principles of finance part 2
What is job order costing? A: a method of costing that averages costs over all products made. B: A method of costing that assigns costs to specific jobs or products C: A method of costing that assigns costs to direct labor and direct material. D: a method of costing that allocates costs to overhead based on activities.
B: A method of costing that assigns costs to specific jobs or products
Which statement is true with respect to fixed and variable costs? a. A variable cost is variable in total and increases per unit as the number of units increases. b. A fixed cost is fixed in total and decreases per unit as the number of units increases. c. A fixed cost is variable in total and decreases per unit as the number of units increases. d. A variable cost is fixed in total and decreases per unit as the number of units increases.
b. A fixed cost is fixed in total and decreases per unit as the number of units increases. A fixed cost is fixed in total and decreases per unit as the number of units increases, because that constant fixed cost is spread over more units as the number of units increases.
what is actual manufacturing overhead? A: Manufacturing costs other than direct materials and direct labor. B: The excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period. C: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period. D: costs normally incurred for the benefit of several segments within the organization.
A: Manufacturing costs other than direct materials and direct labor.
What is applied manufacturing overhead? A: The amount of the manufacturing overhead that is assigned to the goods produced. B: the excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period. C: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period. D: Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
A: The amount of the manufacturing overhead that is assigned to the goods produced.
What is the predetermined overhead rate? A: This is the estimated manufacturing overhead cost for the year divided by a total estimated activity base (such as machine hours, direct labor hours, direct labor cost, and so fourth) B: the excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period. C: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period. D: Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
A: This is the estimated manufacturing overhead cost for the year divided by a total estimated activity base (such as machine hours, direct labor hours, direct labor cost, and so fourth)
What is a cost driver? A: numerical measure used to reflect the amount of a specific cost associated with particular activity. B: total cost being generated by specific overhead cost activity C: overhead activity performed each time a unit is produced D: overhead activity associated with capability to produced different type of products.
A: numerical measure used to reflect the amount of a specific cost associated with particular activity
What is the formula for calculating activity rate? A: overhead cost pool divided by cost driver B: manufacturing costs divided by cost driver C: budgeting overhead divided by activity D: Fixed costs divided by cost pool.
A: overhead cost pool divided by cost driver
What is an indirect cost? A: The amount of the amount of the manufacturing overhead that is assigned to the goods produced. B: Costs normally incurred for the benefit of several segments within the organization. C: The excesses of actual manufacturing overhead cots over the applied manufacturing overhead cots for the period. d: Manufacturing costs other than direct materials and direct labor.
B: Costs normally incurred for the benefit of several segments within the organization.
How is activity - based costing (abc) overhead allocated? A: overhead is allocated based on direct labor B: overhead is allocated based on custom job activity. C: overhead is allocated based on different activity levels. D: overhead is allocated based on machine hours.
B: overhead is allocated based on custom job activity.
when would you use process costing? A: custom build homes. B: paint C: engineer D: Boeing airplane
B: paint
What is estimated manufacturing overhead? A: This is estimated manufacturing overhead costs for the year divided by the total estimated activity base B: Costs normally incurred for the benefit of several segments. C: Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate. D: the excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period.
C: Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
Which type of account are accounts payable and notes payable both examples of? a. Liability b. Asset c. Expense d. Equity
a. Liability
What is underapplied manufacturing overhead? A: The amount of the manufacturing overhead that is assigned to the goods produced. B: the excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period. C: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period. D: Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.
C: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period.
What is a cost pool? A: overhead activity performed each time new production started. B: activity that drive overhead-costs C: total cost being generated by a specific overhead cost activity D: activity that takes place each time a unit product is provided.
C: total cost being generated by a specific overhead cost activity
The three general type of overhead cost activity in abc system are ? A: activity-level, job-level, process-level B: product-level, period- level C: unity-level, batch-level, product-line D: Variable-level, fixed level, mixed level.
C: unity-level, batch-level, product-line
Your company has products such as generic, simple to custom designed, complex. The company currently uses a traditional method to allocate overhead. you believe the overhead is not being properly allocated to the products and think a different method should be implemented using direct labor hours as the base. Which type of costing system should the company use instead? A: Process costing B: job order costing C: product-line costing D: activity-based costing
D: activity-based costing
when using job order costing, how would you classify the wages of the factory custodian? A: Administrative expense B: selling expenses C: direct labor D: manufacturing overhead
D: manufacturing overhead
What is overapplied manufacturing overhead? A: The excess of actual manufacturing overhead costs over the applied manufacturing overhead costs for the period. B: Costs normally incurred for the benefit of several segments within the organization. C: The amount of the manufacturing overhead that is assigned to the goods produced. D: the excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period.
D: the excess of applied manufacturing overhead costs over the actual manufacturing overhead costs for the period. basically means you've overcharged your customers.
How is the predetermined overhead rate calculated for a new product line? a. Actual overhead costs divided by estimated level of activity b. Estimated overhead costs divided by actual level of activity c. Actual overhead costs divided by actual level of activity d. Estimated overhead costs divided by estimated level of activity
Estimated overhead costs divided by estimated level of activity The predetermined overhead rate is created by dividing estimated overhead by the estimate of the expected level of activity (such as labor hours) to be used to allocate overhead during the year.
Which statement is true at the break-even point? a. Fixed costs exceed variable costs. b. Variable costs exceed fixed costs. c. Variable costs - fixed costs = $0 d. Sales revenue - variable costs - fixed costs = $0
Sales revenue - variable costs - fixed costs = $0 At the break-even point, target income = $0.
Which phrase below describes job order costing? A: A system in which manufacturing costs are accumulated by separate product orders or batches B: A system commonly used in manufacturing food products in order to generate market-wide selling price information C: A system in which period costs are systematically allocated to weekly budget reports C: A system commonly used in the oil exploration industry in order to generate worldwide oil and natural gas information
a. A system in which manufacturing costs are accumulated by separate product orders or batches A job order costing system is one in which manufacturing costs are accumulated by separate product orders or batches.
Companies that use process costing do not specifically identify the costs associated with each job or order being produced. Instead, these companies compute costs on a different basis. What is this basis? a. Amount of cost associated with work done for a particular period of time b. Amount of direct materials cost only c. Amount of direct labor cost only d. Amount of cost associated with work done outside the production facility
a. Amount of cost associated with work done for a particular period of time Correct! Some manufacturing companies cannot use job order costing because they cannot specifically identify each job (product) being produced. For these companies, process costing is the appropriate product cost accounting method. Because these companies can't focus on costing a particular job, they focus on costing the amount of work done for a particular period of time.
According to the accounting equation, the amount of liabilities and equity must always be equal to another amount. What is that other amount? a. Assets b. The sum of revenues and expenses c. The sum of expenses and dividends d. Cash
a. Assets
According to the accounting equation, the amount of liabilities and equity must always be equal to another amount. What is that other amount? a. Assets b. The sum of revenues and expenses c. The sum of expenses and dividends d. Cash
a. Assets
One important result of using an ABC system is more accurate product costing. What is another important result of using an ABC system? a. Better decisions made b. Better direct labor costing c. Better direct materials costing d. Better sales revenue computation
a. Better decisions made ABC involves identifying the activities that cause overhead costs and then estimating and allocating those costs based on those activities. The result is much more accurate product costing and better decisions being made.
In an ABC system, how are the costs belonging to a cost pool identified? a. By carefully analyzing what activities cause the need for each specific overhead cost b. By computing the difference between total overhead cost and the total cost of direct labor c. By subtracting the overhead allocated using ABC from the overhead allocated using a traditional technique d. By computing the difference between total overhead cost and the sum of the total cost of direct labor and direct materials
a. By carefully analyzing what activities cause the need for each specific overhead cost Identifying the costs associated with a particular cost pool requires a careful analysis of how support and supervisory people spend their time, what activities use electricity and cause depreciation, and what overhead cost activities cause other overhead costs such as travel, supplies, training, and so forth.
What is the impact of expenses on the accounting equation? a. Expenses decrease owners' equity. b. Expenses increase owners' equity. c. Expenses decrease liabilities. d. Expenses increase liabilities.
a. Expenses decrease owners' equity.
Which statement is correct with respect to activity-based costing (ABC) overhead allocation? a. Overhead is allocated based on several different measures of activity. b. Overhead is allocated based on the relative sales value of products. c. Overhead is allocated based on a single measure of activity. d. Overhead is allocated based on sales per square foot.
a. Overhead is allocated based on several different measures of activity. With an ABC overhead allocation method, overhead is allocated based on several different measures of activity, called cost drivers.
How is overhead allocated in an ABC system? a. Overhead per cost driver multiplied by the number of cost driver events b. Activity cost multiplied by the basis of estimation c. Sum of materials and labor cost multiplied by number of units d. Budgeted overhead multiplied by expected number of direct labor hours
a. Overhead per cost driver multiplied by the number of cost driver events In an ABC system, the amount of overhead allocated to a product or project or process or operating division is the number of cost driver events multiplied by the overhead per cost driver (the activity rate).
What is the most common sequence of the flow of costs through a job order costing system? a. Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold. b. Add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, purchase raw materials, transfer raw materials to production, sell goods and transfer cost to cost of goods sold. c. Transfer the cost of completed goods to finished goods inventory, purchase raw materials, transfer raw materials to production, sell goods and transfer cost to cost of goods sold, add direct labor and manufacturing overhead costs. d. Purchase raw materials, sell goods and transfer cost to cost of goods sold, transfer the cost of completed goods to finished goods inventory, transfer raw materials to production, add direct labor and manufacturing overhead costs.
a. Purchase raw materials, transfer raw materials to production, add direct labor and manufacturing overhead costs, transfer the cost of completed goods to finished goods inventory, sell goods and transfer cost to cost of goods sold. This is the typical flow of costs through a job order costing system.
What is the effect of a company's accounting department maintaining high ethical standards? a. The company's accounting information will increase in value. b. The company can hire fewer accountants to do the same amount of work. c. The company can report more favorable results in its financial statements. d. The company's accounting information will decrease in value.
a. The company's accounting information will increase in value.
What is included in the direct materials cost? a. The cost of raw materials that are used directly in the manufacture of products b. The cost of supervisor materials that are used directly in the oversight of products c. The cost of inspector materials that are used directly in the inspection of products d. The cost of maintenance materials that are used directly in the repair of production machines
a. The cost of raw materials that are used directly in the manufacture of products Direct materials include the cost of raw materials that are used directly in the manufacture of products and are kept in the raw materials warehouse until used.
Which statement is true at the break-even point? a. Total revenues equal total costs. b. Total revenues equal total variable costs. c. Total revenues equal total fixed costs. d. Total variable costs equal total fixed costs.
a. Total revenues equal total costs.
What is the appropriate situation in which to use process costing? a. When a company produces a large volume of products using a series of uniform processes b. When a company produces a small volume of unique items using a series of item-specific processes c. When a company produces a large volume of unique items using a series of item-specific processes d. When a company produces a custom product when an order is received from a customer
a. When a company produces a large volume of products using a series of uniform processes The appropriate situation in which to use process costing is when a company produces large volumes of products or services using a series of uniform processes.
When is job order costing NOT appropriate? a. When a company produces products or services in a continuous process in which jobs or products or projects can't be specifically identified b. When overhead costs are allocated to production in such a way that each product is individually assigned a specific overhead cost c. When overhead costs are incurred in a service firm that provides multiple different services d. When a company manufactures a custom-designed product for each customer order
a. When a company produces products or services in a continuous process in which jobs or products or projects can't be specifically identified Job order costing is not appropriate when a company produces large volumes of products or services using a series of uniform processes.
How could a period cost be reported in an income statement? a. as an administrative expense b. As cost of goods sold c. As cost of goods manufactured d. As manufacturing overhead
a. as an administrative expense
What is a cost driver? a. The difference between the overhead allocated using a traditional system and the overhead allocated using an ABC system b. A numerical measure reflecting the amount of a cost associated with a particular overhead cost activity c. The ratio between a product's cost of goods sold and its selling price d. A collection of overhead costs associated with a specific overhead cost activity
b. A numerical measure reflecting the amount of a cost associated with a particular overhead cost activity A cost driver is a numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.
Why do companies allocate overhead costs based on estimated overhead numbers instead of actual numbers? a. Because estimated numbers are more precise than are actual numbers b. Because overhead costs must be allocated beginning the very first day of the period, but the actual numbers not available until the end of the period c. Because actual numbers are used for financial accounting purposes, and only estimated numbers may be used for managerial accounting purposes d. Because overhead costs can only be estimated; the precise numbers can never be known
b. Because overhead costs must be allocated beginning the very first day of the period, but the actual numbers not available until the end of the period Correct! Business begins on the first day of the period. On that day, a company must be prepared to systematically allocate overhead costs to all products that flow through the production facility. But as of that first day, actual overhead costs are not known. Accordingly, overhead costs must be allocated based on estimated data, which are available as of the first day of the period. These estimated data items are used to compute a predetermined overhead rate.
Which statement describes managerial accounting? a. Emphasizes compliance with generally accepted accounting principles b. Compares planned and actual results c. Used primarily by investors and creditors d. Focuses on preparing three primary financial statements
b. Compares planned and actual results Managerial accounting includes planned results (budgets) and comparisons of planned and actual results. The financial statements (balance sheet, income statement, and statement of cash flows) do not include planned results.
What are the three categories of manufacturing costs? a. General, selling, and administrative b. Direct materials, direct labor, and manufacturing overhead c. Administrative, interest, and general d. Interest, taxes, and depreciation
b. Direct materials, direct labor, and manufacturing overhead The three manufacturing costs are direct materials, direct labor, and manufacturing overhead.
Which type of account is retained earnings? a. Liability b. Equity c. asset d. Revenue
b. Equity
What must be true of a direct cost? d. It is a cost incurred outside the production facility. a. It is a cost that changes in proportion with changes in liabilities. b. It is a cost traceable to a specific business unit. c. It is a cost in the future that can be changed by a decision today.
b. It is a cost traceable to a specific business unit. Direct costs are costs that can be obviously and physically traced to a business unit or segment being analyzed.
What is the formula for the contribution margin? a. Sales revenue - fixed costs - variable costs b. Sales revenue - variable costs c. Sales revenue - fixed costs d. Sales revenue - variable costs - fixed costs
b. Sales revenue - variable costs
The amount of work actually done in a process costing center for the period includes all units started and completed during the period. In addition, other work is included in the quantification of the work done during the period. What other work is included? a. The amount of work done in budgeting and planning for the flow of materials, labor, and overhead into and out of the production facility during the period b. The amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory c. The amount of work done to market and sell the products produced during the period d. The amount of work done to prepare the finished goods inventory for final shipment to the customer
b. The amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory The amount of work actually done in a process costing center for the period includes all units started and completed during the period plus the amount of work done to complete the beginning work-in-process inventory and the amount of work done to start the ending work-in-process inventory.
Williams Cable Company markets cable services to local residential homes on a direct sales basis. You are sitting in a meeting attended by representatives of the sales, marketing, and the accounting departments of the company. The sales and marketing personnel explain how many local subscribers they plan to add in the next year to the company's subscriber listing using certain types of sales and marketing approaches. Since the company has excess capacity to add more cable subscribers at the moment, when one more subscriber is added to the subscriber base, which type of costs will increase in a direct proportion to each subscriber added? a. Fixed b. Variable c. Sunk d. Mixed
b. Variable Variable costs always increase directly when a new subscriber is added to the cable subscriber base.
Williams Cable Company markets cable services to local residential homes on a direct sales basis. You are sitting in a meeting attended by representatives of the sales, marketing, and the accounting departments of the company. The sales and marketing personnel explain how many local subscribers they plan to add in the next year to the company's subscriber listing using certain types of sales and marketing approaches. Since the company has excess capacity to add more cable subscribers at the moment, when one more subscriber is added to the subscriber base, which type of costs will increase in a direct proportion to each subscriber added? a. Fixed b. Variable c. Sunk d. Mixed
b. Variable Variable costs always increase directly when a new subscriber is added to the cable subscriber base.
Sousa Company reported the following data. Price per unit = $10 Variable cost per unit = $7 Fixed cost = $1,500 Given these data, compute the break-even number of units. a. 214 units b. 88 units c. 500 units d. 612 units
c. 500 units $1,500 fixed cost / ($10 selling price per unit -$7 variable cost per unit) = 500 units
What is a period cost? a. A cost associated with any direct activities in the production process. b. A cost associated with any indirect activities in the production process c. A cost associated with activities occurring outside the factory d. A cost associated with activities occurring inside the raw materials warehouse
c. A cost associated with activities occurring outside the factory Period costs are costs associated with activities or facilities outside the factory. Period costs are reported as an expense in the period in which they occur.
What is a stepped fixed cost? a. A cost that is fixed in total across the entire range of possible levels of activity b. A cost that is fixed per unit across the entire range of possible levels of activity c. A cost that remains constant in total within a range of activity and then changes in a large amount above a certain threshold of activity d. A cost that includes both a fixed portion and a variable portion in direct proportion to the level of sales activity
c. A cost that remains constant in total within a range of activity and then changes in a large amount above a certain threshold of activity A stepped fixed cost is a cost that remains the same, in total, for a substantial change in the level of activity and then changes in total in a stairstep fashion (in a large amount) when certain thresholds in volume of activity are reached.
How is overhead allocated in an ABC system? a. Cost pool multiplied by number of cost driver events b. Budgeted overhead multiplied by expected number of direct labor hours c. Activity rate multiplied by number of cost driver events d. Sum of materials and labor cost multiplied by number of units
c. Activity rate multiplied by number of cost driver events
How are wages of office staff in a company headquarters building classified? a. Direct labor b. Manufacturing overhead c. Administrative expense d. Indirect labor
c. Administrative expense
Which example correctly shows how contribution margin analysis is used by management in making business decisions? a. Contribution margin analysis helps management evaluate the cash flow position of the company. b. Contribution margin analysis helps management evaluate the financial condition of the company. c. Contribution margin analysis helps management evaluate whether to continue selling a product. d. Contribution margin analysis helps management evaluate the results of operations of the company.
c. Contribution margin analysis helps management evaluate whether to continue selling a product. This is an important use of contribution margin analysis.
What are the three categories of manufacturing costs? a. Budget, actual, and variance b. Selling, general, and administrative c. Direct materials, direct labor, and manufacturing overhead d. Operating, investing, and financing
c. Direct materials, direct labor, and manufacturing overhead The three categories of manufacturing cost are direct materials, direct labor, and manufacturing overhead.
How does a classified balance sheet provide useful information to a decision maker? a. It distinguishes liabilities from expenses. b. It provides data that are not publicly disclosed. c. It distinguishes between current and long-term assets. d. It provides data for a period of time instead of as a point in time.
c. It distinguishes between current and long-term assets.
What must be true of an indirect cost? a. It is a cost incurred outside the production facility or factory. b. It is a cost of a benefit not received because an action was not taken. c. It is a cost that cannot be traced to a specific business unit or product. d. It is a cost remaining constant in total regardless of sales.
c. It is a cost that cannot be traced to a specific business unit or product. ! Indirect costs are costs that cannot be traced to a specific business unit or product.
In a job order costing system, what is the proper accounting for a product cost? a. It is reported as a part of general expenses. b. It is reported as an expense when it occurs. c. It is reported as a part of cost of goods sold. d. It is reported as a part of administrative expenses.
c. It is reported as a part of cost of goods sold.
For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which product is process more appropriate? a. Constructing roads and highways b. Producing engineering designs for custom-made buildings c. Manufacturing identical residential refrigerators d. Building high-end ski cabins according to customer specifications
c. Manufacturing identical residential refrigerators A process costing system is used when nearly identical units are mass-produced. As a result, all units produced during that period are assigned the same cost.
Sophie has recently learned about activity-based costing (ABC). Sophie has determined that using an ABC overhead allocation system would result in basically the same pattern of overhead allocation as she is currently getting with her traditional system based on direct labor hours. Should Sophie go ahead and install an ABC system anyway? a. Yes. In such a circumstance, the ABC data would result in making better product costing decisions. b. No. In such a circumstance, the ABC data would result in making worse product costing decisions. c. No. The cost in terms of time and money would not be worth it. d. Yes. There is little, if any, cost of installing an ABC system.
c. No. The cost in terms of time and money would not be worth it. If the production process for all products is about the same, then both a traditional overhead system and an ABC system will result in basically the same pattern of overhead cost allocation. In such a case, going to the trouble, in terms of time and money, of setting up an elaborate ABC system would simply not be worth it.
What are sunk costs? a. Past costs that are different from budgeted amounts b. Future costs that are common among all decision alternatives c. Past costs that cannot be changed by a current decision d. Future costs that change as the result of a decision
c. Past costs that cannot be changed by a current decision A sunk cost is a past cost that cannot be changed by a current decision.
For purposes of cash flow classification in the statement of cash flows, which item is an operating activity? a. Distributing dividends b. Selling bonds c. Paying employees d. Buying equipment
c. Paying employees
If overhead is underapplied during a period, which statement below is true? a. The total cost of goods sold will be overstated. b. The stated total cost of goods sold will not be affected. c. The total cost of goods sold will be understated. d. The stated total cost of goods sold will be affected by an indeterminable amount.
c. The total cost of goods sold will be understated. Underapplied overhead causes the total costs of jobs to be understated.
