Managerial Accounting Exam 1

Conversion cost is the combination of direct materials cost and factory overhead cost.

False

Cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost.

False

Prime costs are the combination of direct labor costs and factory overhead costs.

False

Prime costs consist of direct materials, indirect materials, and direct labor.

False

A manufacturer may employ a job order cost system for some of its products and a process cost system for others

True

Activity cost pools are factory overhead costs initially budgeted for activities, such as machine usage, inspections, moving, production setups, and engineering activities.

True

Each account in the work in process subsidiary ledger in a job order costing system is called a job cost sheet.

True

If the underapplied factory overhead amount is immaterial, it is transferred to Cost of Goods Sold at the end of the fiscal year.

True

In a job order cost accounting system for a service business, materials costs are normally included as part of overhead.

True

Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying within expected ranges.

True

Managers depend on the accuracy of product costing to make decisions regarding continuing operations and product mix.

True

Period (nonmanufacturing) costs are classified into two categories: selling and administrative.

True

Service companies can effectively use activity-based costing to compute product (service) costs.

True

If the amount of factory overhead cost incurred exceeds the amount applied, the factory overhead account will have a a. debit balance and be underapplied b. credit balance and be underapplied c. credit balance and be overapplied d. debit balance and be overapplied

a. debit balance and be underapplied

A job order cost system would be appropriate for a crude oil refining business.

False

An example of an eco-efficiency CSR measure would be cost savings generated by recycling.

True

Factory overhead is applied to production using a predetermined overhead rate.

True

Given the following information, determine the activity rate for setups. Activity Budgeted Activity Cost Setups 10,000 180,000 Inspections 24,000 120,000 Assembly (dih) 80,000 400,000 a. $58.00 b. $18.00 c. $0.75 d. $5.09

b. $18.00

Given the following data: Beginning raw materials inventory 30,000 Materials purchased 65,000 Ending raw materials inventory 40,000 What is the amount of raw materials used? a. 5,000 b. 55,000 c. 75,000 d. 30,000

b. 55,000

Which of the following is a reason for banks to use activity-based costing? a. to determine the amounts to charge customers for services provided b. to determine service quality c. to determine profitability of services provided d. to determine both amounts to charge and the profitability of services provided

d. to determine both amounts to charge and the profitability of services provided

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours are 80,000, and the actual direct labor hours are 67,000 for the month, the single plantwide factory overhead rate for the month is $6.87 (if the allocation is based on direct labor hours).

False

Product costs include direct labor and advertising expense.

False

The inventory accounts generally maintained by a manufacturing firm are only finished goods and materials.

False

The process cost system is appropriate where few products are manufactured and each product is made to customers' specifications.

False

The use of a single plantwide factory overhead rate prevents product cost distortions when there are differences among products in the ratios of allocation base usage.

False

When activity-based costing is used, the number of activities will generally be the same as the number of production departments.

False

Zorn Co. budgeted $600,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Zorn's plantwide factory overhead rate is $3 per hour.

False

Activity-based costing provides more accurate and useful cost data than traditional systems.

True

Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12 per machine hour.

True

Cost systems are used by companies to measure, record, and report product costs, including the preparation of financial statements.

True

Depreciation on factory plant and equipment is an example of factory overhead cost.

True

Since there are few rules to restrict how an organization chooses to arrange its own internal data for decision making, managerial accounting provides ample opportunity for creativity and change.

True

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

True

The statement of cost of goods manufactured is an extension of the income statement for a manufacturing company.

True

Roget Factory has budgeted factory overhead for the year at $15,500,000. It plans to produce 2,000,000 units of product. Budgeted direct labor hours are 1,050,000, and budgeted machine hours are 750,000. Using a single plantwide factory overhead rate based on direct labor hours, the factory overhead rate (rounded to the nearest cent) for the year is a. $14.76 b. $20.67 c. $7.75 d. $77.50

a. $14.76

Job cost sheets can provide information to managers for all of the following except a. the cost impact of materials changes b. the cost impact of continuous improvement in the manufacturing process c. the cost impact of materials price or direct labor rate changes over time d. utilities, managerial salaries, and depreciation of computers in the corporate office

d. utilities, managerial salaries, and depreciation of computers in the corporate office

