Test bank cost and management accounting 4e by barfield ch03

Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory... beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred

MULTIPLE CHOICE

1 The term “relevant range” as used in cost accounting means the range over which

a costs may fluctuate

b cost relationships are valid

c production may vary

d relevant costs are incurred

2 Which of the following defines variable cost behavior?

Total cost reaction Cost per unit reaction

to increase in activity to increase in activity

a remains constant remains constant

a direct labor hours

b total material cost

c total overhead cost

d production volume

4 Which of the following would not generally be considered a fixed overhead cost?

Straight-line Factory Units-of-productiondepreciation insurance depreciation

5 An example of a fixed cost is

a total indirect material cost

b total hourly wages

c cost of electricity

d straight-line depreciation

6 A cost that remains constant in total but varies on a per-unit basis with changes in

activity is called a(n)

8 When the number of units manufactured increases, the most significant change in unit

cost will be reflected as a(n)

a increase in the fixed element

b decrease in the variable element

c increase in the mixed element

d decrease in the fixed element

9 Which of the following always has a direct cause-effect relationship to a cost?

Predictor Cost driver

a causes fixed costs to rise because of production changes

b has a direct cause-effect relationship to a cost

c can predict the cost behavior of a variable, but not a fixed, cost

d is an overhead cost that causes distribution costs to change in distinct increments

with changes in production volume

11 Product costs are deducted from revenue

a as expenditures are made

b when production is completed

c as goods are sold

d to minimize taxable income

12 A selling cost is a(n)

product cost period cost inventoriable cost

13 Which of the following is not a product cost component?

a rent on a factory building

b indirect production labor wages

c janitorial supplies used in a factory

d commission on the sale of a product

14 Period costs

a are generally expensed in the same period in which they are incurred

b are always variable costs

c remain unchanged over a given period of time

d are associated with the periodic inventory method

15 Period costs include

distribution costs outside processing costs sales commissions

16 The three primary inventory accounts in a manufacturing company are

a Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory

b Merchandise Inventory, Work in Process Inventory, and Finished Goods

Inventory

c Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory

d Raw Material Inventory, Work in Process Inventory, and Finished Goods

Inventory

17 Cost of Goods Sold is an

a unexpired product cost

b expired product cost

c unexpired period cost

d expired period cost

20 Conversion of inputs to outputs is recorded in the

a Work in Process Inventory account

b Finished Goods Inventory account

c Raw Material Inventory account

c can be conveniently and physically traced to a cost object under consideration

d will increase with changes in levels of activity

22 GSWS is a construction company that builds houses on special request What is the

proper classification of the carpenters’ wages?

Product Period Direct

23 GSWS is a construction company that builds houses on special request What is the

proper classification of the cost of the cement building slab used?

24 Which of the following costs would be considered overhead in the production of

chocolate chip cookies?

26 Prime cost consists of

direct material direct labor overhead

27 Plastic used to manufacture dolls is a

prime cost product cost direct cost fixed cost

28 GSWS is a construction company that builds houses on special request What is the

proper classification of indirect material used?

Prime Conversion Variable

29 The term “prime cost” refers to

a all manufacturing costs incurred to produce units of output

b all manufacturing costs other than direct labor and raw material costs

c raw material purchased and direct labor costs

d the raw material used and direct labor costs

30 In a perpetual inventory system, the sale of items for cash consists of two entries One

entry is a debit to Cash and a credit to Sales The other entry is a debit to

a Work in Process Inventory and a credit to Finished Goods Inventory

b Finished Goods Inventory and a credit to Cost of Goods Sold

c Cost of Goods Sold and a credit to Finished Goods Inventory

d Finished Goods Inventory and a credit to Work in Process Inventory

31 The formula to compute cost of goods manufactured is

a beginning Work in Process Inventory plus purchases of raw material minus

ending Work in Process Inventory

b beginning Work in Process Inventory plus direct labor plus direct material used

plus overhead incurred minus ending Work in Process Inventory

c direct material used plus direct labor plus overhead incurred

d direct material used plus direct labor plus overhead incurred plus beginning

Work in Process Inventory

32 The final figure in the Schedule of Cost of Goods Manufactured represents the

a cost of goods sold for the period

b total cost of manufacturing for the period

c total cost of goods started and completed this period

d total cost of goods completed for the period

33 The formula for cost of goods sold for a manufacturer is

a beginning Finished Goods Inventory plus Cost of Goods Manufactured minus

ending Finished Goods Inventory

b beginning Work in Process Inventory plus Cost of Goods Manufactured minus

ending Work in Process Inventory

c direct material plus direct labor plus applied overhead

d direct material plus direct labor plus overhead incurred plus beginning Work in

