Practice Exam 2
Name the five steps, in order, in process costing when equivalent units are computed.
1. Summarize the flow of physical units of output. 2. Compute output in terms of equivalent units. 3. Summarize total costs to account for. 4. Compute cost per equivalent unit. 5. Assign total costs to units completed and to units in ending work in process.
Which of the following is a sign that a product cost system is not working properly? A. Managers don't understand costs and profits. B. The cost system was installed five years ago. C. The cost system has multiple allocation bases. D. The cost system is fully depreciated.
A. Managers don't understand costs and profits.
The journal entry to close manufacturing overhead would include a
Credit to COGS
________ is considered while choosing a cost allocation base for activity costs in ABC costing. A. Product price level B. Availability of reliable data and measures C. Market share of a product D. Marketing strategy and material price level
B. Availability of reliable data and measures
For which of the following industries would job-order costing most likely not be appropriate? A. Small business printing. B. Cereal production. C. Home construction. D. Aircraft assembly.
B. Cereal production.
A manufacturer of luxury yachts would use which type of costing system? A. Process costing B. Job costing C. Neither job or process D. Both job and process
B. Job costing
Identify the main difference between journal entries in process costing and job costing. A. The weighted-average method is used for the journal entries in process costing while the FIFO method is used for the journal entries in job costing. B. There is often more than one work-in-process account in process costing—-one for each process. C. The journal entries in process costing are posted to record the number of units as they are moved from one department to another. Journal entries in job costing are posted to record costs rather than number of units. D. The journal entries in process costing are the same as those made in job-costing systems.
B. There is often more than one work-in-process account in process costing—-one for each process.
The benefits of using the ABC costing system are higher if the company A. produces only one product. B. has high indirect costs and produces many different products that use differing amounts of resources. C. has high indirect costs. D. produces many different products that use differing amounts of resources.
B. has high indirect costs and produces many different products that use differing amounts of resources.
A distinct feature of the FIFO process-costing method is that the: A. work done on ending inventory is kept separate from the work done during the current period in the calculation of equivalent units and is usually not included in the calculation B. work done on beginning inventory before the current period is kept separate from the work done during the current period in the calculation of equivalent units C. FIFO process-costing method is only minimally different from the weighted-average process-costing method D. work done on beginning inventory before the current period is blended with the work done during the current period in the calculation of equivalent units
B. work done on beginning inventory before the current period is kept separate from the work done during the current period in the calculation of equivalent units
Select the major advantage of the FIFO method for purposes of planning and control. A. A major advantage of FIFO is the relative computational simplicity and its reporting of a more-representative average unit cost when input prices fluctuate markedly from month to month. B. A major advantage of FIFO is its ease of use for process industries that produce a wide variety of similar products and in complex conditions. C. A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period. D. All of these are advantages of the FIFO method.
C. A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period.
Regarding activity−based costing systems, which of the following statements is true? A. ABC costing systems can be used in manufacturing firms only. B. ABC systems accumulate overhead costs by departments. C. ABC costing systems have separate indirect cost allocation rates for each activity. D. ABC costing systems are less complex and, therefore, less costly than traditional systems.
C. ABC costing systems have separate indirect cost allocation rates for each activity.
Which of the following is an example of an industry that would use a process costing—rather than a job costing—system? A. Boeing Jets B. Snyder & Lewis, Attorneys at Law C. Coca−Cola D. Centex Custom Homes
C. Coca−Cola
An assumption of the FIFO process-costing method is that : A. no calculation of conversion costs is possible B. the units in beginning inventory are not necessarily assumed to be completed by the end of the period C. the units in beginning inventory are assumed to be completed first D. ending inventory will always be completed in the next accounting period
C. the units in beginning inventory are assumed to be completed first
The costs of adopting ABC may be lower for some companies than for others. This situation may occur A. when a company has the information technology to record and compile cost driver data. B. when a company has the accounting and information system expertise to develop the system. C. with either situation A or situation B. D. in none of the above instances.