The activity-based cost (rounded to the nearest cent) for each disk drive unit is a. $92.25 b.$130.69 c. $394.12 d. $279.57

d. $279.57

Compute conversion costs given the following data: direct materials, $347,500; direct labor, $196,300; factory overhead, $187,900; and selling expenses, $45,290. a. $543,800 b. $187,900 c. $731,700 d. $384,200

d. $384,200

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tape drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are as follows: Activity Cost Procurement $ 370,000 Scheduling 250,000 Materials handling 500,000 Product development 730,000 Production 1,500,000 Activity Base Number of purchase orders Number of production orders Number of moves Number of engineering changes Machine hours Disk drives Tape drives Wire drives Number of Number Purchase of Orders Production Orders 4,000 300 4,000 150 12,000 800 Number of Moves 1,400 800 4,000 Number of Engineering Changes 10 10 25 Machine Hours 2,000 8,000 10,000 Number of Units 2,000 4,000 2,500 15. The activity rate (rounded to the nearest dollar) for the product development cost pool is a. $73,000 per engineering change b. $

d. 16,222 per engineering change

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. The following table presents information about estimated overhead and direct labor hours. Painting Dept. Finishing Dept. Totals Overhead $248,000 72,000 $320.000 Direct Labor Hours (dIh) 10,000 dlh 10.000 20.000 dih Product A 16 dih 4 20 dIh B 4 dih 16 20 dih 6. Using a single plantwide rate, the factory overhead allocated per unit of Product B is a. $496 b. $144 C. $640 d $320

d. 320

Use the information below for Darwin Company to answer the questions that follow. Sales 76,500 Direct materials used 7,300 Depreciation on factory equipment Indirect labor 4,700 Direct labor 5,900 Factory rent 10,500 Factory utilities 4,200 Sales salaries expense 1,200 Office salaries expense 15,600 Indirect materials 8,900 6. Darwin Company's product costs are a. $24,500 b. $30,300 c. $29,200 d. $35,000

d. 35,000

Recording jobs shipped and customers billed would include a debit to a. Accounts Payable b. Cash c. Finished Goods d. Cost of Goods Sold

d. Cost of Goods Sold

Materials must have which two qualities in order to be classified as direct materials? a. They must be classified as both prime costs and conversion costs. b. They must be introduced into the process in both work in process inventories and finished goods inventories. c. They must be an integral part of the finished product, but can be an insignificant portion of total product cost. d. They must be an integral part of the finished product and a significant portion of the total product cost.

d. They must be an integral part of the finished product and a significant portion of the total product cost.

Which of the following managerial decisions relies on accurate product costing? a. set product sales price b. discontinue a product line c. establish a product mix d. all of these choices

d. all of these choices

If the cost of a direct material is a small portion of total production cost, it may be classified as part of a. direct labor cost b. selling and administrative costs c. miscellaneous costs d. factory overhead cost

d. factory overhead cost

All of the following are true regarding product costs except a. product costs are found on the balance sheet until they are sold b. product costs consist of direct labor, direct materials, and factory c. overhead product costs can be found in three accounts on the balance sheet d. product costs include sales and administrative expenses

d. product costs include sales and administrative expenses

Match each of the following phrases with the term (a-g) that it most closely describes. a. Job order cost system b. Process cost system c. Activity-based costing d. Underapplied overhead e. Overapplied overhead f. Finished goods ledger g. Materials ledger 13. A system that uses a different overhead rate for each activity 14. A subsidiary ledger that maintains a separate account for each type of material 15. Applied overhead is more than actual overhead incurred 16. Typically used by companies that make custom products 17. Typically used by companies whose products are indistinguishable from each other

