Managerial Accounting Creating Value in a Dynamic Business Environment Ronald Hilton 11th Edition- Test Bank
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Sample Test
Chapter 3
Product Costing and Cost Accumulation in a Batch Production
Environment
Answer Key
True / False Questions
1. Product
or service cost is a very objective number that anyone could agree on.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-01
Feedback True: This statement is false.
Feedback False: Correct! In reality, product cost is a slippery
concept.
2. Product
costs provide crucial data for a variety of managerial purposes.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01
Feedback True: Correct! It is true that product costs provide
crucial data for a variety of managerial purposes.
Feedback False: This statement is true.
3. The
final step in recognizing the completion of production requires a company to
debit Finished-Goods Inventory and credit Work-in-Process Inventory.
TRUE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02
Learning Objective: 03-05
Feedback True: Correct! Control systems influence behavior.
Feedback False: Control systems influence behavior.
4. As
soon as products are completed, their product costs are transferred from Raw
Materials Inventory to Finished-Goods Inventory.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02
Feedback True: This statement is false.
Feedback False: Correct! As soon as products are completed,
their costs are transferred from Work-in-Process Inventory to Finished-Goods
Inventory.
5. Manufacturing
overhead is a pool of indirect production costs that must somehow be attached
to each unit manufactured.
TRUE
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback True: Correct! Control systems influence behavior.
Feedback False: Control systems influence behavior.
6. In a
public accounting firm, for example, costs are assigned to an audit engagement
in much the same way they are assigned to a single batch of tables by a
furniture manufacturer.
TRUE
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback True: Correct! Audits for accounting firms have costs
assigned in the same manner that costs for tables are assigned within furniture
manufacturers.
Feedback False: This statement is true.
7. In
traditional product-costing systems, the measure of productive activity is
usually some volume-based cost driver, like direct-labor hours.
TRUE
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04
Feedback True: Correct! Volume-based cost drivers are productive
activity measures in traditional product-costing systems.
Feedback False: This statement is true.
8. A
predetermined overhead rate is calculated by dividing actual overhead cost by
the actual amount of a cost driver used in the process.
FALSE
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04
Feedback True: This statement is false.
Feedback False: Correct! The calculation for a predetermined
overhead rate is calculated by dividing budgeted overhead cost by the budgeted
amount of cost driver or activity base.
9. Electricity
costs that were incurred by a company’s production processes should be debited
to Utilities Expense.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback True: This statement is false.
Feedback False: Correct! Electricity costs incurred by a
company’s production processes are associated with Manufacturing Overhead
rather than Utilities Expense.
10.
A production order for a job authorizes the release of material
to production.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback True: This statement is false.
Feedback False: Correct! It is important to consider the system.
11.
Under- or overapplied manufacturing overhead at year-end is most
commonly charged or credited to Work-in-Process Inventory.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05
Feedback True: It is important to consider the system.
Feedback False: Correct! Under or overapplied manufacturing
overhead is not commonly charged to Work-in Process Inventory.
12.
The term “normal costing” refers to the use of job-costing
systems.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-06
Feedback True: This statement is false.
Feedback False: Correct! Normal costing does not refer to the
use of job-costing systems.
13.
Actual costing avoids the profitability of cyclicality.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-06
Feedback True: This statement is false.
Feedback False: Correct! The use of actual costing is affected
by cyclicality of profits.
14.
Two-stage cost allocation uses a first stage to assign all
product costs to production departments and then a second stage to apply
different cost drivers to improve efficiency.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-07
Feedback True: This statement is false.
Feedback False: Correct! In the first stage, all manufacturing-overhead
costs are assigned to the production departments, such as machining and
assembly. In the sec¬ond stage, the overhead costs that have been assigned to
each production department are applied to the production jobs that pass through
the department.
15.
The two-stage cost allocation actually has three types of
allocation involved.
TRUE
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-07
Feedback True: Correct! The two-stage cost allocation actually
has three types of allocation involved.
Feedback False: This statement is true.
16.
Job-order costing methods are used in a variety of service
industry firms and nonprofit organizations.
TRUE
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-08
Feedback True: Correct! Job-order costing is applicable to
service firms and nonprofit organization.
