An Introduction To Managerial Accounting and Cost Concepts: True/False
An Introduction To Managerial Accounting and Cost Concepts: True/False
An Introduction To Managerial Accounting and Cost Concepts: True/False
True/False
2. Depreciation on office equipment would not be included in the cost of goods manufactured.
Level: Easy LO: 2,4 Ans: T
3. Rent on a factory building used in the production process would be classified as a period cost and as a
fixed cost.
Level: Medium LO: 2,5 Ans: F
4. Period costs are found only in manufacturing companies, not in merchandising companies.
Level: Medium LO: 2 Ans: F
5. Depreciation on equipment a company uses in its selling and administrative activities would be
classified as a product cost.
Level: Medium LO: 2 Ans: F
6. If the finished goods inventory increases between the beginning and the end of a period, then the cost
of goods manufactured is smaller than the cost of goods sold.
Level: Hard LO: 3,4 Ans: F
7. The cost of goods manufactured is calculated by adding the amount of work in process at the end of the
year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the
year and then subtracting work in process at the beginning of the year.
Level: Medium LO: 4 Ans: F
8. A publisher that sells its books through agents who are paid a constant percentage commission on each
book sold would classify the commissions as a fixed cost.
Level: Medium LO: 5 Ans: F
11. The amount that a manufacturing company could earn by renting unused portions of its warehouse is
an example of an opportunity cost.
Level: Easy LO: 7 Ans: T
Multiple Choice
13. The cost of lubricants used to grease a production machine in a manufacturing company is an example
of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
Level: Easy LO: 1,2 Ans: C
14. The salary paid to the president of King Company would be classified on the income statement as
a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
Level: Easy LO: 1 Ans: A
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Easy LO: 1 Ans: C
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: B
17. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Source: CPA, adapted
Level: Easy LO: 1 Ans: B
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: D
21. Depreciation on a personal computer used in the marketing department of a manufacturing firm would
be classified as:
A) a product cost that is fixed with respect to the company’s output.
B) a period cost that is fixed with respect to the company’s output.
C) a product cost that is variable with respect to the company’s output.
D) a period cost that is varaible with respect to the company’s output.
Level: Medium LO: 2,5 Ans: B
22. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who
have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients
would be classified as:
A) direct costs of the patients.
B) indirect costs of the patients.
C) overhead costs of the nursing station.
D) period costs of the hospital.
Level: Hard LO: 2,6 Ans: A
25. Ross Corporation shipped finished goods to a customer on credit, but the sale was not recorded and
the costs of the finished goods were incorrectly included on the period’s balance sheet as part of the
finished goods inventory. Which one of the following statements is correct concerning the effects of this
error?
A) Accounts receivable was not affected, inventory was overstated, sales were understated, and cost of
goods sold was understated.
B) Accounts receivable was understated, inventory was not affected, sales were understated, and cost of
goods sold was understated.
C) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of
goods sold was overstated.
D) Accounts receivable was understated, inventory was overstated, sales were understated, and cost of
goods sold was understated.
Source: CMA, adapted
Level: Easy LO: 3 Ans: D
28. The costs of staffing and operating the accounting department at Central Hospital would be
considered by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
Level: Hard LO: 6,7 Ans: B
29. A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.
Level: Easy LO: 7 Ans: C
31. John Johnson decided to leave his former job where he earned $12 per hour to go to a new job where
he will earn $13 per hour. In the decision process, the former wage of $12 per hour would be classified as
a(n):
A) sunk cost.
B) direct cost.
C) fixed cost.
D) opportunity cost.
Level: Easy LO: 7 Ans: D
32. The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost.
B) indirect cost.
C) period cost.
D) sunk cost.
