Cornerstones of Managerial Accounting, 5th Edition Solutions manual and test bank Maryanne M. Mowen | Don R. Hansen | Dan L. Heitger
Chapter 2—Basic Managerial Accounting Concepts
TRUE/FALSE
1. It is beneficial to assign indirect costs to cost objects.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
2. Price must be greater than cost in order for the firm to generate revenue.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
3. Accumulating costs is the way that costs are measured and recorded.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
4. Assigning costs involves the way that a cost is linked to some cost object.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
5. Assigning costs tells the accountant who spent the money.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
6. A cost object is any item such as products, customers, departments, regions, and so on, for which costs are measured and assigned.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
7. Costs are directly, not indirectly, associated with cost objects.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
8. Direct costs are those costs that cannot be easily and accurately traced to a cost object.
ANS: F
Direct costs are those costs that can be easily and accurately traced to a cost object.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
9. Indirect costs are costs that are not easily and accurately traced to a cost object.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Cost Management | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
10. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
11. A variable cost is one that does not increase in total as output increase and does not decrease in total as output decreases.
ANS: F
A variable cost is one that does increase in total as output increase and does not decrease in total as output decreases.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-28-Variable and Fixed Costs KEY: Bloom's: Knowledge NOT: 1 min.
12. A fixed cost is a cost that does not increase in total as output increases and does not decrease in total as output decreases.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-28-Variable and Fixed Costs KEY: Bloom's: Knowledge NOT: 1 min.
13. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Decision Modeling | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
14. Cost is a dollar measure of the resources used to achieve a given benefit.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
15. A cost object is something for which a company wants to know the cost.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry |AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
16. The revenue per unit is called cost.
ANS: F
The revenue per unit is called price.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
17. As costs are used up in the production of revenues, they are said to expire. Expired costs are called expenses.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
18. Costs are incurred to produce future benefits.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
19. Expired costs are called assets.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
20. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Decision Modeling | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
21. Costs can be assigned to cost objects in only one way.
ANS: F
Costs can be assigned to cost objects in a number of ways.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry |AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
22. Property taxes on a factory building would normally be classified as a fixed cost.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
23. Glue used in the manufacture of cabinets would be an example of a fixed cost.
ANS: F
Glue used in the manufacture of cabinets would be an example of a variable cost.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
24. Industries that provide intangible services do not normally have direct contact with their customers.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
25. Research and development costs would be classified as product cost.
ANS: F
Research and development costs would be classified as period costs.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
26. Product costs include direct materials, direct labor, and selling costs.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
27. All product costs other than direct materials and indirect labor are called overhead.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
28. Direct materials can be directly traced to the goods or services being produced.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
29. Any costs associated with storing, selling, and delivering the product are classified as product costs.
ANS: F
Any costs associated with storing, selling, and delivering the product are classified as period costs.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
30. Prime cost is the sum of direct materials cost and direct labor cost.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
31. Product costs are carried in inventory until the goods are finished.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
32. Marketing costs would be classified as period costs.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
33. The cost of janitorial services for a factory building would be classified as indirect labor.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
34. Period costs are all costs that are not product costs, such as office supplies.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
35. Employees who convert direct materials into a product or who provide a service to customers are classified as indirect labor.
ANS: F
Employees who convert direct materials into a product or who provide a service to customers are classified as direct labor.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Resource Management | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
36. All manufacturing costs are classified as overhead.
ANS: F
All manufacturing costs are classified as direct materials, direct labor, or overhead.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
37. For external reporting purposes, costs must be classified into only three categories.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-09-Financial Statements | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
38. Cost of goods manufactured represents the cost of direct materials, direct labor, and overhead incurred during the current accounting period.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
39. Cost of goods sold is the total product cost of the units sold during a period.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
40. Sales revenue equals the product cost per unit times the number of units sold.
ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
41. Gross margin is the difference between sales revenue and cost of goods sold.
ANS: T PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
MATCHING
Select the appropriate classification for each of the following costs.