Process Inventory

34 Which of the following replaces the retailing component “Purchases” in computing Cost

of Goods Sold for a manufacturing company?

a direct material used

b cost of goods manufactured

c total prime cost

d cost of goods available for sale

35 Which of the following would need to be allocated to a cost object?

a direct material

b direct labor

c direct production costs

d indirect production costs

36 Sonja Svenson earns $8 per hour and is paid time-and-a-half for work in excess of 40

hours per week During a given week, she works 45 hours How much of her week’s wages should be charged to overhead?

Use the following information for questions 37–40

The following information has been taken from the cost records of T Co for the past year:

Total manufacturing costs charged toproduction during the year (includesdirect material, direct labor, and overhead equal to 60% of direct labor cost) 686

Selling and Administrative expenses 25

37 The cost of raw material purchased during the year was

Use the following information for questions 41–44.

BCW Co manufactures wood file cabinets The following information is available for June 2001:

Raw Material Inventory $ 6,000 $ 7,500Work in Process Inventory 17,300 11,700

41 Direct labor is $9.60 per hour and overhead for the month was $9,600 Compute total

manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw material was purchased

42 Direct labor is paid $9.60 per hour and overhead for the month was $9,600 What are

prime costs and conversion costs, respectively if there were 1,500 direct labor hours and

$21,000 of raw material was purchased?

43 Direct labor is paid $9.60 per hour and overhead for the month was $9,600 Cost of

Goods Manufactured, if there were 1,500 direct labor hours and $21,000 of raw materialwas purchased is

44 Direct labor is paid $9.60 per hour and overhead for the month was $9,600 Cost of

Goods Sold, if there were 1,500 direct labor hours and $21,000 of raw material was purchased is

45 The beginning balance of Raw Material Inventory was $4,500; raw material purchases

of $29,600 were made during the month At month end, $7,700 of raw material was on hand Raw material used during the month was

46 If raw material used was $80,000 and Raw Material Inventory at the beginning and end

of the period, respectively, was $17,000 and $21,000, what was raw material purchases?

47 What is the beginning balance of Finished Goods Inventory if Cost of Goods Sold is

$107,000; the ending balance of Finished Goods Inventory is $20,000; and Cost of Goods Manufactured is $50,000 less than Cost of Goods Sold?

Use the following information pertaining to Arp Co.’s manufacturing operations for questions 48–50.

Additional information for March:

Overhead rate per direct labor hour 10.00

48 For March, prime cost incurred was

51 Since overhead costs are indirect costs,

a they require some process of allocation

b they can be easily traced to production

c a predetermined overhead rate is not advantageous

d they cannot be allocated

53 An actual cost system differs from a normal cost system in that an actual cost system

a assigns overhead as it occurs during the manufacturing cycle

b assigns overhead at the end of the manufacturing process

c does not assign overhead at all

d does not use an Overhead Control account

54 In a normal cost system, which of the following is used?

Actual direct materials Actual direct labor Actual overhead

55 Predetermined overhead rates are computed based on

estimated overhead costs estimated level of activity

56 One reason annual overhead application rates are used is

a because of seasonal variability of overhead costs

b to help budget overhead costs

c to minimize the overhead cost assigned to products

d to maximize the overhead cost assigned to products

57 Which of the following is not a reason to use predetermined overhead rates?

a to overcome the problems of assigning overhead to diverse types of products

b to compensate for fluctuations in monthly overhead costs

c to provide a means for assigning overhead during the period rather than at the

end of the period

d to smooth out the amount of overhead cost assigned to products when monthly

production activity differs

58 When a manufacturing company has a highly automated manufacturing plant producing

many different products, which of the following is the more appropriate basis of

applying manufacturing overhead costs to work in process?

