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Chapter 2—Measuring Product Costs
MULTIPLE CHOICE
1. Which of the following is not one of the three major manufacturing cost categories?
a. Direct materials costs that can be easily traced to a product
b. Direct labor costs of workers who transform materials into finished products and whose
time can be easily traced to a product
c. Manufacturing overhead costs which represents all other manufacturing costs that do not
fit into the other categories
d. Opportunity costs which are the manufacturing costs forgone by accepting another
production alternative
ANS: D
Opportunity costs which are the manufacturing costs forgone by accepting another production
alternative
PTS: 1
Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little
league baseball bats, hires workers to convert the materials to customized finished baseball bats, and
then offers the customized baseball bats for sale to little league teams and the general public.
2. Refer to Little League Baseball Manufacturer.
Manufacturing costs such as cleaning supplies which are not easily traced to a specific customized
baseball bat fall into which of the following categories?
a. direct material costs.
b. direct labor costs.
c. manufacturing overhead costs.
d. opportunity costs.
ANS: C
manufacturing overhead costs.
PTS: 1
3. Refer to Little League Baseball Manufacturer.
Manufacturing costs, such as the wages for janitorial staff to sweep and mop the floors, that are not
easily traced to a specific customized baseball bat fall into which of the following categories?
a. direct material costs.
b. direct labor costs.
c. manufacturing overhead costs.
d. opportunity costs.
ANS: C
manufacturing overhead costs.
PTS: 1
4. Refer to Little League Baseball Manufacturer.
Manufacturing costs such as the cost of the high quality hard woods specifically selected by the
customer for producing their own customized baseball bat fall into which of the following categories?
a. direct material costs.
b. direct labor costs.
c. manufacturing overhead costs.
d. opportunity costs.
ANS: A
direct material costs.
PTS: 1
5. Refer to Little League Baseball Manufacturer.
Manufacturing costs such as the cost of production supervisors overseeing the production of several
different products fall into which of the following categories?
a. direct material costs.
b. direct labor costs.
c. manufacturing overhead costs.
d. opportunity costs.
ANS: C
manufacturing overhead costs.
PTS: 1
6. Refer to Little League Baseball Manufacturer.
Manufacturing costs such as depreciation and insurance for the factory building, as well as heat, light,
power, and similar expenses incurred to keep the factory operating, fall into which of the following
categories?
a. direct material costs.
b. direct labor costs.
c. manufacturing overhead costs.
d. opportunity costs.
ANS: C
manufacturing overhead costs
PTS: 1
7. Which of the following statements reflects the basic cost flow equation?
a. Beginning Balance plus Transfers In equals Transfers Out plus Ending Balance.
b. Beginning Balance minus Transfers In equals Transfers Out minus Ending Balance.
c. Beginning Balance plus Transfers In equals Transfers Out minus Ending Balance.
d. Beginning Balance minus Transfers In equals Transfers Out plus Ending Balance.
ANS: A
Beginning Balance plus Transfers In equals Transfers Out plus Ending Balance.
PTS: 1
8. In recording costs by departments, the accounting system has served its functions of providing data for
department performance evaluation, and also assigns costs to products for managerial decision
making, such as
a. evaluating a product’s quality.
b. evaluating a product’s profitability.
c. evaluating a product’s integrity.
d. evaluating a product’s effectiveness.
ANS: B
evaluating a product’s profitability.
PTS: 1
9. The Work-in-Process account both describes the transformation of inputs into outputs in a company
and accounts for the costs incurred in the process. The key equation in symbols is
a. BB + TI = TO + EB.
b. EB + TI = TO + BB.
c. BB + TO = TI + EB.
d. None of the answers is correct.
ANS: A
BB + TI = TO + EB
PTS: 1
10. Which of the following is not normally added to the work-in-process account?
a. Direct labor.
b. Depreciation on factory equipment.
c. General factory labor.
d. Depreciation on office equipment.
