Test 1 Mangerial Accounting

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5,6 Level: Hard

5. A security guard's wages at a factory would be an example of: Indirect labor Fixed manufacturing overhead A) No No B) Yes Yes C) Yes No D) No Yes Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted 6. Manufacturing overhead includes: A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor. C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 7. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: A) direct materials. B) a period cost. C) administrative expense. D) manufacturing overhead. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 8. The one cost that would be classified as part of both prime cost and conversion cost would be: A) indirect material. B) direct labor. C) direct material. D) indirect labor. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

9. Direct costs: A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision. C) can be easily traced to a particular cost object. D) are the variable costs of producing a product. Ans: C AACSB: Reflective Thinking AICPA FN: Reporting LO: 1 Level: Easy

AICPA BB: Critical Thinking

10. Prime costs consist of: A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor. C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted 11. Factory A) B) C) D)

supplies in a manufacturing plant are most likely: sunk costs. period costs. variable costs. excluded from product costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 31. Conversion costs consist of: A) direct and indirect labor. B) direct labor and direct materials. C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted 12. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A) raw materials inventory. B) work in process inventory. C) finished goods inventory. D) both raw materials inventory and work in process inventory. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy39. Which of the following is correct concerning reactions to INCREASES in activity?

Total Variable Cost Variable Cost Per Unit A) Increases Decreases B) Constant Decreases C) Decreases Constant D) Increases Constant Ans: D AICPA FN: Reporting

AACSB: Reflective Thinking LO: 5 Level: Easy


13. Which of the following statements concerning direct and indirect costs is NOT true? A) Whether a particular cost is classified as direct or indirect does not depend on the cost object. B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager's salary would be classified as an indirect cost of producing one unit of product. D) A particular cost may be direct or indirect, depending on the cost object. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium48. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the: A) increased overall level of activity in the factory. B) customer's requirement for early completion of the job. C) management's failure to include the job in the production schedule. D) management's requirement that the job be completed before the annual factory closure due to vacation. Ans: B AACSB: Reflective Thinking AICPA FN: Reporting Appendix: 2A Source: CPA, adapted

AICPA BB: Critical Thinking LO: 8 Level: Medium

14. The following costs were incurred in July: Direct materials ............................ Direct labor .................................. Manufacturing overhead ............... Selling expenses ........................... Administrative expenses ...............

$35,000 $13,000 $15,000 $14,000 $30,000

Prime costs during the month totaled: A) $48,000 B) $28,000 C) $107,000 D) $63,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Medium

15. Solvents and cleaners used by the custodians to clean . the textbook printing presses ......................................... Depreciation on the automobiles used by sales representatives............................................................... Fire insurance on factory building ................................. Shipping costs on textbooks sold ...................................

$500 $4,200 $2,000 $3,700

What is the total of the manufacturing overhead costs above? A) $500 B) $2,500 C) $6,200 D) $6,700 Ans: B AACSB: Analytic LO: 1 Level: Medium


Solution: Solvents and cleaners used by the custodians to clean the textbook printing presses ................................ Fire insurance on factory building .............................. Total .......................................................................... µ

AICPA FN: Reporting

16. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows: Receiving and storing raw materials......... Production operations .............................. Sales offices............................................. Administrative offices..............................

5% 70% 15% 10%

How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200 Ans: B AACSB: Analytic LO: 1 Level: Medium


AICPA FN: Reporting

Solution: Receiving and storing raw materials (5% × $8,000) ....... Production operations (70% × $8,000) ...........................

$ 400 5,600 $6,000

17. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume that all raw materials are direct materials.): Purchases of raw materials ....................... Direct labor cost....................................... Selling costs (total) .................................. Administrative costs (total) ...................... Manufacturing overhead costs (total) ....... Raw materials inventory, beginning ......... Work in process inventory, beginning ...... Finished goods inventory, beginning ........ Raw materials inventory, ending .............. Work in process inventory, ending ........... Finished goods inventory, ending .............

$91,000 $122,000 $42,000 $56,000 $340,000 $22,000 $27,000 $42,000 $7,000 $35,000 $15,000

What was Derby's cost of goods manufactured for the month? A) $545,000 B) $560,000 C) $568,000 D) $587,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Hard Solution: Derby Manufacturing Company Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory ................ $ 22,000 Add: Purchases of raw materials ................... 91,000 Raw materials available for use ..................... 113,000 Deduct: Ending raw materials inventory........ 7,000 Raw materials used in production.................. Direct labor ...................................................... Manufacturing overhead ................................... Total manufacturing costs................................. Add: Beginning work in process inventory ....... Deduct: Ending work in process inventory ....... Cost of goods manufactured .............................

