Management Accounting 6th Canadian Edition by Gary L. Sundem – Test Bank

 

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Sample Questions

 

 

Management Accounting, Cdn. 6e (Horngren/Sundem/Stratton/Beaulieu)

Chapter 4   Cost Management Systems

 

1) Cost accounting is that part of the accounting system that measures costs for the purposes of management decision making and financial reporting.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

2) Cost accounting system typically includes two processes, cost accumulation and cost determination.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

3) Direct costs can be identified specifically and exclusively with a given cost objective in an economically feasible way.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

4) Indirect costs can be identified specifically with a given cost objective in an uneconomical way.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

5) The three major categories of manufacturing costs are direct materials, direct labour and factory overhead.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

6) Prime costs include direct labour and factory overhead.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

7) Product costs are identified with goods produced or purchased for resale.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

8) Period costs are inventoriable and are expensed when the inventory is sold.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

9) A manufacturer has three inventories as compared to a merchandiser, which has only one.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 124

Objective:  5

 

10) The term expense is used to describe both an inventory expenditure and a cost.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

11) The contribution approach is a method of internal reporting that emphasizes the distinction between variable and fixed costs for the purpose of better decision making.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

12) In the contribution approach, all factory overhead is considered to be product costs that are expensed as incurred.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 120

Objective:  1

 

13) Variable costing is also referred to as the contribution approach.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 128

 

14) Fixed manufacturing overhead is excluded from the cost of products under absorption costing.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 124

Objective:  5

 

15) Absorption costing is more widely used than variable costing.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

16) In variable costing, inventories are valued at standard variable costs.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

17) A production-volume variance is calculated as the applied volume minus the actual volume multiplied by the actual-overhead rate.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

18) Absorption costing separates costs into manufacturing and non-manufacturing categories.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

19) There is no difference between variable-costing and absorption-costing income if the inventory level does not change.

Answer:  TRUE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

20) Absorption-costing income is not affected by production volume.

Answer:  FALSE

Diff: 1      Type: TF      Page Ref: 131

Objective:  7

 

21) The part of the accounting system that measures costs for the purposes of management decision making and financial reporting is referred to as

1.   A) period costing.

2.   B) cost accounting.

3.   C) system accounting.

4.   D) product costing.

Answer:  B

Diff: 2      Type: MC      Page Ref: 120

Objective:  1

 

22) Which of the following statements is NOT true?

1.   A) A cost may be defined as a sacrifice or giving up of resources for a particular purpose.

2.   B) Costs are frequently measured by the monetary units that must be paid for goods and services.

3.   C) Costs are shown on the income statement.

4.   D) Costs are initially recorded in elementary form.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

23) An activity for which a separate measurement of costs is desired is called a

1.   A) cost objective.

2.   B) period cost.

3.   C) product cost.

4.   D) cost accumulation system.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

24) Which of the following would NOT be an example of a cost objective?

1.   A) A department

2.   B) A product

3.   C) A territory

4.   D) A parcel of land

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

25) A cost accumulation system typically includes two processes:

1.   A) cost accumulation and cost allocation.

2.   B) cost objectives and cost accounting.

3.   C) cost accumulation and cost accounting.

4.   D) cost allocation and cost application.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

26) Which of the following statements is TRUE?

1.   A) Indirect costs can be identified specifically with a given cost objective in an economically feasible way.

2.   B) Managers prefer to classify costs as indirect rather than direct.

3.   C) A cost may simultaneously be direct and indirect.

4.   D) Direct costs cannot be identified specifically with a given cost objective in an economically feasible way.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

27) Which of the following is NOT a factor in determining whether a cost is direct or indirect?

1.   A) The cost can be identified specifically with a given cost objective.

2.   B) The identification of the cost is economically feasible.

3.   C) The cost objective used.

4.   D) The manager’s preference.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

28) The three major categories of manufacturing costs are

1.   A) prime costs, direct materials and factory overhead.

2.   B) direct labour, factory overhead and direct materials.

3.   C) indirect labour, indirect materials and conversion costs.

4.   D) prime costs, period costs, and product costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

29) All costs other than direct material and direct labour that are associated with the manufacturing process are called

1.   A) prime costs.

2.   B) factory-overhead costs.

3.   C) conversion costs.

4.   D) product costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

30) Which of the following would probably NOT be considered a direct material?

