Cost Accounting Exam Chapters 1-3 1. The branch of accounting that serves as a bridge between financial and managerial accounting is __________ accounting. ANS:
cost
2. Costs that can be conveniently conveniently traced to a cost object are referred to as ____________ ____________ costs. ANS:
direct
3. The assumed range of activity that reflects the company’s company’s normal operating range is referred to as the _____________________________. ANS: ANS: rele releva van nt ran rang ge 4. Another name for inventoriable costs is ______________ ______________ costs. ANS:
product
5. The three stages of production for a manufacturing firm are ______________, ______________, ________________, and ______________________. ANS: ANS:
raw mater material ials, s, work work in proc process ess,, finishe finished d goods goods
6. In a(n) _________ cost system, factory overhead is assigned to an overhead control account and then allocated to products and services. ANS:
normal
7. If actual overhead exceeds applied applied overhead, factory overhead is said to be ______________. ______________. ANS: ANS: und underap erapp plied lied 8. If underapplied or overapplied factory overhead is material, it is prorated among _________________ ______________________, _____, _________________________ _________________________,, and _______________________ _______________________.. ANS:
Work in Process Process Inventor Inventory y, Finished Finished Goods Goods Inventory Inventory,, Cost of Goods Goods Sold
9. A performance performance measure that assumes all production factors are operating perfectly is referred to as ___________________ capacity. ANS: theoretical 10. Consider the regression equation y = a + bX. The portion of the equation that represents the variable rate is ________. ANS:
b
11. A _________________________ __________________________ _ is a planning document that presents expected variable and fixed overhead costs at different activity levels. ANS: ANS: flex flexib ible le budg budget et
12. The costing technique that treats all manufacturing manufacturing costs as inventoriable is referred to as _________________ _________________ costing. ANS: ANS: abso absorp rpti tion on or full full 13. In comparing financial and management management accounting, which of of the following more accurately describes management accounting information? a. hist histor oric ical al,, preci precise se,, usefu usefull b. requi required red,, esti estimat mated, ed, intern internal al c. bud budget geted, ed, inform informati ative, ve, adapta adaptable ble d. compar comparabl able, e, verifi verifiabl able, e, moneta monetary ry ANS:
C
14. Management and financial accounting accounting are used for which of the following following purposes? Mana Manage geme ment nt acco accoun unti ting ng
a. b. c. d.
internal
external
external
internal
internal
internal
external
external
ANS: 15. a. b. b. c. d.
Fina Financ ncia iall acco accoun unti ting ng
A
Cost accounting is directed toward the needs of regu regula lato tory ry agen agenci cies es.. exte extern rnal al user users. s. inte intern rnal al user users. s. stoc stockh kho older lders. s.
ANS:
C
16. Cost and management accounting accounting a. require require an entirely entirely separate separate group group of account accountss than financi financial al accounti accounting ng uses. uses. b. focus solely solely on on determining determining how how much it it costs to manufact manufacture ure a product product or provide provide a service. c. provide provide product/ product/servi service ce cost informat information ion as well well as informatio information n for internal internal decision decision making. d. are required required for for business business recordk recordkeepin eeping g as are financi financial al and tax tax accountin accounting. g. ANS: 17. a. b. c. d.
C
Which of the following following statements statements is true? Management Management accounting accounting is a subset subset of of cost cost accoun accounting ting.. Cost accoun accounting ting is is a subset subset of both both management management and and financial financial accounting. accounting. Management Management accoun accounting ting is a subset subset of both both cost and and financial financial account accounting. ing. Financial Financial accountin accounting g is a subset subset of of cost cost accounti accounting. ng.
ANS: 18. a. b. c. d.
B
The ethical standards established established for management accountants accountants are in the areas of competence competence,, licens licensing, ing, reporting reporting,, and and education education.. budgeting budgeting,, cost allocat allocation, ion, product product costin costing, g, and inside insiderr trading. trading. competence competence,, confidentia confidentiality lity,, integrity integrity,, and objectivi objectivity ty.. disclosur disclosure, e, communica communication tion,, decision decision making, making, and planning. planning.
ANS:
C
19.
Which of the following defines variable cost behavior? Total cost reaction to increase in activity
a. remain remainss consta constant nt b. b. remai remains ns cons consta tant nt c. incr increa ease sess d. incr increa ease sess
Cost per unit reaction to increase in activity
remain remainss consta constant nt incr increa ease sess inc incre reas ases es rema remain inss cons consta tant nt
ANS:
D
20.
Which of the following always has a direct cause-effect relationship to a cost?
Predictor
a. b. c. d.
yes
yes
yes
no
no
yes
no
no
ANS:
21. a. b. b. c. d.
