Midterm Cost Accounting and Control
Midterm Cost Accounting and Control
Midterm Cost Accounting and Control
1. Many companies recognize three major categories of costs of manufacturing a product. These are
direct materials, direct labor, and overhead. Which of the following is an overhead cost in the
production of an automobile?
a. The cost of small tools used in mounting tires on each automobile
b. The cost of the tires on each automobile
c. The cost of the laborers who place tires on each automobile
d. The delivery costs for the tires on each automobile
2. When the amount of overapplied factory overhead is significant, the entry to close overapplied factory
overhead will most likely require:
a. Credits to cost of goods sold, finished goods inventory, and work in process inventory
b. A credit to cost of goods sold
c. Debits to cost of goods sold, finished goods inventory, and work in process inventory
d. A debit to cost of goods sold
3. The materials control method that is based on physical observation that an order point has been
reached is the:
a. Two-bin method c. Min-max method
b. Cycle review method d. ABC plan
4. An inventory control technique that reviews quantities on hand periodically and orders sufficient
quantities to bring inventory up to a desired level expressed as a number of days’ or weeks’ supply is
the:
a. Order cycling method c. ABC inventory control method
b. Two-bin method d. Min-max method
5. Materials returned to storeroom are recorded in the following documents EXCEPT:
a. Bin tag c. Materials ledger card
b. Returned materials report d. Purchase order
6. How is a loss on inventory write-down shown on the statement of comprehensive income?
a. As an addition to sales revenue
b. As a deduction from the sales revenue
c. As an addition to cost of goods sold
d. As a deduction from the cost of goods sold
7. What is the major advantage of using a perpetual inventory system?
a. It provides efficient internal control over materials.
b. It avoids inventory shortages and overages.
c. It minimizes error in posting receipts and issues of materials.
d. It avoids losses due to theft.
8. The costing method that is no longer permitted by PAS No. 2 is:
a. FIFO c. Moving average
b. LIFO d. Specific identification
9. When must a new unit cost be calculated under the moving average method?
a. After each issue c. Before each issue
b. After each receipt d. Before each receipt
10. How is the allowance for inventory write-down shown in the statement of financial position?
a. As a deduction from the inventory at cost
b. As a deduction from the inventory of NRV
c. As an asset
d. As a liability
11. An example of labor-related costs is:
a. Bonus pay c. Fringe benefits
b. Factory labor d. Operating expense
12. If overtime premium is charged to specific job, it should be debited to:
a. Work in process account c. General expense account
b. Selling expense account d. Manufacturing overhead account
13. The document that is used to secure information as to the type of work performed is the
a. Requisition report c. Time ticket
b. Clock card d. Labor voucher
14. If the job is taken as a rush order with the knowledge that overtime will be necessary, the overtime
premium should be charged to:
a. Selling expense c. General expense
b. Specific job d. Factory overhead
15. Wages in excess of the regular rate paid for work after normal closing time is:
a. Vacation and holiday pay c. Pension pay
b. Regular wage d. Overtime premium
16. A debit balance in the manufacturing overhead control account is:
a. Overapplied overhead c. Idle capacity variance
b. Underapplied overhead d. Spending variance
17. The most common treatment of the underapplied overhead at the end of the year would be to:
a. Carry it as a deferred charge on the balance sheet
b. Report it as a miscellaneous expense on the income statement
c. Debit it to Cost of Goods Sold
d. Prorate between Work in Process Inventory and Finished Goods Inventory
18. An objection to the use of predetermined overhead rate based on direct labor costs is that:
a. These items are difficult to measure
b. A job is charged with more overhead when a highly paid operator works on the job than when a
low paid operator performs the work
c. Overhead is allocated in relation to units produced by workers
d. Overhead rates will be distributed inequitably when there are no wage differentials in the
department
19. What costing system is used to avoid any delay in the costing of jobs as experienced in actual costing?
a. Process costing c. Historical costing
b. Job order costing d. Normal costing
20. A credit balance in manufacturing overhead control account is:
a. Overapplied overhead c. Idle capacity variance
b. Underapplied overhead d. Spending variance
21. The most accurate method for allocating service department costs is
a. Step method c. Reciprocal method
b. Direct method d. Algebraic method
22. If two service departments service the same number of other service departments when using the step
method, which service department’s costs are allocated first.
a. The service department most crucial to the operation of the production department
b. The service department with the most employees
c. The service department with the most direct cost
d. None of the above, the reciprocal method must be used
23. In which of the following overhead allocation methods may no other service departmental costs be
charged back to a particular service department after the first service departments cost has been
allocated?