Feedback False: This statement is true.
17.
Nonmanufacturing firms typically refer to their service
production processes as jobs.
FALSE
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-08
Feedback True: This statement is false.
Feedback False: Correct! Rather than referring to production
“jobs,” nonmanufacturing organiza¬tions use terminology that reflects their
operations, like hospitals refer to cases and consultants refer to engagements.
Multiple Choice Questions
18.
Product costing in a manufacturing firm is the process of:
19.
accumulating the company’s period costs.
20.
allocating costs among the firm’s departments.
21.
placing a value on the company’s fixed assets.
22.
assigning costs to the firm’s inventory.
23.
assigning costs to the company’s managers.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01
Feedback A: This statement is incorrect.
Feedback B: This statement is incorrect.
Feedback C: This statement is incorrect.
Feedback D: Correct! Product costing in a manufacturing firm is
the process of assigning costs to the firm’s inventory.
Feedback E: This statement is incorrect.
19.
Which of the following statements is true?
20.
Service firms have little need for determining the cost of their
services.
21.
The concept of product costing is relevant only for
manufacturing firms.
22.
The cost of year-end inventory appears on the balance sheet as
an expense.
23.
Service companies use cost information for planning and control
purposes.
24.
Mining and petroleum companies have no inventoriable costs.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01
Feedback A: This statement is incorrect.
Feedback B: This statement is incorrect.
Feedback C: This statement is incorrect.
Feedback D: Correct! Service companies use cost information for
planning and control purposes.
Feedback E: This statement is incorrect.
20.
Which of the following statements is true?
21.
Product costing is not used in financial accounting.
22.
There is only one way to assign indirect costs.
23.
All product cost numbers can be easily derived due to their
objective nature.
24.
Product costing is limited to manufacturing firms.
25.
Relative profitability depends upon the way we assign costs and
define outputs as successful or unsuccessful.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01
Feedback A: Product costing is also used in managerial
accounting.
Feedback B: Just like direct costs, there are several ways to
assign indirect costs.
Feedback C: Product costing is not really objective in nature.
Feedback D: Nonmanufacturing firms also use product costing.
Feedback E: Correct! Relative profitability depends upon the way
we assign costs and define outputs as successful or unsuccessful.
21.
If a company sells goods that cost $80,000 for $92,000, the firm
will:
22.
reduce Finished-Goods Inventory by $80,000.
23.
reduce Finished-Goods Inventory by $92,000.
24.
report sales revenue on the balance sheet of $92,000.
25.
reduce Cost of Goods Sold by $80,000.
26.
follow more than one of the other procedures.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: Correct! The firm will reduce Finished-Goods
Inventory by $80,000.
Feedback B: This is incorrect.
Feedback C: This is incorrect.
Feedback D: This is incorrect.
Feedback E: This is incorrect.
22.
As production takes place, all manufacturing costs are added to
the:
23.
Work-in-Process Inventory account.
24.
Manufacturing-Overhead Inventory account.
25.
Cost-of-Goods-Sold account.
26.
Finished-Goods Inventory account.
27.
Production Labor account.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: Correct! All manufacturing costs are added to the
Work-in-Process Inventory account as production takes place.
Feedback B: This account is incorrect.
Feedback C: This account is incorrect.
Feedback D: This account is incorrect.
Feedback E: This account is incorrect.
23.
Which of the following statements regarding work in process is
not correct?
24.
Work in process is partially completed inventory.
25.
Work in process consists of direct labor, direct material, and
manufacturing overhead.
26.
Work-in-Process Inventory is debited to record direct material
used and direct labor incurred.
27.
Work-in-Process Inventory appears on the year-end balance sheet.
28.
Work-in-Process Inventory is credited when goods are sold.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: This statement is true.
Feedback B: This statement is true.
Feedback C: This statement is true.
Feedback D: This statement is true.
Feedback E: Correct! Work-in-process Inventory is not
credited when goods are sold.
24.
Which of the following statements about manufacturing cost flows
is false?
25.
Direct materials, direct labor, and manufacturing overhead are
entered in the Work-in-Process Inventory account.
26.
The Finished-Goods Inventory account will contain entries that
reflect the cost of goods sold during the period.