Cost driver
C
The indirect costs of converting raw material into finished goods are called period co costs. prime rime cos costs. ts. overh verheead cos costs. ts. conv conver ersi sion on cost costs. s.
ANS:
C
22. The distinction between direct and indirect costs depends on whether a cost a. is cont control rollab lable le or or non-c non-cont ontrol rollab lable. le. b. b. is vari variab able le or fixe fixed. d.
c. can be conven convenientl iently y and physic physically ally traced traced to a cost cost object object under under conside consideratio ration. n. d. will increase increase with with chang changes es in levels levels of activity activity.. ANS:
C
23. The formula to compute cost of goods manufactured is a. beginning beginning Work Work in Process Process Invento Inventory ry plus purchas purchases es of raw material material minus minus ending ending Work in Process Inventory. b. beginning beginning Work Work in Process Process Inventory Inventory plus plus direct labor labor plus direct direct material material used plus plus overhead incurred minus ending Work in Process Inventory. c. direct direct material material used plus direct direct labor labor plus plus overhea overhead d incurred incurred.. d. direct direct material material used plus direct direct labor labor plus overhead overhead incurred incurred plus beginnin beginning g Work Work in Process Inventory. ANS:
B
Wilson Company The following information has been taken from the cost records of Wilson Company for the past year: Raw material used in production Total manufacturing costs charged to production during the year (includes ( includes direct material, direct labor, and overhead equal to 60% of direct labor cost) Cost of goods available for sale Selling and Administrative expenses
Inventories Raw Material Work in Process Finished Goods
Beginning
$326 686 826
Ending
$75
$ 85
80
30
90
11 0
24. Refer to Wilson Wilson Company. Company. The cost of raw material purchased during the year was a. $316. b. $336. c. $360. d. $411. ANS: B Beginning Inventory
+Purchases =Goods Available for Sale -Ending Inventory Materials Used in Production
75
3 36 411 (326) 85
25
25. Refer to Wilson Wilson Company. Company. Direct labor cost charged to production during the year was a. $135. b. $216. c. $225. d. $360. ANS:
C
Total production costs
$686
- Raw materials
$326
Conversion Costs Let x = Direct Labor
$360
Let .60x = Factory Overhead x + .60x
$360
x
$225
26. 26. a. $636. b. $716. c. $736. d. $766.
Refe Referr to Wilso ilson n Com Compa pany ny.. Cost Cost of of Good Goodss Manu Manufac factu tured red was was
ANS: C Beginning WIP Inventory
$ 80
Costs of Production
686
less less:: Endi Ending ng WIP WIP Inve Invent ntor ory y
(30) (30)
Cost Cost of Good Goodss Manu Manufa fact ctur ured ed
$736 $736 ====
27. 27. a. b. c. d.
Refer Refer to Wilso ilson n Com Compa pany ny.. Cos Costt of of Goo Goods ds Sold Sold was was $691. $716. $736. $801.
ANS: B Begi Beginn nnin ing g Fin Finis ishe hed d Good Goodss Inve Invent ntor ory y Cost of Goods Manufactured
$ 90 90 736
less: Ending Ending Finished Finished Goods Goods Inventory Inventory (110) (110) Cost of Goods Manufactured
$716 ====
28. Davis Company manufacturers manufacturers desks. The beginning balance of Raw Material Material Inventory was $4,500; raw material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw material used during the month was a. $26,400. b. $34,100. c. $37,300. d. $29,600. ANS: A Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used $4,500 + 29,600 - 7,700 = X X = $26,400
29. a. b. c. d.
An actual cost system differs from a normal cost system in that an actual cost system assigns assigns overhe overhead ad as it occurs occurs during during the the manufactu manufacturing ring cycle. cycle. assigns assigns overhe overhead ad at the end end of the the manufact manufacturin uring g process. process. does does not not assign assign overhe overhead ad at all. all. does does not use use an Over Overhea head d Contr Control ol accou account nt..
ANS: 30. a. b. c. d.
B
If the level level of activity activity increases, variable variable cost per unit unit and total total fixed fixed costs costs increase. increase. fixed cost per unit unit and and total total variabl variablee cost cost increase. increase. total total cost cost will will increase increase and and fixed fixed cost cost per per unit unit will will decrease decrease.. variable variable cost per unit and total total cost cost increase. increase.
ANS:
C
31. All other things being equal, if actual cost per unit is greater than budgeted cost per unit, variable overhead will be a. overapplied. b. b. the the same same as as fixe fixed d over overhe head ad.. c. under nderap app plied lied.. d. appl applie ied d to Fin Finis ishe hed d Good Goods. s. ANS:
C
32. Walton Corporation wishes to develop a single predetermined overhead rate. The company's expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2. The company's relevant range is from 200,000 to 600,000 machine hours. Walton Walton expects to operate at 425,000 machine hours for the coming year. The plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be a. $2.40. b. $2.57. c. $2.80. d. $2.85.
