EXAM

CHAPTER 1
1. In comparing financial and management accounting, which of the following more
accurately describes management accounting information?
c. budgeted, informative, adaptable

2. Management and financial accounting are used for which of the following purposes?

Management accounting Financial accounting

a. internal external

3. One major difference between financial and management accounting is that

d. all of the above are true.

4. Which of the following statements about management or financial accounting is

false?
c. Both management and financial accounting are subject to mandatory recordkeeping
requirements.

5. Management accounting
a. is more concerned with the future than is financial accounting.

6. Modern management accounting can be characterized by its

a. flexibility.

7. Which of the following is not a valid method for determining product cost?
d. cost-benefit measurement

8. Broadly speaking, cost accounting can be defined as a(n)

c. internal reporting system that provides product costing and other information used
by managers in performing their functions.

9. Cost accounting is directed toward the needs of

c. internal users.

10. Cost accounting is necessitated by

a. the high degree of conversion found in certain businesses.

11. Financial accounting

b. is more concerned with verifiable, historical information than is cost accounting.
12. Financial accounting and cost accounting are both highly concerned with
b. determining product cost.

13. Which of the following topics is of more concern to management accounting than to
cost accounting?
d. impact of economic conditions on company operations

14. Cost and management accounting

c. provide product/service cost information as well as information for internal decision
making.

15. Which of the following statements is true?

b. Cost accounting is a subset of both management and financial accounting.

16. Which of the following statements is false?

d. Two primary hallmarks of cost and management accounting are standardization of
procedures and use of generally accepted accounting principles.

17. A managerial accountant who communicates information objectively is exercising

which of the following standards?
a. objectivity

18. A managerial accountant who prepares clear reports and recommendations after
analyzing relevant facts is exercising which of the following standards?
c. competence

19. Cost accounting standards

c. do not exist except for those legal pronouncements for companies bidding or pricing
cost-related contracts with the government.

20. Which of the following U.S. legislation relates to bribes being offered to foreign
officials?
c. Foreign Corrupt Practices Act

21. The Institute of Management Accountants' Code of Ethics

b. should be viewed as a goal for professional behavior.
22. The Foreign Corrupt Practices Act is directed at
a. U.S. corporations operating overseas.

23. The Institute of Management Accountants issues

b. Statements on Management Accounting.

24. The ethical standards established for management accountants are in the areas of
c. competence, confidentiality, integrity, and credibility.

25. The organization whose primary function is to provide a means to share information
among cost and management accountants in the United States is the
c. Institute of Management Accountants.

26. The set of processes that convert inputs into services and products that consumers
use is called
c. the value chain.

27. Which ethical standard has been violated if an accountant fails to prepare financial
statements according to industry standards?
a. Competence

28. Which ethical standard has been violated if an accountant fails to disclose relevant
information pertaining to a financial statement?
d. Credibility

29. Which ethical standard is violated when an accountant uses information from a
financial statement he is preparing to advise a relative of a stock purchase?
b. Confidentiality

30. Which ethical standard is violated by an accountant who accepts a gift from a client
d. Integrity

31. Core competencies are not

b. attributes that keep a firm from competing.

32. A long-term plan that fulfills the goals and objectives of an organization is known as
a(n)
b. strategy.

33. Which of the following areas is not addressed by an organization’s mission

statement?
c. the organization’s strategic plan for fulfilling its mission
35. The value chain
d. is the foundation of strategic resource management.

36. In a global economy,

c. the international flows of capital and information are common.

CHAPTER 2
1. The term "relevant range" as used in cost accounting means the range over which
b. cost relationships are valid.

2. Which of the following defines variable cost behavior?

Total cost reaction Cost per unit reaction

to increase in activity to increase in activity

d. increases remains constant

3. When cost relationships are linear, total variable prime costs will vary in proportion
to changes in
d. production volume.

4. Which of the following would generally be considered a fixed factory

overhead cost?

Straight-line Factory Units-of-production

depreciation insurance depreciation

c. yes yes no

5. An example of a fixed cost is

d. straight-line depreciation.

6. A cost that remains constant in total but varies on a per-unit basis with changes in
activity is called a(n)
b. fixed cost.

7. A(n) ____ cost increases or decreases in intervals as activity changes.

c. step cost

8. When the number of units manufactured increases, the most significant change in
unit cost will be reflected as a(n)
d. decrease in the fixed element.
9. Which of the following always has a direct cause-effect relationship to a cost?

Predictor Cost driver

c. no yes

10. A cost driver

b. has a direct cause-effect relationship to a cost.

11. Product costs are deducted from revenue

c. as goods are sold.

12. A selling cost is a(n)

product cost period cost inventoriable cost

c. no yes no

13. Which of the following is not a product cost component?

d. commission on the sale of a product

14. Period costs

a. are expensed in the same period in which they are incurred.

15. Period costs include

distribution costs outside processing costs sales commissions

a. yes no yes

16. The three primary inventory accounts in a manufacturing company are

d. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.

17. Cost of Goods Sold is an

b. expired product cost.

18. The indirect costs of converting raw material into finished goods are called
c. overhead costs.
19. Which of the following would need to be allocated to a cost object?
d. indirect production costs

20. Conversion cost does not include

b. direct material.

21. The distinction between direct and indirect costs depends on whether a cost
c. can be conveniently and physically traced to a cost object under consideration.

22. Moore Company is a construction company that builds greenhouses on special

request. What is the proper classification of the carpenters' wages?

Product Period Direct

b. yes no yes

23. Moore Company is a construction company that builds greenhouses on special

request. What is the proper classification of the cost of the cement building slab used?

Direct Fixed

d. yes no

24. Moore Company is a construction company that builds greenhouses on special

request. What is the proper classification of indirect material used?

Prime Conversion Variable

b. no yes yes

25. Which of the following costs would be considered overhead in the production of
chocolate chip cookies?
d. oven electricity

26. All costs related to the manufacturing function in a company are

c. product costs.

27. Prime cost consists of

direct material direct labor overhead

b. yes yes no

28. Plastic used to manufacture dolls is a

prime cost product cost direct cost fixed cost

d. yes yes yes no

29. The term "prime cost" refers to

d. the raw material used and direct labor costs.

