Acct Managerial Exam 1

Suppose jobs are completed whose job cost sheets total to $120,000. What account will be debited? a) Manufacturing Overhead $120,000; b) Cost of Goods Sold $120,000; c) Work in Process $120,0 0; d) Finished Goods $120,000.

D. Finished Goods 120,000 Work in Process 120,000

Suppose $20,000 of raw materials is withdrawn from the storeroom to be used in production. Of this amount, $15,000 consists of direct materials and $5,000 consists of indirect materials. What account or accounts will be debited? a) Work in Process $15,000 and Raw Materials $5,000; b) Raw Materials $15,000 and Manufacturing Overhead $5,000; c) Manufacturing Overhead $15,000 and Work in Process $5,000; d) Work in Process $15,000 and Manufacturing Overhead $5,000

D. Work in Process 15,000 Manufacturing Overhead 5,000 Raw Materials 20,000

The term used to describe the cost of goods transferred from work in process inventory to finished goods inventory is: a) cost of goods sold; b) raw materials; c) period cost; d) cost of goods manufactured.

D. Goods that are completed and ready for sale move out of work in process and into finished goods. The cost of such goods is termed cost of goods manufactured.

In order for a cost to be variable, it must vary with either units produced or services provided.

False Activity can be measured in many ways besides units produced and units sold. Examples of other activity measures include miles driven, number of beds occupied in a hospital, and number of flight hours.

In cost analysis, activity is the dependent variable and cost is the independent variable.

False Activity is the independent variable and cost is the dependent variable. Cost depends on activity, not the other way around.

Within the relevant range, the higher the activity level, the lower the average fixed cost per unit

True The average fixed cost per unit becomes progressively smaller as the level of activity increases

The terms product cost and manufacturing costs are synonyms.

True These two terms are synonyms

Suppose $70,000 of wages and salaries is earned by employees. Of this amount, $20,000 consists of direct labor; $10,000 consists of indirect labor; and $40,000 consists of administrative salaries. What account or accounts will be debited? a) Work in Process $20,000 and Manufacturing Overhead $10,000 and Administrative Salary Expense $40,000; b) Direct Labor $20,000 and Indirect Labor $10,000 and Administrative Salary Expense $40,000; c) Work in Process $20,000 and Manufacturing Overhead $50,000; d) Direct Labor $20,000 and Manufacturing Overhead $50,000.

A. Work in Process 20,000 Manufacturing Overhead 10,000 Admin. Salaries Expense 40,000 Salaries Payable 70,000

The costs associated with a company's basic facilities, equipment, and organization are known as: a) committed fixed costs; b) discretionary fixed costs; c) mixed costs; d) variable costs

A. Committed fixed costs relate to basic facilities, equipment, and organization

Most manufacturing overhead costs are direct costs that can be easily traced to a specific job

False

Selling and administrative expenses are charged to the Manufacturing Overhead account.

False

A fixed cost is constant per unit of product

False A fixed cost is constant in total amount; on a per unit basis, it varies inversely with changes in the level of activity

A mixed cost is a cost that contains both manufacturing and non-manufacturing costs.

False Mixed costs contain both variable and fixed cost elements.

A supervisor's salary is classified as direct labor

False Supervisors do not work directly on products and therefore are not classified as direct labor.

Advertising is a committed fixed cost.

False Advertising is a discretionary fixed cost because the company's advertising budget is typically reevaluated on an annual basis.

Contribution margin and gross margin mean the same thing.

False Contribution margin is sales less variable expenses; gross margin is sales less cost of goods sold.

Raw materials are basic natural resources such as crude oil and iron ore

False Raw materials are materials used to make a product - including parts or subassemblies produced by a supplier. They are not necessarily basic natural resources.

The cost of indirect materials used in production is added to the Manufacturing Overhead account rather than added directly to Work in Process

True

The predetermined overhead rate is computed using estimates of overhead cost and the amount of the allocation base for the upcoming period.

True

Underapplied or overapplied overhead is computed by finding the difference between actual overhead costs and the amount of overhead cost applied to Work in Process

True

Sunk costs can either be variable or fixed.

True A sunk cost is a cost that has already been incurred and can be variable or fixed. If obsolete materials have already been purchased, for example, then the cost of the materials is a sunk cost.

Property taxes no factory land and insurance on a factory building are examples of manufacturing overhead

True Manufacturing overhead consists of all production costs except direct materials and direct labor.

Manufacturing overhead is an indirect cost with respect to units of product.

True Manufacturing overhead cost is an indirect cost; only direct materials and direct labor are direct manufacturing costs.

A variable cost is a cost that changes, in total, in proportion to changes in activity level.

True This is the definition of a variable cost.

