Chapter 1: Introduction to Cost Accounting and Cost Accounting Cycle

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 inventory's and finished goods inventories. c. They must be an integral part of the finished product and be a significant portion of the total product cost d. They must be an integral part of the finished product but can be an insignificant portion of the total product cost.

C.

Which of the following accounts would appear on the worksheet for a merchandising company that uses the product inventory system? a. Cost of goods sold b. Income summary c. Purchase return and allowances d. all of the above

C.

Which of the following statements is incorrect? a. Management accounting is a subset of both cost and financial accounting. b. Financial accounting is a subset of cost accounting. c. Cost accounting is a subset of both management and financial accounting. d. Management accounting is a subset of cost accounting.

C.

Which one of the following will not be found on the balance sheet of a manufacturing company? a. Work in Process b. Finished Goods c. COGS d. Materials

C.

The product costs in the standard costing system are determined as they occur simultaneously with the manufacturing operation, but the total of product costs is only known as the operation has been completed.

False It should be Historical Costing System.

Financial Accounting is concerned with providing information to managers for use in planning and controlling operations for decision making.

False It should be Managerial Accounting.

The periodic system requires maintenance of records called stock cards.

False It should be Perpetual.

Period cost includes direct materials and direct labor.

False It should be Product Cost.

Conversion costs are the combination of direct labor, direct materials, and factory overhead.

False Only DL and FOH

If the over-applied factory overhead amount is material, it is transferred to the cost of goods sold at the end of the year.

False Should be COGS, Finished Goods Inventory, Work in Process.

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

False Should be Job Order Cost

Operating expenses are product costs and are expensed when the product is sold.

False Should be Period Costs.

Finished goods inventory is an asset, but raw materials and work in process inventory are not considered as assets until the production is completed.

False Should be considered.

A manufacturing factoring business reports only two types of inventory on its balance sheet: work in process and finished goods inventory.

False Three types: RM, WIP, FGI

When the goods are sold, their costs are transferred from work in process to finished goods.

False When the goods are completed.

Manufacturing costs are regarded as expenses of the current period and are expensed when incurred.

True

Prime costs are the combination of direct materials and direct labor cost.

True

Product costs are referred to as inventoriable costs.

True

The cost accounting system provides management needed information to estimate the cost of their products for profitability analysis, inventory valuation and cost control.

True

The cost of goods sold of manufacturing company equals beginning finished goods inventory plus cost of goods sold manufactured minus ending finish goods inventory.

True

The entry to record the cost of goods transferred from Department 1 to Department 2 in process costing system is a debit to Work in process Department 2 and a credit Work in process Department 1.

True

The primary objective of activity based costing is more accurate and meaningful product costs.

True

The purpose of cost accounting is the control of cost.

True

The purpose of financial accounting is the financial reporting.

True

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

True

The total sales less the cost of direct materials are known as throughput.

True

Under the standard costing system, direct material, direct labor, and factory overhead are applied using predetermined rate.

True

Using the FIFO method, the goods purchased at the end of the accounting period remain in ending inventory.

True

Using the LIFO method, the inventory is recorded in terms of older prices and the cost of goods sold is recorded at recent prices.

True

When finished goods are sold, the entry to record the cost of sales is the debit Finished goods inventory and credit to cost of sales.

True

Management accounting involves financial analysis, budgeting, and forecasting, cost analysis, evaluation of business decisions.

True

Cost of goods sold to a manufacturer is equal to the cost of goods manufactured plus: a. WIP inventory beginning - Ending WIP inventory b. WIP inventory ending - Beginning WIP inventory c. FG beginning - Ending FG inventory d. FG ending - Beginning FG inventory

C.

Costs other than the direct material and direct labor cost incurred in the manufacturing process are classified as: Other manufacturing costs b. Product costs c. Factory overhead costs d. Administrative costs

C.

Financial accounting a. Is primarily concerned with internal reporting. b. Is more concerned with verifiable, historical information than cost accounting. c. Focuses on the parts of the organization rather than the whole. d. Is specifically directed at management decision making needs.

C.

Finished goods inventory is reported on the: a. Income statement as period cost b. Balance sheet as non-current asset c. Balance sheet as current asset d. Income statement as operating expense

C.

Goods that are partially completed by a manufacturer are referred to as: a. Materials inventory b. FGI c. WIP inventory d. COGS

C.

Indirect labor and indirect materials are classified as: a. Operating costs and Period Costs b. Operating costs and Product costs c. Factory Overhead and Product costs d. Factory Overhead and Period Costs

C.

Cost accounting is directed towards the needs of a. Regulatory Agencies b. External users c. Internal users d. Stockholders

A.

Cost accounting is necessitated by a. The high degree of conversion found in certain businesses b. External reporting requirements for manufacturing company c. Managements need to be aware of all production activities d. Managements need for information to be used for planning and controlling activities

A.

Management and financial accounting are used for which of the following purposes? Management Financial a. Internal External b. External Internal c. Internal Internal d. External External

A.

Prime costs are a. Direct materials and direct labor b. Direct labor and factory overhead c. Direct materials and factory overhead d. Direct materials, direct labor and factory overhead

A.

The payroll account is debited a. When employees' salaries are incurred and paid b. When a new employee is hired c. When the related labor costs are transferred into the work in process account d. When goods are manufactured are completed

A.

Which of the following accounts would not appear on a worksheet for a merchandising company that uses the periodic inventory system? a. Cost of goods sold b. Purchases c. Sales returns and allowances d. Freight in

A.

Beginning work in process is equal to: a. Total manufacturing cost incurred - Ending work in process b. Cost of goods sold manufactured + Ending work in process - Total Manufacturing Costs incurred c. Cost of Goods manufactured - Ending work in process + Total Manufacturing Costs incurred d. Ending work in process + Total manufacturing costs incurred

B.

The cost of wages paid to employees directly involved in the manufacturing process in converting materials into a finished product is classified as: a. Wages expenses b. direct labor cost c. factory overhead cost d. indirect labour

B.

The purchases of raw material account is debited when a. Direct materials are placed into production b. Direct materials are purchased. c. Indirect materials are placed into production d. Raw materials are returned to the vendor

B.

The recording of factory labor incurred for general factory use would include debit to: a. Wages payable b. Factory Overhead c. Wages expense d. COGS

B.

Which of the following accounts would appear on the worksheet for merchandising company that uses the perpetual inventory system? a. Income summary b. cost of goods sold c. purchases d. purchases return and allowances

B.

Which of the following are the two main types of cost accounting systems for manufacturing operations? a. Process cost and general accounting systems b. Job order cost and process cost systems c. Job order cost and general accounting systems d. Process cost and backflushed costing system

B.

Which of the following is correct? a. Costs incurred in one year are always meaningful in the following year. b. Different cost concepts and classifications are used for different purposes. c. All organizations incur the same type of costs. d. The word "cost" has the same meaning in all situations in which it is used.

B.

Which of the following is not a prime cost? a. Machine operator wages b. Supervisor's wages c. Direct labor wages d. Assembly line wages

B.

All of the following would probably be considered a direct material except: a. Steel b. Fabric c. Glue d. Lumber

C.

Another term often used to refer factory overhead is: a. Indirect materials b. Indirect labor c. Factory burden d. Period costs

C.

Broadly speaking, cost accounting can be defined as a(n) a. External reporting system that is based on activity based costs. b. Systems used for providing the government and creditors with information about the company's internal operations. c. Internal reporting system that provides product costing and other information used by managers in performing their functions. d. Internal reporting system needed by manufacturers to be in compliance with cost accounting standards board pronouncements.

C.

Cost and management accounting a. Require an entirely separate group of accounts than financial accounting uses. b. Focus solely on determining how much it cost to manufacture a product or provide a service c. Provide product/service cost information as well as information for internal decision making d. Are required for business record keeping like financial and tax accounting

C.

Cost of goods manufactured is equal to: a. Total manufacturing cost + Ending materials - Beginning materials inventory b. TMC + Ending WIP - Beginning WIP inventory c. TMC + Beginning WIP - Ending WIP d. TMC + Ending FG - Beginning FG inventory

C.

All costs related to the manufacturing function in a company are: a. Period cost b. Conversion cost c. Prime cost d. Product cost

D.

Costs on the income statement for both a merchandiser and manufacturer would include: a. Direct materials b. Direct Labor c. Factory overhead d. Operating expenses

D.

Financial and cost accounting are both highly concerned with a. Preparing budgets b. Providing managers with information necessary for control purposes. c. Determining performance standards d. Determining product cost

D.

If the cost of direct materials is a small portion of total production cost it may be classified as part of: a. Miscellaneous cost b. Selling costs c. Administrative cost d. Factory overhead cost

D.