ANS: D
Depreciation on office equipment.
PTS: 1
11. The basic cost flow equation is used by
a. independent auditors to perform reasonableness checks on the data they receive from
clients.
b. companies to check that the amount of inventory recorded on the books matches the
physical count of inventory.
c. independent auditors and companies to check for thefts or financial fraud.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
12. Which of the following statements is true if a company overstates the ending balance of inventory?
a. Cost of Goods Sold and profits will be overstated and Gross Margin will be understated.
b. Cost of Goods Sold, Gross Margin, and profits will be understated.
c. Cost of Goods Sold, Gross Margin, and profits will be overstated.
d. Cost of Goods Sold will be understated, Gross Margin and profits will be overstated.
ANS: D
Cost of Goods Sold will be understated, Gross Margin and profits will be overstated.
PTS: 1
13. A company manager intentionally commits fraud by overstating the ending balance of inventory in
order to improve his current period’s performance evaluation and resulting bonus. Which of the
following statements is true?
a. All accounting frauds do not require repeated misrepresentation period after period and the
overstatement of income in one period does not cause a lower income in a subsequent
period.
b. All accounting frauds do not require repeated misrepresentation period after period and the
manager will most likely escape detection if internal controls are poor.
c. All accounting frauds require repeated misrepresentation period after period or else the
overstatement of income in one period causes a lower income in a subsequent period.
d. According to Generally Accepted Auditing Standards, the independent auditors must
report all accounting frauds, regardless of amount, directly to the Securities and Exchange
Commission within 3 days of discovery.
ANS: C
All accounting frauds require repeated misrepresentation period after period or else the overstatement
of income in one period causes a lower income in a subsequent period.
PTS: 1
14. Which of the following is not a fraudulent practice for assigning costs?
a. Misstating the stage of completion of jobs
b. Charging costs to the wrong jobs or categories
c. Comparing actual with estimated costs for pricing future jobs
d. Misrepresenting the costs of jobs
ANS: C
Comparing actual with estimated costs for pricing future job
PTS: 1
15. Your supervisor at a consulting firm asks you to allocate the time you actually spent on jobs now in
danger of exceeding their cost estimates to other jobs less likely to overrun cost estimates. Which of
the following statements is true?
a. This practice misleads managers who rely on accurate cost information for pricing, cost
control, and other decisions.
b. This practice cheats people who may be paying for a job on a cost-plus-fee basis, where
the job has cost less than the producer claims.
c. This practice avoids the appearance of cost overruns on some jobs and is unethical.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
16. In a service organization, accounting charges overhead to jobs based on hours worked on the job.
Actual overhead incurred is $15,000. Actual hours worked for client A is 200 hours, for client B is
100 hours, and unbillable is 100 hours. Calculate the overhead rate.
a. $30 per hour.
b. $40 per hour.
c. $50 per hour.
d. $60 per hour.
ANS: C
SUPPORTING CALCULATIONS:
$15,000/(200+100) = $50 per hour.
Unbilled hours are not included in this calculation.
PTS: 1
17. Which of the following statements is true concerning a normalized overhead rate?
a. A normalized overhead rate should be used whenever the firm does not prepare a master
budget.
b. A normalized overhead rate is employed so that wide fluctuations and variations in the
level of production will not influence unit costs.
c. A normalized overhead rate is used by firms that have a normal production schedule.
d. A normalized overhead rate results in distorting the income figures of the firm.
ANS: B
A normal overhead rate is employed so that wide fluctuations and variations in the level of production
will not influence unit costs.
PTS: 1
18. Accounting for factory overhead costs involves averaging in
Job Order Costing Process Costing
a. Yes No
b. Yes Yes
c. No Yes
d. No No
ANS: B
Job Order Costing Process Costing
Yes Yes
PTS: 1
19. Normal costing uses actual direct material and direct labor costs, plus an amount representing
“normal”
a. manufacturing overhead.
b. indirect overhead.
c. direct overhead.
d. selling commissions.