a. The reciprocal method and the direct method
b. The step method and the reciprocal method
c. The direct method and the step method
d. The step and algebraic method
24. Several methods are used to allocate service department costs to the production departments. The
method to recognizes service department to another but does not allow for two-way allocation of costs
between service department is the:
a. Step method c. Linear method
b. Reciprocal method d. Direct method
25. The method for allocating service department costs that requires the least clerical work is:
a. Use of square footage in each department
b. Step method
c. Allocation to other service departments only
d. Direct method
26. An accounting system that collects financial and operating data on the basis of the underlying nature
and extent of the cost drivers is
a. Activity – based costing c. Cycle – time costing
b. Target costing d. Variable costing
27. Cost drivers are
a. Activities that cause costs to increase as the activity increases
b. Accounting techniques used to control costs
c. Accounting measurements used to evaluate whether performance is proceeding according to
plan
d. A mechanical basis, such as machine hours, computer time, size of equipment, or square
footage of factory, used to assign costs to activities
28. Which of the following would be a reasonable basis for allocating the materials handling costs to the
units produced in an activity – based costing system?
a. Number of production runs per year
b. Number of components per completed unit
c. Amount of time required to produce one unit
d. Amount of overhead applied to each completed unit
29. All of the following are distinctions that usually exist between traditional and ABC costing systems,
EXCEPT that:
a. The number of overhead cost pools tend to be lower in ABC systems.
b. The number of allocation bases tends to be higher in ABC system.
c. Costs within an ABC cost pool tend to be more homogeneous than the costs within a traditional
system’s cost pool.
d. All ABC systems are two-stage costing systems, while traditional systems may be one or two
stage.
30. Any activity that causes resources to be consumed is called:
a. Just in time activity c. Cost driver
b. Facility level activity d. Nonvalue added activity
31. When traditional production volume based overhead allocations are made, rather than activity based
allocations,
a. The unit costs of high volume and large size products tend to be overstated, while the unit cost
of low volume and small products tend to be overstated.
b. The unit costs of high volume and large size products tend to be understated, while the unit cost
of low volume and small products tend to be overstated.
c. The unit costs of high volume and small products tend to be overstated, while the unit costs of
low volume and large products is understated.
d. The unit costs of high volume and small products tend to be understated, while the unit costs of
low volume and large products is overstated.
32. Activity based cost systems would probably provide the greatest benefits for organizations that use
a. Job order costing c. Historical costing
b. Process costing d. Standard costing
33. Which of the following types of characteristics tend to cause too little overhead costs to be charged to
the product using traditional cost allocations?
a. A relatively small product
b. A relatively low volume product
c. A relatively simple product
d. A and B
e. All of the above
34. Which audience was activity-based costing originally designed to serve?
a. Users of external financial statements
b. Front line managers who plan and control activities or processes on a daily basis
c. Managers who make short term strategic decisions such as outsourcing
d. Managers who make long term strategic decisions concerning investments
e. None of the above
35. The main difference (or differences) between how traditional costing and activity based costing treat
indirect manufacturing costs is (are) that
a. Traditional costing uses only production volume based drivers while activity based costing uses
only non-production volume based drivers
b. Traditional costing treats only unit level costs as variable, whole ABC systems treat unit level,
batch level and product level costs as variable.
c. Traditional cost allocations are usually based on a plant wide overhead rate, while ABC systems
departmental overhead rates
d. A and B
e. B and C
36. A manufacturing company had inventories at the beginning and end of 2019 as follows:
Beginning End
Materials P44,000 P60,000
Work in Process 80,000 96,000
Finished Goods 50,000 36,000
During 2019, the following costs and expenses were incurred:
a. P1,078,000 c. 1,042,000
b. 1,044,000 d. 1,028,000
37. There are 1,000 trolls in stock, and 1,500 are due in from orders that were placed previously. The
company sells Trolls at the rate of 100 per day and finds that it takes an average of 20 days for an
order to be received. Because usage and lead times are known with certainty and because the
company has determined than an order must be placed now, the desired safety stock quantity must be
equal to:
a. 500 units c. 2,500 units
b. 1,000 units d. 100 units
38. On December 31, 2019, the Materials account for the Saturn Manufacturing Company has a balance
of P296,369. The company has been using the lower of cost or net realizable value method for several
years. The Allowance for Inventory write-down account has a balance of P8,930. The net realizable
value of the materials on December 31, 2019 is P291,250.
On December 31, 2019, what is the entry to adjust the value of the materials at the lower of cost or net
realizable value?
a. Dr. Allowance for inventory write-down 3,811 ; Cr. Recovery from inventory write-down 3,811
b. Dr. Loss on inventory write-down 5,119; Cr. Allowance for inventory write-down 5,119
c. Dr. Allowance for inventory write-down 3,821; Cr. Inventory 3,821
d. Dr. Allowance for inventory write-down 5,119; Cr. Recovery from inventory write-down 5,119
39. The Small Balls Company has decided to value its materials inventory at the lower of cost or net
realizable value. The Materials account has an ending balance of P110,492. The estimated selling
price and selling expenses are P134, 315 and P26,855 respectively.