30. Conversion of inputs to outputs is recorded in the

a. Work in Process Inventory account.

31. In a perpetual inventory system, the sale of items for cash consists of two entries.
One entry is a debit to Cash and a credit to Sales. The other entry is a debit to
c. Cost of Goods Sold and a credit to Finished Goods Inventory.

32. The formula to compute cost of goods manufactured is

b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.

33. The final figure in the Schedule of Cost of Goods Manufactured represents the
d. total cost of goods completed for the period.

34. The formula for cost of goods sold for a manufacturer is

a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending
Finished Goods Inventory.
35. Which of the following replaces the retailing component "Purchases" in computing
Cost of Goods Sold for a manufacturing company?
b. cost of goods manufactured

36. Costs that are incurred to preclude defects and improper processing are:
a. prevention costs

37. Costs that are incurred for monitoring and inspecting are:
c. appraisal costs

38. Costs that are incurred when customers complain are:

d. failure costs

Jordan Company

The following information has been taken from the cost records of Jordan Company for the
past year:

Raw material used in production $326

Total manufacturing costs charged to production during the year (includes direct 686
material, direct labor, and overhead equal to 60% of direct labor cost)
Cost of goods available for sale 826
Selling and Administrative expenses 25

Inventories Beginning Ending

Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110

39. Refer to Jordan Company. The cost of raw material purchased during the year was
b. $336.

40. Refer to Jordan Company. Direct labor cost charged to production during the year
was
c. $225.

41. Refer to Jordan Company. Cost of Goods Manufactured was

c. $736.

42. Refer to Jordan Company. Cost of Goods Sold was

b. $716.

Horner Corporation
The following information has been taken from the cost records of Horner Corporation for
the past year:

Raw material used in production $336

Total manufacturing costs charged to production during the year (includes direct 711
material, direct labor, and overhead equal to 50% of direct labor cost)
Cost of goods available for sale 851
Selling and Administrative expenses 35

Inventories Beginning Ending

Raw Material $80 $ 90
Work in Process 85 25
Finished Goods 80 105

43. Refer to Horner Corporation. The cost of raw material purchased during the year
was
b. $346

44. Refer to Horner Company. Direct labor cost charged to production during the year
was
c. $250

45. Refer to Horner Company. Cost of Goods Manufactured was

c. $771

46. Refer to Horner Company. Cost of Goods Sold was

b. $746

Perry Company.

Perry Company manufactures wood file cabinets. The following information is available for
June of the current year.

Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300

The direct labor rate is $9.60 per hour and overhead for the month was $9,600.

47. Refer to Perry Company. Compute total manufacturing costs for June, if there were
1,500 direct labor hours and $21,000 of raw material was purchased.
c. $43,500
48. Refer to Perry Company. What are prime costs and conversion costs, respectively if
there were 1,500 direct labor hours and $21,000 of raw material was purchased?
b. $33,900 and $24,000

49. Refer to Perry Company. If there were 1,500 direct labor hours and $21,000 of raw
material purchased, Cost of Goods Manufactured is:
a. $49,100.

50. Refer to Perry Company. If there were 1,500 direct labor hours and $21,000 of raw
material purchased, how much is Cost of Goods Sold?
d. $53,800.

51. Roberson Company manufactures desks. The beginning balance of Raw Material
Inventory was $4,500; raw material purchases of $29,600 were made during the month. At
month end, $7,700 of raw material was on hand. Raw material used during the month was
a. $26,400.

52. Gallagher Company manufactures tables. The beginning balance of Raw Material
Inventory was $5,500; raw material purchases of $31,500 were made during the month. At
month end, $8,200 of raw material was on hand. Raw material used during the month was
a. $28,800

53. Marley Company manufactures tables. If raw material used was $80,000 and Raw
Material Inventory at the beginning and end of the period, respectively, was $17,000 and
$21,000, what was amount of raw material was purchased?
c. $84,000

54. Sheets Company manufactures chairs. If raw material used was $100,000 and Raw
Material Inventory at the beginning and end of the period, respectively, was $27,000 and
$31,000, what was amount of raw material was purchased?
b. $104,000

55. Terrell Company manufactures computer stands. What is the beginning balance of
Finished Goods Inventory if Cost of Goods Sold is $107,000; the ending balance of Finished
Goods Inventory is $20,000; and Cost of Goods Manufactured is $50,000 less than Cost of
Goods Sold?
a. $70,000

Anderson Enterprises
Inventories: March 1 March 31
Raw material $18,000 $15,000
Work in process 9,000 6,000
Finished goods 27,000 36,000

Additional information for March:

Raw material purchased $42,000
Direct labor payroll $30,000
Direct labor rate per hour $ 7.50
Overhead rate per direct labor hour $ 10.00

56. Refer to Anderson Enterprises. For March, prime cost incurred was
a. $75,000.

57. Refer to Anderson Enterprises. For March, conversion cost incurred was
c. $70,000.

58. Refer to Anderson Enterprises. For March, Cost of Goods Manufactured was
a. $118,000.

Goodwin Enterprises

Inventories: April 1 April 30

Raw material $20,000 $17,000
Work in process 12,000 8,000
Finished goods 30,000 39,000

Additional information for April:

Raw material purchased $45,000
Direct labor payroll $36,000
Direct labor rate per hour $ 8.00
Overhead rate per direct labor hour $ 10.00

59. Refer to Goodwin Enterprises. For April, prime cost incurred was
b. $84,000

60. Refer to Goodwin Enterprises. For April, conversion cost incurred was
c. $81,000.

61. Refer to Goodwin Enterprises. For April, Cost of Goods Manufactured was
b. $133,000.

CHAPTER 3

1. Since overhead costs are indirect costs,

a. they require some process of allocation.
2. Cost allocation is the assignment of ____ costs to one or more products using a
reasonable basis.

direct indirect

d. no yes

3. An actual cost system differs from a normal cost system in that an actual cost system
b. assigns overhead at the end of the manufacturing process.

4. In a normal cost system, which of the following is used?

Actual direct materials Actual direct labor Actual overhead

c. yes yes no

5. Predetermined overhead rates are computed based on

estimated overhead costs estimated level of activity

a. yes yes

6. One reason annual overhead application rates are used is

a. because of seasonal variability of overhead costs.