Level: Easy LO: 7 Ans: D
40. Abair Company’s manufacturing overhead is 20% of its total conversion costs. If direct labor is
$38,000 and if direct materials are $35,000, the manufacturing overhead is:
A) $18,250
B) $9,500
C) $8,750
D) $152,000
Level: Hard LO: 1 Ans: B
41. Abbey Company’s manufacturing overhead is 60% of its total conversion costs. If direct labor is
$35,000 and if direct materials are $55,000, the manufacturing overhead is:
A) $135,000
B) $23,333
C) $82,500
D) $52,500
Level: Hard LO: 1 Ans: D
42. During the month of January, direct labor cost totaled $17,000 and direct labor cost was 60% of prime
cost. If total manufacturing costs during January were $82,000, the manufacturing overhead was:
A) $11,333
B) $53,667
C) $28,333
D) $65,000
Level: Hard LO: 1 Ans: B
43. During the month of February, direct labor cost totaled $13,000 and direct labor cost was 40% of
prime cost. If total manufacturing costs during February were $80,000, the manufacturing overhead was:
A) $32,500
B) $19,500
C) $67,000
D) $47,500
Level: Hard LO: 1 Ans: D
45. Knowel Company’s direct labor is 40 percent of its conversion cost. If the manufacturing overhead
cost for the last period was $60,000 and the direct materials cost was $30,000, the direct labor cost was:
A) $90,000
B) $20,000
C) $60,000
D) $40,000
Level: Hard LO: 1 Ans: D
46. In January direct labor was 40% percent of conversion cost. If the manufacturing overhead cost for
the month was $78,000 and the direct materials cost was $22,000, the direct labor cost was:
A) $14,667
B) $52,000
C) $33,000
D) $117,000
Level: Hard LO: 1 Ans: B
47. In February direct labor was 60% percent of conversion cost. If the manufacturing overhead cost for
the month was $78,000 and the direct materials cost was $22,000, the direct labor cost was:
A) $52,000
B) $14,667
C) $117,000
D) $33,000
Level: Hard LO: 1 Ans: C
48. In March direct labor was 60% percent of conversion cost. If the manufacturing overhead cost for the
month was $38,000 and the direct materials cost was $32,000, the direct labor cost was:
A) $21,333
B) $48,000
C) $25,333
D) $57,000
Level: Hard LO: 1 Ans: D
50. CF Company manufactures wooden rocking chairs. CF identified the following three material costs in
its production process for July: $100,000 for springs for the rocking mechanism; two springs at a cost of
$10 each are used in each chair; $1,700 for glue used as needed from one gallon containers; and $500 for
stain used to touch up spots on the chairs. The total cost that should have been assigned to indirect
material for July was:
A) $102,200
B) $500
C) $2,200
D) $1,700
Level: Medium LO: 1 Ans: C
51. Fab Co. manufactures textiles. Fab’s manufacturing costs last year included the following salaries and
wages:
52. A manufacturing company has provided the following cost data for a recent period:
A) A above
B) B above
C) C above
D) D above
Level: Hard LO: 2 Ans: D
54. Last month a manufacturing company had the following operating results:
55. Last month a manufacturing company had the following operating results:
57. Haag Inc. is a merchandising company. Last month the company’s cost of goods sold was $86,000.
The company’s beginning merchandise inventory was $20,000 and its ending merchandise inventory was
$21,000. What was the total amount of the company’s merchandise purchases for the month?
A) $86,000
B) $127,000
C) $87,000
D) $85,000
Level: Medium LO: 3 Ans: C
58. During February, the cost of goods manufactured was $83,000. The beginning finished goods
inventory was $14,000 and the ending finished goods inventory was $13,000. What was the cost of goods
sold for the month?
A) $83,000
B) $110,000
C) $82,000
D) $84,000
Level: Easy LO: 3 Ans: D
59. During March, the cost of goods manufactured was $62,000. The beginning finished goods inventory
was $11,000 and the ending finished goods inventory was $19,000. What was the cost of goods sold for
the month?
A) $70,000
B) $92,000
C) $54,000
D) $62,000
Level: Easy LO: 3 Ans: C
What are the correct amounts for direct labor and ending work in process inventory?
