Cost Exam 3 MC

Cost-allocation base

A factor that links in a systematic way an indirect cost or group of indirect costs to a cost object

Cost Pool

A grouping of individual indirect cost items

Which of the following companies is most likely to use process costing? a. Effel & Associates, a consulting firm providing various audit and related services b. Dental Bright Inc., a company manufacturing and selling toothpaste on a large scale c. Crimpson Color, a company selling customized garments for niche customers d. Grimpy Corp., a company manufacturing furniture for customers as per their requirements

b. Dental Bright Inc., a company manufacturing and selling toothpaste on a large scale

The J/E for transfer from Department B to finished goods is: Debit WIP - Department B; Credit Finished Goods control a. True b. False

b. False

What is the first step in process costing when equivalent units are computed?

Summarize the flow of physical units of output

What is the third step in process costing when equivalent units are computed?

Summarize total costs to account for

Cost Tracing

The assigning of direct costs to the chosen cost object

Cost Allocation

The assigning of indirect costs to the chosen cost object

Transferred-in costs are treated as if they are: a. a separate direct material added at the beginning of the process b. conversion costs added at the beginning of the process c. direct labor costs added at the beginning of the process d. costs of beginning inventory added at the beginning of the process

a. a separate direct material added at the beginning of the process

Which of the following reasons explain why ABC concepts may be of great value to service companies? a. a significant portion of the cost structure of a service firm is composed of indirect costs b. it promotes more accurate costs of goods sold reporting c. it helps make financial reporting more accurate d. it allows for more accurate cost accounting for inventory

a. a significant portion of the cost structure of a service firm is composed of indirect costs

_________________ is considered while choosing a cost allocation base for activity costs in ABC costing. a. availability of reliable data and measures b. marketing strategy and material price level c. product price level d. market share of a product

a. availability of reliable data and measures

When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base. A. budgeted; actual B. budgeted; budgeted C. actual; budgeted D. actual; actual

a. budgeted; actual

For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that: a. indirect costs of another product are misallocated b. direct costs of another product are misallocated c. direct labor costs of the product are misallocated d. direct material costs of the product are misallocated

a. indirect costs of another product are misallocated

In a normal costing system, the manufacturing overhead control account ________ a. is debited with actual overhead costs b. is credited with amounts transferred to Work-in-Process c. is increased by allocated manufacturing overhead d. is decrease by allocated manufacturing overhead

a. is debited with actual overhead costs

A manufacturer of luxury yachts would use which type of costing system? a. job costing b. process costing c. neither job or process d. both job or process

a. job costing

Which of the following companies will use a process costing system? a. oil refining company b. manufacturer of ships c. custom kitchen cabinet company d. advertising firm

a. oil refining company

Overcosting a particular product may result in: a. pricing the product to high b. understating total product costs c. pricing the product too low d. operating efficiencies

a. pricing the product to high

Select examples of two cost objects in companies using job costing a. product such as a specialized machine and a service such as a repair job b. cost pool and cost allocation base c. product such as a repair job and a project such as an advertising campaign d. direct costs and indirect costs

a. product such as a specialized machine and a service such as a repair job

______________are the costs of activities undertaken to support individual products or services regardless of the number of units or batches in which the units are produced a. product-sustaining costs b. facility-sustaining costs c. batch-level costs d. unit-level costs

a. product-sustaining costs

An assumption of the FIFO process-costing method is that: a. the units in beginning inventory are assumed to be completed first b. the units in beginning inventory are not necessarily assumed to be completed by the end of the period c. ending inventory will always be computed in the next accounting period d. no calculation of conversion costs is possible

a. the units in beginning inventory are assumed to be completed first

Management accountants use the cost hierarchy to first calculate the ___________ a. total costs of each product and then they compute per-unit costs b. labor costs of each product and they they compute material costs c. factory costs of each product and then they compute labor costs d. overhead costs of each product and then they compute prime costs

a. total costs of each product and then they compute per-unit costs

ABC can be used in routine planning and control decisions as well as pricing, product mix and cost cutting decisions. a. true b. false

a. true

Examples of industries that would use process costing include the pharmaceutical and semiconductor industry. a. true b. false

a. true

If the manufacturing overhead has been overallocated during the year, it means the jobs have been overcosted. a. true b. false

a. true

In hybrid-costing systems, managers use process costing to account for the conversion costs and job costing for the material and customizable components. a. true b. false

a. true

It is easier to allocate indirect costs to products that actually caused those costs if an ABC system is used rather than a traditional costing system. a. true b. false

a. true

Managers often reap benefits by using ABC data in ABM to pinpoint opportunities to cut costs. a. true b. false

a. true

Product-level activities and costs are incurred for a particular product, regardless of the number of units or batches of the product produced. a. true b. false