7. Which of the following is not a reason to use predetermined overhead rates?

a. to overcome the problems of assigning overhead to diverse types of products

8. When a manufacturing company has a highly automated manufacturing plant

producing many different products, which of the following is the more appropriate basis of
applying manufacturing overhead costs to work in process?
c. machine hours

9. A mixed cost has which of the following components?

Variable component Fixed component

b. yes yes

10. In the formula y = a + bX, y represents

b. total cost.
11. In the formula y = a + bX, a represents
d. fixed cost.

12. In relationship to changes in activity, variable overhead changes

in total per unit

d. yes no

13. In relationship to changes in activity, fixed overhead changes

in total per unit

c. no yes

14. If the level of activity increases,

c. total cost will increase and fixed cost per unit will decrease.

15. Weaknesses of the high-low method include all of the following except
d. the mathematical calculations are relatively complex.

16. If there is no "a" value in a linear cost equation, this is an indication that the cost is
c. variable.

17. An outlier is
d. typically not used in analyzing a mixed cost.

18. Applied overhead consists of which of the following?

a. actual activity times predetermined overhead rate

19. If a company used two overhead accounts (actual overhead and applied overhead),
the one that would receive the most debits would be
a. actual overhead.

20. If underapplied overhead is considered to be immaterial, it is closed to which of the

following accounts?

Work in Process Finished Goods Cost of Goods Sold

d. no no yes

21. Overapplied overhead will result if

c. overhead costs incurred were less than overhead costs charged to production.

22. Actual overhead exceeds applied overhead and the amount is immaterial. Which of
the following will be true? Upon closing,

Overhead is Cost of Goods Sold will

a. underapplied increase

23. If actual overhead is less than applied overhead, which of the following will be true?
Upon closing,

Overhead is Cost of Goods Sold is

d. overapplied credited

24. The estimated maximum potential activity for a specified time is:
a. theoretical capacity

25. The measure of activity that allows for routine variations in manufacturing activity
is:
b. practical capacity
26. The measure of production that considers historical and estimated future
production levels and cyclical fluctuations is referred to as:
c. normal capacity

27. A short-run measure of activity that represents a firm’s anticipated activity level for
an upcoming period based upon expected demand is referred to as:
d. expected capacity

28. An item or event that has a cause-effect relationship with the incurrence of a
variable cost is called a
d. cost driver.

29. Pratt Tailors has gathered information on utility costs for the past year. The
controller has decided that utilities are a function of the hours worked during the month.
The following information is available and representative of the company’s utility costs:

Hours worked Utility cost incurred

Low point 1,300 $ 903
High point 1,680 1,074

If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using
the high-low method should be
c. $959.

30. Allen Corporation uses a predetermined overhead application rate of $.30 per direct
labor hour. During the year it incurred $345,000 dollars of actual overhead, but it planned to
incur $360,000 of overhead. The company applied $363,000 of overhead during the year.
How many direct labor hours did the company plan to incur?
c. 1,200,000

31. Dynamic Corporation had the following data regarding monthly power costs:

Month Machine hours Power cost

Jan 300 $680
Feb 600 720
Mar 400 695
Apr 200 640

Assume that management expects 500 machine hours in May. Using the high-low method,
calculate May’s power cost using machine hours as the basis for prediction.
a. $700
32. Jordan Corporation has developed the following flexible budget formula for monthly
overhead:

For output of less than 200,000 units: $36,600 + $.80(units)

For output of 200,000 units or more: $43,000 + $.80(units)

How much overhead should Jordan expect if the firm plans to produce 200,000 units?
d. $203,000

33. Wilder Corporation wishes to develop a single predetermined overhead rate. The
company's expected annual fixed overhead is $340,000 and its variable overhead cost per
machine hour is $2. The company's relevant range is from 200,000 to 600,000 machine
hours. Walton expects to operate at 425,000 machine hours for the coming year. The plant's
theoretical capacity is 850,000. The predetermined overhead rate per machine hour should
be
c. $2.80.

Wilson Corporation

Wilson Corporation has the following data for use of its machinery

Month Usage Cost

Jun 600 $750
Jul 650 775
Aug 420 550
Sept 500 650
Oct 450 570

34. Refer to Wilson Corporation. Using the high-low method, compute the variable cost
element.
b. $.98

35. Refer to Wilson Corporation. Using the high-low method, compute the fixed cost
element (to the nearest whole dollar).
b. $138

Denver Corporation

The records of Denver Corporation revealed the following data for the current year.

Work in Process $ 73,150

Finished Goods 115,000
Cost of Goods Sold 133,650
Direct Labor 111,600
Direct Material 84,200
36. Refer to Denver Corporation. Assume, for this question only, actual overhead is
$98,700 and applied overhead is $93,250. Manufacturing overhead is:
d. underapplied by $5,450.

37. Refer to Denver Corporation. Assume that Denver has underapplied overhead of
$37,200 and that this amount is material. What journal entry is needed to close the
overhead account? (Round decimals to nearest whole percent.)
a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450
and credit Overhead $37,200

38. Refer to Denver Corporation. Assume that Denver has underapplied overhead of
$10,000 and that this amount is immaterial. What is the balance in Cost of Goods Sold after
the underapplied overhead is closed?
c. $143,650

39. Refer to Denver Corporation. Assume that Denver has overapplied overhead of
$25,000 and that this amount is material. What is the balance in Cost of Goods Sold after the
overapplied overhead is closed?
a. $123,267

40. Drew Corporation is relocating its facilities. The company estimates that it will take
three trucks to move office contents. If the per truck rental charge is $1,000 plus 25 cents
per mile, what is the expected cost to move 800 miles?
d. $3,600

41. Midwest City Motor Company is exploring different prediction models that can be
used to forecast indirect labor costs. One independent variable under consideration is
machine hours. Following are matching observations on indirect labor costs and machine
hours for the past six months:

Month Machine hours Indirect labor costs

1 300 $20,000
2 400 $24,000
3 240 $17,000
4 370 $22,000
5 200 $13,000
6 225 $14,000

In a high-low model, which months' observations would be used to compute the model's
parameters?
a. 2 and 5
42. Consider the following three product costing alternatives: process costing, job order
costing, and standard costing. Which of these can be used in conjunction with absorption
costing?
d. all of the above

43. Another name for absorption costing is

a. full costing.