ANS: A
manufacturing overhead.
PTS: 1
20. Under normal costing, the Predetermined Manufacturing Overhead Rate equals
a. Actual Manufacturing Overhead divided by the Actual Activity Level.
b. Actual Manufacturing Overhead divided by the Normal (or Estimated) Activity Level.
c. Estimated Manufacturing Overhead divided by the Normal (or Estimated) Activity Level.
d. None of the answers is correct.
ANS: C
Estimated Manufacturing Overhead divided by the Normal (or Estimated) Activity Level.
PTS: 1
21. Normal costing does not use which of the following to measure product costs?
a. Actual direct material costs
b. Actual direct labor costs
c. An amount representing “normal” manufacturing overhead
d. Actual manufacturing overhead
ANS: D
Actual manufacturing overhead
PTS: 1
22. Actual costing does not use which of the following to measures product costs?
a. Actual direct material costs
b. Actual direct labor costs
c. An amount representing “normal” manufacturing overhead
d. Actual manufacturing overhead
ANS: C
An amount representing “normal” manufacturing overhead
PTS: 1
23. Which costing methodology derives a rate for applying overhead to units produced before the
production period, then uses this “predetermined rate” in applying overhead to each unit as they
produces it?
a. Normal costing
b. Actual costing
c. Predetermined costing
d. Imputed production costing
ANS: A
Normal costing
PTS: 1
24. Which of the following is true regarding normal costing?
a. Normal costing assigns to products actual direct material and direct labor costs plus an
amount representing “normal” manufacturing overhead.
b. Under normal costing, a firm derives a rate for applying overhead to units produced before
the production period begins.
c. Under normal costing, a firm uses a predetermined overhead rate in applying overhead to
each unit as the firm produces it throughout the year.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
25. Which of the following is false regarding normal costing?
a. Normal costing assigns to products actual direct material and direct labor costs plus an
amount representing “normal” manufacturing overhead.
b. Under normal costing, a firm derives a rate for applying overhead to units produced before
the production period begins.
c. Under normal costing, a firm uses a predetermined overhead rate in applying overhead to
each unit as the firm produces it throughout the year.
d. Under normal costing, a firm uses the actual overhead costs incurred because this is the
“normal” procedure in the United States.
ANS: D
Under normal costing, a firm uses the actual overhead costs incurred because this is the “normal”
procedure in the United States.
PTS: 1
26. Which of the following is the appropriate procedure to apply overhead to production using normal
costing?
a. Assign actual direct material and direct labor costs plus an amount representing “normal”
manufacturing overhead to products.
b. Assign “normal” direct material and direct labor costs plus an amount representing
“normal” manufacturing overhead to products.
c. Assign actual direct material and direct labor costs plus an amount representing actual
manufacturing overhead to products.
d. All of the answers are correct.
ANS: A
Assign actual direct material and direct labor costs plus an amount representing “normal”
manufacturing overhead to products.
PTS: 1
27. Which of the following is/are a benefit of normal costing?
a. Normal costing enable companies to smooth out, or normalize, seasonal production
fluctuations.
b. Under normal costing, a firm can quickly calculate the cost of items manufactured.
c. Under normal costing, a firm uses a predetermined overhead rate in applying overhead to
each unit as the firm produces it throughout the year, rather than wait for the actual
overhead rate to be determined at the end of the year.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
28. Which of the following is true regarding cost drivers?
a. Cost drivers are the allocation base for applying overhead to production.
b. Cost drivers cause an activity’s cost.
c. Cost drivers are the allocation base for applying overhead to production, and cost drivers
cause an activity’s cost.
d. None of the answers is correct.
ANS: C
Cost drivers are the allocation base for applying overhead to production, and cost drivers cause an
activity’s cost.