27.
The cost of units sold during the period will typically appear
on the income statement.
28.
When a company sells goods that cost $54,000 for $60,000, the
firm will enter $6,000 in an account entitled Profit on Sale.
29.
Units are normally transferred from Work-in-Process Inventory to
Finished-Goods Inventory.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: This statement is true.
Feedback B: This statement is true.
Feedback C: This statement is true.
Feedback D: Correct! A firm will not enter $6,000 in an account
entitled Profit on Sale.
Feedback E: This statement is true.
25.
The final step in recognizing the completion of production
requires a company to:
26.
debit Finished-Goods Inventory and credit Work-in-Process
Inventory.
27.
debit Work-in-Process Inventory and credit Finished-Goods
Inventory.
28.
add direct labor to Work-in-Process Inventory.
29.
add direct materials, direct labor, and manufacturing overhead
to Work-in-Process Inventory.
30.
add direct materials to Finished-Goods Inventory.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: Correct! The final step in recognizing the
completion of production requires a company to debit Finished Goods Inventory
and credit Work-in-Process.
Feedback B: This is not the final step.
Feedback C: This is not the final step.
Feedback D: This is not the final step.
Feedback E: This is not the final step.
26.
Morgan Manufacturing recently sold goods that cost $35,000 for
$45,000 cash. The journal entries to record this transaction would include:
27.
a credit to Work-in-Process Inventory for $35,000.
28.
a debit to Sales Revenue for $45,000.
29.
a credit to Profit on Sale for $10,000.
30.
a debit to Finished-Goods Inventory for $35,000.
31.
a credit to Sales Revenue for $45,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: Apply
Difficulty: 2 Medium
Learning Objective: 03-02
Learning Objective: 03-05
Feedback A: This is not included in the journal entries.
Feedback B: This is not included in the journal entries.
Feedback C: This is not included in the journal entries.
Feedback D: This is not included in the journal entries.
Feedback E: Correct! The journal entries include a credit to
Sales Revenue for $45,000.
27.
Which of the following manufacturers would most likely use
job-order costing?
28.
Chemical manufacturers.
29.
Microchip processors.
30.
Custom-furniture manufacturers.
31.
Gasoline refiners.
32.
Fertilizer manufacturers.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03
Feedback A: This is most likely a process costing system.
Feedback B: This is most likely a process costing system.
Feedback C: Correct! The custom-furniture manufacturer would
most likely used job-order costing.
Feedback D: This is most likely a process costing system.
Feedback E: This is most likely a process costing system.
28.
A custom-home builder would likely utilize:
29.
job-order costing.
30.
process costing.
31.
mass customization.
32.
process budgeting.
33.
joint costing.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03
Feedback A: Correct! Custom-home builders would most likely
utilize job-order costing.
Feedback B: This would probably not be used by a custom-home
builder.
Feedback C: This would probably not be used by a custom-home
builder.
Feedback D: This would probably not be used by a custom-home
builder.
Feedback E: This would probably not be used by a custom-home
builder.
29.
Which of the following types of companies would most likely use
process costing?
30.
Aircraft manufacturers.
31.
Textile manufacturers.
32.
Textbook publishers.
33.
Custom-machining firms.
34.
Shipbuilders.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03
Feedback A: Process costing would probably not be used.
Feedback B: Textile manufacturers would most likely use process
costing.
Feedback C: Process costing would probably not be used.
Feedback D: Process costing would probably not be used.
Feedback E: Process costing would probably not be used.
30.
A manufacturing firm produces goods in accordance with customer
specifications, commencing production upon receipt of a purchase order. To
accumulate the cost of each order, the company would use a:
31.
job-cost record.
32.
cost allocation matrix.
33.
production log.
34.
overhead sheet.
35.
manufacturing cost record.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback A: Correct! To accumulate the cost of each order, the
company would use a job-cost record.
Feedback B: This would not be used for accumulating costs.
Feedback C: This would not be used for accumulating costs.
Feedback D: This would not be used for accumulating costs.
Feedback E: This would not be used for accumulating costs.
31.
A typical job-cost record would provide information about all of
the following items related to an order except:
32.
the cost of direct materials used.