1.   A) Lumber

2.   B) Steel

3.   C) Glue

4.   D) Subassemblies

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

31) An example of direct labour would be

1.   A) janitor’s wages.

2.   B) factory foreman’s wages.

3.   C) machine operator’s wages.

4.   D) plant guard’s wages.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

32) Factory overhead includes

1.   A) direct materials and direct labour.

2.   B) prime costs.

3.   C) indirect and direct labour.

4.   D) indirect labour and indirect materials.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

33) Which of the following is NOT a factory overhead cost?

1.   A) Wages of machine operators

2.   B) Wages of supervisors

3.   C) Amortization of the machinery

4.   D) Factory utilities

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

34) Prime costs include

1.   A) direct labour and factory overhead.

2.   B) direct materials and indirect labour.

3.   C) factory overhead and indirect materials.

4.   D) direct labour and direct materials.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

35) The sum of direct labour and factory overhead costs is equal to

1.   A) conversion costs.

2.   B) prime costs.

3.   C) period costs.

4.   D) indirect costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

36) Manufacturing costs are eventually reported on

1.   A) the income statement only.

2.   B) the balance sheet only.

3.   C) the income statement as cost of goods sold.

4.   D) the balance sheet as cost of goods sold.

Answer:  C

Diff: 1      Type: MC      Page Ref: 128

 

37) A period cost

1.   A) is identified with goods produced or purchased for resale.

2.   B) is accumulated in work-in-

3.   C) is shown on the balance sheet.

4.   D) is expensed as incurred.

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

38) Costs identified with goods produced or purchased for resale are called

1.   A) product costs.

2.   B) period costs.

3.   C) prime costs.

4.   D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

39) Which of the following statements is FALSE?

1.   A) Product costs are inventoriable costs.

2.   B) Product costs are automatically deducted as expenses during the current period.

3.   C) Product costs become expenses when the inventory is sold.

4.   D) Product costs show up on the income statement in cost of goods sold.

Answer:  B

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

40) Selling and general administrative costs are

1.   A) period costs.

2.   B) product costs.

3.   C) prime costs.

4.   D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

41) An example of a product cost is

1.   A) advertising expense.

2.   B) amortization on office equipment.

3.   C) indirect materials.

4.   D) store supplies expense.

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

42) Which of the following is NOT a period cost?

1.   A) Wages of clerical staff

2.   B) Advertising expense

3.   C) Factory supplies used

4.   D) Amortization on salesperson’s car

Answer:  C

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

43) Which of the following is NOT a product cost?

1.   A) Indirect labour

2.   B) Raw materials used

3.   C) Insurance on the plant

4.   D) Advertising expense

Answer:  D

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

44) Which of the following is NOT an inventory account?

1.   A) Direct labour

2.   B) Direct materials

3.   C) Work in process

4.   D) Finished goods

Answer:  A

Diff: 1      Type: MC      Page Ref: 120

Objective:  1

 

45) How many inventory accounts does a manufacturer usually have?

1.   A) Three

2.   B) Two

3.   C) One

4.   D) None

Answer:  A

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

46) How many inventory accounts does a merchandiser usually have?

1.   A) One

2.   B) Two

3.   C) Three

4.   D) Four

Answer:  A

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

47) Which of the following accounts would NOT be included in the current asset section of a manufacturer’s balance sheet?

1.   A) Work in process inventory

2.   B) Merchandise inventory

3.   C) Finished goods inventory

4.   D) Direct materials inventory

Answer:  B

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

48) Which of the following accounts would appear in the current asset section of a merchandiser’s balance sheet?

1.   A) Direct materials inventory

2.   B) Finished goods inventory

3.   C) Merchandise inventory

4.   D) Work in process inventory

Answer:  C

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

49) The cost of goods purchased line on the income statement of a retailer is the equivalent to which line on a manufacturer’s income statement?

1.   A) Cost of raw materials purchased

2.   B) Cost of goods sold

3.   C) Cost of goods available for sale

4.   D) Cost of goods manufactured

Answer:  D

Diff: 1      Type: MC      Page Ref: 128

 

50) Which of the following would appear on an income statement of both a retailer and a manufacturer?

1.   A) Direct labour

2.   B) Selling expenses

3.   C) Beginning finished goods inventory

4.   D) Factory overhead

Answer:  B

Diff: 1      Type: MC      Page Ref: 124

Objective:  5

 

51) Which of the following methods is required for external financial reporting?