PTS: 1
29. In a normal costing system, how is the predetermined overhead rate calculated?
a. Divide actual manufacturing overhead by the normal (or estimated) activity level.
b. Divide estimated manufacturing overhead by the actual activity level.
c. Divide estimated manufacturing overhead by the normal (or estimated) activity level.
d. Divide actual manufacturing overhead by the actual activity level.
ANS: C
Divide estimated manufacturing overhead by normal (or estimated) activity level.
PTS: 1
30. In a normal costing system, how is the predetermined variable manufacturing overhead rate
calculated?
a. Divide actual variable manufacturing overhead by the normal (or estimated) activity level.
b. Divide estimated variable manufacturing overhead by the actual activity level.
c. Divide estimated variable manufacturing overhead by the normal (or estimated) activity
level.
d. Divide actual variable manufacturing overhead by the actual activity level.
ANS: C
Divide estimated variable manufacturing overhead by normal (or estimated) activity level.
PTS: 1
31. In a normal costing system, how is the predetermined fixed manufacturing overhead rate calculated?
a. Divide actual fixed manufacturing overhead by the normal (or estimated) activity level.
b. Divide estimated fixed manufacturing overhead by the actual activity level.
c. Divide estimated fixed manufacturing overhead by the normal (or estimated) activity
level.
d. Divide actual fixed manufacturing overhead by the actual activity level.
ANS: C
Divide estimated fixed manufacturing overhead by normal (or estimated) activity level.
PTS: 1
32. Assume a normal costing system. Calculate the predetermined overhead rate based on the following
assumptions:
Estimated Manufacturing Overhead $500,000
Actual Manufacturing Overhead $450,000
Estimated Activity 50,000 machine hours
Actual Activity 48,000 machine hours
a. $9.00 per machine hour
b. $10.00 per machine hour
c. $9.375 per machine hour
d. $10.42 per machine hour
ANS: B
Estimated Manufacturing overhead/Estimated activity
$500,000/50,000 machine hours = $10 per machine hour
PTS: 1
33. Assume a normal costing system. Calculate the predetermined overhead rate based on the following
assumptions:
Estimated Manufacturing Overhead $75,000
Actual Manufacturing Overhead $85,000
Estimated Activity 10,000 machine hours
Actual Activity 9,000 machine hours
a. $8.33 per machine hour
b. $8.50 per machine hour
c. $7.50 per machine hour
d. $9.44 per machine hour
ANS: C
Estimated Manufacturing overhead/Estimated activity
$75,000/10,000 machine hours = $7.50 per machine hour
PTS: 1
34. Safa Visual Works, Inc. estimated its overhead costs for the current year to be as follows: fixed,
$175,000; variable, $4 per unit. Safa expected to produce 350,000 units during the year. During the
year, the company incurred overhead costs of $1,600,000 and produced 400,000 units. Calculate the
rate to be used to apply manufacturing overhead costs to products.
a. $3.50
b. $4.50
c. $5.50
d. $9.00
ANS: B
$175,000/350,000 = $0.50 (fixed) + $4.00 (variable)
= $4.50
PTS: 1
35. An effective cost system has which of the following characteristic(s)?
a. Decision focus
b. Different costs for different purposes
c. Cost benefit test
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
36. Which of the following is not a characteristic of an effective cost system?
a. Decision focus
b. Different costs for different purposes
c. Cost-benefit test
d. Generally accepted accounting principles compliant
ANS: D
Generally accepted accounting principles compliant
PTS: 1
37. Which of the following is an example of an organization that would use job-order accounting?
a. a custom construction company.
b. an oil refinery.
c. a cereal processor.
d. None of the answers is correct.
ANS: A
custom construction company.
PTS: 1
38. Which of the following represents an example of an organization that would use continuous flow
processing methods?
a. a chemical manufacturer.
b. a custom home builder.
c. a hospital.
d. a custom jeweler.
ANS: A
a chemical manufacturer.
