COST TERMINOLOGIES
A
Departmental overhead rates are generally preferred to plant-wide overhead rates when: A. the activities of the various departments in the plant are not homogeneous. B. the activities of the various departments in the plant are homogeneous. C. most of the overhead costs are fixed. D. all departments in the plant are heavily automated.
b
The advertising costs incurred by Pepsi to air its commercials during the hockey season can best be described as a: a. Variable cost. b. Fixed cost. c. Prime cost. d. Conversion cost
T
In a job-order cost system, direct labor is assigned to a job using information from the employee time ticket.
c
In a job-order costing system, the use of indirect materials that have been previously purchased is recorded as a credit to: A. Work in Process inventory. B. Manufacturing Overhead. C. Raw Materials inventory. D. Finished Goods inventory.
C
In computing its predetermined overhead rate, Brady Company included its factory insurance cost twice. This error will result in: A. the ending balance of Finished Goods to be understated. B. the credits to the Manufacturing Overhead account to be understated. C. the Cost of Goods Manufactured to be overstated. D. the Net Operating Income to be overstated.
F
Indirect materials are charged to specific jobs.
A Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate = $48,000 ÷ 24,000 direct labor-hours = $2.00 per direct labor-hour
Jameson Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year: Direct materials $5,000 Direct labor $19,000 Rent on factory building $16,000 Sales salaries $24,000 Depreciation on factory equipment $7,000 Indirect labor $11,000 Production supervisor's salary $14,000 Jameson estimates that 24,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be: A. $2.00 B. $2.79 C. $3.00 D. $4.00
D
Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs were 50% of total unit costs. If 10,500 units are manufactured next month and cost behaviour patterns remain unchanged, how will costs be affected? A. Total variable costs will remain unchanged. B. Fixed costs will increase in total. C. Variable cost per unit will increase. D. Total cost per unit will decrease.
T
T/F: In a manufacturing company, goods available for sale equals the sum of the cost of goods manufactured and the beginning finished goods inventory.
F
T/F: In a manufacturing firm, depreciation is always considered a product cost for external financial reporting purposes.
T
T/F: In external financial reports, factory utilities costs may be included in an asset account on the balance sheet at the end of the period.
F
T/F: Job cost sheets are used to record the costs of preparing routine accounting reports.
F
T/F: Manufacturing overhead combined with direct materials is known as conversion cost.
T
T/F: On a per unit basis, a fixed cost varies inversely with the level of activity.
T
T/F: Property taxes and insurance premiums paid on a factory building are examples of manufacturing overhead.
T
T/F: Some companies classify labor fringe benefits for direct labor workers as part of the direct labor cost and some classify these costs as manufacturing overhead.
T
T/F: The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm's offices, the law firm's receptionist's wages, the costs of heating the law firm's offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client.
c
A proper journal entry to record issuing raw materials to be used on a job would be: A) D. Finished Goods XXX Cr. Materials Inventory XXX B) D. Materials Inventory XXX Cr. Work In Process XXX C) D. Work In Process XXX Cr. Raw Materials XXX D) D. Materials Inventory XXX Cr. Finished Goods XXX
B Estimated total manufacturing overhead = $1,486,140 + ($7.03 per machine-hour × 62,000 machine-hours) = $1,922,000 Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $1,922,000 ÷ 62,000 machine-hours = $31.00 per machine-hour
Aksamit Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below: Estimates made at the beginning of the year: Estimated machine-hours 62,000 Estimated variable manufacturing overhead $7.03 per machine-hour Estimated total fixed manufacturing overhead $1,486,140 Actual machine-hours for the year 61,100 The predetermined overhead rate for the recently completed year was closest to: A. $23.97 B. $31.00 C. $7.03 D. $31.35
D 1. Estimated total manufacturing overhead = $1,630,960 + ($7.67 per machine-hour × 74,000 machine-hours) = $2,198,540 2. Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $2,198,540 ÷ 74,000 machine-hours = $29.71 per machine-hour
Buker Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below: - Estimated machine-hours 74,000 - Estimated variable manufacturing overhead $7.67 per machine-hour - Estimated total fixed manufacturing overhead $1,630,960 The predetermined overhead rate for the recently completed year was closest to: A. $22.04 B. $29.59 C. $7.67 D. $29.71
A Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $45,000 ÷ 20,000 direct labor-hours = $2.25 per direct labor-hour
CR company has the following estimated cost for the next year: Direct Materials $4,000 Direct Labor 20,000 Factory building rent 15,000 Sales salaries $25,000 Deprecn equipment 8,000 indirect Labor 10,000 Prod. supervisor salary 12,000 CR Company estimates that 20,000 labor hrs will be worked during the year. If overhead is applied on the basis of direct labor hours, the overhead rate per hour will be: A. $2.25 B. $3.25 C. $3.45 D. $4.70
T
If the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost applied, then manufacturing overhead would be considered to be underapplied.