| a. | Period |
| b. | Product |
1. Advertising costs
2. Cost accountant's salary
3. Factory supervisor's salary
4. Research and development costs
5. Marketing costs
6. Cost of shipping products to customers
7. Supplies for factory washroom
8. Assembly line worker's wages
1. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
2. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
3. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
4. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
5. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
6. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
7. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
8. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
Select the appropriate classification for each of the costs incurred by a manufacturer of automobiles.
| a. | direct materials |
| b. | direct labor |
| c. | overhead |
| d. | selling expense |
| e. | administrative expense |
9. cost of tires
10. factory supplies
11. general accounting costs
12. factory security costs
13. factory janitorial costs
14. salary of chief executive officer
15. depreciation of vehicles used by sales personnel
16. cost of windshields used in the production process
9. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
10. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
11. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
12. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
13. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
14. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
15. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
16. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
Select the appropriate classification for each of the items listed below.
| a. | Product cost |
| b. | Period cost |
17. Cost of nails used by a home builder
18. Fees paid to an advertising firm
19. Sugar used in soft drink production
20. Rental cost of executive Lear jet
21. Cost of conference for sales team
22. Factory supervisor's salary
23. Fees paid to outside auditing firm
24. Factory security costs
17. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
18. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
19. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
20. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
21. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
22. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
23. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
24. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
Select the appropriate definition for each of the items listed below.
| a. | per-unit prime cost |
| b. | per-unit conversion cost |
| c. | per-unit cost of goods manufactured |
25. (direct labor + overhead)/units produced
26. (total manufacturing costs + work in process beginning - work in process ending)/units produced
27. (direct materials + direct labor)/units produced
25. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Decision Modeling | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
26. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Decision Modeling | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
27. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Decision Modeling | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
Select the appropriate definition for each of the items listed below.
| a. | period cost |
| b. | direct cost |
| c. | opportunity cost |
| d. | variable cost |
| e. | indirect cost |
| f. | fixed cost |
| g. | product cost |
28. A benefit given up when one alternative is chosen over another
29. A cost that stays the same in total regardless of changes in output
30. A cost that is difficult to trace to a cost object
31. A manufacturing cost
32. A cost that is not inventoried
33. A cost that can be easily traced to a cost object
34. A cost that increases in total as output increases
28. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
29. ANS: F PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
30. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
31. ANS: G PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
32. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
33. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
34. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 1 min.
Select the appropriate classification of the items listed below.
| a. | selling expense |
| b. | administrative expense |
| c. | direct materials |
| d. | direct labor |
| e. | overhead |
35. Chief of surgery's salary at a hospital
36. Wages of assembly line workers in an automobile plant
37. Cost of lubricating factory machinery
38. Cost of shipping goods to customers
39. Glue used in the manufacture of furniture
40. Cost of engines in the manufacture of airplanes
41. Salary of chief executive officer
42. A professor's salary at a university
35. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
36. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
37. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
38. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
39. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
40. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
41. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
42. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
Select the appropriate classification of the output generated by each of the following industries.
| a. | Tangible |
| b. | Intangible |
43. CPA firm
44. Car manufacturer
45. Law firm
46. Medical clinic
47. Bowling alley
48. Fast food restaurant
49. Video rental
50. Professional sports franchise
43. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
44. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
45. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
46. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
47. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
48. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
49. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
50. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
Select the appropriate definition for each of the items listed below.
| a. | Work in process inventory |
| b. | Finished goods inventory |
| c. | Cost of goods sold |
| d. | Cost of goods manufactured |
| e. | Total manufacturing costs |
51. The cost of units finished but not sold at the end of the current period
52. Direct materials + direct labor + overhead
53. The cost of units unfinished at the end of the current period
54. Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
55. (direct materials + direct labor + overhead) +/- the change in work in process inventory from the beginning to the end of the current period
51. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
52. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
53. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
54. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
55. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 | LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
Select the appropriate item for each of the definitions listed below.
| a. | gross margin |
| b. | selling expenses |
| c. | sales revenue |
| d. | cost of goods sold |
| e. | operating income |
56. gross margin - selling and administrative expenses
57. marketing and distributing costs
58. price x units sold
59. sales revenue - cost of goods sold
60. Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory
56. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
57. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
58. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
59. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
60. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Knowledge
NOT: 1 min.