PTS: 1
39. Job costing is most appropriate for
Type of Product Length of Production Run
a. Customized Short
b. Customized Long
c. Standardized Short
d. Standardized Long
ANS: A
Type of Product Length of Production Run
Customized Short
PTS: 1
40. Continuous flow processing is most appropriate for
Type of Product Length of Production Run
a. Customized Short
b. Customized Long
c. Standardized Short
d. Standardized Long
ANS: D
Type of Product Length of Production Run
Standardized Long
PTS: 1
41. Which of the following costing system is appropriate for a company that produces customized
products?
a. job costing.
b. process costing
c. operation costing.
d. standard costing.
ANS: A
job costing.
PTS: 1
42. Which of the following costing system is appropriate for a company that mass-produces homogeneous
products (continuous flow processing)?
a. job costing.
b. process costing.
c. operation costing.
d. dynamic costing.
ANS: B
process costing.
PTS: 1
43. What costing method should a manufacturing company use when it produces batches of products
where the value and quality of direct material varies by batch, but the direct labor and time spent are
standardized?
a. Job costing
b. Process costing
c. Operation costing
d. Dynamic costing
ANS: C
Operation costing
PTS: 1
44. Operation costing is a hybrid of which of the following two costing methods?
a. batch costing and backflush costing.
b. job costing and process costing.
c. job costing and backflush costing.
d. process costing and backflush costing.
ANS: B
job costing and process costing.
PTS: 1
45. Operation cost is a hybrid of job and process costing, where the materials differ by type of product but
a. labor and overhead amounts are different.
b. labor amounts are the same and overhead amounts are different.
c. labor and overhead amounts are the same.
d. labor amounts are different and overhead amounts are the same.
ANS: C
labor and overhead amounts are the same
PTS: 1
46. What is the method of costing used by companies that use a combination of job and process costing?
a. hybrid costing.
b. standard costing.
c. sunk costing.
d. combination costing
ANS: A
hybrid costing.
PTS: 1
47. Which statement is true concerning job costing?
a. Firms collect costs for each unit produced.
b. Firms accumulate costs in a department or production process during the accounting
period.
c. Firms spread costs evenly over the units produced during the period.
d. The equation for determining average unit cost is Total Manufacturing Cost Incurred
during the Period divided by Total Units Produced during the period.
ANS: A
Firms collect costs for each unit produced.
PTS: 1
48. Which of the following is false about process costing?
a. Firms collect costs for each unit produced.
b. Firms accumulate costs in a department or production process during the accounting
period
c. Firms spread costs evenly over the units produced during the period, to determine an
average cost per unit.
d. The equation for determining average unit cost is Total Manufacturing Cost Incurred
during the Period divided by Total Units Produced during the period.
ANS: A
Firms collect costs for each unit produced.
PTS: 1
49. Which costing system is generally used by companies producing high value, customized products?
a. a process costing system.
b. a variable costing system.
c. a job costing system.
d. a direct costing system.
ANS: C
a job costing system.
PTS: 1
50. Which costing system is generally used by companies who provide professional services to their
clients, such as accountants and lawyers?
a. process costing system.
b. variable costing system.
c. job costing system.
d. direct costing system.
ANS: C
job costing system.
PTS: 1
51. Which costing system is generally used by companies who mass-produce homogeneous products, such
as a petroleum refining company?
a. process costing system.
b. variable costing system.
c. job costing system.
d. direct costing system.
ANS: A
process costing system.
PTS: 1
52. Which costing system would be most appropriate for use by a soft drink bottling company?
a. process costing system.
b. variable costing system.
c. job costing system.
d. direct costing system.
ANS: A
process costing system.
PTS: 1
53. To record the cost of producing the same type of tables made of different materials, but undergoing the
same manufacturing process, a furniture manufacturing company would most likely use a(n)
a. process costing system.
b. variable costing system.
c. job costing system.
d. operation costing system.
ANS: D
operation costing system.