B
Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to: A. understate the predetermined overhead rate. B. overstate the predetermined overhead rate. C. have no effect on the predetermined overhead rate. D. cannot be determined from the information given.
c
For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver lamps to customers is best described as a: a. Prime cost. b. Manufacturing overhead cost. c. Period cost. d. Differential cost of a lamp.
b
For a manufacturing company, which of the following is an example of a period rather than a product cost? a. Depreciation of factory equipment. b. Wages of salespersons c. Wages of machine operators. d. Insurance on factory equipment.
A 1. Estimated total manufacturing overhead = $230,200 + ($6.82 per machine-hour × 10,000 machine-hours) = $298,400 2. Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $298,400 ÷ 10,000 machine-hours = $29.84 per machine-hour
Hibshman Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 10,000 machine-hours. The estimated variable manufacturing overhead was $6.82 per machine-hour and the estimated total fixed manufacturing overhead was $230,200. The predetermined overhead rate for the recently completed year was closest to: A. $29.84 per machine-hour B. $23.15 per machine-hour C. $23.02 per machine-hour D. $6.82 per machine-hour
b
How should the cost of the fire insurance for a manufacturing plant be classified? a. Prime cost b. Product cost. c. Period cost. d. Variable cost
a
How would the cost of rent for a manufacturing plant generally be classified? a. A product cost but not a prime cost. b. Neither a product nor prime Cost. c. A prime cost but not a product cost. d. Both a prime cost and product cost.
b
How would the wages of factory maintenance personnel usually be classified? a. Direct labor and manufacturing overhead. b. Indirect labor and manufacturing overhead. c. Direct labor and period cost. d. Indirect labour and period cost
F
Manufacturing overhead is overapplied if actual manufacturing overhead costs for a period are greater than the amount of manufacturing overhead cost that was charged to Work in Process.
d
Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding computer hardware produced by the company. How would the cost of this toll-free line be classified? a. Product cost. b. Manufacturing overhead. c. Direct labor. d. Period cost.
D
On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure represents: A. the amount of cost charged to Work in Process during the period. B. the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period. C. the amount of cost placed into production during the period. D. the amount of cost of goods completed during the current year whether they were started before or during the current year.
B
Overapplied manufacturing overhead means that: A. the applied manufacturing overhead cost was less than the actual manufacturing overhead cost. B. the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost. C. the estimated manufacturing overhead cost was less than the actual manufacturing overhead cost. D. the estimated manufacturing overhead cost was less than the applied manufacturing overhead cost.
B Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base Predetermined overhead rate = $42,000 ÷ 20,000 machine-hours = $2.10 per machine-hour
Paulson Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year: Direct materials $25,000 Direct labor $22,000 Advertising expense $15,000 Rent on factory building $13,500 Depreciation on factory equipment $6,500 Indirect materials $10,000 Sales salaries $28,000 Insurance on factory equipment $12,000 Paulson estimated that 40,000 direct labor-hours and 20,000 machine-hours would be worked during the year. The predetermined overhead rate per machine-hour will be: A. $1.60 B. $2.10 C. $1.00 D. $1.05
A
Prime cost consists of direct materials and what? A. Direct labour. B. Manufacturing overhead. C. Indirect materials. D. Cost of goods manufactured.
b
Prime costs consist of: a. Direct Labor and Manufacturing Overhead. b. Direct Material and Direct Labor. c. Direct Material and Manufacturing overhead. d. Direct Material, Direct Labor and Manufacturing Overhead.
d
Rossiter Company failed to record a credit sale at the end of the year, although the reduction in finished goods inventories was correctly recorded when the goods were shipped to the customer. Which one of the following statements is correct? A. Accounts receivable was not affected, inventory was not affected, sales were understated, and cost of goods sold was understated. B. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated. C. Accounts receivable was not affected, inventory was understated, sales were understated, and cost of goods sold was understated. D. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was not affected.