C. with either situation A or situation B.
The cost to design and market new models would be considered a facility−level cost. True False
False
There will be little benefit to using an activity−based costing system when products are vastly different from each other and consume different amounts of resources. True False
False
Using departmental overhead rates is generally less accurate than using a single plantwide overhead rate. True False
False
The weighted average and FIFO methods differ only in how they treat beginning inventory. True False
True
Traditional cost systems with a single−allocation base tend to overcost high−volume products and undercost low−volume products as compared to activity−based costing systems. True False
True
What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor plant? A. The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process. Semiconductor chips may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance. B. Department supervisors and line managers—individuals most familiar with the process—often make conversion cost estimates. Since these individuals have so many responsibilities, making the estimates is often too time consuming and, thus, cannot be completed in a timely manner. C. Estimating the degree of completion is usually difficult for direct material costs. Semiconductor chips may differ substantially in the amount of direct materials required, thus making the accuracy of the estimates of completion difficult. D. All of the above are correct.
A. The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process. Semiconductor chips may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance.
In developing an ABC system, what is the last step? A. Select an allocation base for each activity. B. Allocate the costs to the cost object using the activity cost allocation rates. C. Identify the primary activities and estimate a total cost pool for each. D. Calculate an activity cost allocation rate for each activity.
B. Allocate the costs to the cost object using the activity cost allocation rates.
The benefits of adopting ABC/ABM are higher for companies in more competitive markets. True False
True
How do you calculate the predetermined manufacturing overhead rate used to allocate manufacturing overhead costs? A. By dividing the total estimated amount of the allocation base by the total estimated manufacturing overhead costs B. By dividing the total estimated manufacturing overhead costs by the total actual amount of the allocation base C. By multiplying the total estimated manufacturing overhead costs by the total estimated amount of the allocation base D. By dividing the total estimated manufacturing overhead costs by the total estimated amount of the allocation base
D. By dividing the total estimated manufacturing overhead costs by the total estimated amount of the allocation base
Which of the following is not a way in which management can use job cost information? A. Preparing the financial statements B. Using the cost information in determining the bid price for custom orders C. Assessing and comparing the profitability of each product type D. Determining the balance in raw materials inventory
D. Determining the balance in raw materials inventory
Certain materials used in a manufacturing plant cannot be traced to a specific unit. What are these materials called? A. General materials B. Direct materials C. Finished materials D. Indirect materials
D. Indirect materials
Which of the following does not accurately describe the application of job-order costing? A. Finished goods that are purchased by customers will directly impact cost of goods sold. B. Indirect manufacturing labor and indirect materials are part of the actual manufacturing costs incurred. C. Direct materials and direct manufacturing labor are included in total manufacturing costs. D. Manufacturing overhead costs incurred is used to determine total manufacturing costs.
D. Manufacturing overhead costs incurred is used to determine total manufacturing costs.
Most companies adopt ABC in order to A. help make product mix decisions. B. cut costs. C. get a more accurate price of products. D. all of the above are correct.
D. all of the above are correct.
Indications that a product cost system needs revision include A. managers lose bids they expected to win and win bids they expected to lose. B. the company uses a single−allocation−base system developed long ago. C. employees do not believe the cost numbers are accurate. D. all of the above.
D. all of the above.
The ________ is the hourly price charged to clients for professional labor. A. job rate B. wage rate C. salary rate D. billing rate
D. billing rate
Allocating manufacturing overhead costs is done A. never. B. at the end of the period. C. before the period starts. D. during the period.
D. during the period.
A(n) ________ is an estimated manufacturing overhead rate computed at the beginning of the year. A. actual manufacturing overhead rate B. cost driver C. cost allocation D. predetermined manufacturing overhead rate
D. predetermined manufacturing overhead rate
ABC can be used in routine planning and control decisions as well as pricing, product mix and cost cutting decisions. True False
True
As compared to traditional volume−based costing using a single plantwide overhead rate, activity−based costing (ABC) is a more refined costing system that reduces cost distortion. True False
True
If a company has 6,000 units that are 60% complete, the equivalent unit figure is 3,600. True False
True
If conversion costs are added evenly throughout the production process, and the units have made it 50% of the way through the production process, then the percentage completion for conversion costs is 50%. True False
True
In hybrid-costing systems, managers use process costing to account for the conversion costs and job costing for the material and customizable components. True False
True
Machine set−up would be considered a batch−level cost. True False
True
Managers often reap benefits by using ABC data in ABM to pinpoint opportunities to cut costs. True False
True
Managers should look for evidence of cause−and−effect when choosing a cost driver with the driver being the cause and the effect being the cost incurred. True False
True
Operating personnel must be able to estimate the percentage of work-in-process completed in process costing. True False
True
Overallocated manufacturing overhead costs occur when the manufacturing overhead costs allocated are greater than the amount actually incurred. True False
True
Prime costs include direct labor and direct materials. True False
True