ANS:
C
Fixed component:
Variable component = $2.00 per unit Total predetermined overhead = $2.80 per unit
The records of Zenith Corporation revealed the following data for the current year. Work in Process Finished Goods Cost of Goods Sold Direct Labor Direct Material
$ 73,150 115,000 133,650 111,600 84,200
33. Refer to Zenith Corporation. Assume Assume that Zenith has underapplied overhead of $37,200 $37,200 and that this amount is material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.) a. Debit Debit Work Work in Process Process $8,456; $8,456; Finish Finished ed Goods Goods $13,294; $13,294; Cost of Goods Goods Sold Sold $15,450 $15,450 and credit Overhead $37,200 b. Debit Debit Overhead Overhead $37,200 $37,200 and credit credit Work Work in Process Process $8,456; $8,456; Finished Finished Goods Goods $13,294; $13,294; Cost of Goods Sold $15,450 c. Debit Debit Work Work in Process Process $37,200 $37,200 and and credit credit Overhe Overhead ad $37,200 $37,200 d. Debit Debit Cost of Goods Goods Sold Sold $37,200 $37,200 and and credit credit Overhead Overhead $37,200 $37,200 ANS: A WIP: 73,150/321,800 = $ 8,456 FG: 115,000/321,800 115,000/321,800 = $13,294 EI: 133,650/321,800 = $15,450
34. a. b. b. c. d.
Another name for absorption costing is full co costing. dire direct ct cost costin ing. g. job job orde orderr cost costin ing. g. fix fixed cos costing ing.
ANS: A 35. Under variable costing, costing, which of the following are costs costs that can be inventoried? inventoried? a. variab variable le sellin selling g and admin administ istrat rative ive expen expense se b. variab variable le manu manufac factur turing ing overhe overhead ad c. fixe fixed d manuf manufac actu turi ring ng over overhe head ad d. fixed fixed sellin selling g and admini administr strati ative ve expens expensee
ANS: 36. a. b. c. d.
B
Why is variable costing not in accordance with generally accepted accounting principles? Fixed manufa manufacturi cturing ng costs costs are treated treated as as period period costs costs under under variable variable costing. costing. Variable ariable costing costing procedure proceduress are not well well known in indust industry ry.. Net earning earningss are always always overstat overstated ed when using using variab variable le costing costing procedu procedures. res. Variable costing ignores the concept of lower of cost cost or market market when valuing valuing inventory inventory..
ANS:
A
37. A firm has fixed costs of $200,000 and variable variable costs per unit of $6. It plans on selling 40,000 units in the coming year. To To realize a profit of $20,000, the firm must have a sales price per unit of at least a. $11.00. b. $11.50. c. $10.00. d. $10.50. ANS: B Sales--40,000 units * $ 11.50/unit
$460,000
Variable Costs: Manufacturing Contribution Margin Fixed Costs Net Income
240,000 $220,000 200,000 $ 20,000 =====
38. On what needs do (1) management management accounting and (2) financial financial accounting focus? ANS: Management Management accountin accounting g focuses focuses on the needs of users inside inside an organiza organization tion.. Managers need need information information related to planning, controlling, decision making, and performance evaluation. Their needs are satisfied through the providing of information designed for their particular uses. Financial accounting focuses on the needs of users outside the organization, such as stockholders, creditors, and regulatory agencies. These users require information that is in conformity with generally accepted accounting principles and, thus, is standardized in the form of general purpose financial statements.
39. What is the difference between a product product cost and a period cost? Give three examples of each. What is the difference between a direct cost and indirect cost? Give two examples of each. ANS: A product cost is one that is associated with making or acquiring inventory. A period cost is any cost other than those associated with making or acquiring products and is not considered inventory. Students will have a variety of examples, but direct material, direct labor, and overhead are product costs. Selling and administrative expenses are considered period costs. A direct direct cost is one that is physically and conveniently traceable to a cost object. Direct material and direct labor are direct costs. An indirect cost is one that cannot be conveniently traced to a cost object. Any type of overhead cost is considered indirect. 40.
Why should predetermined overhead rates be used?
ANS: Predetermined overhead rates should be used for three reasons: (1) to assign overhead to Work in Process during the production cycle instead of at the end of the period; (2) to compensate for fluctuations in actual overhead costs that have no bearing on activity levels; and (3) to overcome problems of fluctuations in activity levels that have no impact on actual fixed overhead costs.
41.
Discuss underapplied and overapplied overhead and its disposition at the end of the period.