33.
administrative costs.
34.
direct labor costs incurred.
35.
applied manufacturing overhead.
36.
direct labor hours worked.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback A: This would be found in a typical job-cost record.
Feedback B: Correct! Administrative costs would not be provided
in a typical job-cost record.
Feedback C: This would be found in a typical job-cost record.
Feedback D: This would be found in a typical job-cost record.
Feedback E: This would be found in a typical job-cost record.
32.
Which of the following statements about material requisitions is
false?
33.
Material requisitions are often computerized.
34.
Material requisitions are a common example of source documents.
35.
Material requisitions contain information that is useful to the
cost accounting department.
36.
Material requisitions authorize the transfer of materials from
the production floor to the raw materials warehouse.
37.
Material requisitions are routinely linked to a bill of
materials that lists all of the materials needed to complete a job.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback A: This statement is true.
Feedback B: This statement is true.
Feedback C: This statement is true.
Feedback D: Correct! Material requisitions do not authorize the
transfer of material from the production floor to the raw materials warehouse.
Feedback E: This statement is true.
33.
Gonzales Company has developed an integrated system that
coordinates the flow of all goods, services, and information into and out of
the organization, working with raw material vendors as well as customers to
improve service and reduce costs. The firm is said to be using:
34.
participative management.
35.
top-down management.
36.
strategic cost management.
37.
supply chain management.
38.
management by objectives (MBO).
AACSB: Reflective Thinking
AICPA BB: Resource Management
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03
Feedback A: This is not participative management.
Feedback B: This is not top-down management
Feedback C: This is not strategic cost management.
Feedback D: Correct! The firm is using supply chain management.
Feedback E: This is not management by objectives.
34.
The assignment of direct labor cost to individual jobs is based
on:
35.
an estimate of the total time spent on the job.
36.
actual total payroll cost divided equally among all jobs in
process.
37.
estimated total payroll cost divided equally among all jobs in
process.
38.
the actual time spent on each job multiplied by the wage rate.
39.
the estimated time spent on each job multiplied by the wage
rate.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03
Feedback A: This is incorrect for the assignment of direct labor
costs to individual jobs.
Feedback B: This is incorrect for the assignment of direct labor
costs to individual jobs.
Feedback C: This is incorrect for the assignment of direct labor
costs to individual jobs.
Feedback D: Correct! The assignment is based on the actual
time spent on each job multiplied by the wage rate.
Feedback E: This is incorrect for the assignment of direct labor
costs to individual jobs.
35.
When using normal costing, the total production cost of a job is
composed of:
36.
direct material and direct labor, only.
37.
direct material, direct labor, manufacturing overhead, and
outlays for selling costs.
38.
direct material, direct labor, manufacturing overhead, and
outlays for both selling and administrative costs.
39.
direct material, direct labor, and applied manufacturing
overhead.
40.
direct material, direct labor, and actual manufacturing
overhead.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03
Feedback A: This is incorrect.
Feedback B: This is incorrect.
Feedback C: This is incorrect.
Feedback D: Correct! The total production cost of a job is
composed of direct material, direct labor, and applied manufacturing overhead.
Feedback E: This is incorrect.
36.
Manufacturing overhead:
37.
includes direct materials, indirect materials, indirect labor,
and factory depreciation.
38.
is easily traced to jobs.
39.
includes all selling costs.
40.
should not be assigned to individual jobs because it bears no
obvious relationship to them.
41.
is a pool of indirect production costs that must somehow be
attached to each unit manufactured.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03
Feedback A: This statement is incorrect regarding manufacturing
overhead.
Feedback B: This statement is incorrect regarding manufacturing
overhead.
Feedback C: This statement is incorrect regarding manufacturing
overhead.
Feedback D: This statement is incorrect regarding manufacturing
overhead.
Feedback E: Correct! Manufacturing overhead is a pool of
indirect production costs.
37.
The process of assigning overhead costs to the jobs that are
worked on is commonly called:
38.
service department cost allocation.
39.
overhead cost distribution.
40.
overhead application.
41.
transfer costing.
42.
overhead cost apportionment.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA: FN Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This is incorrect.
Feedback B: This is incorrect.