13 c 14 g 15 e 16 a 17 b

Use the information below for Jensen Company to answer the questions that follow. Direct materials used $345,000 Direct labor incurred 250,000 Factory overhead incurred 400,000 Operating expenses 175,000 7. Jensen Company's product costs are a. $995,000 b. $920,000 c. $825,000 d. $770,000

a. $995,000

Use the budget data shown below for Sharp Company to answer the questions that follow: Estimated direct labor hours 12,000 Estimated direct labor dollars 90,000 Estimated factory overhead costs 179,000 Actual direct labor hours 11,500 Actual direct labor dollars 92,000 Actual factory overhead costs 180,000 If factory overhead is to be applied based on direct labor dollars, the predetermined overhead rate is a. 199% b. 196% c. $14.92 d. $15.65

a. 199%

Reynolds Manufacturers Inc. has estimated total factory overhead costs of $95,000 and expected direct labor hours of 9,500 for the current fiscal year. If Job 117 incurs 2,300 direct labor hours, Work in Process will be debited and Factory Overhead will be credited for a. $21,850 b. $2,300 c. $95,000 d. $23,000

d. $23,000

Which of the following would most likely use process costing? a. custom furniture manufacturer b. auto body repair shop c. law firm d. lawn fertilizer manufacturer

d. lawn fertilizer manufacturer

A company manufactured 50,000 units of a product at a cost of $450,000. It sold 45,000 units at $15 each. The gross profit is a. $750,000 b. $240,000 c. $600,000 d. $270,000

d. $270,000

Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, materials handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: Activity Cost Activity Base Production setup $250,000 Number of setups Materials handling 150,000 Number of parts General overhead 80,000 Number of direct labor hours Each product's total activity in each of the three areas is as follows: Product A Product B Number of setups 100 300 Number of parts 40,000 20,000 Number of direct labor hours 8,000 12,000 8. What is the total overhead allocated to Product A using activity-based costing? a. $194,500 b. $162,500 c. $32,000 d. $224,000

a. $194,500

For each of the following, indicate whether the cost would typically be considered a product or period cost for the cost object given. a. Product b. Period 11. Tires for the bicycles 12. Electricity costs to run the factory 13. Selling costs for the period 14. Delivery costs to take the bicycles to stores 15. Accountant salaries

a. a. b. b. b.

The following are costs incurred by a lawn mower manufacturer. Identify them as either: a. Direct materials b. Direct labor c. Factory overhead 16. Wheels 17. Depreciation on worker's tools 18. Wages of assemblers 19. Grease for wheel axles 20. Electricity used in the manufacturing plant

a. c. b. c. c.

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual manufacturing overhead costs incurred were $377,200, and actual direct labor hours were 36,000. What is the predetermined overhead rate per direct labor hour? a. $12.00 b. $10.00 c. $12.57 d. $10.48

a. $12.00

Work in process inventory on December 31 of the current year is $44,000. Work in process inventory increased by 60% during the year. Cost of goods manufactured amounts to $275,000. What are the total manufacturing costs incurred in the current year? a. $291,500 b. $302,000 c. $275,750 d. $233,750

a. $291,500

At the beginning of the current year, Grant Company's work in process inventory account had a balance of $30,000. During the year, $68,000 of direct materials were used in production, and $66,000 of direct labor costs were incurred. Factory overhead for the year amounted to $90,000. Cost of goods manufactured is $230,000. The balance in Work in Process Inventory on December 31 is a. $24,000 b. $44,000 c. $66,000 d. $36,000

a. 24,000

Challenger Factory produces regular widgets and deluxe widgets. The total factory overhead budget is $675,000 with 300,000 estimated direct labor hours. Deluxe widget production requires 3 direct labor hours for each unit, and regular widget production requires 2 direct labor hours for each unit. 11. Using a single plantwide factory overhead rate with an allocation base of direct labor hours, calculate the factory overhead that Challenger Factory will allocate to deluxe widget production if budgeted production for the period for deluxe widgets is 50,000 units and actual production of deluxe widgets for the period is 58,000 units. a. $391,500 b. $225,000 c. $261,000 d. $337,500

a. 391,500

The journal entry to record the purchase of $45,000 of raw materials is a. Materials 45,000 Accounts Receivable 45,000 b. Materials 45,000 Accounts Payable 45,000 c. Inventory 45,000 Accounts Receivable 45,000 d. Inventory 45,000 Cash 45,000

a. Materials 45,000 Accounts Receivable 45,000

Which of the following statements is false? a. There is no overlap between financial and managerial accounting. b. Managerial accounting sometimes relies on past information. c. Managerial accounting does not need to conform to GAAP. d. Financial accounting must conform to GAAP.

a. There is no overlap between financial and managerial accounting.