Select the appropriate definition of each of the items listed below.
| a. | Income Statement |
| b. | Cost of goods manufactured |
| c. | Work in process |
| d. | Gross margin |
| e. | Operating income |
61. Gross margin - selling and administrative expenses
62. The difference between sales revenue and cost of goods sold
63. The total cost of goods completed during the current period
64. Covers a particular period of time
65. Cost of partially completed goods
61. ANS: E PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
62. ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
63. ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
64. ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
65. ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
COMPLETION
1. Expired costs are called ____________.
ANS: expenses
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
2. ______________is the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.
ANS: Cost
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
3. _____________________ is the way that a cost is linked to some cost object.
ANS: Assigning costs
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
4. A __________________ is any item such as a product, customer, department, project, geographic region, plan and so on, for which costs are measured and assigned.
ANS: cost object
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
5. Costs that can be easily and accurately traced to a cost object are called __________.
ANS: direct costs
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
6. The process of assigning an indirect cost to a cost object by using a reasonable and convenient method is called _____________.
ANS: allocation.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
7. A(n)_________________ is the benefit given up or sacrificed when one alternative is chosen over another.
ANS: opportunity cost
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
8. A(n) ________________ is a cost that does not increase in total as output increase and does not decrease in total as output decreases.
ANS: fixed cost
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
9. Organizations that produce products are called _______________________.
ANS: manufacturing organizations
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
10. ________________ are those costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale.
ANS: Product costs
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
11. Materials that become part of a product usually are classified as _______________.
ANS: direct materials.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
12. Insurance coverage, medical care, and accounting are examples of _________________ performed for customers.
ANS: service activities
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
13. _________________ equals the sum of direct materials, direct labor, and manufacturing overhead.
ANS: Total product cost
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
14. All product costs other than direct materials and direct labor are put into a category called _________________________.
ANS: manufacturing overhead.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
15. ______________________ is the sum of direct labor cost and manufacturing overhead cost.
ANS: Conversion cost
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
16. ________________ and _________________ costs are considered period costs.
ANS:
Selling and administrative
selling, administrative
administrative, selling
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
17. Employees who convert direct materials into a product are classified as _____________.
ANS: direct labor.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
18. ___________________ is the cost of the partially completed goods that are still on the factory floor at the end of a time period.
ANS: Work in process
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
19. The difference between sales revenue and cost of goods sold is known as the ______________.
ANS: gross margin
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
20. The ____________________________ represents that total product cost of goods completed during the current period and transferred to finished goods inventory.
ANS: cost of goods manufactured
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
MULTIPLE CHOICE
1. Expired costs are called
| a. | fixed. |
| b. | costs. |
| c. | expenses. |
| d. | profit. |
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
2. Assigning costs to cost objects
| a. | provides information for decision making. |
| b. | can be accomplished in a number of ways. |
| c. | can be a simple or complex process. |
| d. | do all of these. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
3. An indirect cost
| a. | can be easily and accurately traced to a cost object. |
| b. | is hard to trace. |
| c. | should never be assigned to a cost object. |
| d. | do none of these. |
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
4. A variable cost in total
| a. | increases as output increases and decreases as output decreases. |
| b. | increases as output increases and/or decreases. |
| c. | remains constant no matter the level of output. |
| d. | increases as output decreases and decreases as output increases. |
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-28-Variable and Fixed Costs KEY: Bloom's: Knowledge NOT: 1 min.