Which statement below is true with regard to fixed costs? a. Total fixed costs change in a manner b. similar to variable costs in every situation. c. Total fixed costs always change in total within a relevant range of activity. d. Total fixed costs never change, even when business activity exceeds the relevant range.
c. Total fixed costs always change in total within a relevant range of activity. Total fixed costs do not change unless production goes outside the relevant range of activity.
An ABC overhead allocation system is not always substantially better than a traditional system. When does a traditional overhead allocation system work well? a. When the production process is such that the amount of direct materials is substantially greater than the amount of direct labor b. When the production process is such that the amount of direct labor is substantially greater than the amount of direct materials c. When the production process for each different product or project or process is basically the same d. When the production process for each different product or project or process is substantially different
c. When the production process for each different product or project or process is basically the same A traditional overhead allocation system works well when the production process for each different product or project or process is basically the same.
Four tax consulting companies serve very different sets of customers. Which of these four tax consulting companies is most likely to use a process system in determining the cost of each customer engagement? a. A company that serves tax customers who are high-income individuals and the nature of the income (investment, stock options, real estate, and so forth) varies dramatically from customer to customer b. A company that serves tax customers who are interested in estate tax planning, with each plan being uniquely designed c. A company that serves tax customers who work in non-U.S. countries, and each country has its own special income tax rules and restrictions d. A company that serves tax customers who are middle-income individuals who all have basically the same tax issues
d. A company that serves tax customers who are middle-income individuals who all have basically the same tax issues The appropriate scenario for the use of process costing is when a company produces large volumes of a product or service, and each item is basically the same.
What is process costing? a. A method of product costing in which all costs are assigned to manufacturing overhead b. A method of product costing in which all costs are assigned to selling, general, and administrative expenses c. A method of product costing in which costs are assigned to specific jobs or products d. A method of product costing in which costs are accumulated by process and averaged over all products made during a period
d. A method of product costing in which costs are accumulated by process and averaged over all products made during a period Process costing is a method of product costing whereby costs are accumulated by process or work centers and averaged over all products manufactured during a production period.
What is manufacturing overhead? a. All manufacturing costs that are not classified as direct materials b. All manufacturing costs that are not classified as cost of goods sold or direct labor c. All manufacturing costs that are not classified as direct labor d. All manufacturing costs that are not classified as either direct materials or direct labor.
d. All manufacturing costs that are not classified as either direct materials or direct labor. Manufacturing overhead includes all manufacturing costs that are not classified as direct materials or direct labor.
After reviewing the job order costing plan, Eva wonders if she should go another direction for Gold Leaf Trophies. She is now trying to determine the cost of producing each order the company receives for custom-manufactured trophies. Eva can easily trace the direct materials and the direct labor costs associated with each custom-manufactured trophy. What would be the first step for Eva to consider in implementing an ABC overhead system to allocate overhead to each trophy? a. Estimate the expected number of direct labor hours for each trophy. b. Compute the total depreciation from all sources for each trophy. c. Eliminate all unit-level overhead costs for each trophy. d. Determine exactly what activities cause overhead costs for each trophy.
d. Determine exactly what activities cause overhead costs for each trophy. The first step in implementing an ABC overhead system is to perform a detailed study of the production process to determine exactly what activities cause overhead costs.
What are differential costs? a. Future costs that are common among all decision alternatives b. Past costs that are different from budgeted amounts c. Past costs that cannot be changed by a current decision d. Future costs that change as the result of a decision
d. Future costs that change as the result of a decision The differential costs of a decision—sometimes called avoidable costs, incremental costs, or relevant costs—are the future costs that change as a result of that decision.
Eva is now giving serious thought to implementing an activity-based costing (ABC) system at the custom trophy manufacturer. She wants to make sure she has considered all relevant factors before making this decision. Which statement is correct with respect to implementing an ABC system at the trophy manufacturer? a. Implementing an ABC system requires only a careful calculation of total direct labor hours. b. Implementing an ABC system completely eliminates all overhead costs . ,c. implementing an ABC system requires very little analysis of the factors that create overhead costs. d. Implementing an ABC system requires a more careful analysis of the factors that create overhead costs.
d. Implementing an ABC system requires a more careful analysis of the factors that create overhead costs. Activity-based costing involves a more careful analysis of the characteristics of products, projects, and services that create overhead costs.