44. If a firm produces more units than it sells, absorption costing, relative to variable
costing, will result in
a. higher income and assets.

45. Under absorption costing, fixed manufacturing overhead could be found in all of the
following except the
d. period costs.

46. If a firm uses absorption costing, fixed manufacturing overhead will be included
c. on both the balance sheet and income statement.

47. Under absorption costing, if sales remain constant from period 1 to period 2, the
company will report a larger income in period 2 when
a. period 2 production exceeds period 1 production.

48. The FASB requires which of the following to be used in preparation of external
financial statements?
d. absorption costing

49. An ending inventory valuation on an absorption costing balance sheet would

d. always be greater than or equal to the ending inventory valuation under variable
costing.

50. Absorption costing differs from variable costing in all of the following except
b. treatment of variable production costs.

51. Which of the following is not associated with absorption costing?

d. contribution margin

52. Unabsorbed fixed overhead costs in an absorption costing system are

a. fixed manufacturing costs not allocated to units produced.

53. Profit under absorption costing may differ from profit determined under variable
costing. How is this difference calculated?
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit.

54. What factor, related to manufacturing costs, causes the difference in net earnings
computed using absorption costing and net earnings computed using variable costing?
b. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.

55. The costing system that classifies costs by functional group only is
d. absorption costing.

56. A functional classification of costs would classify "depreciation on office equipment"

as a
b. general and administrative expense.

57. The costing system that classifies costs by both functional group and behavior is
c. variable costing.

58. Under variable costing, which of the following are costs that can be inventoried?
b. variable manufacturing overhead

59. Consider the following three product costing alternatives: process costing, job order
costing, and standard costing. Which of these can be used in conjunction with variable
costing?
d. all of them

60. Another name for variable costing is

b. direct costing.

61. If a firm uses variable costing, fixed manufacturing overhead will be included
b. only on the income statement.

62. When variable costing is used,

a. all product costs are treated as variable.

63. How will a favorable volume variance affect net income under each of the following
methods?

Absorption Variable

c. increase no effect
64. Variable costing considers which of the following to be product costs?

Fixed Fixed Variable Variable

Mfg. Costs Selling & Adm. Mfg. Costs Selling & Adm.

d. no no yes no

65. The variable costing format is often more useful to managers than the absorption
costing format because
a. costs are classified by their behavior.

66. The difference between the reported income under absorption and variable costing
is attributable to the difference in the
b. treatment of fixed manufacturing overhead.

67. Which of the following costs will vary directly with the level of production?
d. variable product costs

68. On the variable costing income statement, the difference between the "contribution
margin" and "income before income taxes" is equal to
c. total fixed costs.

69. For financial reporting to the IRS and other external users, manufacturing overhead
costs are
b. inventoried until the related products are sold.

70. In the application of "variable costing" as a cost-allocation process in manufacturing,

c. variable indirect manufacturing costs are treated as product costs.

71. A basic concept of variable costing is that period costs should be currently expensed.
What is the rationale behind this procedure?
d. Because period costs will occur whether production occurs, it is improper to allocate
these costs to production and defer a current cost of doing business.

72. Which of the following is a term more descriptive of the term "direct costing"?
b. variable costing

73. What costs are treated as product costs under variable (direct) costing?
b. only variable production costs
74. Which of the following must be known about a production process in order to
institute a variable costing system?
a. the variable and fixed components of all costs related to production

75. Why is variable costing not in accordance with generally accepted accounting
principles?
a. Fixed manufacturing costs are treated as period costs under variable costing.

76. Which of the following is an argument against the use of direct (variable) costing?
d. Fixed manufacturing overhead is necessary for the production of a product.

77. Which of the following statements is true for a firm that uses variable costing?
b. Profits fluctuate with sales.

78. An income statement is prepared as an internal report. Under which of the following
methods would the term contribution margin appear?

Absorption costing Variable costing

b. no yes

79. In an income statement prepared as an internal report using the variable costing
method, fixed manufacturing overhead would
b. be used in the computation of operating income but not in the computation of the
contribution margin.

80. Variable costing has an advantage over absorption costing for which of the following
purposes?
d. all of the above

81. In the variable costing income statement, which line separates the variable and fixed
costs?
d. total contribution margin

82. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on
absorption costing.

Anderson Corporation

Anderson Corporation has the following standard costs associated with the manufacture
and sale of one of its products:

Direct material $3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year

During its first year of operations Anderson manufactured 51,000 units and sold 48,000.
The selling price per unit was $25. All costs were equal to standard.

83. Refer to Anderson Corporation. Under absorption costing, the standard production
cost per unit for the current year was
b. $11.30.

84. Refer to Anderson Corporation. The volume variance under absorption costing is
b. $4,000 F.

85. Refer to Anderson Corporation. Under variable costing, the standard production cost
per unit for the current year was
b. $7.30.

86. Refer to Anderson Corporation. Based on variable costing, the income before income
taxes for the year was
c. $562,600.

Austin Company

The following information is available for Austin Company for its first year of operations:

Sales in units 5,000

Production in units 8,000
Manufacturing costs:
Direct labor $3 per unit
Direct material $5 per unit
Variable overhead $1 per unit
Fixed overhead $100,000
Net income (absorption method) $30,000
Sales price per unit $40

87. Refer to Austin Company. If Austin Company had used variable costing, what amount
of income before income taxes would it have reported?
b. ($7,500)

88. Refer to Austin Company. What was the total amount of Selling,General and
Administrative expense incurred by Austin Company?
b. $62,500
89. Refer to Austin Company. If Austin Company were using variable costing, what
would it show as the value of ending inventory?
c. $27,000

Bush Corporation

The following information has been extracted from the financial records of Bush
Corporation for its first year of operations:

Units produced 10,000

Units sold 7,000
Variable costs per unit:
Direct material $8
Direct labor 9
Manufacturing overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead $70,000
SG&A 30,000

90. Refer to Bush Corporation. Based on absorption costing, Bush Corporation's income
in its first year of operations will be
a. $21,000 higher than it would be under variable costing.