PTS: 1
54. Which of the following is true?
a. In job costing, firms collect costs for each “unit” produced.
b. In process costing, firms accumulate costs in a department or production process during
the accounting period, then spread those costs evenly over the units produced that period,
computing an average unit cost.
c. Process costing does not require as much record keeping as job costing system because it
does not require keeping track of the cost of each job.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
55. Why do firms collect costs by job?
a. For performance evaluation
b. To provide information for cost control
c. To compare actual with estimated costs for pricing future jobs
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
56. In process costing, what is the equation for determining average unit cost?
a. Total Manufacturing Cost Incurred during the Period divided by Total Units Produced
during the period.
b. Average Manufacturing Cost Incurred during the Period divided by Total Units Produced
during the period.
c. Total Manufacturing Cost Incurred during the Period divided by Average Units Produced
during the period.
d. Average Manufacturing Cost Incurred during the Period divided by Average Units
Produced during the period.
ANS: A
Total Manufacturing Cost Incurred during the Period divided by Total Units Produced during the
period.
PTS: 1
57. Which of the following is a deficiency of process costing?
a. In process costing, decision makers are informed about the average cost of the units, but
not the actual cost of each particular unit or job.
b. In process costing, firms accumulate costs in a department or production process during
the accounting period, then spread those costs evenly over the units produced that period,
computing an average unit cost.
c. Process costing does not require as much record keeping as job costing system because it
does not require keeping track of the cost of each job.
d. None of the answers is a deficiency.
ANS: A
In process costing, decision makers are informed about the average cost of the units, but not the actual
cost of each particular unit or job.
PTS: 1
58. What is important to recognize when comparing the cost-benefit considerations of job versus process
costing?
a. Job costing provides less detailed information than process costing and job costing costs
more to implement than process costing.
b. Job costing provides less detailed information than process costing and job costing costs
less to implement than process costing.
c. Job costing provides more detailed information than process costing and job costing costs
less to implement than process costing.
d. Job costing provides more detailed information than process costing and job costing costs
more to implement than process costing.
ANS: D
Job costing provides more detailed information than process costing and job costing costs more to
implement than process costing.
PTS: 1
59. What can be said of the relationship between cost of goods sold and the cost of goods manufactured
when finished goods inventories increase? (Assume no change in unit prices.)
a. They are equal.
b. Cost of Goods Sold greater than Cost of Goods Manufactured
c. Cost of Goods Manufactured greater than Cost of Goods Sold
d. Nothing can be said without additional information.
ANS: C
Cost of Goods Manufactured greater than Cost of Goods Sold
PTS: 1
60. What can be said of the relationship between total manufacturing costs and the cost of goods
manufactured when work-in-process inventories decrease during the period? (Assume no change in
per unit costs.)
a. They are equal.
b. Total Manufacturing Costs greater than Cost of Goods Manufactured
c. Cost of Goods Manufactured greater than Total Manufacturing Costs
d. Nothing can be said without additional information.
ANS: C
Cost of Goods Manufactured greater than Total Manufacturing Costs
PTS: 1
61. Which statement is true concerning just-in-time inventory systems?
a. Just-in-time systems deal only with defective and reworked units.
b. Just-in-time systems require the use of many suppliers.
c. Just-in-time systems keep inventory to a minimum by careful planning.
d. Just-in-time systems work better for small companies than for large companies.
ANS: C
Just-in-time systems keep inventory to a minimum by careful planning.
PTS: 1
62. Which of the following represents a reason management would use JIT methods?
a. To keep large amounts of materials on hand for production.
b. To provide finished goods just in time for sale.
c. To hide defective units.
d. To prevent laying off workers during slow times.
ANS: B
To provide finished goods just in time for sale.
PTS: 1
63. Which of the following statements is true?
a. JIT requires workers to immediately correct a process making defective units.
b. JIT requires hiding of defective units.
c. JIT requires debiting various inventory accounts as goods are processed.
d. JIT requires crediting various inventory accounts as goods are processed.
