666 16,666

%nding E66,666 16,666 1=,666

/evenues and costs for the period: Sales )ost of goods available for sale Total manufacturing costs $actory overhead "irect materials used Selling and administrative e2penses !repare ;ournal entries for the following, ma3ing any necessary computations: a. !urchase of materials on account b. #ssuance of materials into production c. Transfer the cost of completed wor3 to $inished Hoods

E1,=6,666 1,66,666 1,146,666 6=,666 =,666 16,666

d.

/ecord the sale of the goods on account and the related cost of goods sold.

NS: BaC "irect materials used during the period dd inventory of direct materials at the end of the period "irect materials available during the period @ess inventory of direct materials at the beginning of the period "irect materials purchased during the period

E=,666 1=,666 E48,666 16,666 E8,666

Materials ccounts !ayable

8,666

0or3 in !rocess Materials

=,666

8,666

BbC =,666

BcC 0or3 in !rocess #nventory, beginning of the period !lus Total Manufacturing )osts

E 16,666 1,146,666 E1,=6,666 16,666 E1,16,666

@ess 0or3 in !rocess #nventory, end of the period )ost of Hoods Manufactured $inished Hoods 0or3 in !rocess

1,16,666 1,16,666

BdC $inished Hoods #nventory, beginning of the period !lus )ost of Hoods Manufactured )ost of Hoods vailable for Sale @ess $inished Hoods #nventory, end of the period )ost of Hoods Sold ccounts /eceivable 1,=6,666 Sales

E 186,666 1,16,666 E1,64,666 66,666 E1,166,666 1,=6,666

)ost of Hoods Sold $inished Hoods

1,166,666

1,166,666

!TS: 1 "#$: )hallenging &'(: #dentify the three basic elements of manufacturing costs * #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: %lements of Manufacturing )osts * #llustration of ccounting for Manufacturing )osts MS): 'loom+s: nalysis =. $ollowing is a list of costs incurred by the Sit3a !roducts )o. during the month of (une: "irect materials used #ndirect materials used "irect labor employed #ndirect labor employed Selling e2penses

E1,666 ,666 6,666 ,466 8,666

%2pired insurance 9tilities /epairs "epreciation e2pense --Machinery and e7uipment

E,666 =66 66 1,66

!repare the ;ournal entries necessary to record the issuance of materials, the distribution of labor cost, the recording of factory overhead, and the entry transferring $actory &verhead to 0or3 in !rocess. NS: 0or3 in !rocess B"irect MaterialsC $actory &verhead B#ndirect MaterialsC Materials

1,666 ,666

0or3 in !rocess B"irect @aborC $actory &verhead B#ndirect @aborC !ayroll

6,666 ,466

$actory &verhead !repaid #nsurance ccounts !ayable B9tilitiesC ccounts !ayable B/epairsC ccumulated "epreciation BMachinery and %7uipmentC 0or3 in !rocess $actory &verhead

14,666

,466 4,66 ,666 =66 66 1,66 1,66 1,66

!TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 5. The following data was ta3en from the general ledger and other records of Martine< Manufacturing )o. at (uly 1, the end of the first month of operations in the current fiscal year: Sales Materials inventory B(uly 1C 0or3 in process inventory B(uly 1C $inished goods inventory B(uly 1C Materials purchased "irect labor cost $actory overhead Bincluding E4,666 of indirect materials used and E,466 of indirect labor costC Selling and administrative e2pense #nventories at (uly 1: Materials 0or3 in process $inished goods

a. b.

!repare a statement of cost of goods manufactured. "etermine the cost of goods sold for the month.

NS: BaC Martine< Manufacturing )o. Statement of )ost of Hoods Manufactured

E46,666 14,666 6,666 =,666 1,666 1,466 11,466 =,666 18,666 1=,666 6,666

$or the Month %nded (uly 1, 6-"irect Materials: #nventory, (uly 1 !urchases Total cost of available materials @ess inventory, (uly 1 )ost of materials used @ess indirect materials used )ost of direct materials used in production "irect labor $actory overhead: #ndirect materials #ndirect labor &ther Total factory overhead Total manufacturing cost dd wor3 in process inventory, (uly 1 Total @ess wor3 in process inventory, (uly 1 )ost of goods manufactured during the month

E14,666 1,666 E8,666 18,666 E6,666 4,666 E14,666 1,466 E 4,666 ,466 ,666 11,466 E5,666 6,666 E45,666 1=,666 E1,666

BbC $inished goods inventory, (uly 1 dd cost of goods manufactured during (uly Hoods available for sale @ess finished goods inventory, (uly 1 )ost of goods sold