Feedback C: Correct! The process of assigning overhead to jobs
is called overhead application.
Feedback D: This is incorrect.
Feedback E: This is incorrect.
38.
Which of the following is the correct method to calculate a
predetermined overhead rate?
39.
Budgeted total manufacturing cost ¸ budgeted amount of cost driver.
40.
Budgeted overhead cost ¸
budgeted amount of cost driver.
41.
Budgeted amount of cost driver ¸ budgeted overhead cost.
42.
Actual overhead cost ¸
budgeted amount of cost driver.
43.
Actual overhead cost ¸
actual amount of cost driver.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA: FN Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This is an incorrect method.
Feedback B: Correct! This is the correct method for calculating
a predetermined overhead rate.
Feedback C: This is an incorrect method.
Feedback D: This is an incorrect method.
Feedback E: This is an incorrect method.
39.
Norwood Corporation uses a predetermined overhead rate of $20
per machine hour. In deriving this figure, the company’s accountant used:
40.
a denominator of budgeted machine hours for the current
accounting period.
41.
a denominator of actual machine hours for the current accounting
period.
42.
a denominator of actual machine hours for the previous
accounting period.
43.
a numerator of budgeted machine hours for the current accounting
period.
44.
a numerator of actual machine hours for the current accounting
period.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: Correct! The company’s accountant used a denominator
of budgeted machine hours for the current accounting period.
Feedback B: This is not correct.
Feedback C: This is not correct.
Feedback D: This is not correct.
Feedback E: This is not correct.
40.
Metalica Company applies overhead based on machine hours. At the
beginning of 20×1, the company estimated that manufacturing overhead would be
$500,000, and machine hours would total 20,000. By 20×1 year-end, actual
overhead totaled $525,000, and actual machine hours were 25,000. On the basis
of this information, the 20×1 predetermined overhead rate was:
41.
$0.04 per machine hour.
42.
$0.05 per machine hour.
43.
$20 per machine hour.
44.
$21 per machine hour.
45.
$25 per machine hour.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This amount is incorrect.
Feedback B: This amount is incorrect.
Feedback C: This amount is incorrect.
Feedback D: This amount is incorrect.
Feedback E: Correct! Estimated overhead ÷ Estimated machine
hours = $500,000 ÷ 20,000 = $25 per machine hour.
41.
Osgood Company, which applies overhead at the rate of 190% of
direct material cost, began work on job no. 101 during June. The job was
completed in July and sold during August, having accumulated direct material
and labor charges of $27,000 and $15,000, respectively. On the basis of this
information, the total overhead applied to job no. 101 amounted to:
42.
$0.
43.
$28,500.
44.
$51,300.
45.
$70,500.
46.
$79,800.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This amount is incorrect.
Feedback B: This amount is incorrect.
Feedback C: Correct! Overhead applied = Direct materials x
overhead application rate = $27,000 x 190% = $51,300.
Feedback D: This amount is incorrect.
Feedback E: This amount is incorrect.
42.
Blakely charges manufacturing overhead to products by using a
predetermined application rate, computed on the basis of machine hours. The
following data pertain to the current year:
Budgeted manufacturing overhead: $480,000
Actual manufacturing overhead: $440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
Overhead applied to production totaled:
1. $352,000.
2. $384,000.
3. $550,000.
4. $600,000.
5. some
other amount.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This amount is incorrect.
Feedback B: Correct! Overhead applied = (Budgeted overhead ÷
Budgeted machine hours) x Actual machine hours = ($480,000 ÷20,000) x 16,000 =
$384,000
Feedback C: This amount is incorrect.
Feedback D: This amount is incorrect.
Feedback E: This is incorrect, because there is a correct amount
listed.
43.
Farrina Manufacturing uses a predetermined overhead application
rate of $8 per direct labor hour. A review of the company’s accounting records
for the year just ended discovered the following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone’s actual labor hours worked totaled:
100.
48,100.
101.
49,100.
102.
49,900.
103.
50,900.
104.
cannot be determined based on the information presented.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: Correct! Actual labor hours = (Actual overhead –
Underapplied overhead) ÷ Predetermined overhead application rate per direct
labor hour = ($392,000 – $7,200) ÷ $8 = 48,100 hours.