5. Cost is:
| a. | the difference between sales revenue and cost of goods sold. |
| b. | the benefit given up or sacrificed when on alternative is chosen over another. |
| c. | the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization. |
| d. | the revenue per unit. |
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
6. Price is not:
| a. | the revenue per unit. |
| b. | greater than cost in order for the firm to earn income. |
| c. | the same as cost. |
| d. | the same as cost per unit plus the income per unit. |
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
7. Assigning costs
| a. | involves the way that a cost is linked to some cost object. |
| b. | tells the company why the money was spent. |
| c. | to a cost object using a reasonable and convenient method is allocation. |
| d. | all of these. |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
8. An opportunity cost is:
| a. | the benefit given up or sacrificed when one alternative is chosen over another. |
| b. | the cost to market, distribute, and service a product or service. |
| c. | the total product cost of goods completed during the current period and transferred to finished goods inventory. |
| d. | the difference between sales revenue and cost of goods sold. |
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-1 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
9. Non-manufacturing costs include
| a. | marketing and administration. |
| b. | direct materials. |
| c. | indirect materials. |
| d. | overhead. |
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
10. Which of the following is an example of an intangible product?
| a. | motorcycle |
| b. | eye exam |
| c. | stereo |
| d. | television |
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
11. Which of the following is an example of a tangible product?
| a. | lawn care |
| b. | accounting services |
| c. | customer service |
| d. | computer |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Knowledge
NOT: 1 min.
12. Costs are subdivided into what two major functional categories?
| a. | opportunity and allocation |
| b. | fixed and variable |
| c. | product and non-production |
| d. | direct and indirect |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
13. Product costs
| a. | are costs that are included in the determining the value of the inventory. |
| b. | are manufacturing costs. |
| c. | include direct materials, direct labor, and overhead. |
| d. | are all of these. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
14. Which of the following would not be a period cost?
| a. | research and development |
| b. | direct materials |
| c. | advertising costs |
| d. | office supplies |
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
15. Which of the following would be an example of a direct materials cost?
| a. | engine on an airplane |
| b. | screws used to manufacture a lighting fixture |
| c. | glue used to build cabinets |
| d. | nails used to manufacture a table |
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
16. Product costs consist of
| a. | period costs. |
| b. | indirect materials, indirect labor, and administrative costs. |
| c. | direct materials, direct labor, and selling costs. |
| d. | direct materials, direct labor, and overhead. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
17. Which of the following is not an example of a direct materials cost?
| a. | shelves on a bookcase |
| b. | engine in a car |
| c. | tires on a bicycle |
| d. | nail used to manufacture a desk |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