E=,666 1,666 E85,666 6,666 E5,666

!TS: 1 "#$: Moderate &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 16. The following data was ta3en from the general ledger and other records of Marwic3 Manufacturing )o. at (anuary1, the end of the first month of operations in the current fiscal year: Sales #nventories at (anuary 1: Materials inventory 0or3 in process inventory $inished goods inventory #nventories at (anuary 1: Materials 0or3 in process $inished goods Materials purchased @abor )osts: ssembly wor3ers> wages Supervisors> salaries Sales personnel salaries "epreciation: $actory building Sales office

E846,666 6,666 ,666 4,666 4,666 5,666 =,666 14,666 1=4,666 6,666 4,666 ,666 =,666

#ndirect materials used $actory utilities

a. b.

,666 8,666

!repare a statement of cost of goods manufactured. "etermine the cost of goods sold for the month.

NS: BaC Marwic3 Manufacturing )o. Statement of )ost of Hoods Manufactured $or the Month %nded (anuary 1, 6-"irect Materials: #nventory, (anuary 1 !urchases Total cost of available materials @ess inventory, (uly 1 )ost of materials used @ess indirect materials used )ost of direct materials used in production "irect labor $actory overhead: #ndirect materials #ndirect labor BSupervisorsC "epreciation 9tilities Total factory overhead Total manufacturing cost dd wor3 in process inventory, (anuary 1 Total @ess wor3 in process inventory, (anuary 1 )ost of goods manufactured during the month

E4,666 14,666 E15,666 6,666 E145,666 ,666 E148,666 1=4,666 E ,666 6,666 ,666 8,666 1,666 E41,666 5,666 E4,666 ,666 E411,666

BbC $inished goods inventory, (anuary 1 dd cost of goods manufactured during (uly Hoods available for sale @ess finished goods inventory, (anuary 1 )ost of goods sold

E=,666 411,666 E445,666 4,666 E464,666

!TS: 1 "#$: )hallenging &'(: #llustrate basic cost accounting procedures NT: )S' nalytic * #M-)ost Management T&!: #llustration of ccounting for Manufacturing )osts MS): 'loom+s: pplication 11. )ustom )abinets #nc. manufactures goods on a ;ob order basis. "uring the month of November, three ;obs were started. BThere was no wor3 in process at the beginning of the month.C (obs 61 and 6 were completed and sold for E1,466 and E15,666, respectively, during the month? (ob 6 was still in process at the end of November.

The following data are ta3en from the ;ob cost sheets for each ;ob. $actory overhead charges include a total of E566 of indirect materials and E866 of indirect labor. &ne wor3 in process control account is used.

"irect materials "irect labor $actory overhead

(ob 61 E,66 ,66 1,46

(ob 6 E,=66 ,466 ,666

(ob 6 E,666 1,466 =46

!repare a ;ournal entry to record each of the following: a. Materials used b. $actory wages and salaries earned c. $actory &verhead transferred to 0or3 in !rocess d. (obs completed e. (obs sold NS: BaC 0or3 in !rocess B,66 G ,=66 G ,666C $actory &verhead Materials

5,666 566 5,566

BbC 0or3 in !rocess B,66 G ,466 G 1,466C $actory &verhead !ayroll

,66 866 =,666

BcC 0or3 in !rocess B1,46 G ,666 G =46C $actory &verhead

,166 ,166

BdC $inished Hoods 0or3 in !rocessR R (obs completed: 61 B,66 G ,66 G 1,46C 6 B,=66 G ,466 G ,666C Total

18,146 18,146 E 8,=46 5,66 E18,146

BeC )ost of Hoods Sold $inished Hoods ccounts /eceivable B1,466 G 15,666C Sales

18,146 18,146 ,466 ,466

!TS: 1 "#$: Moderate &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: pplication

1. The Shawshan3 Manufacturing )o. uses a ;ob order cost system of accounting. The following information was ta3en from the boo3s of the company after all posting had been completed at the end of (anuary: (obs )ompleted 161 16 16

"irect Materials )ost E1,=66 1,4 566

"irect @abor )ost E,666 1,46 =46

$actory &verhead E1,666 =56 46

9nits )ompleted 66 146 166

a.