Everest Co, uses a single plantwide factory overhead rate based on direct labor hours. Overhead costs would be overcharged to which of the foll owing departments? a. a labor-intensive department b. a capital-intensive department c. a materials-intensive department d. all of these choices

a. a labor-intensive department

In a job order cost accounting system, the entry to record the flow of direct materials into production is to a. debit Work in Process, credit Materials b. debit Materials, credit Work in Process c. debit Factory Overhead, credit Materials d. debit Work in Process, credit Supplies

a. debit Work in Process, credit Materials

Which of the following is a way to accomplish an activity cost reduction? a. improve operations so that the activity-base usage per unit is reduced b. change the classification of employees doing an activity so as to increase the activity rate c. use lower-cost materials d. none of these choices

a. improve operations so that the activity-base usage per unit is reduced

Activity-based costing can be beneficial in allocating selling and administrative expenses to various products for managerial decision making. Which of the following would be the best allocation base for help desk costs? a. number of calls b. square footage of the help desk office c. number of products sold d. number of sales employees

a. number of calls

Costs on the income statement for both a merchandiser and a manufacturer would be a. operating expenses b. direct materials c. direct labor incurred d. cost of goods manufactured

a. operating expenses

Materials purchased on account during the month totaled $190,000. Materials requisitioned and placed in production totaled $165,000. The journal entry to record the material purchase on account is a. Materials 165,000 Accounts Payable 165,000 b. Materials 190,000 Accounts Payable 190,000 c. Materials 190,000 Cash 190,000 d. Accounts Payable 190,000 Materials 190,000

b. Materials 190,000 Accounts Payable 190,000

Common allocation bases for factory overhead costs are a. direct labor dollars, direct labor hours, and direct materials dollars b. direct labor dollars, direct labor hours, and machine hours c. direct labor dollars, direct labor hours, and machine dollars d. machine dollars, direct labor dollars, and direct labor hours

b. direct labor dollars, direct labor hours, and machine hours

Winston Company estimates that the total factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 50,000 hours. The total machine hours for the year were 54,300. The actual factory overhead for the year was $1,375,000. Determine the over- or underapplied amount for the year. a. $17,500 overapplied b. $17,500 underapplied c. $118,250 overapplied d. $118,250 underapplied

b. $17,500 underapplied

Beauty Beyond Words Salon uses an activity-based costing system to determine the cost of services. The salon has determined the costs of services by activity and activity usage as follows: Activity Activity Rate Hair washing $ 4.00 Conditioning 3.50 Chemical treatment 25.00 Styling 10.00 Hair Washing Conditioning Chemical Treatment Styling Haircut 1 1 0 0 Complete style 1 1 0 1 Perm 2 3 1 1 Highlights 3 4 2 1 13. The cost of services (rounded to the nearest cent) for a haircut is a. $4.00 b. $7.50 c. $3.50 d. $11.50

b. 7,50

Which of the following is not a characteristic of useful managerial accounting reports? a. accurate b. adhere to GAAP c. historical and estimated data d. prepared as needed

b. adhere to GAAP

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that total factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. The journal entry to apply the factory overhead costs for the year would include a a. debit to Factory Overhead for $360,000 b. credit to Factory Overhead for $432,000 c. debit to Factory Overhead for $377,200 d, credit to Factorv Overhead for $360.000

b. credit to Factory Overhead for $432,000

Activity rates are determined by a. dividing the actual cost for each activity pool by the actual activity base for that pool b. dividing the cost budgeted for each activity pool by the estimated activity base for that pool c. dividing the actual cost for each activity pool by the estimated activity base for that pool d. dividing the cost budgeted for each activity pool by the actual activity base for that pool

b. dividing the cost budgeted for each activity pool by the estimated activity base for that pool