1.   A) Contribution approach

2.   B) Variable costing

3.   C) Direct costing

4.   D) Absorption approach

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

52) When using the absorption approach to costing,

1.   A) all variable costs are inventoriable.

2.   B) all indirect manufacturing costs are inventoriable.

3.   C) all fixed costs are treated as period costs.

4.   D) all direct manufacturing costs are treated as period costs.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

53) Absorption costing classifies costs as either product costs or

1.   A) period costs.

2.   B) fixed costs.

3.   C) prime costs.

4.   D) conversion costs.

Answer:  A

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

54) Which of the following terms appears on an income statement prepared using the contribution approach but NOT on an income statement using absorption costing?

1.   A) Operating income

2.   B) Gross profit

3.   C) Contribution margin

4.   D) Sales

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

55) When using the contribution approach to costing,

1.   A) all factory overhead is inventoriable.

2.   B) all indirect manufacturing costs are inventoriable.

3.   C) all selling expenses are deducted from the contribution margin.

4.   D) all fixed costs are treated as period costs.

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

56) Absorption costing is also known as all of the following EXCEPT

1.   A) direct costing.

2.   B) full costing.

3.   C) traditional approach.

4.   D) functional approach.

Answer:  A

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

57) Variable costing regards fixed manufacturing overhead as

1.   A) an unexpired cost.

2.   B) an inventoriable cost.

3.   C) a charge against sales.

4.   D) a product cost.

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

58) Variable costing is commonly called

1.   A) full costing.

2.   B) direct costing.

3.   C) traditional costing.

4.   D) absorption costing.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

59) All of the following are inventoriable costs under variable costing EXCEPT

1.   A) direct materials.

2.   B) direct labour.

3.   C) variable manufacturing overhead.

4.   D) fixed manufacturing overhead.

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

60) The only difference between variable and absorption costing is the accounting for

1.   A) direct labour.

2.   B) fixed manufacturing overhead.

3.   C) direct materials.

4.   D) variable manufacturing overhead.

Answer:  B

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

61) Which format does the CICA Handbook advocate for reporting income?

1.   A) Direct costing

2.   B) Variable costing

3.   C) Indirect costing

4.   D) Full costing

Answer:  D

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

62) All manufacturing costs are assigned to the product under which method of product costing?

1.   A) Direct costing

2.   B) Variable costing

3.   C) Absorption costing

4.   D) Fixed costing

Answer:  C

Diff: 1      Type: MC      Page Ref: 131

Objective:  7

 

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

63) The cost of producing one unit of product using variable costing would be

32.                A) $32.

33.                B) $40.

34.                C) $45.

35.                D) $26.

Answer:  A

Diff: 2      Type: MC      Page Ref: 131

Objective:  7

 

64) The cost of producing one unit of product using absorption costing would be

32.                A) $32.

33.                B) $26.

34.                C) $45.

35.                D) $40.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

65) The ending inventory under variable costing would be

1.   A) $24,000.

2.   B) $27,000.

3.   C) $19,200.

4.   D) $15,600.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

66) The ending inventory under absorption costing would be

1.   A) $27,000.

2.   B) $24,000.

3.   C) $15,600.

4.   D) $19,200.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

Schultz Company reported the following information about the production and sales of its only product:

 

Direct materials used	$64,000
Direct labour	$40,000
Variable factory overhead	$24,000
Fixed factory overhead	$32,000
Variable selling and administrative expenses	$  8,000
Fixed selling and administrative expenses	$12,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($90 per unit)	$126,000

 

67) The cost of producing one unit of product using variable costing would be

64.                A) $64.

65.                B) $80.

66.                C) $90.

67.                D) $52.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

68) The cost of producing one unit of product using absorption costing would be

64.                A) $64.

65.                B) $52.

66.                C) $90.

67.                D) $80.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

69) The ending inventory under variable costing would be

1.   A) $48,000.

2.   B) $54,000.

3.   C) $38,400.

4.   D) $31,200.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

70) The ending inventory under absorption costing would be

1.   A) $54,000.

2.   B) $48,000.

3.   C) $31,200.

4.   D) $38,400.

Answer:  B

Diff: 1      Type: MC      Page Ref: 133

Objective:  9

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

71) The cost of goods sold under variable costing would be

1.   A) $56,000.

2.   B) $63,000.

3.   C) $44,800.

4.   D) $36,400.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

72) The contribution margin under variable costing would be

200.             A) $18,200.

201.             B) $14,200.

202.             C) $ 3,000.

203.             D) $22,600.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

73) The operating income (loss) under variable costing would be

200.             A) $14,200.

201.             B) $ 8,200.

202.             C) $(3,000).

203.             D) $(7,800).

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

Schultz Company reported the following information about the production and sales of its only product:

 

Direct materials used	$64,000
Direct labour	$40,000
Variable factory overhead	$24,000
Fixed factory overhead	$32,000
Variable selling and administrative expenses	$  8,000
Fixed selling and administrative expenses	$12,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($90 per unit)	$126,000

 

74) The cost of goods sold under variable costing would be

1.   A) $112,000.

2.   B) $126,000.

3.   C) $ 89,600.

4.   D) $ 72,800.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

75) The contribution margin under variable costing would be

400.             A) $36,400.

401.             B) $28,400.

402.             C) $ 6,000.

403.             D) $45,200.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

76) The operating income (loss) under variable costing would be

400.             A) $ 28,400.

401.             B) $ 16,400.

402.             C) $( 6,000).

403.             D) $(15,600).

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

A company has the following information:

 

Beginning inventories	none
Raw materials used	$  50,000
Sales ($130 per unit)	$156,000
Direct labour	$  84,000
Variable factory overhead	$  34,000
Fixed factory overhead	unknown
Variable selling and administrative	$    6,000
Fixed selling and administrative	$  10,000
Gross profit	$  60,000
Contribution margin	unknown
Ending inventories
Raw materials	$  14,000
WIP	none
Finished goods	1,200 units

 

77) Raw materials purchased during the current period were

1.   A) $50,000.

2.   B) $64,000.

3.   C) $36,000.

4.   D) not determinable.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

78) The ending inventory under variable costing would be

1.   A) $96,000.

2.   B) $168,000.

3.   C) $84,000.

4.   D) $192,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

79) The cost of goods sold under variable costing would be

1.   A) $84,000.

2.   B) $192,000.

3.   C) $96,000.

4.   D) $168,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

80) The total contribution margin under variable costing would be

1.   A) $42,000.

2.   B) $14,000.

3.   C) $66,000.

4.   D) $72,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

81) The net income under variable costing would be

1.   A) $32,000.

2.   B) $44,000.

3.   C) $50,000.

4.   D) $66,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

82) Under variable costing, which manufacturing cost is expensed as a period cost?

1.   A) Fixed manufacturing overhead.

2.   B) Direct materials.

3.   C) Variable manufacturing overhead.

4.   D) Direct labour.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

 

83) In variable costing, costs are separated into the major categories of

1.   A) manufacturing and non-

2.   B) manufacturing and fixed.

3.   C) fixed and variable.

4.   D) variable and non-

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

84) In variable costing, revenue less all variable costs is

1.   A) gross margin.

2.   B) operating income.

3.   C) contribution margin.

4.   D) net income.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

A company has the following information:

 

Beginning inventories	none
Raw materials used	$  50,000
Sales ($130 per unit)	$156,000
Direct labour	$  84,000
Variable factory overhead	$  34,000
Fixed factory overhead	unknown
Variable selling and administrative	$    6,000
Fixed selling and administrative	$  10,000
Gross profit	$  60,000
Contribution margin	unknown
Ending inventories
Raw materials	$  14,000
WIP	none
Finished goods	1,200 units

 

85) How much factory overhead is included in the ending inventory under absorption costing?

1.   A) $24,000

2.   B) $12,000

3.   C) $16,800

4.   D) $-0-

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

DeJager Company reported the following information about the production and sales of its only product:

 

Direct materials used	$32,000
Direct labour	$20,000
Variable factory overhead	$12,000
Fixed factory overhead	$16,000
Variable selling and administrative expenses	$  4,000
Fixed selling and administrative expenses	$  6,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($45 per unit)	$63,000

 

86) The cost of goods sold under absorption costing would be

1.   A) $56,000.

2.   B) $63,000.

3.   C) $44,800.

4.   D) $36,400.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

87) The gross profit under absorption costing would be

600.             A) $26,600.

601.             B) $18,200.

602.             C) $ -0-.

603.             D) $ 7,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

88) The operating income (loss) under absorption costing would be

600.             A) $ 16,600.

601.             B) $ 8,200.

602.             C) $( 3,000).

603.             D) $(10,000).

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

Schultz Company reported the following information about the production and sales of its only product:

 

Direct materials used	$64,000
Direct labour	$40,000
Variable factory overhead	$24,000
Fixed factory overhead	$32,000
Variable selling and administrative expenses	$  8,000
Fixed selling and administrative expenses	$12,000
Beginning inventories	none
Ending inventories:
Direct materials	-0-
WIP	-0-
Finished goods	600 units
Sales ($90 per unit)	$126,000

 

89) The cost of goods sold under absorption costing would be

1.   A) $112,000.

2.   B) $126,000.

3.   C) $ 89,600.

4.   D) $ 72,800.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

90) The gross profit under absorption costing would be

200.             A) $53,200.

201.             B) $36,400.

202.             C) $ -0-.

203.             D) $14,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

91) The operating income (loss) under absorption costing would be

200.             A) $ 33,200.

201.             B) $ 16,400.

202.             C) $( 6,000).

203.             D) $(20,000).

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

A company has the following information:

 

Beginning inventories	none
Raw materials used	$  50,000
Sales ($130 per unit)	$156,000
Direct labour	$  84,000
Variable factory overhead	$  34,000
Fixed factory overhead	unknown
Variable selling and administrative	$    6,000
Fixed selling and administrative	$  10,000
Gross profit	$  60,000
Contribution margin	unknown
Ending inventories
Raw materials	$  14,000
WIP	none
Finished goods	1,200 units

 

92) The fixed factory overhead incurred was

1.   A) $66,000.

2.   B) $32,000.

3.   C) $ -0-.

4.   D) $24,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

93) The ending inventory under absorption costing would be

1.   A) $ 96,000.

2.   B) $ 84,000.

3.   C) $168,000.

4.   D) $ 60,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

94) The cost of goods sold under absorption costing would be

1.   A) $168,000.

2.   B) $192,000.

3.   C) $ 84,000.

4.   D) $ 96,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

95) The net income under absorption costing would be

1.   A) $50,000.

2.   B) $32,000.

3.   C) $60,000.

4.   D) $44,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

96) The fixed-overhead rate is determined by dividing the budgeted fixed manufacturing overhead by

1.   A) expected volume of the cost driver.

2.   B) actual volume of production.

3.   C) budgeted variable manufacturing overhead.

4.   D) the number of units sold.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

The following information refers to the Cowan Company’s past year of operations.

 

	Product A	Product B
Production (units)	160,000	300,000
Sales (units)	100,000	250,000
Selling price	$6.00	$5.00
Direct Labour hours	60,000	90,000

 

Manufacturing costs:
Direct materials	$ 80,000	$270,000
Direct labour	240,000	540,000
Variable overhead	24,000	30,000
Fixed overhead:   Direct	80,000	50,000
Fixed overhead:  Common*	25,000	25,000

 

Nonmanufacturing costs:
Variable selling	$ 40,000	$  75,000
Direct fixed selling	50,000	65,000
Common fixed selling**	30,000	30,000

 

 

*Common overhead totals $50,000 and is divided equally between the two products.

 

**Common fixed selling totals $60,000 and is divided equally between the two products.

 

Budgeted fixed overhead for the year of $180,000 equalled actual fixed overhead.  Fixed overhead is assigned to products using a plant-wide rate based on expected direct labour hours, which were 150,000.  The company had 5,000 of Product B in inventory at the beginning of the year.  These units had the same unit cost as the units produced during the year.

97) The unit product cost for Product A using variable costing is

2.   A) $2.00.

3.   B) $2.15.

4.   C) $2.45.

5.   D) $2.60.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

98) The unit product cost for Product A using absorption costing is

2.   A) $2.15.

3.   B) $2.45.

4.   C) $2.60.

5.   D) $2.80.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

99) The unit product cost for Product B using variable costing is

2.   A) $2.15.

3.   B) $2.45.

4.   C) $2.80.

5.   D) $3.04.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

100) The unit product cost for Product B using absorption costing is

3.   A) $3.16.

4.   B) $2.80.

5.   C) $2.60.

6.   D) $2.45.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

101) Variable cost of goods sold for the year is

1.   A) $700,000.

2.   B) $915,000.

3.   C) $1,025,000.

4.   D) $1,072,000.

Answer:  B

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

102) Variable costing net income for the year is

1.   A) $938,000.

2.   B) $763,000.

3.   C) $648,000.

4.   D) $465,000.

Answer:  D

Diff: 2      Type: MC      Page Ref: 133

Objective:  8

 

