EQE Chapter 1 Copy

The following cost data were taken from the records of a manufacturing company: Depreciation on factory equipment $ 1,000 Depreciation on sales office 500 Advertising 7,000 Freight-out (shipping) 3,000 Wages of production workers 28,000 Raw materials used 47,000 Sales salaries and commissions 10,000 Factory rent 2,000 Factory insurance 500 Materials handling 1,500 Administrative salaries 2,000 Based upon this information, the manufacturing cost incurred during the year was

$80,000

West Co.'s manufacturing costs for the month just ended were as follows: Direct materials and direct labor $700,000 Other variable manufacturing costs 100,000 Depreciation of factory building and manufacturing equipment 80,000 Other fixed manufacturing overhead 18,000 What amount should be considered product cost for external reporting purposes?

$898,000

An example of a carrying cost is

Spoilage.

Following are Mill Co.'s production costs for the month just ended: Direct materials $100,000 Direct labor 90,000 Factory overhead 4,000 What amount of costs should be traced to specific products in the production process?

$190,000

The following information appeared in the accounting records of a retail store for the previous year: Sales $300,000 Purchases 140,000 Inventories January 1 70,000 December 31 100,000 Sales commissions 10,000 The gross margin was

$190,000

Data from the duplicating department of a company for the last 2 months are as follows: Number of Duplicating Copies Made Department's Costs January 100,000 $8,500 February 150,000 9,500 What is total variable cost at 110,000 copies?

$2,200

Fixed manufacturing overhead costs totaled $150,000 and variable selling costs totaled $75,000. How should these costs be classified under variable costing?

$225,000 period costs; $0 product costs.

The following information pertains to the manufacturing activities of Griss Co. during the month just ended: Beginning work-in-process (BWIP) $12,000 Ending work-in-process (EWIP) 10,000 Cost of goods manufactured (COGM) 97,000 Direct materials issued to production 20,000 Factory overhead is assigned at 150% of direct labor cost. What was the direct labor cost incurred?

$30,000

Madtack Company's beginning and ending inventories for the month of November areNovember 1 November 30 Direct materials $ 67,000 $ 62,000 Work-in-process 145,000 171,000 Finished goods 85,000 78,000 Production data for the month of November follows: Direct labor $200,000 Actual manufacturing overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns and allowances 2,000 Madtack uses one overhead control account and charges overhead to production at 70% of direct labor cost. The company does not formally recognize over- or underapplied overhead until year end. Madtack Company's prime cost for November is

$370,000

Glen Company has the following data pertaining to the year ended December 31: Purchases $450,000 Beginning inventory 170,000 Ending inventory 210,000 Freight-in 50,000 Freight-out 75,000 How much is the cost of goods sold for the year?

$460,000

Madtack Company's cost of goods transferred to finished goods inventory for November is

$484,000

A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The firm's manufacturing cost variance was

$5,000 favorable.

Madtack Company's total manufacturing cost for November is

$510,000

Based on the following data, what is the gross profit for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 Beginning Ending Inventory Inventory Work-in-process $500,000 $400,000 Finished goods 100,000 500,000

$600,000

Madtack Company's net charge to overhead control for the month of November is

$8,000 credit, overapplied.

Hoyt Co. manufactured the following units: Salable 5,000 Unsalable (normal spoilage) 200 Unsalable (abnormal spoilage) 300 Manufacturing costs totaled $99,000. What amount should Hoyt debit to finished goods?

$93,600

When the number of units manufactured increases, the most significant change in average unit cost will be reflected as

A decrease in the nonvariable element.

A cost that always can be directly traced to a cost object is

A prime cost.

A fixed cost that would be considered a direct cost is

A production supervisor's salary when the cost object is the Production Department.

Which of the following are usually considered period costs?

A. Sales materials, advertising costs, Sales commissions, admin supplies expense, admin labor, depreciation on admin building, cost of research on customer demographics

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is

Activity-based costing.

The professional certification program most suited for one interested in a career in management accounting leads to which of the following designations?

CMA.

Period costs

Are always expensed in the same period in which they are incurred.

Unit fixed costs

Are determined by dividing total fixed costs by a denominator such as production or sales volume.

Controllable costs

Are primarily subject to the influence of a given manager of a given responsibility center for a given time span. Answer (B) is correct. Controllable costs can be changed by action taken at the appropriate management (responsibility) level. Controllability is determined at different levels of the organization and is not inherent in the nature of a given cost. For example, an outlay for new machinery may be controllable to the division vice president but noncontrollable to a plant manager or lower-level manager.

Inventoriable costs

Are regarded as assets before the products are sold.

Costs that increase as the volume of activity decreases within the relevant range are

Average costs per unit.

Integrity is an ethical requirement for all IMA members. One aspect of integrity requires

Avoidance of apparent conflicts of interest.

Which one of the following best describes direct labor?

Both a product cost and a prime cost.

The segmented income statement for a retail company with three product lines is presented below: Total Product Product Product Company Line 1 Line 2 Line 3 Volume (in units) 20,000 28,000 50,000 Sales revenue $2,000,000 $800,000 $700,000 $500,000 Costs & expenses: Administrative $ 180,000 $ 60,000 $ 60,000 $ 60,000 Advertising 240,000 96,000 84,000 60,000 Commissions 40,000 16,000 14,000 10,000 Cost of sales 980,000 360,000 420,000 200,000 Rent 280,000 84,000 140,000 56,000 Salaries 110,000 54,000 32,000 24,000 Total costs & expenses $1,830,000 $670,000 $750,000 $410,000 Operating profit (loss) $ 170,000 $130,000 $(50,000) $ 90,000 The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result, the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The segmented income statement for this retail company does not facilitate performance evaluation because it does not distinguish between controllable and uncontrollable costs. The only costs and expenses controllable at the product-line level for this retail company are

Commissions, cost of sales, and salaries.

The costs included in Huron's fixed overhead are

Committed costs.

According to the IMA Statement of Ethical Professional Practice, a member has a responsibility to recognize and help manage risk. Under which standard of ethical conduct would this responsibility be included?

Competence.

In accordance with the IMA Statement of Ethical Professional Practice, a member who fails to perform professional duties in accordance with relevant standards is acting contrary to which one of the following standards?

Competence.

IMA Statement of Ethical Professional Practice requires an IMA member to follow the established policies of the organization when faced with an ethical conflict. If these policies do not resolve the conflict, the member should

Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.

Indirect materials are a

Conversion Cost - Yes Manufacturing Cost - Yes Prime Cost - No

The fixed portion of the semivariable cost of electricity for a manufacturing plant is a

Conversion Cost - Yes Product Cost - Yes

Indirect labor is a

Conversion cost.

If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

Conversion costs.

The salary of the line supervisor in the assembly division of an automobile company should be included in

Conversion costs.

For a retailer, the income statement includes cost of goods sold. Cost of goods sold is, in effect, purchases adjusted for changes in inventory. For a manufacturer, purchases is replaced by

Cost of goods manufactured.

Conversion cost pricing

Could be used when the customer furnishes the material used in manufacturing a product.

Which ethical standard is most clearly violated if an IMA member knows of information that could mislead users but does not report the deficiency?

Credibility.

Theoretically, cash discounts permitted on purchased raw materials should be

Deducted from inventory, whether taken or not.

A company will produce 20,000 units of product A at a unit variable cost of $7 and a unit selling price of $13. Fixed costs are $40,000. However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different product B, which it can sell for $7 per unit. The incremental variable cost of producing a unit of B is $6. Present fixed costs that will be allocated to B amount to $10,000. To decide whether to produce B, the company should use

Differential cost analysis. Answer (A) is correct. Nonroutine decisions involve such questions as whether to make or buy or accept a special order. These decisions should be made in part on the basis of relevant costs. Analysis of differential costs is therefore essential. The difference between the relevant costs of two decision choices is differential (incremental) cost.

Wages earned by machine operators in producing the firm's product should be categorized as

Direct Labor Controllable by the Machine Operators' Supervisor A.Yes Yes

Which of the following costs includes all the product costs?

Direct material and conversion costs.

Conversion costs do not include

Direct materials. Answer (B) is correct. Conversion costs are necessary to convert materials into finished products. They include all manufacturing costs, for example, direct labor and manufacturing overhead, other than direct materials.

The advertising and promotion costs for the product selected by Huron will be

Discretionary costs.

If an IMA member has a problem in identifying unethical behavior or resolving an ethical conflict, the first action (s)he should normally take is to

Discuss the problem with his or her immediate superior.

Cost and managerial accounting systems are goods in the economic sense and, as such, their benefits must exceed their costs. When managerial accounting systems change, the cost that is frequently ignored is the cost of

Educating users.

The IMA Statement of Ethical Professional Practice includes a competence standard. It requires an IMA member to

Enhance his or her skills.

When production levels are expected to increase within a relevant range, what effect would be anticipated with respect to each of the following?

FC per Unit - Decrease VC per Unit - No change

In practice, items such as wood screws and glue used in the production of school desks and chairs would most likely be classified as

Factory overhead.

The treasury function usually is not responsible for

Financial reporting.

A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the demand for the company's only product, the Widget, have never been predictable. Lately, the company's market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is the

Fixed cost component of the full cost.

Depreciation based on the straight-line method is classified as what type of cost?

Fixed.

Just-in-time manufacturing practices are based in part on the belief that

Goods should be "pulled" through the production process, not "pushed."

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the

Greater contribution margin per hour of manufacturing capacity.

The primary reason for adopting total quality management is to achieve

Greater customer satisfaction.

The difference between the $99.98 suggested selling price for Huron's Product B and its total unit cost of $88.00 represents the unit's

Gross profit.

Quo Co. rented a building to Hava Fast Food. Each month Quo receives a fixed rental amount plus a variable rental amount based on Hava's sales for that month. As sales increase, so does the variable rental amount but at a reduced rate. Which of the following curves reflects the monthly rentals under the agreement?

I

Which one of the following costs would be relevant in short-term decision making?

Incremental fixed costs.

For product costing purposes, the cost of production overtime caused by equipment failure that represents idle time plus the overtime premium should be classified as a(n)

Indirect cost.

Common costs are

Indirect costs.

The controller is responsible for directing the budgeting process. In this role, the controller has significant influence with executive management as individual department budgets are modified and approved. For the current year, the controller was instrumental in the approval of a particular line manager's budget without modification, even though significant reductions were made to the budgets submitted by other line managers. As a token of appreciation, the line manager in question has given the controller a gift certificate for a popular local restaurant. In considering whether or not to accept the certificate, the controller should refer to which section of IMA Statement of Ethical Professional Practice?

Integrity.

What is the nature of work-in-process?

Inventory.

Controllers ordinarily are not responsible for

Investor relations.

Life-cycle costing

Is sometimes used as a basis for cost planning and product pricing.

Companies characterized by the production of heterogeneous products will most likely use which of the following methods for the purpose of averaging costs and providing management with unit cost data?

Job-order costing.

The perpetual inventory method

Maintains a continuous record of transactions affecting the inventory balances.

The wages of the factory janitorial staff should be classified as

Manufacturing overhead cost.

The total overhead cost of $27.00 for Huron's Product B is a

Mixed cost.

When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the

Opportunity cost.

The relevance of a particular cost to a decision is determined by

Potential effect on the decision.

Which one of the following categories of cost is most likely not considered a component of fixed factory overhead?

Power.

Management accounting differs from financial accounting in that financial accounting is

Primarily concerned with external financial reporting

Huron Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected. Huron's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to products. Product A Product B Raw materials $ 44.00 $ 36.00 Machining @ $12/hr. 18.00 15.00 Assembly @ $10/hr. 30.00 10.00 Variable overhead @ $8/hr. 36.00 18.00 Fixed overhead @ $4/hr. 18.00 9.00 Total cost $ 146.00 $ 88.00 Suggested selling price $ 169.95 $ 99.98 Actual R&D costs $240,000 $175,000 Proposed advertising and promotion costs $500,000 $350,000 For Huron's Product A, the unit costs for raw materials, machining, and assembly represent

Prime costs.

Companies characterized by the production of basically homogeneous products will most likely use which of the following methods for the purpose of averaging costs and providing management with unit-cost data?

Process costing.

Which of the following is assigned to goods that were either purchased or manufactured for resale?

Product cost.

All costs related to the manufacturing function in a company are

Product costs.

A review of accounting records for last year disclosed the following selected information: Variable costs: Direct materials used $ 56,000 Direct labor 179,100 Manufacturing overhead 154,000 Selling costs 108,400 Fixed costs: Manufacturing overhead 267,000 Selling costs 121,000 Administrative costs 235,900 In addition, the company suffered a $27,700 uninsured factory fire loss during the year. What were the product costs and period costs for last year?

Product: $656,100 Period: $493,000

Internal auditors must often distinguish between product costs and period costs. Product costs are properly assigned to inventory when incurred. Period costs are always expensed in the same period in which they are incurred. Which of the following items is a product cost for a manufacturing company?

Property taxes on a factory.

The IMA Statement of Ethical Professional Practice includes an integrity standard. It requires an IMA member to

Refrain from conduct that prejudices the ability to perform duties ethically.

All of the following would be considered manufacturing overhead costs by a book publisher except

Rent on the warehouse containing the finished books inventory.

Which one of the following is least likely to be an objective of a cost accounting system?

Sales commission determination

One of the purposes of standard costs is to

Simplify costing procedures and expedite cost reports.

Research and development costs for Huron's two new products are

Sunk costs.

Which professional organization represents management accountants in the United States?

The Institute of Management Accountants (IMA).

Management should implement a different or more expensive accounting system only when

The benefits of the system exceed the cost.

The difference between the sales price and total variable costs is

The contribution margin.

Incremental cost is

The difference in total costs that results from selecting one choice instead of another.

Which is the best description of traditional cost accounting?

The general ledger and subsidiary accounts and related records, etc., used to accumulate the costs of goods or services provided by an entity.

Assuming all manufacturing costs for finished goods are known, which of the following statements explains why the accountant's unit cost used in inventory valuation for the annual financial statements would differ from the economist's marginal unit cost?

The manufacturing cost per unit reflected in financial statements includes fixed costs.

Which one of the following costs is classified as a period cost?

The wages of the workers on the shipping docks who load completed products onto outgoing trucks.

Which one of the following is true regarding a relevant range?

Total fixed costs will not change.

Joint costs are costs of

Two or more products produced from a common process. Answer (D) is correct. Joint costs are the common costs of producing two or more inseparable products up to the point at which they become separable (the split-off point). The products are then sold as identifiably separate products or are processed further.

The following data were collected from the records of the shipping department of a company: Cost ofMonth Units Shipped Shipping Supplies 1 7,000 $35,000 2 5,000 25,000 3 3,000 14,900 4 13,000 65,000 5 11,000 55,200 6 10,000 50,200 7 15,000 74,900 The cost of shipping supplies is most likely to be a

Variable cost.

The difference between variable costs and fixed costs is

Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.

Depreciation based on the number of units produced is classified as what type of cost?

Variable.

In a traditional manufacturing operation, direct costs would normally include

Wood in a furniture factory.