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