91. Refer to Bush Corporation. Based on absorption costing, the Cost of Goods
Manufactured for Bush Corporation's first year would be
b. $270,000.

92. Refer to Bush Corporation. Based on absorption costing, what amount of period
costs will Bush Corporation deduct?
d. $58,000

93. For its most recent fiscal year, a firm reported that its contribution margin was equal
to 40 percent of sales and that its net income amounted to 10 percent of sales. If its fixed
costs for the year were $60,000, how much were sales?
b. $200,000

94. At its present level of operations, a small manufacturing firm has total variable costs
equal to 75 percent of sales and total fixed costs equal to 15 percent of sales. Based on
variable costing, if sales change by $1.00, income will change by
a. $0.25.
95. The following information regarding fixed production costs from a manufacturing
firm is available for the current year:

Fixed costs in the beginning inventory $ 16,000

Fixed costs incurred this period 100,000

Which of the following statements is not true?

c. Using variable costing, this firm will deduct no more than $16,000 for fixed
production costs.

Sheets Corporation

The following information was extracted from the first year absorption-based accounting
records of Sheets Corporation

Total fixed costs incurred $100,000

Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price $12

96. Refer to Sheets Corporation. What is Cost of Goods Sold for Sheets Corporation's
first year?
c. $48,000

97. Refer to Sheets Corporation. If Sheets Corporation had used variable costing in its first
year of operations, how much income (loss) before income taxes would it have reported?
d. $ 2,000

98. Refer to Sheets Corporation. Based on variable costing, if Sheets had sold 12,001
units instead of 12,000, its income before income taxes would have been
a. $9.50 higher.

Oakwood Corporation

Oakwood Corporation produces a single product. The following cost structure applied to its
first year of operations:

Variable costs:
SG&A $2 per unit
Production $4 per unit
Fixed costs (total cost incurred for the year):
SG&A $14,000
Production $20,000
99. Refer to Oakwood Corporation. Assume for this question only that during the
current year Oakwood Corporation manufactured 5,000 units and sold 3,800. There was no
beginning or ending work-in-process inventory. How much larger or smaller would
Oakwood Corporation's income be if it uses absorption rather than variable costing?
c. The absorption costing income would be $4,800 larger.

100. Refer to Oakwood Corporation. Assume for this question only that Oakwood
Corporation manufactured and sold 5,000 units in the current year. At this level of activity it
had an income of $30,000 using variable costing. What was the sales price per unit?
b. $18.80

101. Refer to Oakwood Corporation. Assume for this question only that Oakwood
Corporation produced 5,000 units and sold 4,500 units in the current year. If Oakwood uses
absorption costing, it would deduct period costs of
d. $23,000.

102. Refer to Oakwood Corporation. Assume for this question only that Oakwood
Corporation manufactured 5,000 units and sold 4,000 in the current year. If Oakwood
employs a costing system based on variable costs, the company would end the current year
with a finished goods inventory of
a. $4,000.

Alpha, Beta, and Gamma Companies

Three new companies (Alpha, Beta, and Gamma) began operations on January 1 of the
current year. Consider the following operating costs that were incurred by these companies
during the complete calendar year:

Alpha Beta Gamma

Company Company Company
Production in units 10,000 10,000 10,000
Sales price per unit $10 $10 $10
Fixed production costs $10,000 $20,000 $30,000
Variable production costs $30,000 $20,000 $10,000
Variable SG&A $1/unit $2/unit $3/unit
Fixed SG&A $30,000 $20,000 $10,000

103. Refer to Alpha, Beta, and Gamma Companies. Based on sales of 7,000 units, which
company will report the greater income before income taxes if absorption costing is used?
c. Gamma Company

104. Refer to Alpha, Beta, and Gamma Companies. Based on sales of 7,000 units, which
company will report the greater income before income taxes if variable costing is used?
d. All of the companies will report the same income.
105. Refer to Alpha, Beta, and Gamma Companies. Based on sales of 10,000 units, which
company will report the greater income before income taxes if variable costing is used?
d. All of the companies will report the same income before income taxes.

106. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on
selling 40,000 units in the coming year. To realize a profit of $20,000, the firm must have a
sales price per unit of at least
b. $11.50.

Kellman Corporation

Kellman Corporation produces a single product that sells for $7.00 per unit. Standard
capacity is 100,000 units per year; 100,000 units were produced and 80,000 units were sold
during the year. Manufacturing costs and selling and administrative expenses are presented
below.

There were no variances from the standard variable costs. Any under- or overapplied
overhead is written off directly at year-end as an adjustment to cost of goods sold.

Fixed costs Variable costs

Direct material $0 $1.50 per unit produced
Direct labor 0 1.00 per unit produced
Manufacturing overhead $150,000 0.50 per unit produced
Selling & Administration expense 80,000 0.50 per unit sold

Kellman Corporation had no inventory at the beginning of the year.

107. Refer to Kellman Corporation. In presenting inventory on the balance sheet at

December 31, the unit cost under absorption costing is
d. $4.50.

108. Refer to Kellman Corporation. What is the net income under variable costing?
a. $50,000

109. Refer to Kellman Corporation. What is the net income under absorption costing?
b. $80,000

CHAPTER 5

1. Which of the following organizations would be most likely to use a job-order costing
system?
a. the loan department of a bank
2. When job-order costing is used, the primary focal point of cost accumulation is the
d. job.

3. In a job-order costing system,

d. overhead is typically assigned to jobs on the basis of some cost driver.

4. What is the best cost accumulation procedure to use when many batches, each
differing as to product specifications, are produced?
a. job-order

5. Which of the following could not be used in job-order costing?

b. an average cost per unit for all jobs

6. Which of the following costing systems allows management to quickly recognize

materials, labor, and overhead variances and take measures to correct them?

Actual Cost System Normal Cost System

d. no no

7. Which of the following costing methods of valuation are acceptable in a job-order

costing system?