Feedback B: This amount is incorrect.
Feedback C: This amount is incorrect.
Feedback D: This amount is incorrect.
Feedback E: This amount is incorrect.
44.
Boxer Industries worked on four jobs during its first year of
operation: nos. 401, 402, 403, and 404. A review of job no. 403’s cost record
revealed direct material charges of $40,000 and total manufacturing costs of
$50,000. If Boxer applies overhead at 150% of direct labor cost, the overhead
applied to job no. 403 must have been:
45.
$0.
46.
$6,000.
47.
$4,000.
48.
$3,333.
49.
$5,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04
Learning Objective: 03-05
Feedback A: This amount is incorrect.
Feedback B: Total manufacturing costs for Job 403 – total direct
material costs for Job 403 = Total Direct labor and overhead costs for Job 403;
Total Direct labor and overhead costs for Job 403 ÷ (100% for direct labor +
150% of direct labor for overhead) = Direct labor cost for Job 403; Direct
labor cost for Job 403 x 150% overhead rate = Overhead costs for Job 403;
$50,000 – $40,000 = $10,000; $10,000 ÷ 2.5 = $4,000 direct labor; $4,000 x 150%
= $6,000 overhead.
Feedback C: This amount is incorrect.
Feedback D: This amount is incorrect.
Feedback E: This amount is incorrect.
45.
Which of the following statements about materials is false?
46.
Acquisitions of materials are normally charged to the Purchases
account.
47.
The use of direct materials gives rise to a debit to
Work-in-Process Inventory.
48.
The use of indirect materials gives rise to a debit to
Manufacturing Overhead.
49.
The use of indirect materials gives rise to a credit to
Manufacturing Supplies Inventory.
50.
Direct materials are accounted for in a different manner than
indirect materials.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05
Feedback A: Correct! Acquisition of materials are not normally
charged to Purchases.
Feedback B: This statement is true.
Feedback C: This statement is true.
Feedback D: This statement is true.
Feedback E: This statement is true.
46.
Templeton Corporation recently used $75,000 of direct materials
and $9,000 of indirect materials in production activities. The journal entries
reflecting these transactions would include:
47.
a debit to Manufacturing Overhead for $9,000.
48.
a debit to Manufacturing Overhead for $84,000.
49.
a debit to Raw-Material Inventory for $75,000.
50.
a debit to Work-in-Process Inventory for $84,000.
51.
a credit to Manufacturing Overhead for $9,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: Correct! The journal entries would include a debit
to Manufacturing Overhead for $9,000.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
47.
A review of a company’s Work-in-Process Inventory account found
a debit for materials of $67,000. If all procedures were performed in the
correct manner, this means that the firm:
48.
also recorded a credit to Raw-Material Inventory.
49.
also recorded a credit to Manufacturing Supplies Inventory.
50.
was accounting for the usage of direct materials.
51.
was accounting for the usage of indirect materials.
52.
also recorded a credit to Raw-Material Inventory and was
accounting for the usage of direct materials.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: This entry is incorrect.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: Correct! There would be a credit to Raw-Material
Inventory and the firm was accounting for the usage of direct materials.
48.
Travers Manufacturing incurred $106,000 of direct labor and
$11,000 of indirect labor. The proper journal entry to record these events
would include a debit to Work in Process for:
49.
$0 because Work in Process should be credited.
50.
$0 because Work in Process is not affected.
51.
$11,000.
52.
$106,000.
53.
$117,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: This amount is incorrect.
Feedback B: This amount is incorrect.
Feedback C: This amount is incorrect.
Feedback D: Correct! The journal entry would include a debit to
Work in Process for $106,000.
Feedback E: This amount is incorrect.
49.
The following information relates to October:
Production supervisor’s salary: $3,500
Factory maintenance wages: 250 hours at $10 per hour
The journal entry to record the preceding information is:
1. Manufacturing
overhead 6,000
Wages
Payable
6,000
1. Wages
Payable 6,000
Manufacturing overhead
6,000
1. Work-in-Process
Inventory 6,000
Wages
Payable
6,000
1. Wages
Payable 6,000
Work-in-Process
Inventory
6,000
1. Manufacturing
overhead 2,500
Work-in-Process Inventory 3,500
Wages Payable
6,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: Correct! The journal entry would debit Manufacturing
overhead for $6,000 and credit Wages Payable for $6,000.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
50.