ANS: During the course of the production cycle, actual overhead costs are incurred. When overhead is applied to Work in Process, it is commonly applied using a predetermined rate. Overhead application at a predetermined rate may cause overhead to be under- or overapplied. If actual overhead is greater than applied overhead, then underapplied overhead results and a debit balance exists in the overhead account. If applied overhead is greater than actual overhead, then overapplied overhead results and a credit balance exists in the overhead account. If the amount of under- or overapplied overhead is immaterial, it is closed directly to Cost of Goods Sold. If the amount is material, it must be a llocated among Work Work in Process, Finished Goods, and Cost of Goods Sold 42. Given the following information for McCurley Corporation, Corporation, prepare the necessary journal entries, assuming that the Raw Material IInventory nventory account contains both direct and indirect material. a. b. c. d. e. f.
Purc Purcha hase sed d raw raw mate materi rial al on on acco accoun untt $28, $28,50 500. 0. Put materi material al into into produc production tion:: $15,000 $15,000 of of direct direct materia materiall and $3,000 $3,000 of indirect indirect materi material. al. Accrued Accrued payrol payrolll of $90,00 $90,000, 0, of which which 70 percen percentt was direct direct and the remainde remainderr was indirect. indirect. Incurr Incurred ed and paid paid othe otherr over overhea head d item itemss of of $36, $36,000 000.. Transfe ransferred rred items items cost costing ing $86 $86,50 ,500 0 to to finis finished hed goo goods. ds. Sold Sold good goodss cost costing ing $71 $71,30 ,300 0 on on acco account unt for $12 $124,7 4,700 00..
ANS: a. b.
c.
d. e. f.
RM In Inventory A/P WIP In Inventory Manufacturing OH RM Inventory WIP Inventory Manufacturing OH Salaries/Wages Payable Manufacturing OH OH Cash FG In Inventory WIP Inventory A/R Sales CGS FG Inventory
28,500 28,500 15,000 3,000 18,000 63,000 27,000 90,000 36,000 36,000 86,500
43. Hume Corporation has the following following data for the current year:
86,500 124,700 124,700 71,300 71,300
$220,000
Direct Labor Direct Material Actual Overhead Applied Overhead Raw Material Work in Process Finished Goods Cost of Goods Sold
137,800 320,000 395,000 51,394 101,926 111,192 250,182
What is the amount of under- or overapplied overhead? Prepare the necessary journal entry to dispose of under- or overapplied overhead. ANS: $395,000
Applied Overhead Actual Overhead
320,000 $ 75,000overapplied
WIP $101,926/$463,300=.22 FG $111,192/$463,300=.24 CGS $250,182/$463,300=.54
x x x
Manufacturing Overhead Work in Process Finished Goods Cost of Goods Sold
$75,000 = $16,500 $75,000 = $18,000 $75,000 = $40,500
$75,000 $16,500 18,000 40,500
44. The McAlister Co. has the following information available available regarding costs and revenues for two recent months. Selling price is $20. March Sales revenue Cost of goods sold Gross profit Less other expenses: Advertising Utilities Salaries and commissions Supplies (bags, cleaning supplies etc.) Depreciation Administrative costs Total
April
$60, 000
$1 00,00 0
-36, 000
- 60,00 0
$24, 000
$ 40,00 0
$
$
600
60 600
4, 200
5,60 0
3, 200
4,00 0
320
40 0
2, 300
2,30 0
1,900
1,900
-12, 520
- 14,80 0
$11, 480
Net income
$ 25,20 0
Required: a. b. b. c.
Identify Identify each each of of the company's company's expenses expenses (inclu (including ding cost of goods goods sold) sold) as as being being either either variable, fixed, or mixed. What What is the the tota totall cos costt equ equat atio ion? n? Esti Estima mate te tota totall cos costt if if sal sales es = $75 $75,0 ,000 00..
ANS: a.
Cost COGS Advertising Utilities Salaries, Etc. 3,200/60,000=5.3% Supplies Depreciation Administration
April
May
Behavior
36 ,000 /60,0 00=60 %
6 0,000 /100, 000= 60%
V
600
600
F
4,200/60,000= 7%
5 ,600/ 100,0 00=5 .6%
M
4 ,000/ 100, 000=4 %
M
320/60,000 .53%
400/1 00,0 00=.4 %
M
2,300
2,30 0
F
1,900
1,90 0
F
b.
Total otal FC = $600 $600 + $2,30 $2,300 0 + $1,90 $1,900 0 + $2,10 $2,100 0 + $2,00 $2,000 0 + $200 $200 = $9,1 $9,100 00 Total VC = 60% + 3.5% + 2% + .2% = 65.7% sales TC = $9,100 + 65.7% sales
c.
TC = $91 $9100 00 + (65 (65.7 .7% % x $75, $75,00 000) 0) = $58 $58,3 ,375 75