In a job order costing system, how are factory supervisor wages classified? a. Selling expense b. Administrative expense c. Direct labor d. Manufacturing overhead
d. Manufacturing overhead Manufacturing overhead includes all manufacturing costs (costs incurred within the production facility) that are not classified as direct materials or direct labor. This includes wages for the factory supervisor.
Why is the concept of relevant range important to a manager? a. Outside the relevant range, the variable cost per unit stays constant. b. Inside the relevant range, the total fixed cost can change. c. Inside the relevant range, the variable cost per unit can increase. d. Outside the relevant range, the variable cost per unit can change.
d. Outside the relevant range, the variable cost per unit can change.
Eva has been asked to redesign Gold Leaf's old job order costing system. One of the first things Eva notices is that some items are not being recorded correctly. For example, the accounting flow of costs and the actual flow of costs in the production facility do not appear to match up. The raw materials inventory, for example, is incorrectly placed after the finished goods inventory. This is the first thing Eva wants to fix. In what order should Eva place the flow of materials costs through the rest of the production process? a. Raw materials inventory, cost of goods sold, work-in-process inventory, finished goods inventory b. Raw materials inventory, work-in-process inventory, cost of goods sold, finished goods inventory c. Raw materials inventory, finished goods inventory, cost of goods sold, work-in-process inventory d. Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold
d. Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold The sequence of the flow of materials costs through a production process is raw materials inventory, work-in-process inventory, finished goods inventory, and cost of goods sold.
What is the correct sequence of budgets in a manufacturing business? a. Sales, production, direct materials b. Direct materials, sales, production c. Production, direct materials, sales d. Sales, direct materials, production
d. Sales, direct materials, production
Which statement is correct with respect to accounting for overhead? a. The overhead account is reported as a revenue in the income statement b. The overhead account is reported as an asset in the balance sheet. c. The overhead account is a temporary holding account for revenues. d. The overhead account is a temporary holding account for overhead costs.
d. The overhead account is a temporary holding account for overhead costs. The overhead account is effectively a temporary holding account that simultaneously records actual overhead costs as they occur irregularly throughout the year while being the source for regularly transferring allocated overhead costs to various products, orders, or processes.
What is true if the quantity sold for a product line is below the break-even point? a. The product line is operating at a profit. b. Total revenues must be greater than total costs. c. Total variable costs must be greater than total fixed costs. d. The product line is operating at a loss.
d. The product line is operating at a loss. If the quantity sold is below the break-even point, the company has not made enough money to cover the costs of production.
What is the relevant range? a. The range of volume over which the variable cost per unit is expected to increase b. The range of volume over which the selling price per unit is expected to increase c. The range of volume over which the fixed cost per unit is expected to remain the same d. The range of volume over which the variable cost per unit is expected to remain the same
d. The range of volume over which the variable cost per unit is expected to remain the same The relevant range is the range over which the variable cost per unit stays the same and the fixed cost remains the same in total.
Gold Leaf Trophies has discovered an export market for one of the trophies they manufacture, which can be mass-produced. The manufacturing manager understands that process costing can be applied in this situation in order to measure the costs of mass-producing this particular trophy. How would production costs be assigned to this trophy using process costing? a. Total manufacturing cost would be used to assign production costs based on the relative selling price of trophies. b. Total cost of goods manufactured would be used to assign production costs equally to identical trophies. c. Total cost of goods sold would be used to assign production costs based on the relative selling price of trophies. d. Total manufacturing cost and total units of production would be used to assign production costs equally to identical trophies.
d. Total manufacturing cost and total units of production would be used to assign production costs equally to identical trophies. Process costing is the use of total manufacturing cost and total units of production to assign production costs equally to identical units.
Which statement below is true with regard to variable costs? a. Total variable costs do not change in total in relationship to the volume of activity. b. Total variable costs never change, regardless of the volume of activity. c. Total variable costs change in a manner similar to fixed costs in every situation. d. Total variable costs change in relationship to the volume of activity.
d. Total variable costs change in relationship to the volume of activity. Correct! Total variable costs are directly related to the volume of activity.
What is an example of an indirect cost in a hospital? a. Drugs administered to a patient b. Salary of a doctor assigned to a patient c. An IV needed during a surgical procedure d. Utility costs for the hospital building
d. Utility costs for the hospital building Utility costs are a good example of an indirect cost in any organization.