Electricity costs that were incurred by a company’s production
processes should be debited to:
51.
Utilities Expense.
52.
Accounts Payable.
53.
Cash.
54.
Manufacturing Overhead.
55.
Work-in-Process Inventory.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback A: This account is incorrect.
Feedback B: This account is incorrect.
Feedback C: This account is incorrect.
Feedback D: Correct! Manufacturing Overhead is the debit for
electricity costs.
Feedback E: This account is incorrect.
51.
The journal entry needed to record $5,000 of advertising for
Oxner Manufacturing would include:
52.
a debit to Advertising Expense.
53.
a credit to Advertising Expense.
54.
a debit to Manufacturing Overhead.
55.
a credit to Manufacturing Overhead.
56.
a debit to Projects-in-Process.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback A: Correct! The journal entry would include a debit to
Advertising Expense.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
52.
Hsu Company incurred $90,000 of depreciation for the year.
Eighty percent relates to the firm’s production facilities, and 20% relates to
sales and administrative offices. If all items are handled in the proper
manner, a review of the company’s accounting records should reveal a:
53.
debit to Depreciation Expense for $90,000.
54.
debit to Manufacturing Overhead for $90,000.
55.
debit to Manufacturing Overhead for $72,000.
56.
debit to Work-in-Process Inventory for $18,000.
57.
credit to Cash for $90,000.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: This entry is incorrect.
Feedback B: This entry is incorrect.
Feedback C: Correct! Depreciation for production = $90,000 x 80%
= $72,000; the journal entry should include a debit to Manufacturing Overhead
for $72,000.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
53.
The left side of the Manufacturing Overhead account is used to
accumulate:
54.
actual manufacturing overhead costs incurred throughout the
accounting period.
55.
overhead applied to Work-in-Process Inventory.
56.
underapplied overhead.
57.
predetermined overhead.
58.
overapplied overhead.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback A: Correct! The left side of the Manufacturing Overhead
account is used to accumulate actual manufacturing overhead costs.
Feedback B: This statement is incorrect.
Feedback C: This statement is incorrect.
Feedback D: This statement is incorrect.
Feedback E: This statement is incorrect.
54.
Throughout the accounting period, the credit side of the
Manufacturing Overhead account is used to accumulate:
55.
actual manufacturing overhead costs.
56.
overhead applied to Work-in-Process Inventory.
57.
overapplied overhead.
58.
underapplied overhead.
59.
predetermined overhead.
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05
Feedback A: This statement is incorrect.
Feedback B: Correct! The credit side of Manufacturing Overhead
accumulates overhead applied to Work-in-Process Inventory.
Feedback C: This statement is incorrect.
Feedback D: This statement is incorrect.
Feedback E: This statement is incorrect.
55.
An accountant recently debited Work-in-Process Inventory and
credited Manufacturing Overhead at a company that uses normal costing. The
accountant was:
56.
applying a predetermined overhead amount to production.
57.
recognizing receipt of the factory utilities bill.
58.
recording a year-end adjustment for an insignificant amount of
underapplied overhead.
59.
recognizing actual overhead incurred during the period.
60.
recognizing the completion of production.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05
Feedback A: Correct! The accountant was applying a predetermined
overhead amount to production.
Feedback B: This statement is incorrect.
Feedback C: This statement is incorrect.
Feedback D: This statement is incorrect.
Feedback E: This statement is incorrect.
56.
Job no. C12 was completed in November at a cost of $28,500,
subdivided as follows: direct material, $13,500; direct labor, $6,000; and
manufacturing overhead, $9,000. The journal entry to record the completion of
the job is:
A.