$106,000 122,000 340,000 568,000 27,000 595,000 35,000 $560,000

18. The following data are for a recent period's operations: Beginning finished goods inventory ......... Ending finished goods inventory .............. Sales ........................................................ Gross margin ...........................................

$150,475 $145,750 $400,000 $120,000

The cost of goods manufactured was: A) $115,275 B) $284,725 C) $275,275 D) $124,725 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Sales í Cost of goods sold = Gross margin $400,000 í Cost of goods sold = $120,000 Cost of goods sold = $280,000 Beginning finished goods inventory

Cost of goods Ending finished í manufactured goods inventory Cost of goods $150,475 + í $145,750 manufactured Cost of goods manufactured = $275,275 +

=

Cost of goods sold

=

$280,000

19. Which of the following statements is correct concerning job-order costing? A) Job-order costing would be appropriate for a textbook publisher. B) All the costs appearing on a job cost sheet are actual costs. C) Indirect materials are charged to a specific job. D) Job-order costing is mainly used in firms with homogeneous products such as oil refineries. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Medium18. Which of the following would usually be found on a job cost sheet under a normal cost system? Actual direct material cost Actual manufacturing overhead cost A) Yes Yes B) Yes No C) No Yes D) No No

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 20. In a job-order cost system, which of the following events would trigger recording data on a job cost sheet? A) the purchase of direct materials B) the payment of fire insurance on the factory building C) the payment for product advertising D) none of the above Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 21. In a job-order costing system, the application of manufacturing overhead would be recorded as a debit to: A) Raw Materials inventory. B) Finished Goods inventory. C) Work in Process inventory. D) Cost of Goods Sold. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4,5 Level: Medium 22. What journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for general factory use instead of for use in a particular job? A) Work in Process Manufacturing Overhead B) Work in Process Raw Materials C) Manufacturing Overhead Work in Process D) Manufacturing Overhead Raw Materials

$8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium

23. A good A) B) C) D)

description of ³cost of goods manufactured´ is the recorded cost of the: units completed during the period. units started and completed during the period. work done on all units during the period. work done this period on units completed this period.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium 24. In a job-order costing system, the cost of a completed but unsold job is: A) closed to Cost of Goods Sold. B) part of the Work in Process inventory balance. C) adjusted to exclude any applied overhead. D) part of the Finished Goods inventory balance. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium 25. Overapplied overhead would result if: A) the plant was operated at less than normal capacity. B) overhead costs incurred were less than estimated overhead costs. C) overhead costs incurred were less than overhead costs charged to production. D) overhead costs incurred were greater than overhead charged to production. Ans: C AACSB: Analytic LO: 8 Level: Medium

26. Which A) B) C) D)


AICPA FN: Reporting

costs will change with an increase in activity within the relevant range? Unit fixed cost and total fixed cost Unit variable cost and total variable cost Unit fixed cost and total variable cost Unit fixed cost and unit variable cost

Ans: C AACSB: Analytic LO: 1 Level: Medium


AICPA FN: Reporting

27. Salaries of accounts receivable clerks when one clerical worker is needed for every 750 accounts receivable is an example of a: A) fixed cost B) step-variable cost C) mixed cost D) curvilinear cost Ans: B AACSB: Analytic LO: 1 Level: Medium


AICPA FN: Reporting

28. In the standard cost formula Y = a + bX, what does the ³Y´ represent? A) total cost B) total fixed cost C) total variable cost D) variable cost per unit Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 29. Which of the following is a weakness of the quick-and-dirty scattergraph method of analyzing mixed cost? A) It is impossible to determine variable cost per unit. B) Only two data points are used and the rest are ignored in drawing the scattergraph. C) Different people will have different answers even though they are analyzing the same set of data. D) Both B and C above Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 30. Which of the following statements is true when referring to the high-low method of cost analysis? A) The high-low method has no major weaknesses. B) The high-low method is very hard to apply. C) In essence, the high-low method draws a straight line through two data points. D) None of the above is true. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy 31. Larson Brothers, Inc., used the high-low method to derive its cost formula for electrical power cost. According to the cost formula, the variable cost per unit of activity is $3 per machine-hour. Total electrical power cost at the high level of activity was $7,600 and at the low level of activity was $7,300. If the high level of activity was 1,200 machine hours, then the low level of activity was: A) 800 machine hours B) 900 machine hours C) 1,000 machine hours D) 1,100 machine hours Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,3 Level: Hard

32. Job 910 was recently completed. The following data have been recorded on its job cost sheet: Direct materials ............................ Direct labor-hours ......................... Direct labor wage rate ................... Machine-hours ..............................