A) A above
B) B above
C) C above
D) D above
Level: Hard LO: 4 Ans: D
61. The following information is taken from the records of DW Company for last year:
63. Using the following data for March, calculate the cost of goods manufactured:
65. If the net operating income was $40,000, then the beginning finished goods inventory was:
A) $22,000
B) $9,000
C) $42,000
D) $1,000
Level: Hard LO: 2,3,4 Ans: D
66. The cost of the raw materials used in production during the year (in thousands of dollars) was:
A) $230
B) $220
C) $160
D) $260
Level: Medium LO: 2,3,4 Ans: B
68. The cost of goods sold for the year (in thousands of dollars) was:
A) $680
B) $540
C) $640
D) $730
Level: Medium LO: 2,3,4 Ans: B
69. The net operating income for the year (in thousands of dollars) was:
A) $180
B) $170
C) $390
D) $190
Level: Medium LO: 2,3,4 Ans: A
71. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $530
B) $540
C) $470
D) $570
Level: Medium LO: 2,3,4 Ans: C
72. The cost of goods sold for the year (in thousands of dollars) was:
A) $490
B) $450
C) $620
D) $600
Level: Medium LO: 2,3,4 Ans: A
73. The net operating income for the year (in thousands of dollars) was:
A) $170
B) $140
C) $500
D) $200
Level: Medium LO: 2,3,4 Ans: A
75. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $580
B) $600
C) $500
D) $630
Level: Medium LO: 2,3,4 Ans: B
76. The cost of goods sold for the year (in thousands of dollars) was:
A) $620
B) $580
C) $720
D) $700
Level: Medium LO: 2,3,4 Ans: A
77. The net operating income for the year (in thousands of dollars) was:
A) $260
B) $30
C) $90
D) ($30)
Level: Medium LO: 2,3,4 Ans: B
78. If the company purchased $18,000 of raw materials during March, what was the cost of raw materials
used in production?
A) $16,000
B) $20,000
C) $41,000
D) $19,000
Level: Medium LO: 4 Ans: A
80. The cost of valves in work in process at the end of May would be:
A) $2,400
B) $3,000
C) $600
D) $720
Level: Easy LO: 4 Ans: C
81. The cost of valves in cost of goods sold for May would be:
A) $1,680
B) $2,100
C) $900
D) $720
Level: Easy LO: 3 Ans: A
82. If the company purchased $20,000 of raw materials during March, what was the cost of raw materials
used in production?
A) $24,000
B) $22,000
C) $32,000
D) $18,000
Level: Medium LO: 4 Ans: D
84. If Carne Company were to sell 32,000 units, the total expected cost would be:
A) $75,000
B) $78,000
C) $80,000
D) $77,000
Level: Easy LO: 5 Ans: B
85. If Carne Company were to sell 40,000 units, the total expected cost per unit would be:
A) $2.50
B) $2.25
C) $2.13
D) $1.88
Level: Easy LO: 5 Ans: B
86. The total of the manufacturing overhead costs listed above for September is:
A) $669,000
B) $366,000
C) $34,000
D) $59,000
88. The total of the period costs listed above for September is:
A) $303,000
B) $59,000
C) $366,000
D) $362,000
Level: Medium LO: 2 Ans: A
89. The total of the period costs listed above for December is:
A) $82,000
B) $340,000
C) $389,000
D) $307,000
Level: Medium LO: 2
Refer To: 01_10 Ans: D
90. The total of the manufacturing overhead costs listed above for December is:
A) $30,000
B) $82,000
C) $647,000
D) $340,000
Level: Medium LO: 1 Ans: B
92. If the raw materials purchased during July totaled $66,000, what was the cost of the raw materials
used in production for the month?
A) $49,000
B) $67,000
C) $66,000
D) $65,000
Level: Easy LO: 1,3 Ans: D
93. If the company transferred $225,000 of completed goods from work in process to finished goods
inventory during July, what was the cost of goods sold for the month?
A) $231,000
B) $208,000
C) $242,000
D) $225,000
Level: Easy LO: 3 Ans: B
Additional information:
Additional information:
Additional information:
Additional information:
Additional information:
Additional information:
Additional information:
133. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of
33,600 units? (Assume that this sales volume is within the relevant range.)
A) $14.54
B) $15.00
C) $15.63
D) $15.32
Level: Easy LO: 5 Ans: B
134. To the nearest whole dollar, what should be the total property taxes at a sales volume of 39,700
units? (Assume that this sales volume is within the relevant range.)
A) $802,900
B) $748,295
C) $832,195
D) $861,490
Level: Easy LO: 5 Ans: A
135. To the nearest whole cent, what should be the average property tax per unit at a sales volume of
40,300 units? (Assume that this sales volume is within the relevant range.)
A) $21.70
B) $20.22
C) $19.92
D) $20.81
Level: Easy LO: 5 Ans: C
137. To the nearest whole cent, what should be the average cost of operating the helpline per call at a
volume of 31,300 calls in a month? (Assume that this call volume is within the relevant range.)