Actual Standard Actual Predetermined

Material Material Labor Overhead
Cost Cost Cost Cost

d. yes yes yes yes

8. In a normal cost system, a debit to Work in Process Inventory would not be made for
a. actual overhead.

9. After the completion of production, standard and actual costs are compared to
determine the ____ of the production process.
d. efficiency

10. A company producing which of the following would be most likely to use a price
standard for material?
b. NFL-logo jackets
11. Knowing specific job costs enables managers to effectively perform which of the
following tasks?
d. all answers are correct.

12. A job-order costing system is likely to provide better

(1) inventory valuations for financial statements.

(2) control over inventory.
(3) information about ability to accept additional production work.

(1) (2) (3)

d. yes yes yes

13. The trend in job-order costing is to

b. automate the data collection and data entry functions.

14. job-order costing and process costing have which of the following characteristics?

Job-order Costing Process Costing

d. heterogeneous products homogeneous products

and small quantities and large quantities

15. The source document that records the amount of raw material that has been
requested by production is the
d. material requisition.

16. A material requisition form should show all of the following information except
d. purchase order number.

17. Which of the following statements about job-order cost sheets is true?
b. Job-order cost sheets can serve as subsidiary ledger information for both Work in
Process Inventory and Finished Goods Inventory.

18. The primary accounting document in a job-order costing system is a(n)

b. job-order cost sheet.
19. The cost sheets for incomplete jobs at the end of the period comprise the
subsidiary ledger for
c. Work in Process Inventory.

20. The ____ provides management with a historical summation of total costs for a given
product.
a. job-order cost sheet

21. The source document that records the amount of time an employee worked on a job
and his/her pay rate is the
b. employee time sheet.

22. A credit to Work in Process Inventory represents

d. the transfer of completed items to Finished Goods Inventory.

23. In a job-order costing system, the dollar amount of the entry that debits Finished
Goods Inventory and credits Work in Process Inventory is the sum of the costs charged to all
jobs
d. completed during the period.

24. Total manufacturing costs for the year plus beginning Work in Process Inventory
cost equals
c. total manufacturing costs to account for.

25. Which of the following would be least likely to be supported by subsidiary accounts
or ledgers in a company that employs a job-order costing system?
d. Supplies Inventory

26. A journal entry includes a debit to Work in Process Inventory and a credit to Raw
Material Inventory. The explanation for this would be that
c. direct material was placed into production.

27. Which of the following journal entries records the accrual of the cost of indirect
labor used in production?
d. debit Manufacturing Overhead, credit Wages Payable

28. The logical explanation for an entry that includes a debit to Manufacturing Overhead
control and a credit to Prepaid Insurance is
c. insurance for production equipment expired.

29. The journal entry to apply overhead to production includes a credit to

Manufacturing Overhead control and a debit to
b. Work in Process Inventory.
30. In a job-order costing system, the use of indirect material would usually be reflected
in the general ledger as an increase in
d. manufacturing overhead control.

31. A credit to the Manufacturing Overhead control account represents the

c. amount of overhead applied to production.

32. The journal entry to record the incurrence and payment of overhead costs for
factory insurance requires a debit to
c. Manufacturing Overhead and a credit to Cash.

33. Overhead is applied to jobs in a job-order costing system

c. at the end of a period or as jobs are completed, whichever is earlier.

34. In a job-order costing system, the subsidiary ledger for Finished Goods Inventory is
comprised of
c. job-order cost sheets for all completed jobs not yet sold.

35. Underapplied overhead resulting from unanticipated and immaterial price increases
for overhead items should be written off by
b. increasing Cost of Goods Sold.

36. Overapplied overhead would result if

b. overhead costs incurred were less than costs charged to production.

37. Debits to Cost of Goods Sold typically represent the

b. costs of items sold.

38. In a perpetual inventory system, a transaction that requires two journal entries (or
one compound entry) is needed when
b. goods are sold for either cash or on account.

39. Which of the following are drawbacks to applying actual overhead to production?
d. all answers are correct.

40. In job-order costing, payroll taxes paid by the employer for factory employees are
commonly accounted for as
b. manufacturing overhead cost.
41. Production overhead does not include the costs of
c. production line labor.

42. A company producing which of the following would be most likely to use a time
standard for labor?
a. mattresses

43. As data input functions are automated, Intranet data becomes more
c. real-time accessible.

44. The use of standard material or labor costs in job-order costing

a. is similar to the use of predetermined overhead rates in a normal costing system.

45. Which of the following statements is false?

b. It is normally more time-consuming for a company to use standard costs in a job-
order costing system.

46. A service organization would be most likely to use a predetermined overhead rate
based on
c. direct labor.

47. In a production environment that manufactures goods to customer specifications, a

job-order costing system
c. may be maintained using either actual or predetermined overhead rates.

48. A unit that is rejected at a quality control inspection point, but that can be reworked
and sold, is referred to as a
d. defective unit.

49. The cost of abnormal losses (net of disposal costs) should be written off as

Product cost Period cost

c. no yes

50. In a job-order costing system, the net cost of normal spoilage is equal to
d. the cost of spoiled work minus the estimated disposal value.
51. If abnormal spoilage occurs in a job-order costing system, has a material dollar
value, and is related to a specific job, the recovery value of the spoiled goods should be

debited to credited to

a. a scrap inventory account the specific job in process

52. In a job-order costing system, the net cost of normal spoilage is equal to
d. the cost of spoiled work minus the estimated disposal value.

53. Shrinkage should be treated as

b. spoiled units.

54. Spoiled units are

a. units that cannot be economically reworked to bring them up to standard.

55. Abnormal spoilage is

b. spoilage that is in excess of planned.

56. Normal spoilage is defined as unacceptable production that

b. occurs in on-going operations.

57. Which of the following would fall within the range of tolerance for a production
cycle?

Abnormal loss Normal loss

d. no yes

58. The net cost of normal spoilage in a job-order costing system in which spoilage is
common to all jobs should be
b. charged to manufacturing overhead during the period of the spoilage.