a. true

The benefits of adopting ABC/ABM are higher for companies in competitive markets. a. true b. false

a. true

The weighted-average method of process costing is simpler than the FIFO method. a. true b. false

a. 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. a. true b. false

a. true

Unit-level activities and costs are incurred for every single unit. a. true b. false

a. true

With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products. a. true b. false

a. true

The purpose of the equivalent-unit computation is: a. use a common metric to estimate the amount of work done on units in a period b. convert completed units into the amount of partially completed output units that could be made with the quantity of input c. satisfy the GAAP requirements which require all partially completed goods to be reported as equivalent-units d. predict the future production capabilities of the organization

a. use a common metric to estimate the amount of work done on units in a period

Refining a cost system involves which of the following? a. creating as many cost pools as possible to capture all costs b. classifying as many costs as indirect costs as is feasible c. identifying the activities involved in a process and understanding how those activities consume resources d. seeking an easier and more cost effective way to calculate average costs

c. identifying the activities involved in a process and understanding how those activities consume resources

Which of the following statements is true? a. in a job-costing system, overheads are allocated to all units equally b. in a process-costing system, individual jobs use different quantities of production resources c. in a process-costing system, each unit uses approximately the same amount of resources d. in a job-costing system, average production cost is calculated for all units produced

c. in a process-costing system, each unit uses approximately the same amount of resources

Which of the following is a sign that a product cost system is not working properly? a. the cost system was installed 5 years ago b. the cost system is fully depreciated c. managers don't understand costs and profits d. the cost system has multiple allocation bases

c. managers don't understand costs and profits

Indirect material and indirect labor are ___________ for a manufactured product. a. operating and period costs b. overhead and period costs c. overhead and product costs d. operating and product costs

c. overhead and product costs

Which of the following cost and cost allocation base have a strong cause and effect relationship? a. machine maintenance and setup hours b. administration costs and cubic feet c. quality control costs and the number of inspections d. setup costs and square feet

c. quality control costs and the number of inspections

ABC costing can eliminate cost distortions because ABC systems_______ a. use single cost pool for all overhead costs, thereby enabling simplicity b. use a broad average to allocate all overhead costs c. never consider interactions between different departments in assigning support costs d. establish a cause-and-effect relationship with the activities performed

d. establish a cause-and-effect relationship with the activities performed

Which of the following is true of refinement of a cost system? a. It is likely to yield the most decision-making benefits when direct costs are a high percentage of total costs b. while refining a costing system, companies should identify as many indirect costs as is economically feasible c. a homogenous cost pool will use multiple cost drivers to allocate costs d. it reduces the use of broad averages for assigning the cost of resources to cost objects

d. it reduces the use of broad averages for assigning the cost of resources to cost objects

Which of the following is true of the Work-in-Process Control account? a. it is an expense account b. it tracks overhead costs in-process from beginning through completion c. it tracks all direct material purchases d. its balance is the sum of amounts from all in-process individual job-cost records

d. its balance is the sum of amounts from all in-process individual job-cost records

A distinct feature of the FIFO process-costing method is that: a. FIFO process-costing method is only minimally different from the weighted-average process-costing method b. 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 c. 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 d. 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

d. 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

Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua? a. Aqua will undercost Alpha's indirect costs because alpha has high direct costs b. Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs c. Aqua will overcost Beta's indirect costs because beta has high indirect costs d. Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs

b. Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs

What is the fifth step in process costing when equivalent units are computed?

Assign total costs to units completed and to units in ending work in process

identify the reason(s) why most organizations use an annual period rather than a weekly or monthly period to compute the budgeted indirect-costs rates. a. the numerator reason - the longer time period, the less influence of seasonal patterns in indirect overhead costs b. the denominator reason - the longer the time period, the less the effect of variation in output levels or quantities of the cost-allocation bases on the allocation of fixed costs c. time is needed to collect data on all of the costs and a weekly or monthly period is not long enough to gather the information needed d. both A and B

Both A and B

What is the fourth step in process costing when equivalent units are computed?

Compute cost per equivalent unit

What is the second step in process costing when equivalent units are computed?