a direct labor hours

b direct labor dollars

c machine hours

d cost of materials used

59 A mixed cost has which of the following components?

Variable component Fixed component

62 In relationship to changes in activity, variable overhead changes

in total per unit

63 In relationship to changes in activity, fixed overhead changes

in total per unit

64 If the level of activity increases,

a variable cost per unit and total fixed costs increase

b fixed cost per unit and total variable cost increase

c total cost will increase and fixed cost per unit will decrease

d variable cost per unit and total cost increase

65 Weaknesses of the high-low method include all of the following except

a only two observations are used to develop the cost function

b the high and low activity levels may not be representative

c the method does not detect if the cost behavior is nonlinear

d the mathematical calculations are relatively complex

a something that happens outside the organization that does not affect production

b always used in analyzing a mixed cost

c something that happens inside the organization that does not affect production

d never used in analyzing a mixed cost

68 Applied overhead consists of which of the following?

a actual activity times predetermined overhead rate

b estimated activity times predetermined overhead rate

c actual activity times actual overhead rate

d estimated activity times actual overhead rate

69 If a company used two overhead accounts (actual overhead and applied overhead), the

one that would receive the most debits would be

a actual overhead

b applied overhead

c both would receive an equal number of debits

d impossible to determine without additional information

70 If underapplied overhead is considered to be immaterial, it is closed to which of the

following accounts?

Work in Process Finished Goods Cost of Goods Sold

71 All other things being equal, if actual cost per unit is greater than budgeted cost per

unit, variable overhead will be

72 Overapplied overhead will result if

a the plant is operated at less than expected capacity

b overhead costs incurred were greater than estimated overhead costs

c overhead costs incurred were less than overhead costs charged to production

d overhead costs incurred were greater than overhead charged to production

73 Actual overhead exceeds applied overhead and the amount is immaterial Which of the

following will be true? Upon closing,

Overhead is Cost of Goods Sold will

76 Caty Weymann owns a tailor shop and has gathered information on utility costs for the

past year She has decided that utilities are a function of the hours worked during the month The following information is available and representative of her utility costs:

Hours worked Utility cost incurred

77 Nevada Company uses a predetermined overhead application rate of $.30 per direct

labor hour During the year it incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead The company applied $363,000 of overhead during the year How many direct labor hours did the company plan to incur?

78 Smith Machinery had the following experience regarding power costs:

Month Machine hours Power cost

79 Ashley Co has developed the following flexible budget formula for monthly overhead:

For output of less than 200,000 units: $36,600 + $.80(units)

For output of 200,000 units or more: $43,000 + $.80(units)

How much overhead should Ashley expect if the firm plans to produce 200,000 units?

80 Sams Co wants to develop a single predetermined overhead rate The company’s

expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2 The company’s relevant range is from 200,000 to 600,000 machine hours Sams expects to operate at 425,000 machine hours for the coming year The plant’s theoretical capacity is 850,000 The predetermined overhead rate per machine hour should be

The following information relates to Ciulla Co and should be used for questions 81–82.

Use the following information for questions 83–86

The records of XYZ Co revealed the following data for 2001:

83 Assume, for this question only, actual overhead is $98,700 and applied overhead is

84 Assume that XYZ has underapplied overhead of $37,200 for 2001 and that this amount

is material What journal entry is needed to close the Overhead account? (Round decimals to nearest whole percent.)

a Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold

$15,450 and credit Overhead $37,200

b Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods

$13,294; Cost of Goods Sold $15,450

c Debit Work in Process $37,200 and credit Overhead $37,200

d Debit Cost of Goods Sold $37,200 and credit Overhead $37,200

85 Assume that XYZ has underapplied overhead of $10,000 for 2001 and that this amount

is immaterial What is the balance in Cost of Goods Sold after the underapplied

86 Assume that XYZ has overapplied overhead of $25,000 for 2001 and that this amount is

material What is the balance in Cost of Goods Sold after the overapplied overhead is

87 Smart Company is relocating its facilities The company estimates that it will take three

trucks to move office contents If the per truck rental charge is $1,000 plus 25 cents permile, what is the expected cost to move 800 miles?

Use the following information for questions 88 and 89.

Danny’s Crushing Service provided the following information:

Monthly handling cost Miles traveled

89 Using the high-low method, what would Danny expect handling costs to be in a month

in which 32,000 miles are traveled?