103) Using absorption costing, cost of goods sold for the year is

1.   A) $1,050,000.

2.   B) $912,000.

3.   C) $797,000.

4.   D) $760,000.

Answer:  A

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

 

104) Absorption costing net income for the year is

1.   A) $840,000.

2.   B) $648,000.

3.   C) $510,000.

4.   D) $488,000.

Answer:  C

Diff: 2      Type: MC      Page Ref: 133

Objective:  9

 

105) Which of the following is NOT considered a payroll fringe cost?

1.   A) Idle time

2.   B) Pension plan contributions

3.   C) Social security payment

4.   D) Health insurance coverage

Answer:  A

Diff: 1      Type: MC      Page Ref: 133

Objective:  8

 

106) Any activity for which a separate measurement of costs is desired.

Answer:  Cost objective

Diff: 1      Type: SA      Page Ref: 133

Objective:  1

107) A sacrifice or giving up of resources for a particular purpose.

Answer:  Cost

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

108) Costs that can be identified specifically and exclusively with a given cost objective in an economically feasible way.

Answer:  Direct cost

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

109) All costs other than direct material or direct labour that are associated with the manufacturing process.

Answer:  Factory-overhead costs

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

110) A product-costing method that assigns only variable manufacturing costs to a product.

Answer:  Variable costing

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

 

111) A product-costing method that assigns all manufacturing costs to a product.

Answer:  Absorption costing

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

112) Expenses that are directly traceable to a given segment and would be avoided if the segment is eliminated.

Answer:  Direct fixed costs

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

113) Expenses that are not directly traceable to a particular segment and are unaffected by the elimination of any one segment.

Answer:  Common fixed expenses

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

114) Fixed manufacturing overhead assigned to production using a predetermined fixed overhead rate.

Answer:  Applied fixed overhead

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

115) Direct labour costs plus direct materials costs.

Answer:  Prime costs

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

116) Direct labour costs plus factory overhead costs.

Answer:  Conversion costs

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

117) Costs identified with goods produced or purchased for resale.

Answer:  Product costs

Diff: 1      Type: SA      Page Ref: 120

Objective:  1

 

118) The costing method, which excludes fixed manufacturing overhead from the cost of products.

Answer:  Variable costing

Diff: 1      Type: SA      Page Ref: 131

Objective:  7

 

119) The costing method, which capitalizes fixed manufacturing overhead as product cost.

Answer:  Absorption costing

Diff: 1      Type: SA      Page Ref: 131

Objective:  7

 

 

120) Sales revenue less cost of goods sold.

Answer:  Gross margin

Diff: 1      Type: SA      Page Ref: 131

Objective:  7

121) The Majors Company has gathered the following information for the year ended December 31, 20X3.

 

Sales                                                            $520,000

Direct materials used                               129,000

Direct labour                                                  76,000

Factory overhead:

Fixed                                                                62,000

Variable                                                           33,000

Selling expenses:

Fixed                                                                21,000

Variable                                                           44,000

General and administrative expenses:

Fixed                                                                43,000

Variable                                                           23,000

 

There were no beginning or ending inventories.

 

Required:

 

Calculate the following:

1.   Prime cost

2.   Conversion cost

3.   Total product cost

4.   Total period cost

Answer:

1.   $129,000 + $76,000 = $205,000

2.   $76,000 + $62,000 + $33,000 = $171,000

3.   $129,000 + $76,000 + $62,000 + $33,000 = $330,000

4.   $21,000 + $44,000 + $43,000 + $23,000 = $131,000

Diff: 3      Type: ES      Page Ref: 120

Objective:  1

 

122) Lentz Manufacturers, a manufacturer of wood doors, has prepared the following list of accounts:

 

Advertising                                                 $ 36,000

Assemblers’ wages                                      84,200

Amortization of machinery                         9,200

Factory utilities                                             55,600

Lathe operators’ wages                               66,400

Machinery repairs                                        22,600

Office salaries                                              113,800

Purchases of glue                                            1,600

Purchases of nails                                              800

Purchases of oak                                       250,000

Purchases of pine                                         99,000

Supervisors’ salaries                                   21,400

 

There were no beginning or ending inventories.

 

Required: