Chapter 6 - Cost Accounting

In a labor-intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production? A. Direct labor cost. B. Direct material cost. C. Direct labor hours. D. Machine hours.

A. Direct labor cost. Explanation: Higher labor cost would reflect the higher skill level.

For which of the following businesses would a job costing system be appropriate? A. Law office. B. Crude oil refinery. C. Baby formula manufacturer. D. Soft drink producer.

A. Law office. Explanation: Law office would have many different types of jobs. The refinery, baby formula, and soft drinks would all be uniform and could use process costing.

A system that mass-produces a single, homogeneous output in a continuous process is a(n): A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operation costing.

A. continuous flow process.

Cost pools are: A. costs that are accumulated before being allocated to cost objects on some common basis. B. costs that are relevant to decision-making but irrelevant to financial reporting. C. product costs that are assigned to cost objects using direct labor or machine hours. D. accounts in the product life cycle from research and development to customer service.

A. costs that are accumulated before being allocated to cost objects on some common basis.

The Cost Flow Diagram for product costing includes all of the following costs except: A. selling expenses. B. direct materials. C. direct labor. D. fixed manufacturing overhead.

A. selling expenses. Explanation: Selling expense is not a product cost; it is a period cost.

Case (A) Case (B) Case (C) Beginning Balance (BB) ? $27,000 $11,900 Ending Balance (EB) $71,000 23,200 12,300 Transferred In (TI) 153,600 101,700 ? Transferred Out (TO) 168,600 ? 25,100 For Case (A) above, what is the Beginning Balance (BB)? A. $56,000. B. $86,000. C. $71,000. D. $97,600.

B. $86,000.

The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31: Actual office overhead costs $1,275,500 Actual billable labor hours 44,600 Actual billable labor costs $3,960,000 Estimated office overhead costs. $1,080,000 Estimated billable labor hours 48,000 Estimated billable labor costs $4,320,000 What is the predetermined office overhead rate per billable labor dollar? A. 118.10%. B. 25.00%. C. 32.21%. D. 400.00%.

B. 25.00%. Explanation: $1,080,000/$4,320,000 = 25%

Which of the following is the correct formula to compute the predetermined overhead rate? A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs. B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base. C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base. D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.

Which of the following statements regarding the two-stage cost allocation process is (are) false? (A) If a company has three cost pools, then it should also have three different cost allocation bases. (B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems. A. Only A is false. B. Only B is false. C. Both of these are false. D. Neither of these is false.

B. Only B is false.

The Paris Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by Paris? A. Job costing. B. Process costing. C. Operation costing. D. Batch costing.

B. Process costing.

A system that provides information about the costs of processes, products, and services used and produced by an organization is a: A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

B. cost management system.

The cost per unit of the allocation base used to charge overhead to products is the: A. job cost. B. predetermined overhead rate. C. Operational cost. D. process cost.

B. predetermined overhead rate.

In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause: A. the estimated allocation base to be overstated. B. the Cost of Goods Manufactured to be understated. C. the debits to the Manufacturing Overhead account to be understated. D. the ending balance in Work-in-Process to be overstated.

B. the Cost of Goods Manufactured to be understated. Explanation: The omission of an overhead item will cause the application to be less than it should be and Cost of Goods Manufactured will be less than it should be.

Which of the following statements is (are) false regarding cost allocations and product costing? (A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler. (B) In general, indirect costs are assigned, while direct costs are allocated. Only A is false. Only B is false. Both of these are false. None of these is false.

Both of these are false. Explanation: Determining product cost is difficult for manufacturers. Direct costs are traced to products while indirect costs are allocated.

The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31: Actual office overhead costs $1,375,500 Actual billable labor hours 45,600 Actual billable labor costs. $4,060,000 Estimated office overhead costs. $1,180,000 Estimated billable labor hours 49,000 Estimated billable labor costs $4,420,000 What is the predetermined office overhead rate per billable labor hour? A. $30.16. B. $28.07. C. $24.08. D. $25.88.

C. $24.08. Explanation: $1,180,000/49,000 = $24.08

Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company? A. Electricity used. B. Machine hours. C. Direct labor hours. D. Material consumed.

C. Direct labor hours.

Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? A. Machine-hours. B. Power consumption. C. Direct labor-hours. D. Machine setups.

C. Direct labor-hours.

The basic cost flow model is: A. BB + TO = TI + EB. B. BB + TO - TI = EB. C. EB = BB + TI - TO. D. EB - BB = TO - TI.

C. EB = BB + TI - TO.

The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department? A. Job costing. B. Process costing. C. Operation costing. D. Batch costing.

C. Operation costing. Explanation: Operation costing is appropriate because outside services would vary but the evaluation costs and other elements of the process would be standardized.

The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n): A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

C. two-stage allocation system.

The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated manufacturing overhead? A. $210,000. B. $187,500. C. $262,500. D. $367,500.

D. $367,500. Explanation: (15,000 × $17.50) × 140% = $367,500

The following direct labor information pertains to the manufacture of product Glaze: Time required to make one unit 3 direct labor hours Number of direct workers 25 Number of productive hours per week, per worker 36 Weekly wages per worker $700 Workers' benefits treated as direct labor costs 30% of wages What is the standard direct labor cost per unit of product Glaze? (CPA adapted) A. $19.44. B. $25.28. C. $58.33. D. $75.83.

D. $75.83. EXPLANATION: DL/unit = [$700 + ($700 × 0.30)]/(36/3) = $75.83

Which of the following statements is true? A. Job costing can only be used when a single unit is produced rather than a batch. B. Process costing is used when products are customized. C. Job costing must be used in a continuous flow processing environment. D. Process costing does not separately record the costs for each unit.

D. Process costing does not separately record the costs for each unit. Explanation: Job costing can be used for batches; process costing is used for homogeneous units, is more appropriate in a continuous flow process, and does not separately record the costs for each unit.

Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes? A. Cost systems should have a decision focus. B. Different cost information is used for different purposes. C. Cost information for managerial purposes must meet the cost-benefit principle. D. The primary purpose of cost systems is to gather information to value inventory.

D. The primary purpose of cost systems is to gather information to value inventory Explanation: Managerial purposes imply decision making. Valuing inventory is financial reporting.

A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called: A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations costing.

D. operations costing.

Which of the following statements is (are) true regarding product costing? (A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. (B) A common decision facing managers is determining the price at which to sell their products or provide their services. Only A is true. Only B is true. Both of these are true Neither of these is true.

Only B is true. Explanation: Product or service cost is the basis for determining selling price.