The predetermined overhead rate is computed using estimates of overhead cost and the amount of the allocation base for the upcoming period.

True overhead costs are charged directly to Work in Process account as the costs are incurred

Which of the following costs is not a period cost? a) indirect materials; b) advertising; c) administrative salaries; d) shipping costs; e) sales commissions.

A. Indirect materials are part of manufacturing overhead and thus are classified as a product cost.

On January l, HesslerCompany's Work in Process account had a balance of $18,000. During the year, direct materials costing $35,000 were placed into production. Direct labor cost for the year was $60,000. The predetermined overhead rate for the year was set at 150% of direct labor cost. Actual overhead costs for the year totaled $92,000. Jobs costing $190,000 to manufacture according to their job cost sheets were completed during the year. On December 31, the balance in the Work in Process inventory account was: a) $13,000; b)$18,000; c) $15,000; d) $8,000.

A. Work In Process Balance 18,000 Finished 190,000 Direct Materials 35,000 Direct labor 60,000 Overhead Applied* 90,000 Balance 13,000*$60,000 X 150% = $90,000

Vonder Inc. has provided the following data concerning its finished goods inventories last month:Beginning finished goods inventory$110,000 Cost of goods manufactured$760,00 Ending finished goods inventory$ 70,000 The cost of goods sold for the month was: a) $800,000; b) $720,000; c) $950,000; d) $280,000.

A. Beg.finished goods inventory $110,000 Add: Cost of Goods Manufactured 760,000 Cost of goods available for sale 870,000 Less: End. finished goods inventory 70,000 Cost of Goods Sold $800,000

Jurden Company bases its predetermined overhead rates on machine-hours. At the beginning of the year, the company estimated $60,000 of manufacturing overhead and 40,000 machine-hours for the year. Actual manufacturing overhead for year amounted to $65,100 and the actual machine-hours totaled 42,000. Manufacturing overhead for the year was: a) underapplied by $2,100; b) overapplied by $3,000; c) underapplied by $3,000; d) overapplied by $5,100.

A. The predetermined overhead rate is $60,000 / 40,000 hours = $1.50 per hou rActual overhead cost$65,100 Applied overhead cost (42,000 hours X $1.50)63,000 Underapplied overhead cost$2,100

Malt Company's Manufacturing Overhead account showed a $10,000 underapplied overhead balance on December 31. Other accounts showed the following amounts of overhead applied from the current period in their ending balances:Work in Process$ 40,000 Finished Goods$ 60,000 Cost of Goods Sold$ 100,000 If the company allocates the underapplied overhead among Cost of Goods Sold, Work in Process, and Finished Goods, the amount allocated to Work in Process was: a) $2,000; b) $4,000; c) $1,600; d) $1,800.

A. Work in Process $40,000 20% Finished goods 60,000 30% Cost of goods sold 100,000 50% Total Cost $200,000 100%

Suppose $30,000 of raw materials is purchased. What account is debited? a) Work in Process inventory; b) Raw Materials inventory; c) Cost of Goods Sold; d) Manufacturing Overhead

B. Raw Materials 30,000 Cash or Accounts Payable 30,000

Juniper Company has provided the following data concerning its manufacturing costs and work in process inventories last month: Raw materials used in production$270,000 Direct labor$140,000 Manufacturing overhead$190,000 Beginning work in process inventory.$ 50,000 Ending work in process inventory$ 80,000 The cost of goods manufactured for the month was: a) $730,000; b) $630,000; c) $600,000; d) $570,000.

D. The computations are as follows: Raw materials used in production$270,000 Direct labor 140,000 Manufacturing Overhead 190,000 Total Manufacturing costs$600,000 Add: Beg. Work in Process Inventory 50,000 650,000 Less: End. Work in Process Inventory 80,000 Cost of goods manufactured$570,000

Which of the following is an example of a discretionary fixed cost? a) depreciation on equipment; b) rent on a factory building; c) salaries of top management; d) items a, b, and c are discretionary fixed costs; e) none of the above

E. All of the listed costs are generally considered to be committed fixed costs.

All selling and administrative costs are period costs.

True Selling and administrative costs are period costs because they are charged against income in the period in which they are incurred.

The contribution approach to the income statement organized costs according to behavior, rather than according to function

True The contribution approach groups variable costs together and fixed costs together; thus, the income statement is organized according to cost behavior.

Nonmanufacturing costs consist of selling costs and administrative costs.

True True by definition

Discretionary fixed costs arise from annual decisions by management to spend in certain areas

True Discretionary fixed costs are reevaluated each year by management.

A company producing many different kinds of furniture would probably use a job-order cost system.

True

A debit balance in the Manufacturing Overhead account at the end of a period means that overhead was under applied for the period.