One major difference between financial and management accounting is that a. Financial accounting records are prepared primarily for users external to the company. b. Management accounting is not under the jurisdiction of the Securities and Exchange Commission. c. Government regulations do not apply to management accounting. d. All of the above.

D.

Products costs a. appear only on the balance sheet b. Appear only on the income statement c. Are expensed as costs are incurred for direct labor, direct material and factory overhead d. Appear on both the income statement and balance sheet

D.

The cost of a manufactured product consist of which of the following costs? a. Direct materials cost and factory overhead cost. b. Direct labor cost and factory overhead cost c. Direct materials and direct labor d. Direct materials, direct labor and factory overhead

D.

What term is used to refer to the cost of changing direct materials into finished manufactured product? a. Period cost b. prime cost c. product cost d. conversion cost

D.

Which of the following is incorrect? a. A primary purpose of cost accounting is to determine the valuations needed for external financial statements. b. A primary purpose of management accounting is to provide information to managers for use in planning, controlling and decision making. c. The act of converting production inputs into finished products or services necessitates cost accounting. d. Two primary hallmarks of cost and management accounting are standardization of procedures and use of generally accepted accounting principles

D.

Which of the following is the correct flow of manufacturing costs? a. COGS, WIP, FG, RM b. RM, FG, COGS, WIP c. FG, WIP, COGS, RM d. RM, WIP, FG, COGS

D.

Conversion cost consist of product and period costs.

False

Direct labor and factory overhead costs are charged as an expense in direct costing.

False

If factory overhead applied exceeds the actual costs, overhead is said to be under-applied

False

Large inventories of raw materials must be maintained in just in time system.

False

Only the value of the inventory that is sold will appear in the income statement.

False

Period costs are operating costs that are expensed in the period in which the goods are sold.

False

The sum of all costs of manufacturing costs except direct materials is called factory overhead.

False All indirect costs of manufacturing costs.

Raw materials inventory refers to direct materials on hand and available for use in the manufacturing process.

False Also indirect materials.

Period cost can be found in the balance sheet or in the income statement.

False BS and IS

Under the normal costing system, direct materials and direct labor are accumulated using standard costing and factory overhead are accumulated using actual costing.

False DM and Dl should be Actual Costing; FOH should be Standard Costing.

Direct Costing provides proper matching of cost and revenue.

False Doesn't provide proper matching.

Throughput costing provides proper matching of cost and revenue.

False Doesn't provide proper matching.

All cost and expenses incurred by a manufacturing entity are considered product costs rather than period costs.

False Expenses not included.

Financial costing is considered as a subset of management accounting and cost accounting.

False It should be Cost Accounting.

In throughput costing, variable costs are part of the inventory.

False It should be Direct Costing.

Using the FIFO method, the goods last purchased are first sold.

False It should be First Purchased.

Under hybrid costing, direct materials are accumulated using process costing and conversion costs using job order costing.

False. DM - job order costing costing; Conversion costs - process costing.

A cost means a measurement in monetary terms, of the amount of resources used for the purpose of production of goods or rendering services.

True

A job order costing system is used by service firms to determine revenues expenses and ultimately the profit.

True

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

True

A manufacturing company has three types of inventories: raw materials, work in process and finished goods inventory.

True

A perpetual inventory controlling accounts and subsidiary ledgers is maintained for materials; work in process and finished goods in cost accounting systems.

True

A process cost accounting system accumulates costs for each of the departments are processes within the factory.

True

A process cost accounting system is best used by manufacturers of like units of product that are not distinguishable from each other during a continuous production process.

True

Absorption costing provides proper matching of cost and revenue.

True

All costs in merchandising company are period costs.

True

Cost Accounting involves the process of analyzing, recording, classifying, summarizing, and interpreting the details of costs of materials, labor, and factory overhead necessary to produce and sell the product.

True

Cost Accounting systems are used to supply cost data information on the costs incurred by a manufacturing process or department.

True

Cost accounting helps the managers understand the costs of running the business.

True

Factory overhead cost includes all manufacturing costs except direct materials and direct labor.

True

Hybrid costing is a combination of job order and process costing method.

True

If the under-applied factory overhead amount is immaterial, it is transferred to the cost of goods sold at the end of the year.

True

In throughput costing, only direct materials are recorded as part of the inventory.

True

Labor costs that are not directly traceable to the product are part of the factory overhead.

True