59. Broncho Company. uses a job-order costing system. During April, the following costs
appeared in the Work in Process Inventory account:

Beginning balance $ 24,000

Direct material used 70,000
Direct labor incurred 60,000
Applied overhead 48,000
Cost of goods manufactured 185,000
Broncho Company applies overhead on the basis of direct labor cost. There was only one job
left in Work in Process at the end of April which contained $5,600 of overhead. What
amount of direct material was included in this job?
a. $4,400

60. Sooner Company. uses a job-order costing system. During May, the following costs
appeared in the Work in Process Inventory account:

Beginning balance $ 30,000

Direct material used 90,000
Direct labor incurred 75,000
Applied overhead 52,500
Cost of goods manufactured 225,000

Sooner Company applies overhead on the basis of direct labor cost. There was only one job
left in Work in Process at the end of May which contained $6,300 of overhead. What amount
of direct material was included in this job?
a. $ 7,200

61. Adams Company is a graphic design shop that produces jobs to customer
specifications. During January, Job #3051 was worked on and the following information is
available:

Direct material used $2,500

Direct labor hours worked 15
Machine time used 6
Direct labor rate per hour $7
Overhead application rate per hour of machine time $18

What was the total cost of Job #3051 for January?

a. $2,713

Briggs Company

Briggs Company uses a job-order costing system. At the beginning of January, the company
had two jobs in process with the following costs:

Direct Material Direct Labor Overhead

Job #456 $3,400 $510 $255
Job #461 1,100 289 ?

Briggs pays its workers $8.50 per hour and applies overhead on a direct labor hour basis.

62. Refer to Briggs Company. What is the overhead application rate per direct labor
hour?
c. $ 4.25
63. Refer to Briggs Company. How much overhead was included in the cost of Job #461
at the beginning of January?
a. $ 144.50

64. Refer to Briggs Company. During January, Briggs’ employees worked on Job #649. At
the end of the month, $714 of overhead had been applied to this job. Total Work in Process
at the end of the month was $6,800 and all other jobs had a total cost of $3,981. What
amount of direct material is included in Job #649?
a. $ 677.00

65. Sunbeam Corporation manufactures products on a job-order basis. The job cost
sheet for Job #656 shows the following for March:

Direct material $5,000

Direct labor (100 hours @ $7.25) $725
Machine hours incurred 40
Predetermined overhead rate per machine hour $26

At the end of March, what total cost appears on the job cost sheet for Job #656?
c. $6,765

66. Bolles Corporation manufactures products on a job-order basis. The job cost sheet
for Job #902 shows the following for April:

Direct material $6,000

Direct labor (110 hours @ $8.50) $935
Machine hours incurred 50
Predetermined overhead rate per machine hour $28

At the end of April, what total cost appears on the job cost sheet for Job #902?
c. $ 8,335

67. Products at Krause Manufacturing are sent through two production departments:
Fabricating and Finishing. Overhead is applied to products in the Fabricating Department
based on 150 percent of direct labor cost and $18 per machine hour in Finishing. The
following information is available about Job #297:

Fabricating Finishing
Direct material $1,590 $580
Direct labor cost ? 48
Direct labor hours 22 6
Machine hours 5 15
Overhead applied 429 ?

What is the total cost of Job #297?

d. $3,203

68. New Bern Company applies overhead to jobs at the rate of 40 percent of direct labor
cost. Direct material of $1,250 and direct labor of $1,400 were expended on Job #145 during
June. On May 31, the balance of Job #145 was $2,800. The balance on June 30 is:
d. $6,010.

Webb Company.

Webb Company uses a job-order costing system and the following information is available
from its records. The company has three jobs in process: #6, #9, and #13.

Raw material used $120,000

Direct labor per hour $8.50
Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25
percent, and 25 percent; the balance of the requisitions was considered indirect. Direct
labor hours per job are 2,500; 3,100; and 4,200; respectively. Indirect labor is $33,000.
Other actual overhead costs totaled $36,000.

69. Refer to Webb Company. What is the prime cost of Job #6?
b. $57,250

70. Refer to Webb Company. What is the total amount of overhead applied to Job #9?
d. $31,620

71. Refer to Webb Company. What is the total amount of actual overhead?
c. $93,000

72. Refer to Webb Company. How much overhead is applied to Work in Process?
b. $ 99,960

73. Refer to Webb Company. If Job #13 is completed and transferred, what is the balance
in Work in Process Inventory at the end of the period if overhead is applied at the end of the
period?
d. $170,720

74. Refer to Webb Company. Assume the balance in Work in Process Inventory was
$18,500 on June 1 and $25,297 on June 30. The balance on June 30 represents one job that
contains direct material of $11,250. How many direct labor hours have been worked on this
job (rounded to the nearest hour)?
a. 751
Peale Company

Peale Company uses a job-order costing system and the following information is available
from its records. The company has three jobs in process: #8, #12, and #15.

Raw material used $130,000

Direct labor per hour $9.50
Overhead applied based on direct labor cost 125%

Direct material was requisitioned as follows for each job respectively: 25 percent, 30
percent, and 30 percent; the balance of the requisitions was considered indirect. Direct
labor hours per job are 2,800; 3,300; and 4,000; respectively. Indirect labor is $45,000.
Other actual overhead costs totaled $50,000.

75. Refer to Peale Company. What is the prime cost of Job #8?
a. $59,100

76. Refer to Peale Company. What is the total amount of overhead applied to Job #12?
d. $39,188

77. Refer to Peale Company. What is the total amount of actual overhead?
c. $114,500

78. Refer to Peale Company. How much overhead is applied to Work in Process?
b. $ 119,938

79. Refer to Peale Company. If Job #15 is completed and transferred, what is the balance
in Work in Process Inventory at the end of the period if overhead is applied at the end of the
period?
b. $201,888

80. Refer to Peale Company. Assume the balance in Work in Process Inventory was
$21,500 on April 1 and $29,520 on April 30. The balance on June 30 represents one job that
contains direct material of $12,375. How many direct labor hours have been worked on this
job (rounded to the nearest hour)?
a. 802

Greek Products Company

The following information pertains to Greek Products Company for September:

Direct Material Direct Labor Overhead

Job #323 $3,200 $4,500 ?
Job #325 ? 5,000 ?
Job #401 5,670 ? $5,550
Greek Products Company applies overhead for Job #323 at 140 percent of direct labor cost
and at 150 percent of direct labor cost for Jobs #325 and #401. The total cost of Jobs #323
and #325 is identical.