Compute output in terms of equivalent units

identify the main difference between journal entries in process costing and job costing. a. The J/E in process costing is posted to record the number of units as they are moved from one department to another. J/E in job costing is posted to record costs rather than the number of units b. there is often more than one WIP account in process costing - one for each process c. The weighted-average method is used for the J/E in process costing while the FIFO method is used for J/E in job costing d. the J/E in process costing are the same as those made in job costin

b. There is often more than one WIP account in process costing - one for each process

In the service sector_______ a. normal costing may not be used b. a budgeted direct-labor cost rate may be used to apply direct labor to jobs c. overhead is generally applied using an actual cost-allocation rate d. direct labor costs are always easy to trace to jobs

b. a budgeted direct-labor cost rate may be used to apply direct labor to jobs

In a process-costing system average unit costs are calculated___________________ a. by dividing total costs in a given accounting period by units started in that period b. by dividing total costs in a given accounting period by total units produced in that period c. by multiplying total costs in a given accounting period by units started in that period d. by multiplying total costs in a given accounting period by total units produced in that period

b. by dividing total costs in a given accounting period by total units produced in that period

How do you calculate allocated manufacturing overhead to a certain job? a. by multiplying the predetermined manufacturing overhead rate by the estimate allocation base to be used by the job b. by multiplying the predetermined manufacturing overhead rate by the actual allocation base used by the job c. by multiplying the estimated manufacturing overhead rate by the actual allocation base used by the job d. by multiplying the total estimated manufacturing overhead by the total estimated allocation base to be used

b. by multiplying the predetermined manufacturing overhead rate by the actual allocation by used by the job

For which of the following industries would job-order costing most likely not be appropriate? a. small business printing b. Cereal production c. Home contruction d. aircraft assembly

b. cereal production

Which of the following best describes transferred-in costs? a. they are value-added costs that are only considered in the FIFO process costing system b. costs incurred in a previous department or process that are carried forward as the product's cost as that product moves to another department or process in the production cycle c. they are the cost of transferring products from a vendor d. they are the shipping costs related to finished goods that are transported to a customer's location

b. costs incurred in a previous department or process that are carried forward as the product's cost as that product moves to another department or process in the production cycle

It is usually difficult to find good cost driver between___________and a cost allocation base a. product-sustaining costs b. facility-sustaining costs c. batch-level costs d. unit-level costs

b. facility-sustaining costs

Identification of a cost-allocation base is not a critical element when using a strategy that will refine a costing system. a. true b. false

b. false

In a process costing environment, direct materials and direct labor are usually combined into one cost category called conversion costs. a. true b. false

b. false

The number of equivalent units is usually the same for direct materials and conversion costs a. true b. false

b. 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. a. true b. false

b. false

Unique or custom-made goods use a process costing system. a. true b. false

b. false

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

Expected direct costs amount to $9,510,000 for the period. Support cost requirements of both products are substantially different from one another. Canton uses ABC costing. Which of the following statements is true of implementing an ABC system? a. The three guidelines for refining costing systems should be ignored while implementing an ABC costing system b. identifying the cost-allocation bases defines the number of activity pools into which cost must be grouped in an ABC system c. Managers should never compromise on the cause-and-effect relationship of cost drivers and costs d. the heterogenous cost pools give managers greater confidence in the activity and product cost numbers from the ABC system

b. identifying the cost-allocation bases defines the number of activity pools into which cost must be grouped in an ABC system

Service firms develop a predetermined rate for some costs. This rate is called the a. labor rate b. indirect cost allocation rate c. direct cost rate d. hourly cost rate

b. indirect cost allocation rate

Select the major advantage of the FIFO method for purposes of planning and control. a. Its ease of use for process industries that produce a wide variety of similar products and in complex conditions b. Managers can judge the performance in the current period independently from the performance of the proceeding period c. relative computational simplicity and its reporting of a more-representative average unit cost when input prices fluctuate markedly from month to month d. all of the above

b. managers can judge the performance in the current period independently from the performance in the preceding peiod

Which of the following is NOT a way in which management can use job cost information? a. preparing financial statements b. assessing and comparing the profitability of each product type c. determining the balance in raw materials inventory d. using the cost information in determining the bid price for custom orders

c. determining the balance in raw materials inventory

A golf shoe manufacturer makes and sells thousands of golf shoes each year through two​ channels: wholesale to sporting good stores and direct to consumers through​ it's custom portal. Customers can specify modifications to 6 basic golf shoe models including spiked or​ spikeless, traditional or​ casual, even laced or other closures. From​ there, customers can specify many details to their preferred model such as size and width​ (different for each​ foot), favorite colors for the​ base, saddle, accents and laces. A customer can choose to embroidered a name or initials or include the logo of their favorite​ MLB, NFL, NHL or NCAA team. Which of the following costing systems would make the most sense for the custom golf shoe operation and the main product operation​ (not customized/wholesale)? a. process costing for both operations b. operation-costing and process costing c. job costing for both operations d. operation-costing and job costing

b. operation costing and process costing

Which of the following is a sign that an ABC system may be useful for an organization? a. many indirect costs are described as batch-level costs, product-sustaining costs, or facility-sustaining costs b. operations staff disagrees with accountants about the costs of manufacturing and marketing products and services c. products make similar demands on resources because of similarities in volume, process steps, batch size, or complexity d. significant amounts of indirect costs are allocated using multiple cost pools

b. operations staff disagrees with accountant about the costs of manufacturing and marketing products and services

