Accounting study guide
Which of the following statements are true? The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies. A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver. The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs.
Statements 1 and 3 are true
Which of the following statements is true? Overhead can be applied slowly as a job is worked on. Overhead can be applied when the job is completed. Overhead should be applied to any job not completed at year-end in order to properly value the work in process inventory.
Statements 1, 2, and 3 are all true.
Which of the following statements are true? A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs. Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources. An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day
Statements 2 and 3 are true
Which of the following statements is true? Incremental analysis is an analytical approach that focuses only on those revenues and costs that will not change as a result of a decision. When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs. To estimate what the profit will be at various levels of sales volume, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.
Statements 2 and 3 are true.
Which of the following statements are true? Conversion cost is the sum of direct labor cost and manufacturing overhead cost. Conversion cost is the same thing as manufacturing overhead. Conversion cost equals product cost less direct materials cost.
Statements Ione and III are true.
Which of the following statements are true? Advertising is not a considered a product cost even if it promotes a specific product. Product costs are also known as inventoriable costs. Prime cost is the sum of direct materials cost and direct labor cost. Prime cost equals manufacturing overhead cost.
Statements Ione, II, and III are true
Under the weighted-average method, the cost of units transferred out of a department is computed as follows for a cost category:
Units transferred to the next department × Cost per equivalent unit
Under a job-order costing system, the dollar amount transferred from Work in Process to Finished Goods is the sum of the costs charged to all jobs:
completed during the period
When computing the cost per equivalent unit, the weighted-average method of process costing considers:
costs incurred during the current period plus cost of beginning work in process inventory.
Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Per UnitPercent of SalesSelling price$ 130100%Variable expenses7860%Contribution margin$ 5240% The company is currently selling 6,000 units per month. Fixed expenses are $263,000 per month. The marketing manager believes that a $5,000 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales volume. What should be the overall effect on the company's monthly net operating income of this change?
increase of $2,280
Assume there was no beginning work in process inventory and the ending work in process inventory is 70% complete with respect to conversion costs. Under the weighted-average method, the number of equivalent units of production with respect to conversion costs would be:
less than the units started during the period.
A process costing system is employed in those situations where:
manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis.
In process costing, a separate work in process account is kept for each:
processing department
Malcolm Company uses a weighted-average process costing system. All materials at Malcolm are added at the beginning of the production process. The equivalent units for materials at Malcolm would be the sum of:
units in beginning work in process and the units started.
Logsdon Corporation produces and sells a single product whose contribution margin ratio is 63%. The company's monthly fixed expense is $720,720 and the company's monthly target profit is $28,000. The dollar sales to attain that target profit is closest to:
$1,188,444
Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $95,000?
$24,200
Sufra Corporation is planning to sell 100,000 units for $8.00 per unit and will break even at this level of sales. Fixed expenses will be $300,000. What are the company's variable expenses per unit?
$5.00
Which of the following types of companies would typically use process costing rather than job-order costing?
A breakfast cereal manufacturer
On a manufacturing company's income statement, which of the following is true? Direct labor is separately listed as an expense. Direct materials is separately listed as an expense.
Neither statement is true
Which of the following statements are true? Depreciation is always considered a period cost for external financial reporting purposes in a manufacturing company. Depreciation on equipment a company uses in its selling and administrative activities would be classified as a period cost.
Only statement II is true.
Which of the following statements are true? A fixed cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases. Fixed costs expressed on a per unit basis do not change with changes in activity. Committed fixed costs remain largely unchanged in the short run.
Only statement III is true.
In a job-order costing system that is based on machine-hours, which of the following formulas is correct?
Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours
Which of the following is the correct formula to compute the predetermined overhead rate?
Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Actual total units in the allocation base.
All of the following statements are correct when referring to process costing except:
Process costing would be appropriate for a jeweler who makes custom jewelry to order
Refer to the T-account below: Raw MaterialsDebitCreditBalance15,000(9)75,000(5)85,000Balance25,000 Entry (5) could represent which of the following?
Purchases of raw materials
In a job-order costing system, manufacturing overhead applied is recorded as a debit to:
Work in Process inventory
In a job-order costing system, which of the following events would trigger recording data on a job cost sheet?
none of the choices
When manufacturing overhead is applied to production, it is added to:
the Work in Process account
Tropp Corporation sells a product for $10 per unit. The fixed expenses are $420,000 per month and the unit variable expenses are 60% of the selling price. What sales would be necessary in order for Tropp to realize a profit of 10% of sales? Note: Round your intermediate calculations to 2 decimal places.
$1,400,000
Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to:
$12.10
Carver Corporation produces a product which sells for $40. Variable manufacturing costs are $18 per unit. Fixed manufacturing costs are $5 per unit based on the current level of sales volume, and fixed selling and administrative costs are $4 per unit. A selling commission of 15% of the selling price is paid on each unit sold. The contribution margin per unit is:
$16
Baj Corporation uses a predetermined overhead rate base on machine-hours that it recalculates at the beginning of each year. The company considers all of its manufacturing overhead costs to be fixed and it has provided the following data for the most recent year. Estimated total fixed manufacturing overhead from the beginning of the year$ 534,000Estimated activity level from the beginning of the year30,000machine-hoursActual total fixed manufacturing overhead$ 487,000Actual activity level27,400machine-hours The predetermined overhead rate per machine-hour would be closest to:
$17.80
Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year: Direct materials$ 6,000Direct labor$ 20,000Rent on factory building$ 15,000Sales salaries$ 25,000Depreciation on factory equipment$ 8,000Indirect labor$ 12,000Production supervisor's salary$ 15,000 Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be:
$2.50 per direct labor-hour
Reamer Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year: Direct materials$ 1,000Direct labor$ 3,000Sales commissions$ 4,000Salary of production supervisor$ 2,000Indirect materials$ 400Advertising expense$ 800Rent on factory equipment$ 1,000 Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:
$3.40 per machine-hour
Giannitti Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below: Estimated machine-hours36,000Estimated variable manufacturing overhead$ 3.01per machine-hourEstimated total fixed manufacturing overhead$ 1,058,040 The predetermined overhead rate for the recently completed year was closest to:
$32.40 per machine-hour
Thomason Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units)$ 40,000Variable expenses30,000Contribution margin10,000Fixed expenses7,000Net operating income$ 3,000 If the variable cost per unit increases by $1, spending on advertising increases by $2,000, and unit sales increase by 50 units, the net operating income would be closest to:
$450
Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November. Sales (8,000 units)$ 440,000Variable expenses280,000Contribution margin160,000Fixed expenses103,500Net operating income$ 56,500 If the company sells 7,900 units, its net operating income should be closest to: Note: Do not round intermediate calculations.
$54,500
Wimpy Incorporated produces and sells a single product. The selling price of the product is $150.00 per unit and its variable cost is $58.50 per unit. The fixed expense is $366,915 per month. The break-even in monthly dollar sales is closest to: Note: Round your intermediate calculations to 2 decimal places.
$601,500
Sabv Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of sales. If the company lost $40,000 last year, sales must have amounted to:
$740,000
Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units)$ 120,000Variable expenses90,000Contribution margin30,000Fixed expenses21,000Net operating income$ 9,000 If sales volumes decline to 2,900 units, the net operating income would be closest to:
$8,000
To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used?
(Fixed expenses + Target net profit) ÷ Contribution margin ratio
The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Department A and on machine-hours in Department B. At the beginning of the year, the Corporation made the following estimates: Department ADepartment BDirect labor cost$ 60,000$ 40,000Manufacturing overhead$ 90,000$ 45,000Direct labor-hours6,0009,000Machine-hours2,00015,000 What predetermined overhead rates would be used in Department A and Department B, respectively?
150% and $3.00
Iverson Corporation's variable expenses are 60% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $40,000, the new degree of operating leverage will be (rounded):
3.67
Bear Publishing sells a nature guide. The following information was reported for a typical month: TotalPer UnitSales$ 17,600$ 16.00Variable expenses9,680Contribution margin7,920Fixed expenses3,600Net operating income$ 4,320 What is Bear's current break-even point in unit and dollars? Note: Round your intermediate calculations to 2 decimal places.
500 units and $8,000
Ferkil Corporation manufacturers a single product that has a selling price of $100 per unit. Fixed expenses total $225,000 per year, and the company must sell 5,000 units to break even. If the company has a target profit of $67,500, sales in units must be:
6,500 units
Which of the following statements is true? In a process costing system, costs are traced directly to jobs. In a process costing system, overhead is allocated to departments after being applied to units of product. In a process costing system, manufacturing overhead cost is also called conversion cost.
All of the statements are true
Which of the following statements are true? A factory supervisor's salary would be classified as an indirect cost with respect to a unit of product. A direct cost is a cost that can be easily traced to the particular cost object under consideration. A cost can be direct or indirect. The classification can change if the cost object changes.
All of the statements are true.
Which of the following statements are true? Variable costs per unit are not affected by changes in activity. The relevant range concept is applicable to mixed costs. A variable cost remains constant if expressed on a unit basis. A fixed cost is not constant per unit of product.
All statements are true
Which of the following statements are true? In a traditional format income statement, the gross margin is sales minus cost of goods sold. In a traditional format income statement, the gross margin minus selling and administrative expenses equals net operating income.
Both of the statements are true.
Which of the following statements are true? The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead. The three cost elements ordinarily included in product costs are direct materials, direct labor, and manufacturing overhead.
Both of the statements are true.
Which of the following statements are true? When operations are interrupted or cut back, committed fixed costs are cut in the short term because the costs of restoring them later are likely to be far less than the short-run savings that are realized. The cost of napkins put on each person's tray at a fast food restaurant is a variable cost with respect to how many persons are served. Committed fixed costs represent organizational investments with a one-year planning horizon. The following costs are all examples of committed fixed costs: depreciation on buildings, salaries of highly trained engineers, real estate taxes, and insurance expenses.
Both statement II and IVfour are true
Determine if the reasons why manufacturing overhead may be underapplied are true. The estimated total manufacturing overhead cost may have been too high. The estimated total amount of the allocation base may have been too low.
Both statements 1 and 2 are true.
Determine if the statements about the schedule of cost of goods manufactured are true. The Schedule of Cost of Goods Manufactured contains three elements of product costs—direct materials, direct labor, and manufacturing overhead. The Schedule of Cost of Goods Manufactured summarizes the portions of its product costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.
Both statements 1 and 2 are true.
Which of the following statements is true? When raw materials are purchased, they are recorded as an asset. The absorption cost approach provides for the absorption of all manufacturing costs, fixed and variable, into units of product
Both statements 1 and 2 are true.
In the Schedule of Cost of Goods Manufactured, which of the following statements is true? Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory − Ending work in process inventory. Total raw materials available = Ending raw materials inventory + Purchases of raw materials. Raw materials used in production = Beginning raw materials inventory + Purchases of raw materials − Ending raw materials inventory. Total direct materials = Raw materials used in production − Ending raw materials inventory.
Both statements 1 and 3 are true.
Which of the following would usually be found on a job cost sheet under a normal cost system? Actual direct material costActual manufacturing overhead costA)YesYesB)YesNoC)NoYesD)NoNo
Choice B
In the cost reconciliation report under the weighted-average method, the "Costs to be accounted for" section contains which of the following items?
Cost of beginning work in process inventory
In the cost reconciliation report under the weighted-average method, the "Total cost accounted for" equals:
Cost of ending work in process inventory + Cost of units transferred out
Which of the following journal entries would be made in a process costing system when units that have been completed in the final processing department are transferred to the finished goods warehouse?
DebitCreditFinished GoodsXXXWork in ProcessXXX
Which entry would be used to record depreciation on manufacturing equipment
DebitCreditManufacturing OverheadXXXAccumulated DepreciationXXX
Which of the following journal entries would be used to record direct labor costs in a company having two processing departments (Department A and Department B)?
DebitCreditWork in Process-Department AXXXWork in Process-Department BXXXSalaries and Wages PayableXXX
The journal entry to record applying overhead during the production process is:
DebitCreditWork in ProcessXXXManufacturing OverheadXXX
Which of the following statements is not correct concerning multiple overhead rate systems?
In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours.
Which of the following is an assumption underlying standard CVP analysis?
In multiproduct companies, the sales mix is constant
Refer to the T-account below: Prepaid InsuranceDebitCreditBalance30,000(8)9,000 Entry (8) could represent which of the following?
Insurance cost incurred on the factory which is added to the Manufacturing Overhead account.
Which of the following statements about using a plantwide overhead rate based on direct labor is correct?
It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.
In a job-order costing system, indirect labor cost is usually recorded as a debit to:
Manufacturing Overhead.
Assigning manufacturing overhead to a specific job is complicated by all of the below except:
Manufacturing overhead is incurred only to support some jobs
Which of the following statements are true? Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job. A job cost sheet is used to record how much a customer pays for the job once the job is completed.
Neither of the statements are true
Which of the following statements are true? Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost. The concept of the relevant range does not apply to variable costs.
Neither of the statements are true
Which of the following statements are true? The formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total amount of the allocation base ÷ Estimated total manufacturing overhead cost Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.
Neither of the statements are true.
Assume that a company closes out any manufacturing overhead overapplied or underapplied to cost of goods sold. Related to the Cost of Goods Sold, which of the following statements is true? In the Schedule of Cost of Goods Sold, the Adjusted cost of goods sold = Unadjusted cost of goods sold + Overapplied overhead − Underapplied overhead. Cost of Goods Sold will be debited if manufacturing overhead is overapplied for the period.
Neither statement is true
Which of the following statements is true? A decrease in the number of units sold will decrease the break-even point. The break-even point can be determined by simply adding together all of the expenses from the income statement.
Neither statement is true
Which of the following statements is true? Under the weighted-average method, the cost of ending work in process inventory is determined by dividing the equivalent units of production for ending inventory by the cost per equivalent unit for each cost category and then summing the result. The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of ending work in process inventory and the cost of beginning work in process inventory.
Neither statement is true
Which of the following statements is true? The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in process inventory and the cost of units transferred out. The cost reconciliation report has two sections: "Costs to be accounted for" followed by "Costs accounted for". The "Costs accounted for" portion of the cost reconciliation report includes the cost of beginning work in process inventory and the costs added during the period.
Neither statement is true.
Which of the following statements are true? In a contribution format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period. Contribution format income statements are prepared primarily for external reporting purposes. Most companies use the contribution approach in preparing financial statements for external reporting purposes.
None of the statements are true
Which of the following statements are true? In a job-order costing system, indirect labor is assigned to a job using information from the employee time ticket. If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process. In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost.
None of the statements are true.
Which of the following statements is true? The equivalent units in beginning work in process inventory plus the equivalent units in ending work in process inventory equals the units transferred out plus the equivalent units for the work done during the period. When all materials are added at the beginning of the production process, under a weighted-average process costing system the equivalent units for materials is equal to the units completed and transferred out. In process costing, the equivalent units computed for materials is generally the same as that computed for conversion costs
None of the statements are true.
Which of the following statements is true? In a CVP graph (sometimes called a break-even chart), unit volume is represented on the horizontal (X) axis and dollars on the vertical (Y) axis. On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line. In a CVP graph, the anticipated profit or loss at any given level of sales is measured by the vertical distance between the total revenue line (sales) and the total fixed expense line.
Only statement 1 is true
Which of the following statements are true? A bill of materials is a document that lists the type and quantity of each type of direct material needed to complete a unit of product. An employee time ticket is used to record points that are earned by employees based on the hours they worked that can be used to pay for coffee, food in the cafeteria, and even in some cases for vacation travel.
Only statement 1 is true.
Which of the following statements is true? A credit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead was overapplied. If the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost applied, then manufacturing overhead would be considered to be overapplied. The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work In Process account.
Only statement 1 is true.
Which of the following statements are true? If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used. Actual overhead costs are not assigned to jobs in a job costing system. The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job.