What is the journal entry to value the inventory at the lower of cost or NRV?
a. Dr. Loss on inventory write-down 3,032; Cr. Allowance for inventory write-down 3,032
b. Dr. Loss on inventory write-down 23,823; Cr. Inventory 23,823
c. Dr. Allowance for inventory write-down 3,032; Cr. Gain on inventory write-down 3,032
d. Dr. Loss on inventory write-down 3,032; Cr. Inventory 3,032
40. XYZ Manufacturing Company which uses the periodic inventory system showed the following
transactions during the month of May.
What is the cost of ending inventory under the weighted average costing method?
a. P91.11 b. P88.50
c. P90.50 d. P89.12
41. Using the data in No. 40, what is the cost of the units issued under the FIFO costing method?
a. P700 c. P830
b. P730 d. P850
42. Ms. Se Ri, a production worker earns P14,904 a month, and the company pays one month’s salary as
bonus at the end of the year. Ms. Se Ri is also entitled to a half month paid vacation. The company also
pays P2,070 a year into a pension fund of the worker. All labor-related fringe benefits of production
workers are treated as manufacturing overhead. Bonus, vacation pay, and pension costs are charged
to production during the 11 ½ months the employee is at work. What is the total liability for bonus,
vacation and pension?
a. P2,484 c. P2,124
b. P1,206 d. P2,540
43. For the fiscal year 2019, the XXY Corporation accumulated the following data:
Sales P790,670
Finished Goods, July 1, 2018 33,500
Finished Goods, June 30, 2019 83,000
Cost of goods manufactured 450,700
Overapplied or underapplied overhead 4,200 Dr. Balance
Operating expenses 157,500
What is the net income before provision of income tax for the year ended June 30, 2019
a. P227,770 c. P240,370
b. P236,170 d. P182,470
Apple Company has two service departments (1 and 2) and two operating (producing) department (A and B).
Data provided are as follows:
44. Assuming the direct method is used to allocate service department costs, what is the service
department cost allocated to Department B?
a. P150.00 c. P60.00
b. P87.50 d. P50.00
45. Assuming the step-down method is used to allocate service department costs, what is the total cost of
Department A (rounded)?
a. P5,365.00 c. P5,087.00
b. P5,350.00 d. P5,375.00
46. Assuming the reciprocal method is used to allocate service department costs, what is the service
department cost allocated to Department B (rounded)?
a. P60.00 c. P84.78
b. P75.00 d. P135.00
47. Tarzan Co. employs a job order system. Its manufacturing activities in July 2018, its first month of
operation, are summarized as follows :
JOB NUMBERS
1201 1202 1203 1204
Direct Materials P 7,000.00 P 5,800.00 P 11,600.00 P 5,000.00
Direct Labor Cost P 6,600.00 P 6,000.00 P 8,400.00 P 2,400.00
Direct Labor Hours 1100 1000 1400 400
Units Produced 200 100 1000 300
Manufacturing overhead is applied at a rate of P2 per direct labor hour for variable overhead, P3 per
hour for fixed overhead.
a. P62,900 c. P72,900
b. 62,500 d. 65,900
48. The following data relates to the materials inventory of the SHISHI Factory :
What is the value of the inventory if the lower of cost or net realizable value method is applied to the
individual items?
a. P237,500 c. P327,050
b. P317,050 d. P371,050
49. Based on the data given in No. 48, what is the value of the inventory if the lower of cost or net
realizable value rule is applied to the inventory as a whole?
a. P327,450 c. P353,450
b. P327,050 d. P307,450
50. Using the same data in No. 48, what is the value of the inventory if the lower of cost or net realizable
value rule is applied to the inventory by groups?
a. P327,000 c. P218,950
b. P372,000 d. P317,000
The Columbus Company produces only two products: a major computer part and cell phones. The company
uses a normal cost system and overhead costs are currently allocated using a plant – wide overhead rate
based on direct labor hours. Outside cost consultants have recommended, however, that the company use
activity based – costing to charge overhead to products.
The company expects to produce 4,000 computer parts and 2,000 cell phones in 2018. Each computer part
requires two direct labor hours to produce and each cell phone requires one – half hour to produce.
The direct material and direct labor costs included two products are as follows :
Based on an analysis of the three overhead activities, it was estimated that the two products would require
those activities as follows in 2018:
Computer
Activity
Parts Cell Phones Overall Total
Required :
a. Calculate the cost of each product using a plant-wide rate based on direct labor hours. (2 pts)
b. Calculate the activity cost rates for (a) setups, (b) material handling and (c) packaging and
shipping (6 pts)
c. Cost out the two products using an activity – based costing system. (2 pts)
Prepared by :
Noted by :