1) Product. 2) Product. 3) Period. 4) Product. 5) Period. 6) Period. 7) Product. 8) Product. 9) Product. 10) Product. 11) Product. 12) Product. 13) Period. 14) Product. 15) Period.
Se Corp. manufactures a portable radio designed for mounting on the wall of the bathroom. Classify the ff. different types of costs incurred in the manufacture of these radios: 1) The plant manager's salary. 2) The cost of heating the plant. 3) The cost of heating executive offices. 4) The cost of printed circuit boards used in the radios. 5) Salaries and commissions of company salespersons. 6) Depreciation on office equipment used in the executive offices. 7) Depreciation on production equipment used in the plant. 8) Wages of janitorial personnel who clean the plant. 9) The cost of insurance on the plant building. 10) The cost of electricity to light the plant. 11) The cost of electricity to power plant equipment. 12) The cost of maintaining and repairing equipment in the plant. 13) The cost of printing promotional materials for trade shows. 14) The cost of solder used in assembling the radios. 15) The cost of telephone service for the executive offices.
F
T/F: A cost that differs from one month to another is known as a differential cost.
F
T/F: Advertising costs are considered product costs for external financial reports since they are incurred in order to promote specific products.
F
T/F: All costs incurred in a merchandising firm are considered to be period costs.
F If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor-hours, then jobs with high direct labor requirements will tend to be OVERCOSTED relative to jobs with low direct labor requirements.
T/F: If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be undercosted relative to jobs with low direct labor requirements.
F
T/F: If the ending inventory of finished goods is understated, net income will be overstated.
F
T/F: The following costs should be considered direct costs of providing delivery room services to a particular mother and her baby: the costs of drugs administered in the operating room, the attending physician's fees, and a portion of the liability insurance carried by the hospital to cover the delivery room.
F
T/F: The following would typically be considered indirect costs of manufacturing a particular Boeing 747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory manager's salary, and the cost of the General Electric jet engines installed on the aircraft.
T
T/F: The formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base
F
T/F: The use of a predetermined overhead rate in a job-order cost system makes it possible to compute the total cost of a job before production is begun.
F
T/F: Variable costs are costs whose per unit costs vary as the activity level rises and falls.
F However, much of the overhead typically consists of costs that are not proportional to any allocation base that could be devised for products and hence any scheme for allocating such costs will inevitably lead to costs that are biased and unreliable for decision-making and performance evaluation.
T/F: When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the estimated amount of direct labor-hours for the job.
C
The Zellers store in your home town is one of many Zellers' department stores across the province. Some of the costs associated with the store in your home town last month appear below: 80,000 Shoe department cost of sales 62,000 other department salaries 14,000 store manager's salary 8,000 shoe department sales commission 13,000 store utilities 9,000 shoe department manager's salary 11,000 store lease cost 11,000 store janitorial cost 98,000 other store costs The Shoe Department is one of many departments in the home town store. The direct costs of the Shoe Department total: A. $80,000 B. $88,000 C. $97,000 D. $108,000
F
The cost categories that appear on a job cost sheet include selling expense, manufacturing expense, and administrative expense.
D
The operations of Kalispell Company resulted in overapplied overhead for the month just completed. Which of the following journal entries can be correct if Kalispell allocates under- or overapplied overhead among accounts? A. Dr. COGS Cr. Manu. OH B. Dr. Manu OH Cr. COGS C. Dr. WIP Dr. FG Cr. COGS Cr. MOH D. Dr. MOH Cr. WIP Cr. FG Cr. COGS
F
The sum of all amounts transferred from the Work in Process account to the Finished Goods account represents the Cost of Goods Sold for the period.
B
There are two acceptable methods for closing out any balance of underapplied or overapplied manufacturing overhead. One method involves allocation of the balance among several accounts, whereas the other closes any balance directly to: A. Finished Goods inventory. B. Cost of Goods Sold. C. Cost of Goods Manufactured. D. Work in Process inventory.
A
To what does the term differential cost refer? A. A difference in cost that results from selecting one alternative instead of another. B. The benefit forgone by selecting one alternative instead of another. C. A cost that does not entail any dollar outlay, but which is relevant to the decision-making process. D. A cost that continues to be incurred even though there is no activity
D
What does conversion cost consist of? A. Manufacturing overhead cost. B. Direct materials and direct labour cost. C. Direct labour cost. D. Direct labour and manufacturing overhead cost.
b
What does manufacturing overhead cost consist of? a. All manufacturing costs. b. All manufacturing costs, EXCEPT direct materials and direct labour. c. Indirect materials but NOT indirect labour. d. Indirect labour but NOT indirect materials.