Only statement 2 is true
In the Schedule of Cost of Goods Sold, which of the following is true? Cost of goods available for sale = Ending finished goods inventory + Cost of goods manufactured. Unadjusted cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory.
Only statement 2 is true.
Which of the following statements is true? The degree of operating leverage in a company is smallest at the break-even point and increases as sales volumes rise. The degree of operating leverage is computed by dividing sales by the contribution margin. A company with high operating leverage will experience a larger reduction in net operating income in a period of declining sales volume than a company with low operating leverage.
Only statement 3 is true
Which of the following statements is true? If a company uses a predetermined overhead rate, actual manufacturing overhead costs of a period will be recorded in the Manufacturing Overhead account and will be recorded on the job cost sheets. The journal entry for cost of goods manufactured includes the costs of units that are partially completed. Advertising costs should NOT be charged to the Manufacturing Overhead account.
Only statement 3 is true.
Which of the following statements are true? If the activity level increases, then one would expect the fixed cost per unit to increase as well. A fixed cost is a cost whose cost per unit varies as the activity level rises and falls. A decrease in production will ordinarily result in a decrease in fixed production costs per unit.
Only statement II is true
Which of the following statements are true? In a manufacturing company, all costs are period costs. Selling and administrative expenses are period costs under generally accepted accounting principles. The cost of shipping parts from a supplier is considered a period cost.
Only statement II is true
Which of the following statements are true? The variable cost per unit depends on how many units are produced. A step-variable cost is a cost that is obtained in large chunks and that increases or decreases only in response to fairly wide changes in activity.
Only statement II is true
Which of the following statements are true? A fixed cost fluctuates in total as activity changes but remains constant on a per unit basis over the relevant range. The relevant range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.
Only statement II is true.
Which of the following statements are true? Cost behavior is considered curvilinear whenever a straight line is a reasonable approximation for the relation between cost and activity. As activity decreases within the relevant range, fixed costs remain constant on a per unit basis. In account analysis, an account is classified as either variable or fixed based on an analyst's prior knowledge of how the cost in the account behaves.
Only statement III is true.
Which of the following statements are true? Differential costs can only be variable. The potential benefit that is given up when one alternative is selected over another is called a sunk cost. The amount that a manufacturing company could earn by renting unused portions of its warehouse is an example of an opportunity cost.
Only statement III is true.
Which of the following statements are true? Opportunity costs at a manufacturing company are not part of manufacturing overhead. A cost that differs from one month to another is known as a sunk cost.
Only statement Ione is true
Which of the following statements are true? Wages paid to production supervisors would be classified as manufacturing overhead. Indirect costs, such as manufacturing overhead, are variable costs. Selling costs are indirect costs. Administrative costs are indirect costs.
Only statementIone is true.
Refer to the T-account below: Manufacturing OverheadDebitCredit(2)9,000(12)167,000(3)15,000(4)80,000(5)30,000(6)25,000159,000167,000Balance8,000 The ending balance of $8,000 represents which of the following?
Overapplied overhead
Which of the following statements is true? Job-order costing would be more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications. A job-order costing system would be best suited for production of a large quantity of a homogeneous product.
Statement 1 is true.
Which of the following statements is true? When computing the cost per equivalent unit, it is necessary to consider the percentage completion of the units in beginning inventory under the weighted-average method. In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs.
Statement 2 is true
Which of the following statements is true? When materials are purchased in a process costing system, a work in process account is debited with the cost of the materials. The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory.
Statement 2 is true
Which of the following statements is true? Process costing is employed in industries that produce basically homogeneous products such as bricks, flour, or cement but would not be appropriate for assembly-type operations such as those that manufacture computers. A flour manufacturer is more likely to use process costing than job-order costing whereas a manufacturer of customized leather jackets is more likely to use job-order costing than process costing.
Statement 2 is true.
Which of the following statements are true? The costs attached to products that have not been sold are included in ending inventory on the balance sheet. In absorption costing, nonmanufacturing costs are assigned to units of product. Most countries require some form of absorption costing for external reports.
Statements 1 and 3 are true