Finished-Goods Inventory 28,500
Work-in-Process
Inventory
28,500
B
Work-in-Process Inventory 28,500
Finished-Goods
Inventory
28,500
1. Work-in-Process
Inventory 28,500
Wages
Payable
6,000
Raw-Material
Inventory
13,500
Manufacturing
Overhead
9,000
1. Cost
of Goods Sold 28,500
Finished-Goods
Inventory
28,500
1. Finished-Goods
Inventory 28,500
Cost of Goods
Sold
28,500
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05
Feedback A: Correct! The journal entry debits Finished-Goods for
28,500 and credits Work-in-Process.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
57.
A computer manufacturer recently shipped several laptops to a
customer (cost: $25,000) and billed the customer $30,000. Which of the
following options correctly expresses the accounts that are debited and
credited to record this transaction?
58.
Debits: Accounts Receivable, Finished-Goods Inventory; credits:
Sales Revenue, Cost of Goods Sold.
59.
Debits: Accounts Receivable, Cost of Goods Sold; credits: Sales
Revenue, Finished-Goods Inventory.
60.
Debits: Sales Revenue, Cost of Goods Sold; credits: Accounts
Receivable, Finished-Goods Inventory.
61.
Debits: Sales Revenue, Finished-Goods Inventory; credits:
Accounts Receivable, Cost of Goods Sold.
62.
Debits: Accounts Receivable; credits: Finished-Goods Inventory,
Profit on Sale.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: This entry is incorrect.
Feedback B: Correct! These are the correct debits and credits.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
58.
Foxmoor Company applies manufacturing overhead by using a
predetermined rate of 50% of direct labor cost. The data that follow pertain to
job no. 764:
If Foxmoor adds a 40% markup on total cost to generate a profit,
which of the following choices depicts a portion of the accounting needed to
record the sale of job no. 764?
Account Debited Amount
1. Cost
of Goods Sold $175,000
2. Cost
of Goods Sold $245,000
3. Finished-Goods
Inventory $175,000
4. Finished-Goods
Inventory $245,000
5. Sales
Revenue $245,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: Correct! Overhead = Direct labor x predetermined
rate = $80,000 x 50% = $40,000; Direct materials + Direct labor + overhead =
Cost of Goods Sold = $55,000 + $80,000 + $40,000 = $175,000, which should be
debited for $175,000.
Feedback B: This entry is incorrect.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
59.
Bennington Company applies manufacturing overhead by using a
predetermined rate of 150% of direct labor cost. The data that follow pertain
to job no. 831:
Direct material cost $72,000
Direct labor
cost 38,000
If Bennington adds a 30% markup on total cost to generate a
profit, which of the following choices depicts a portion of the accounting
needed to record the credit sale of job no. 831?
Account Debited Amount
1. Accounts
Receivable $167,000
2. Accounts
Receivable $217,100
3. Finished-Goods
Inventory $167,000
4. Finished-Goods
Inventory $217,100
5. Sales
Revenue $217,100
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: This entry is incorrect.
Feedback B: Correct! Credit Sale = DM + DL + OH + Markup =
[$72,000 + $38,000 + ($38,000 x 150%)] x 1.3 = $217,100; therefore, Accounts
Receivable should be debited for $217,100.
Feedback C: This entry is incorrect.
Feedback D: This entry is incorrect.
Feedback E: This entry is incorrect.
60.
Armour, Inc., an advertising agency, applies overhead to jobs on
the basis of direct professional labor hours. Overhead was estimated to be
$150,000, direct professional labor hours were estimated to be 15,000, and
direct professional labor cost was projected to be $225,000. During the year,
Armour incurred actual overhead costs of $146,000, actual direct professional
labor hours of 14,500, and actual direct labor cost of $222,000. By year-end,
the firm’s overhead was:
61.
$1,000 underapplied.
62.
$1,000 overapplied.
63.
$4,000 underapplied.
64.
$4,000 overapplied.
65.
$5,000 underapplied.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-05
Feedback A: Correct! The predetermined overhead rate is computed
as:$150,000 / 15,000 = $10 per hour; Applied overhead = $10 x 14,500 =
$145,000; Actual overhead = $146,000; Overhead $145,000 (applied overhead) –
$146,000 (actual overhead) = $(1,000) underapplied overhead
Feedback B: This amount is incorrect.
Feedback C: This amount is incorrect.
Feedback D: This amount is incorrect.
Feedback E: This amount is incorrect.
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