Which of the following is an indirect cost for Bartel Corporation, a producer of bar stools for restaurants? a. wages for the bar stool assemblers b. factory supervisor's salary c. wood and steel used in the bar stools d. leather used for seat cushions

b. factory supervisor's salary

WeeBee Company has three assembly labor classifications: S-1, S-2, and S-3. The three classifications are paid $16, $19, and $22 per hour, respectively. The assembly activity for a product uses an S-2 employee who performs that task in 24 minutes. To reduce the activity cost per unit, a product engineer proposes using a higher-rated employee who can perform the assembly in 21 minutes. A manager proposes using a lower-rated employee who can perform the assembly in 30 minutes. Which of the following provides the most cost-effective solution? a. use the S-1 employee b. use the S-2 employee c. use the S-3 employee d. use either the S-1 or S-3 employee

b. use the S-2 employee

Thomlin Company forecasts that total factory overhead for the current year will be $15,000,000 with 300,000 total machine hours. Year to date, the actual factory overhead is $16,000,000 and the actual machine hours are 330,000 hours. If Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is a. $1,000,000 overapplied b. $1,000,000 underapplied c. $500,000 overapplied d. $500,000 underapplied

c. $500,000 overapplied

Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are as follows: Product Number of Units Direct Labor Hours per Unit Machine Hours per Unit Blinks 1,000 4 5 Dinks 2,000 2 8 All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $72,000. 9. Ramapo Company uses a single plantwide overhead rate to apply all factory overhead costs. The single plantwide rate (rounded to the nearest cent), if it is based on machine hours instead of labor hours, is a. $9.00 per machine hour b. $19.50 per machine hour c. $7.43 per machine hour d. $4.00 per machine hour

c. $7.43 per machine hour

The entry to record the flow of direct labor costs into production in a job order cost accounting system is to a. debit Factory Overhead, credit Work in Process b. debit Finished Goods, credit Wages Payable c. debit Work in Process, credit Wages Payable d. debit Factory Overhead, credit Wages Payable

c. debit Work in Process, credit Wages Payable

The source document for the data for debiting Work in Process for direct materials is a a. purchase order b. purchase requisition c. materials requisition d. receiving report

c. materials requisition

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tape drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are as follows: Procurement Scheduling Materials handling Product development Production Activity Cost $ 370.000 250.000 500.000 730.000 1,500,000 Activity Base Number of purchase orders Number of production orders Number of moves Number of engineering changes Machine hours Disk drives 4,000 Tape drives 4,000 Wire drives 12,000 Number of Number Number Number of Machine Number Purchase of of Engineering Hours of Orders Production Moves Changes Units Orders 300 10 2,000 2,000 150 1,400 800 10 8.000 4.000 800 4,000 25 10,000 2,500 11. The activity rate (rounded to the nearest cent) for the production cost pool is a. $62.50 per machine hour b. $150.00 per machine hour c.

c. $75.00 per machine hour

The following information is taken from the financial records of Gunner Manufacturing: Cost of materials used 45,000 Direct labor costs 48,000 Factory overhead 39,000 Work in process, beginning 18,000 Work in process, ending 28,000 What is the cost of goods manufactured? a. $178,000 b. $132,000 c. $122,000 d. $142,000

c. 122,000

Scoresby Co. uses 6 machine hours and 2 direct labor hours to produce Product X. It uses 8 machine hours and 16 direct labor hours to produce Product Y. Scoresby's Assembly and Finishing departments have factory overhead rates of $240 per machine hour and $160 per direct labor hour, respectively. How much total factory overhead will be allocated to a unit of each of the two products? a. Product X, $3,200; Product Y, $9,600 b. Product X, $800; Product Y, $800 c. Product X, $1,760; Product Y, $4,480 d. Product X, $1,440; Product Y, $2,560

c. Product X, $1,760; Product Y, $4,480

In job order costing, the journal entry for the flow of direct labor costs into production consists of a a. debit to Factory Overhead and a credit to Work in Process b. debit to Finished Goods and a credit to Wages Payable c. debit to Work in Process and a credit to Wages Payable d. debit to Factory Overhead and a credit to Wages Payable

c. debit to Work in Process and a credit to Wages Payable

Which of the following would be inappropriate as an allocation base for calculating factory overhead rates? a. direct labor dollars b. direct labor hours c. total units produced d. machine hours

c. total units produced

Omega Energy Inc. serves rural communities across the northeast with gas and home heating fuel. Which of the following initiatives may be considered a part of the company's CSR efforts? a. pursuing new product lines to expand the customer base b. building new corporate headquarters in order to downsize several regional offices and reduce overhead costs c. using biofuel-powered vehicles in its transportation fleet d. none of these choices

c. using biofuel-powered vehicles in its transportation fleet