81. Refer to Greek Products Company. What amount of overhead is applied to Job #323?
c. $6,300

82. Refer to Greek Products Company. What amount of overhead is applied to Job #325?
b. $7,500

83. Refer to Greek Products Company. What is the amount of direct materials for Job
#325?
b. $1,500

84. Refer to Greek Products Company Assume that Jobs #323 and #401 are incomplete
at the end of September. What is the balance in Work in Process Inventory at that time?
c. $28,920

Topeka Company

Topeka Company has two departments (Processing and Packaging) and uses a job-order
costing system. Topeka applies overhead in Processing based on machine hours and on
direct labor cost in Packaging. The following information is available for July:

Processing Packaging
Machine hours 2,500 1,000
Direct labor cost $44,500 $23,000
Applied overhead $55,000 $51,750

85. Refer to Topeka Company. What is the overhead application rate per machine hour
for Processing?
d. $22.00

86. Refer to Topeka Company What is the overhead application rate for Packaging?
b. $ 2.25

Santa Fe Company

Santa Fe Company has two departments (Processing and Packaging) and uses a job-order
costing system. Topeka applies overhead in Processing based on machine hours and on
direct labor cost in Packaging. The following information is available for August:

Processing Packaging
Machine hours 3,600 1,500
Direct labor cost $47,600 $24,000
Applied overhead $60,500 $54,750

87. Refer to Santa Fe Company. What is the overhead application rate per machine hour
for Processing?
d. $16.81

88. Refer to Santa Fe Company What is the overhead application rate for Packaging?
b. $ 2.28

Gallagher Company

Gallagher Company has a job-order costing system and an overhead application rate of 120
percent of direct labor cost. Job #63 is charged with direct material of $12,000 and
overhead of $7,200. Job #64 has direct material of $2,000 and direct labor of $9,000.

89. Refer to Gallagher Company. What amount of direct labor cost has been charged to
Job #63?
a. $ 6,000

90. Refer to Gallagher Company. What is the total cost of Job #64?
c. $21,800

Fischer Company

Fischer Company has a job-order costing system and an overhead application rate of 125
percent of direct labor cost. Job #123 is charged with direct material of $18,000 and
overhead of $9,000. Job #124 has direct material of $4,500 and direct labor of $12,000.

91. Refer to Fischer Company. What amount of direct labor cost has been charged to Job
#123?
a. $ 7,200

92. Refer to Fischer Company. What is the total cost of Job #124?
c. $31,500

Miller Company

Miller Company uses a job-order costing system. Assume that Job #504 is the only one in
process. The following information is available:

Budgeted direct labor hours 65,000 Budgeted machine hours 9,000

Budgeted overhead $350,000 Direct material $110,500
Direct labor cost $70,000

93. Refer to Miller Company. What is the overhead application rate if Miller uses a
predetermined overhead application rate based on direct labor hours (rounded to the
nearest whole dollar)?
c. $ 5.38

94. Refer to Miller Company. What is the total cost of Job #504 assuming that overhead
is applied at the rate of 135% of direct labor cost (rounded to the nearest whole dollar)?
c. $275,000

Phillips Company

Phillips Company uses a job-order costing system. Assume that Job #309 is the only one in
process. The following information is available:

Budgeted direct labor hours 72,000 Budgeted machine hours 11,000

Budgeted overhead $400,000 Direct material $122,750
Direct labor cost $80,000

95. Refer to Phillips Company. What is the overhead application rate if Miller uses a
predetermined overhead application rate based on direct labor hours (rounded to the
nearest whole dollar)?
c. $ 5.56

96. Refer to Phillips Company. What is the total cost of Job #309 assuming that overhead
is applied at the rate of 130% of direct labor cost (rounded to the nearest whole dollar)?
c. $306,750

97. At the end of the last fiscal year, Marriott Company had the following account
balances:

Overapplied overhead $ 6,000

Cost of Goods Sold $980,000
Work in Process Inventory $ 38,000
Finished Goods Inventory $ 82,000

If the most common treatment of assigning overapplied overhead were used, the final
balance in Cost of Goods Sold is:
a. $974,000.

98. At the end of the last fiscal year, Wingate Company had the following account
balances:
Overapplied overhead $ 9,000
Cost of Goods Sold $860,000
Work in Process Inventory $ 36,000
Finished Goods Inventory $ 74,000

If the most common treatment of assigning overapplied overhead were used, the final
balance in Cost of Goods Sold is:
a. $851,000.

99. Contero Products has no Work in Process or Finished Goods inventories at the close
of business on December 31 of the current year. The balances of Contero Products’ accounts
as of December 31 are as follows:

Cost of goods sold--unadjusted $2,040,000

Selling & administrative expenses 900,000
Sales 3,600,000
Manufacturing overhead control 700,000
Manufacturing overhead applied 648,000

Pretax income for the current year is:

a. $608,000.

100. Levi Products has no Work in Process or Finished Goods inventories at the close of
business on December 31 of the current year. The balances of Levi Products’ accounts as of
December 31 are as follows:

Cost of goods sold--unadjusted $2,520,000

Selling & administrative expenses 950,000
Sales 4,000,000
Manufacturing overhead control 800,000
Manufacturing overhead applied 754,000

Pretax income for the current year is:

a. $484,000

McKinney Manufacturing Company

McKinney Manufacturing Company produces beach chairs. Chair frames are all the same
size, but can be made from plastic, wood, or aluminum. Regardless of frame choice, the same
sailcloth is used for the seat on all chairs. McKinney has set a standard for sailcloth of $9.90
per square yard and each chair requires 1 square yard of material. McKinney produced 500
plastic chairs, 100 wooden chairs, and 250 aluminum chairs during June. The total cost for
1,000 square yards of sailcloth during the month was $10,000. At the end of the month, 50
square yards of sailcloth remained in inventory.

101. Refer to McKinney Manufacturing Company. The unfavorable material price

variance for sailcloth purchases for the month was
a. $ 100.
102. Refer to McKinney Manufacturing Company. Assuming that there was no sailcloth in
inventory at the beginning of June, the unfavorable material quantity variance for the month
was
c. $ 990.

103. Refer to McKinney Manufacturing Company. McKinney could set a standard cost for
which of the following?

Frame Predetermined Labor

cost OH rate rate

a. yes yes yes