True

A job cost sheet is used to accumulate the costs charged to a particular job

True

Factory depreciation is included in assets on the balance sheet if goods are uncompleted or unsold at the end of the year

True

If more manufacturing overhead is applied to Work in Process than is actually incurred, then overhead cost is over applied

True

Cost of goods manufactured is an expense in a manufacturing company

False

Walston Manufacturing Company has provided the following data concerning its raw materials inventories last month:Beginning raw materials inventory$ 80,000 Purchases of raw materials$420,000 Ending raw materials inventory$ 50,000. The cost of the raw materials used in production for the month was: a) $500,000; b) $450,000; c) $390,000; d) $470,000.

B. The computations are as follows: Beginning raw materials inventory$80,000 Add: Purchases of raw materials 420,000 Raw materials available for use 500,000 Less: Ending raw materials inventory 50,000 Raw Materials used in production$450,000

Cost of Goods Manufactured represents: a) the amount of cost charged to Work in Process during the period; b) the amount transferred from Work in Process to Finished Goods during the period; c) the amount of cost placed into production during the period; d) none of these.

B. The cost of goods manufactured represents the cost of goods competed during the period; thus, it is the amount transferred from Work in Process to Finished Goods

All the following are product costs for financial reporting except: a) indirect materials; b) advertising; c) rent on factory space; d) idle time

B. Advertising is a period cost rather than a product cost.

If the activity level drops by 5%, variable costs should: a) increase per unit of product; b) drop in total by 5%; c) remain constant in total; d) decrease per unit of product

B. By definition, total variable cost changes in proportion to changes in the activity level.

If the activity level increases, one would expect the fixed cost per unit to: a) increase; b) decrease; c) remain unchanged; d) none of these

B. The fixed cost per unit should drop as activity increases because a constant amount is spread over more units.

In a job-order costing system, the basic document for accumulating costs for a specific job is: a) the materials requisition form; b) the job cost sheet; c) the Work in Process inventory account; d) the labor time ticket

B. The job cost sheet is used to accumulate direct materials, direct labor, and overhead costs

Suppose a total of $30,000 of overhead is applied to jobs. What account will be debited? a) Manufacturing Overhead $30,000; b) Cost of Goods Sold $30,000; c) Work in Process $30,000;d) Finished Goods $30,000.

C. Work in Process 30,000 Manufacturing Overhead 30,000

Manufacturing cost is synonymous with all of the following terms except: a) product cost; b) inventoriable cost; c) period cost; d) direct materials, direct labor, and manufacturing cost.

C. A period cost is charged against the period in which the cost is incurred; it has nothing to do with manufacturing a product

Manufacturing cost is synonymous with all of the following terms except: a) product cost; b) inventoriable cost; c)period cost; d) direct materials, direct labor, and manufacturing cost.

C. A period cost is charged against the period in which the cost is incurred; it has nothing to do with manufacturing a product

A company's cost formula for maintenance is Y = $4000 + 3X, where X is machine - hours. During a period in which 2,000 machine-hours are worked, the expected maintenance cost would be: a) $12,000; b) $6,000; c) $10,000; d) $4,000

C. Fixed Cost = $4,000Variable cost = $6,000 (2000 hours X $3 per hours)Total Cost = $10,000

If overhead is overapplied for a period, it means that: a) the predetermined overhead rate used to apply overhead cost to Work in Process was too low; b) the company incurred more overhead cost than it charged to Work in Process; c) too much cost has been assigned to jobs; d) none of these.

C. If overhead is overapplied, then more overhead cost has been added to jobs than has been incurred. Therefore, too much overhead cost will have been assigned to jobs.

Last year, a company reported estimated overhead of $100,000, actual overhead of $90,000, and applied overhead of $92,000. The company's manufacturing overhead cost for the year was: a) underapplied, $10,000; b) underapplied, $8,000; c) overapplied, $2,000; d) overapplied, $10,000

C. Underapplied or overapplied overhead represents the difference between actual overhead cost and applied overhead cost.The computation in this case is: Actual overhead cost$90,000 Less: Applied overhead cost 92,000 Underapplied overhead cost$(2,100)

Last year, Barker Company's sales were $240,000, its fixed costs were $50,000, and its variable costs were $2 per unit. During the year, 80,000 units were sold. The contribution margin was: a) $200,000; b) $240,000; c) $30,000; d) $80,000

D. Sales = $240,000Less: Variable Costs = $160,000 (80,000 units X $2 per unit)Contribution Margin = $80,000

Actual manufacturing overhead costs are charged directly to Work in Process account as the costs are incurred

False

Any balance in the Work in Process account at the end of a period should be closed to Cost of Goods Sold

False