ANS: A
JIT requires workers to immediately correct a process making defective units.
PTS: 1
64. Which of the following is not a component of just-in-time (JIT) production methods?
a. Management uses JIT methods to obtain materials just in time for production.
b. Management provides finished goods just in time for sale.
c. JIT requires that workers immediately correct a process making defective unit.
d. Workers and supervisors can hide defective units in inventory.
ANS: D
Workers and supervisors can hide defective units in inventory.
PTS: 1
65. What method of production eliminates the need for inventories because no production takes place until
the firm knows that it will sell the item?
a. First-in, last-out methods
b. Last-in, first-out methods
c. Just-in-time methods
d. Next-in, first-out methods
ANS: C
Just-in-time methods
PTS: 1
66. Which is not correct for just-in-time (JIT) methods?
a. JIT attempts to obtain materials just in time for production and to provide finished goods
just in time for sale.
b. JIT reduces, or potentially eliminates, inventories and the cost of carrying them.
c. JIT compels workers to immediately correct a process making defective units.
d. JIT relies on cheap, low quality materials from multiple suppliers, to meet production
objectives.
ANS: D
JIT relies on cheap, low quality materials from multiple suppliers, to meet production objectives.
PTS: 1
67. Just-in-time (JIT) methods
a. do not start production until the firm receives an order for the finished product.
b. do not order raw materials until the firm receives an order for the finished product.
c. ends production as soon as an order for the finished product is filled.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
68. Accounting in a JIT environment charges all costs directly to Cost of Goods Sold and charges them to
Inventory accounts when needed using which of the following costing methods?
a. job order costing.
b. process costing.
c. hybrid costing.
d. backflush costing.
ANS: D
backflush costing.
PTS: 1
69. Which method of costing is used to record all manufacturing costs directly in Cost of Goods Sold, and
if any inventories occur at the end of the accounting period, the appropriate costs are transferred back
to the inventory accounts?
a. Put-back costing
b. Traditional costing
c. Reverse costing
d. Backflush costing
ANS: D
Backflush costing
PTS: 1
70. Which of the following is true regarding waste and spoilage?
a. Accountants typically include the cost of normal waste in the cost of goods manufactured
during the period.
b. Accountants typically treat the cost of abnormal waste as an expense during the period.
c. Companies concerned about quality production do not treat waste or spoiled goods as
normal and remove all waste and spoilage costs from the product cost.
d. All of the answers are correct.
ANS: D
All of the answers are correct.
PTS: 1
71. Companies concerned about quality production do not treat waste or spoiled goods as a normal cost of
production and remove all waste and spoilage costs from the product cost. Some companies have
found that waste or spoilage costs range from
a. 1 to 5 percent of their total product costs.
b. 5 to 10 percent of their total product costs.
c. 10 to 20 percent of their total product costs.
d. 20 to 30 percent of their total product costs.
ANS: D
20 to 30 percent of their total product costs.
PTS: 1
72. An indication that a company’s Enterprise Resource Planning System does not meet managers’ or
managerial accountants’ needs is the establishment by such users of
a. shadow systems.
b. cost accounting systems.
c. financial accounting systems.
d. management accounting systems.
ANS: A
shadow systems.
PTS: 1
73. Which costing system uses equivalent units in the computation of costs?
a. Job costing
b. Process costing
c. Both a and b
d. Neither a nor b
ANS: B
Equivalent units of production are computed in process costing.