!repare the ;ournal entries to allocate the costs of materials, labor, and factory overhead to each ;ob and to transfer the costs of ;obs completed to $inished Hoods. b. )ompute the total production cost of each ;ob. c. )ompute the unit cost of each ;ob. d. )ompute the selling price per unit for each ;ob, assuming a mar3-on percentage of 6 percent. NS: BaC 0or3 in !rocess--(ob 161 0or3 in !rocess--(ob 16 0or3 in !rocess--(ob 16 Materials

1,=66 1,4 566

0or3 in !rocess--(ob 161 0or3 in !rocess--(ob 16 0or3 in !rocess--(ob 16 !ayroll

,666 1,46 =46

0or3 in !rocess--(ob 161 0or3 in !rocess--(ob 16 0or3 in !rocess--(ob 16 $actory &verhead

1,666 =56 46

,54

,166

,6

$inished Hoods 0or3 in !rocess--(ob 161 0or3 in !rocess--(ob 16 0or3 in !rocess--(ob 16

16,4 ,=66 ,4 ,166

BbC

(obs )ompleted 161 16 16 Total BcC

"irect Materials )ost E1,=66 1,4 566 E,54

"irect @abor )ost E,666 1,46 =46 E,166

$actory &verhead E1,666 =56 46 E,6

Total !roduction )ost E,=66 ,4 ,166 E16,4

9nit )ost: (ob 161 BE,=66 O 66C (ob 16 BE,4 O 146C (ob 16 BE,166 O 166C

E.66 E.46 E1.66

BdC Selling !rice !er 9nit: (ob 161 BE.66  6C G E.66 (ob 16 BE.46  6C G E.46 (ob 16 BE1.66  6C G E1.66

E.86 E1.46 E5.6

!TS: 1 "#$: )hallenging &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: pplication 1. Megerle Motors manufactures specialty motors for the medical industry and uses a ;ob order cost system. "uring its first month of operations, the following selected transactions too3 place: a. Materials purchased on account b. Materials issued to the factory: (ob 4 (ob ' (ob )=5 (ob "4 $or general use in the factory c. $actory wages and salaries earned and distributed: (ob 4 (ob ' (ob )=5 (ob "4 $or general wor3 in the factory d. Miscellaneous factory overhead costs on account e. "epreciation of factory machinery f. $actory overhead allocated as follows: (ob 4 (ob ' (ob )=5 (ob "4 g. (obs 4, ' and )=5 completed h. (obs 4 and ' shipped to the customer and billed

E4,666 E ,66 ,466 ,66 8,66 1,66 E ,66 ,66 4,866 ,=66 ,566 E ,466 E ,166 E ,466 ,666 ,=66 ,66 E4,666

/e7uired: 1. )ompute the cost of each ;ob. . "etermine the ending balances in materials, wor3 in process, finished goods and cost of goods sold by preparing the necessary T- accounts and record the transactions in them. NS: 1. (ob 4: (ob ': (ob )=5: (ob "4:

E,66 G ,66 G ,466  E =,66 E,466 G ,66 G ,666  E 5,=66 E,66 G 4,866 G ,=66  E1,166 E8,66 G ,=66 G ,66  E1,66

. a.

Materials 4,666 b.1,566 B1C

0or3 in process b. 18,66 g. 1,166 c. 18,166 f. 16,66

,166

)ost of goods sold h. 1=,666

1=,666

ccounts !ayable a. 4,666 d. ,466

ccounts /eceivable h. 4,666

1,66

b. c. d. e.

$inished goods g. 1,166 BC h. 1=,666 B4C

1,166

&verhead 1,66 f. 16,66BC ,566 ,466 ,166

ccumulated "epreciation e. ,166

6

,166

!ayroll c.15,666 BC c. 15,666

ccrued !ayroll c. 15,666

Sales h. 4,666

B1C E,66 G ,466 G ,66 G 8,66  E18,66 Bto 0#!C G 1,66 Bto &AC  E1,566 BC E,66 G ,66 G 4,866 G ,=66  E18,166 Bto 0#!C  ,566 Bto &AC  E15,666 BC E,466 G ,666 G ,=66 G ,66  E16,66 BC E=,66 G 5,=66 G 1,166  E1,166 B4C E=,66 G 5,=66  E1=,666 !TS: 1 "#$: Moderate &'(: #llustrate a ;ob order cost system NT: )S' nalytic * #M-)ost Management T&!: #llustration of a (ob &rder )ost System MS): 'loom+s: pplication 1. The #nstitute of Management ccountants B#MC Statement of !rofessional !ractice includes four standards of ethical behavior. a. @ist the four standards of ethical behavior. b. $or each of the items listed below, identify the #M standard under which each of the following responsibilities is included.

Chapter 01

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