It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that_______________ a. total costs reflect market price b. product-pricing errors are minimal c. there is high likelihood of cross-subsidizing of product costs d. value-added cost can be eliminated

b. product-pricing errors are minimal

Which of the following is true with activity based accounting? a. chances of product-cost cross-subsidization are higher in activity-based costing compared to traditional costing systems b. the focus is on activities that account for a sizable fraction of indirect costs c. activity-based costing ignores the allocation of marketing and distribution costs d. activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products

b. the focus is on activities that account for sizeble fraction of indirect costs

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 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 d. ABC systems accumulate overhead costs by department

c. ABC costing systems have separate indirect cost allocation rates for each activity

Which of the following statements about ABC is not true? a. a byproduct of ABC implementation can improve the efficiency of operations b. ABC may empower employees to also implement cost saving projects c. ABC should be implemented solely by the accountants as they are the guardians of the accounting information system d. although implementation of ABC can be a refinement of a cost system, it has its limitations

c. ABC should be implemented solely by the accountants as they are the guardians of the accounting information system

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

When costs are assigned using the single cost driver, number of pages printed, then________________ a. Money Managers will likely seek to do business with competitors b. Excellent Printers will want to retain this highly profitable customer c. Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed d. Money Managers is unfairly over billed for its use of printing resources

c. Money Managers is grossly under billed for the job, while other jobs will be unfairly over billed

Which of the following companies is most likely to use an operation-costing system? a. a furniture making company which makes furniture pieces as per the specifications of the customers b. a company that has been awarded a contract to construct a bridge for the government c. a company that makes suits for which the basic design is the same, but depending on the specifications, each batch of suits varies somewhat from other batches d. a company involved in manufacturing of ball bearing on a large scale

c. a company that makes suits for which the basic design is the same, but depending on the specifications, each batch of suits varies somewhat from other batches

In a costing system,________ a. a cost object should be a product and not a department or a geographic territory b. cost allocation assigns direct costs c. a cost-allocation base can be either financial or nonfinancial d. cost tracing allocates indirect costs

c. a cost-allocation base can be either financial or nonfinancial

When is the predetermined manufacturing overhead rate computed? a. during the period b. con be done at any time c. before the period starts d. at the end of the period

c. before the period starts

The costs of adopting ABC may be lower for some companies than for others. This situation may occur: a. when a company has the accounting and information system expertise to develop the system b. when a company has the information technology to record and compile cost driver data c. both a & b d. none of the above

c. both a & b

What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor plant? a. 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 b. 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 c. 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 d. all of the above

c. 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

With traditional costing systems, products manufactured in small batches and in small annual volumes may be________because batch-related and product-sustaining costs are assigned using unit-related drivers a. fairly costed b. ignored c. undercosted d. overcosted

c. undercosted

The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $40 per labor hour. Nichols' management is considering to implement ABC system because__________. a. ABC provides more accurate direct cost figures b. ABC requires minimal expertise to operate c. ABC can be implemented cheaply d. ABC is a highly refined costing system

d. ABC is a highly refined costing system

When a Bakery transfers goods from the Mixing Department to the Baking Department, the accounting entry would be ________. a. Debit WIP - mixing department; Credit A/P b. Debit WIP - baking department; Credit A/P c. Debit WIP - mixing department; Credit WIP - baking department d. Debit WIP - baking department; Credit WIP - mixing department

d. Debit WIP - baking department; Credit WIP - mixing department

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

Indications that a product cost system needs revision includes: a. employees do not believe the cost numbers are accurate b. managers lose bids they expected to win and win bids they expected to lose c. the company uses a single-allocation-base system developed long ago d. all of the above

d. all of the above

Most companies adopt ABC in order to: a. get a more accurate price of products b. cut costs c. help make product mix decisions d. all of the above

d. all of the above

In developing an ABC system, what is the last step? a. identify the primary activities and estimate a total cost pool for each b. select an allocation base for each activity c. calculate an activity cost allocation rate for each activity d. allocate the costs to the cost object using the activity cost allocation rates

d. allocate the costs to the cost object using the activity cost allocation rates

A ________________ is the primary factor that causes a cost to be incurred. a. materials requisition b. predetermined manufacturing overhead rate c. cost allocatioin d. cost driver

d. cost driver

The actual indirect-cost rate is calculated by________ a. dividing the actual total quantity of the cost allocation base by actual total indirect costs b. multiplying actual total indirect costs by the actual total quantity of the cost-allocation base c. multiplying the actual total quantity of the cost allocation base by actual total indirect costs d. dividing actual total indirect costs by the actual total quantity of the cost-allocation base

d. dividing actual total indirect costs by the actual total quantity of the cost-allocation base