D
What is the outcome if the cost of goods sold is greater than the cost of goods manufactured? A. Work-in-process inventory has decreased during the period. B. Finished goods inventory has increased during the period. C. Total manufacturing costs must be greater than cost of goods manufactured. D. Finished goods inventory has decreased during the period.
D
What journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for general factory use instead of for use in a particular job? A) Dr. Work in Process $8,000 Cr. Manufacturing Overhead $8,000 B) Dr. Work in Process $8,000 Cr. Raw Materials $8,000 C) Dr. Manufacturing Overhead $8,000 Cr. Work in Process $8,000 D) Dr. Manufacturing Overhead $8,000 Cr. Raw Materials $8,000
c
What would be the classification of corporate controller's salary? a. Manufacturing cost. b. Product cost. c. Administrative cost. d. Selling cost.
c
What would be the classification of the transportation costs incurred by a manufacturing company to ship its product to its customers? a. Product cost. b. Manufacturing overhead. c. Period cost. d. Administrative cost
B
When a decision is made among a number of alternatives, the benefit that is lost by choosing one alternative over another is called what? A. Realized cost. B. Opportunity cost. C. Conversion cost. D. Accrued cost.
F
When a job is completed, the goods are transferred from the production department to the finished goods warehouse and the journal entry would include a debit to Work in Process.
T
When completed goods are sold, the transaction is recorded as a debit to Cost of Goods Sold and a credit to Finished Goods.
B
Which of the following best defines an opportunity cost? A. The difference in total costs from selecting one alternative instead of another. B. The benefit forgone by selecting one alternative instead of another. C. A cost that may be saved by NOT adopting an alternative. D. A cost that may be shifted to the future with little or no effect on current operations.
C
Which of the following costs is often important in decision making, but is omitted from conventional accounting records? A. Fixed cost. B. Sunk cost. C. Opportunity cost. D. Indirect cost.
D
Which of the following entries would record correctly the application of overhead cost? A. Dr. WIP; Cr. AP B. Dr. Manufacturing OH; Cr. AP C. Dr. Manufacturing OH; Cr. WIP D. Dr. WIP Cr. Manufacturing OH
B
Which of the following entries would record correctly the monthly salaries earned by the top management of a manufacturing company? A) Dr. Manufacturing overhead Cr. Salaries&wages payable B) Dr. Salaries Expense Cr. Salaries&wages payable C) Dr. Work in Process Cr. Salaries&wages payable D) Dr. Salaries&wages payable Cr. Salaries Expense
a
Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture? a. Sheet steel in a file cabinet made by the company. b. Manufacturing equipment depreciation. c. Idle time for direct labour. d. Taxes on a factory building.
B
Which of the following statements regarding variable cost is true? A. Variable cost increases on a per unit basis as the number of units produced increases. B. Variable cost remains constant on a per unit basis as the number of units produced increases. C. Variable cost remains the same in total as production increases. D. Variable cost decreases on a per unit basis as the number of units produced increases
d
Which of the following would be considered a product cost for external financial reporting purposes? a. Cost of a warehouse used to store finished goods. b. Cost of guided public tours through the company's facilities. c. Cost of travel necessary to sell the manufactured product. d. Cost of sand spread on the factory floor to absorb oil from manufacturing machines.
d
Which of the following would not be treated as a product cost for external financial reporting purposes? a. Depreciation on a factory building. b. Salaries of factory workers. c. Indirect labor in the factory. d. Advertising expenses.
C
Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer? A. The cost of the hard disk drive installed in the computer. B. The cost of shipping the computer to the customer. C. The cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers. D. The cost of packaging the computer for shipment.
A
Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet? A. The cost of the hamburger patty in the burger the customer ordered. B. The wages of the employee who takes the customer's order. C. The cost of heating and lighting the kitchen. D. The salary of the outlet's manager
B
Within the relevant range, what is the difference between variable costs and fixed costs? A. Variable costs per unit fluctuate and fixed costs per unit remain constant. B. Variable costs per unit are constant and fixed costs per unit fluctuate. C. Total variable costs and total fixed costs are constant. D. Total variable costs and total fixed costs fluctuate.