A) $12.30
B) $11.79
C) $10.92
D) $12.05
Level: Easy LO: 5 Ans: A
138. To the nearest whole dollar, what should be the total lease cost at a sales volume of 30,900 units in a
month? (Assume that this sales volume is within the relevant range.)
A) $742,317
B) $692,160
C) $704,480
D) $716,800
Level: Easy LO: 5 Ans: D
139. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 34,400
units in a month? (Assume that this sales volume is within the relevant range.)
A) $23.20
B) $21.62
C) $20.84
D) $22.40
Level: Easy LO: 5 Ans: C
The Brentwood Store is just one of many stores owned and operated by the company. The Shoe
Department is one of many departments at the Brentwood Store. The central warehouse serves all of the
company’s stores.
140. What is the total amount of the costs listed above that are direct costs of the Shoe Department?
A) $38,000
B) $29,000
C) $70,000
D) $34,000
Level: Easy LO: 6 Ans: A
141. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store?
A) $161,000
B) $86,000
C) $32,000
D) $38,000
Level: Medium LO: 6 Ans: A
The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics
Department is one of many departments at the Northridge Store. The central warehouse serves all of the
company’s stores.
142. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department?
A) $83,000
B) $94,000
C) $90,000
D) $127,000
Level: Easy LO: 6 Ans: B
143. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store?
A) $172,000
B) $33,000
C) $80,000
D) $94,000
Level: Medium LO: 6 Ans: A
145. In making the decision to buy the model 260 machine rather than the model 330 machine, the sunk
cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
Level: Easy LO: 7 Ans: B
146. In making the decision to invest in the model 260 machine, the opportunity cost was:
A) $418,000
B) $456,000
C) $474,000
D) $496,000
Level: Easy LO: 7 Ans: D
147. In making the decision to buy the model 230 machine rather than the model 380 machine, the sunk
cost was:
A) $305,000
B) $266,000
C) $278,000
D) $207,000
Level: Easy LO: 7 Ans: B
149. In making the decision to invest in the model 230 machine, the opportunity cost was:
A) $278,000
B) $305,000
C) $207,000
D) $266,000
Level: Easy LO: 7 Ans: B
Essay
150. The Plastechnics Company began operations several years ago. The company purchased a building
and, since only half of the space was needed for operations, the remaining space was rented to another
firm for rental revenue of $20,000 per year. The success of Plastechnics Company’s product has resulted
in the company needing more space. The renter’s lease will expire next month and Plastechnics will not
renew the lease in order to use the space to expand operations and meet demand.
The company’s product requires materials that cost $25 per unit. The company employs a production
supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to
manufacture and assemble the product. The company rents the equipment needed to produce the product
at a rental cost of $1,500 per month. Additional equipment will be needed as production is expanded and
the monthly rental charge for this equipment will be $900 per month. The building is depreciated on the
straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per
unit.
The company plans to liquidate several investments in order to expand production. These investments
currently earn a return of $8,000 per year.
Required:
Complete the answer sheet above by placing an "X" under each heading that identifies the cost involved.
The "Xs" can be placed under more than one heading for a single cost, e.g., a cost might be a sunk cost,
an overhead cost, and a product cost. An "X" can thus be placed under each of these headings opposite
the cost.
Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form.
(b.) Compute the Cost of Goods Sold.
(c.) Using data from your answers above as needed, prepare an Income Statement in good form
Level: Medium LO: 1,3,4
Ans:
Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form.
(b.) Compute the Cost of Goods Sold.
(c.) Using data from your answers above as needed, prepare an Income Statement in good form
Level: Medium LO: 1,3,4
153. Ruise Corporation, a manufacturing company, has provided the following data for the month of
August:
Raw materials purchased during August totaled $73,000 and the cost of goods manufactured totaled
$146,000.
Required:
(a.) What was the cost of raw materials used in production during August? Show your work.
(b.) What was the cost of goods sold for August? Show your work.
Level: Easy LO: 1,3
154. During the month of February, Cumber Corporation, a manufacturing company, purchased raw
materials costing $79,000. The cost of goods manufactured for the month was $109,000. The beginning
balance in the raw materials account was $21,000 and the ending balance was $39,000. The beginning
balance in the finished goods account was $31,000 and the ending balance was $51,000.