PTS: 1
74. Using the following information, calculate equivalent units of production for XYZ Company using the
FIFO method:
Beginning Inventory: 50,000 units, 70% complete
Units started & completed: 100,000 units
Units in ending inventory: 25,000 units, 40% complete
a. 175,000
b. 150,000
c. 145,000
d. 125,000
ANS: D
SUPPORTING CALCULATIONS:
Equivalent Units in Beginning Inventory (50,000 x 30%) +
Equivalent Units of work done this period (100,000) =
Equivalent Units transferred out (15,000 +100,000 = 115,000) +
Equivalent Units in Ending Inventory (25,000 x 40%) = 115,000 + 10,000 = 125,000 Equivalent Units
PTS: 1
75. Using the following information, calculate equivalent units of production for Jetton Manufacturing
using the FIFO method:
Beginning Inventory: 30,000 units, 40% complete
Units started & completed: 75,000 units
Units in ending inventory: 20,000 units, 70% complete
a. 93,000
b. 107,000
c. 105,000
d. 125,000
ANS: B
SUPPORTING CALCULATIONS:
Equivalent Units in Beginning Inventory (30,000 x 60%) +
Equivalent Units of work done this period (75,000) =
Equivalent Units transferred out (18,000 +75,000 = 93,000) +
Equivalent Units in Ending Inventory (20,000 x 70%) = 93,000 + 14,000 = 107,000 Equivalent Units
PTS: 1
PROBLEM
1. Michael Visual Works, Inc. uses a normal costing system and estimated its overhead costs for the
current year to be as follows: fixed, $525,000; variable, $4 per unit. Michael expected to produce
350,000 units during the year. During the year, the company incurred overhead costs of $2,100,000
and produced 400,000 units.Calculate the rate to be used to apply manufacturing overhead costs to
products.
ANS:
Fixed overhead rate = 1.50 ($525,000/350,000 units)
Variable overhead rate = 4.00 (given)
Total overhead rate = 5.50 per unit
PTS: 1
Leon Manufacturing Company
Leon Manufacturing Company uses a normal costing system. During the current year, the following
events took place:
1. Purchased direct materials $100,000
2. Incurred direct labor costs of $ 60,000
3. Incurred indirect labor costs of $ 30,000
4. Incurred utilities, rent, and depreciation of $ 50,000
5. Direct materials issued to production $ 85,000
6. Applied overhead at 150 percent of direct labor costs
7. Transferred to finished goods $210,000
8. Cost of goods sold during period $190,000
2. Refer to Leon Manufacturing Company. Calculate the direct materials ending inventory (there was no
beginning direct materials inventory).
ANS:
Direct materials purchases $100,000
Less direct materials used _(85,000)
Direct materials ending inventory $ 15,000
PTS: 1
3. Refer to Leon Manufacturing Company. Calculate the work-in-process ending inventory (there was no
beginning work-in-process inventory).
ANS:
Direct materials used $ 85,000
Direct labor 60,000
Factory overhead applied
(150 percent direct labor) 90,000
Total manufacturing costs $235,000
Less transferred to finished goods 210,000
Work-in-process ending inventory $ 25,000
PTS: 1
4. Refer to Leon Manufacturing Company. Calculate the finished goods ending inventory (there was no
beginning finished goods inventory).
ANS:
Transferred to finished goods $210,000
Sold during period 190,000
Finished goods ending inventory $ 20,000
PTS: 1
Jenkins Company
Jenkins Company applies overhead costs to products at a rate of 50 percent of direct labor costs. The
following data relate to the manufacturing activities of Jenkins Company during April:
April 1 April 30
Direct materials inventory 60,250 61,750
Work-in-process inventory 44,000 43,500
Finished goods inventory 24,150 23,000
Factory costs incurred during the month were:
Direct materials purchased $155,000
Direct labor costs incurred $270,000
Factory utilities $ 35,000
Factory rent $ 52,000
Factory supervisor $ 43,000
Depreciation on factory equipment $ 25,000
5. Refer to Jenkins Company. Calculate the cost of direct materials used during April.
ANS:
Beginning direct materials inventory $ 60,250
Direct materials purchases 155,000
Direct materials available $215,250
Less ending direct materials inventory 61,750
Direct materials used $153,500
PTS: 1