$3,193 21 labor-hours $12 per labor-hour 166 machine-hours

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 910 would be: A) $3,220 B) $3,760 C) $5,935 D) $3,445 Ans: C LO: 2,5

AACSB: Analytic Level: Easy


AICPA FN: Reporting

Solution: Direct materials ............................................................................ Direct labor (21 hours × $12 per hour) .......................................... Manufacturing overhead (166 hours × $15 per hour)..................... Total manufacturing cost for job 910 ............................................

$3,193 252 2,490 $5,935

33. If overhead is underapplied, then: A) actual overhead cost is less than estimated overhead cost. B) the amount of overhead cost applied to Work in Process is less than the actual overhead cost incurred. C) the predetermined overhead rate is too high. D) the Manufacturing Overhead account will have a credit balance at the end of the year. Ans: B AACSB: Analytic LO: 8 Level: Medium

34.


AICPA FN: Reporting

Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501: Direct materials used ...................................................... $4,200 Direct labor-hours worked.............................................. 300 Direct labor rate per hour................................................ $8.00 Machine-hours used ....................................................... 200

Predetermined overhead rate per machine-hour .............. $15.00 What is the total manufacturing cost recorded on Job 1501? A) $8,800 B) $9,600 C) $10,300 D) $11,100 Ans: B LO: 2,5

AACSB: Analytic AICPA BB: Critical Thinking Level: Easy Source: CPA, adapted

AICPA FN: Reporting

Solution: Direct materials used ..................................................................... Direct labor (300 hours × $8.00 per hour) ..................................... Manufacturing overhead applied (200 hours × $15.00 per hour) .... Total manufacturing cost for job 1501 ...........................................

$4,200 2,400 3,000 $9,600

35. In process costing, a separate work in process account is kept for each: A) individual order. B) equivalent unit. C) processing department. D) cost category (i.e., materials, conversion cost). Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 36. The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: A) does not consider the degree of completion of beginning work in process inventory when computing equivalent units of production. B) considers ending work in process inventory to be fully complete. C) will always yield a higher cost per equivalent unit. D) All of the above. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 2,3,5,6 Level: Hard

37. Health Beverage Company uses a process costing system to collect costs related to the production of its celery flavored cola. The cola is first processed in a Mixing Department at Health and is then transferred out and finished up in the Bottling Department. The finished cases of cola are then transferred to Finished Goods Inventory. The following information relates to Health's two departments for the month o f January: Mixing Bottling Cases of cola in work in process, January 1 .................... 10,000 3,000 Cases of cola completed/transferred out during January . 77,000 ? Cases of cola in work in process, January 31 .................. 4,000 8,000 How many cases of cola were completed and transferred to Finished Goods Inventory during January? A) 66,000 B) 71,000 C) 72,000 D) 74,000 Ans: C AACSB: Analytic LO: 1 Level: Medium


AICPA FN: Reporting

38. Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 12,000 units were completed and transferred to the next department. An analysis of the costs relating to work in process at May 1 and to production activity for May follows:

Work in process 5/1 ...................... Costs added during May ...............

Material s $13,800 $42,000

Conversio n $3,740 $26,260

The total cost per equivalent unit for May was: A) $5.02 B) $5.10 C) $5.12 D) $5.25 Ans: B LO: 2,3

AACSB: Analytic Level: Medium


AICPA FN: Reporting

Solution: Equivalent units of production Materials Conversion

Transferred to next department ........................ Ending work in process (materials: 6,000 units × 100% complete; conversion: 6,000 units × 50% complete) ............................................. Equivalent units of production .........................

12,000

12,000

6,000 18,000

3,000 15,000

Cost per Equivalent Unit Materials Conversion Total Cost of beginning work in process ................... $13,800 $ 3,740 Cost added during the period............................ 42,000 26,260 Total cost (a).................................................... $55,800 $30,000

Equivalent units of production (b) .................... Cost per equivalent unit, (a) ÷ (b).....................