Required:
(a.) What was the cost of raw materials used in production during February? Show your work.
(b.) What was the cost of goods sold for February? Show your work.
Level: Easy LO: 1,3
Ans:
Required:
(a.) What is the total amount of product cost listed above? Show your work.
(b.) What is the total amount of period cost listed above? Show your work.
Level: Medium LO: 2
Ans:
(a.) Product costs consist of direct materials, direct labor, and manufacturing overhead:
(b.) Period costs consist of all costs other than product costs:
Required:
(a.) What is the total amount of product cost listed above? Show your work.
(b.) What is the total amount of period cost listed above? Show your work.
Level: Medium LO: 2
Ans:
(a.) Product costs consist of direct materials, direct labor, and manufacturing overhead:
(b.) Period costs consist of all costs other than product costs:
Required:
(a.) Prepare a Schedule of Cost of Goods Manufactured in good form for July.
(b.) Prepare an Income Statement in good form for July.
Level: Medium LO: 3,4
Ans:
(a.) Schedule of Cost of Goods Manufactured
158. In October, Holecek Corporation had sales of $238,000, selling expenses of $12,000, and
administrative expenses of $35,000. The cost of goods manufactured was $130,000. The beginning
balance in the finished goods inventory account was $40,000 and the ending balance was $47,000.
Required:
Prepare an Income Statement in good form for October.
Level: Easy LO: 3
Ans:
159. In November, Stiman Inc., a merchandising company, had sales of $221,000, selling expenses of
$14,000,and administrative expenses of $22,000. The cost of merchandise purchased during the month
was $186,000. The beginning balance in the merchandise inventory account was $42,000 and the ending
balance was $52,000.
Required:
Prepare an Income Statement in good form for November.
Level: Easy LO: 3
160. Leibowitz Corporation has provided the following data for the month of August:
Required:
Prepare a Schedule of Cost of Goods Manufactured in good form for August.
Level: Medium LO: 4
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible
measure of activity listed next to it.
Level: Easy LO: 5
Ans:
(1.) Cost of cement used to produce cinder blocks; Cinder blocks produced; Variable
(2.) Cost of leasing checkout equipment on a monthly basis at a hardware store; Dollar sales; Fixed
(3.) Cost of vaccine used at a clinic; Vaccines administered; Variable
(4.) Salary of the staff chaplain at a hospital; Number of patients; Fixed
(5.) Windshield wiper blades installed on autos at an auto assembly plant; Number of autos assembled;
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible
measure of activity listed next to it.
Level: Easy LO: 5
Ans:
(1.) Cost of renting production equipment on a monthly basis at a surfboard manufacturer; Surfboards
produced; Fixed
(2.) Cost of shipping bags of garden mulch to a retail garden store; Bags shipped; Variable
(3.) Building rent at a coffee shop; Dollar sales; Fixed
(4.) Cost of hard disk installed in a computer; Number of computers assembled; Variable
(5.) Cost of fresh vegetables used at a coffee shop; Dollar sales; Variable
(6.) Janitorial wages at a surfboard manufacturer; Surfboards produced; Fixed
(7.) Cost of advertising at a surfboard company; Surfboards sold; Fixed
(8.) Clinical supplies at a doctor’s office; Number of patients; Variable
(9.) Cost of leasing checkout equipment on a monthly basis at an electronics store; Dollar sales; Fixed
(10.) Cost of heating an electronics store; Dollar sales; Fixed
Required:
For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed
next to it.
Level: Easy LO: 6
Ans:
(1.) Cost of a measles vaccine administered at an outpatient clinic at a hospital; The outpatient clinic;
Direct
(2.) Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The
auto repair shop; Direct
(3.) Accounting professor’s salary; A particular class; Indirect
(4.) Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht;
Direct
(5.) Cost of wiring used in making a personal computer; A particular personal computer; Indirect
(6.) Supervisor’s wages in a computer manufacturing facility; A particular personal computer; Indirect
(7.) Cost of lubrication oil used at the auto repair shop of an automobile dealer; The auto repair shop;
Direct
(8.) Cost of heating a hotel run by a chain of hotels; A particular hotel guest; Indirect
(9.) Cost of heating a hotel run by a chain of hotels; The particular hotel; Direct
(10.) Cost of tongue depressors used in an outpatient clinic at a hospital; A particular patient; Indirect