18,000 $3.10

15,000 $2.00

$5.10

39. Lawton Company produces canned tomato soup in a single processing department and has a process costing system in which it uses the weighted-average method. The company sold 250,000 units in the month of January. Data concerning inventories follow: Units Inventory at January 1: Work in process ......................................................... Finished goods ........................................................... Inventory at January 31: Work in process (conversion 75% complete) ............. Finished goods ...........................................................

None 75,000 16,000 60,000

What were the equivalent units for conversion costs for January? A) 235,000 B) 247,000 C) 251,000 D) 253,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking LO: 2 Level: Medium Source: CPA, adapted

AICPA FN: Reporting

Solution: To calculate units transferred out: Units sold + Ending finished goods inventory .......... í Beginning finished goods inventory ..... = Units transferred out ............................

250,000 60,000 75,000 235,000

Units transferred out.......................................................

235,000

Ending work in process (16,000 units × 75% complete) . Equivalent units of production .......................................

12,000 247,000

40. Fatas Corporation uses the weighted-average method in its process costing system. The Assembly Department started the month with 8,000 units in its beginning work in process inventory that were 20% complete with respect to conversion costs. An additional 95,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. During the month 102,000 units were completed in the Assembly Department and transferred to the next processing department. There were 1,000 units in the ending work in process inventory of the Assembly Depart ment that were 20% complete with respect to conversion costs. What were the equivalent units for conversion costs in the Assembly Department for the month? A) 102,200 B) 100,600 C) 102,000 D) 88,000 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Solution: Equivalent units transferred out ..................................... Add: Equivalent units in the ending work in process inventory (1,000 units × 20% complete) .................... Equivalent units for conversion costs ............................

102,000 200 102,200

41. Contribution margin can be defined as: A) the amount of sales revenue necessary to cover variable expenses. B) sales revenue minus fixed expenses. C) the amount of sales revenue necessary to cover fixed and variable expenses. D) sales revenue minus variable expenses. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 42. Which of the following statements is correct with regard to a CVP graph? A) A CVP graph shows the maximum possible profit. B) A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. C) A CVP graph assumes that total expense varies in direct proportion to unit sales. D) A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales. Ans: B

AACSB: Reflective Thinking


AICPA FN: Reporting

LO: 2

Level: Easy

43. At the break-even point: A) sales would be equal to contribution margin. B) contribution margin would be equal to fixed expenses. C) contribution margin would be equal to net operating income. D) sales would be equal to fixed expenses. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium 44. If the company sells 8,200 units, its total contribution margin should be closest to: A) $301,000 B) $311,600 C) $319,200 D) $66,674 Ans: B AACSB: Analytic LO: 1 Level: Easy


AICPA FN: Reporting

Solution: Current contribution margin ÷ Current sales in units = Co ntribution margin per unit $319,200 ÷ 8,400 = $38 contribution margin per unit If 8,200 units are sold, the total contribution margin will be 8,200 × $38, or $311,600. 45. The Bronco Birdfeed Company reported the following information: Sales (400 cases)........................... $100,000 Variable expenses ......................... 60,000 Contribution margin...................... 40,000 Fixed expenses.............................. 35,000 Net operating income .................... $5,000 How much will the sale of one additional case add to Bronco's net operating income? A) $250.00 B) $100.00 C) $150.00 D) $12.50 Ans: B AACSB: Analytic LO: 1 Level: Easy


AICPA FN: Reporting

Solution: Current contribution margin ÷ Current sales in cases = Co ntribution margin per case $40,000 ÷ 400 = $100 contribution margin per case

If one additional case is sold, net operating income will increase by $100. 46. Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are $84,000. If the company's sales for a month are $738,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. A) $565,440 B) $654,000 C) $88,560 D) $4,560 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution: Sales ....................................................... Variable expenses ($738,000 × 88%) ...... Contribution margin ($738,000 × 12%)... Fixed expenses........................................ Net operating income ..............................

$738,000 649,440 88,560 84,000 $ 4,560

47. Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $95,000? A) $12,800 B) $24,200 C) $53,200 D) $66,000 Ans: B AACSB: Analytic LO: 3 Level: Easy


Solution: Sales ........................................................ Variable expenses ($95,000 × 44%) ......... Contribution margin ($95,000 × 56%) ..... Fixed expenses......................................... Net operating income ...............................

$95,000 41,800 53,200 29,000 $24,200

AICPA FN: Reporting

Test 1 Mangerial Accounting

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