18. Materials in the raw materials account do not become direct materials
| a. | until they are withdrawn from inventory for use in production. |
| b. | until the finished product is sold. |
| c. | until they are purchased from a vendor. |
| d. | none of these are correct. |
ANS: A PTS: 1 DIF: Difficulty: Challenging
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
19. Which of the following is an example of direct labor?
| a. | vice president of marketing |
| b. | assembly line worker for televisions |
| c. | staff accountant |
| d. | supervisor at a manufacturing plant |
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
20. Direct labor is a(n)
| a. | product cost. |
| b. | opportunity cost. |
| c. | administrative cost. |
| d. | fixed cost. |
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
21. Overhead includes
| a. | indirect labor. |
| b. | indirect materials. |
| c. | supplies. |
| d. | all of these. |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
22. Which of the following would not be included in overhead?
| a. | marketing costs |
| b. | property taxes on the factory |
| c. | factory utility costs |
| d. | deprecation on factory machinery |
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
23. Indirect labor would include
| a. | salary of the vice-president of marketing. |
| b. | salary of CEO. |
| c. | salary of factory supervisor. |
| d. | none of these are correct. |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
24. The unit cost
| a. | is the total product costs divided by the number of units produced. |
| b. | includes period costs. |
| c. | is the total prime costs divided by the number of units produced. |
| d. | is the total conversion costs divided by the number of units produced. |
ANS: A PTS: 1 DIF: Difficulty: Challenging
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
25. Prime cost is
| a. | indirect materials cost and direct labor cost. |
| b. | direct materials cost and direct labor cost. |
| c. | direct labor cost and indirect labor cost. |
| d. | direct materials cost and indirect labor cost. |
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
26. Conversion cost is the sum of
| a. | product costs and period costs. |
| b. | selling cost and administrative costs. |
| c. | direct labor cost and direct materials costs. |
| d. | direct labor cost and overhead costs. |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
27. Period costs
| a. | are selling costs and administrative costs. |
| b. | are used to compute product cost. |
| c. | can be included in overhead costs. |
| d. | are carried in inventory until the goods are sold. |
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
28. Which of the following is an example of a period cost?
| a. | research and development |
| b. | selling and marketing |
| c. | general accounting |
| d. | all of these |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
29. Cost of goods manufactured equals
| a. | the cost of indirect materials used in production. |
| b. | the product cost of goods completed during the current period. |
| c. | the period costs for the current period. |
| d. | the cost of direct materials and direct labor used during the current period. |
ANS: B PTS: 1 DIF: Difficulty: Challenging
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
30. Cost of goods manufactured equals
| a. | total product costs incurred during the current period + beginning work in process - ending work in process. |
| b. | direct materials cost + direct labor cost + overhead cost. |
| c. | sales - cost of goods sold. |
| d. | none of these are correct. |
ANS: A PTS: 1 DIF: Difficulty: Challenging
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
31. The cost of the partially completed goods at the end of the period would be
| a. | ending work in process inventory. |
| b. | cost of goods sold. |
| c. | beginning finished goods inventory. |
| d. | beginning work in process inventory. |
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
32. Product costs are expensed
| a. | when the product is finished. |
| b. | when the product unit cost is calculated. |
| c. | when the product is sold. |
| d. | all of these are correct. |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 1 min.
33. Rancor Inc. had a per-unit conversion cost of $2.50 during April and incurred direct materials cost of $100,000, direct labor costs of $75,000, and overhead costs of $45,000 during the month. How many units did they manufacture during the month?
| a. | 70,000 |
| b. | 18,000 |
| c. | 48,000 |
| d. | 30,000 |
ANS: C
SUPPORTING CALCULATIONS:
($75,000 + $45,000)/$2.50 = $48,000
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application
NOT: 2 min.
34. Lakeland Inc. manufactured 5,000 units during the month of March. They incurred direct materials cost of $100,000 and overhead cost of $40,000. If their per-unit prime cost was $26.00 per unit how much direct labor cost did they incur during March?
| a. | $20,000 |
| b. | $35,000 |
| c. | $90,000 |
| d. | $30,000 |
ANS: D
SUPPORTING CALCULATIONS:
($100,000 + $30,000)/5,000 = $26.00
5,000 x $26 = $130,000 in total prime cost
Prime cost consist of direct materials and direct labor, therefore if total prime cost is $130,000 and total direct materials cost is $100,000, then direct labor would be $30,000.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
35. During the month of January, Enterprise Inc. had total manufacturing costs of $110,000. They incurred $40,000 of direct labor cost and $30,000 of overhead cost during the month. If the materials inventory on January 1 was $3,000 less that the materials inventory on January 31, what was the cost of materials purchased during the month?
| a. | $37,000 |
| b. | $43,000 |
| c. | $40,000 |
| d. | none of these |
ANS: B
SUPPORTING CALCULATIONS:
| Direct materials used | $ 40,000 |
| Direct labor | $ 40,000 |
| Overhead | $ 30,000 |
| Total manufacturing costs | $110,000 |
| Direct materials purchased | $ 43,000 |
| Difference in inventory balances | <3,000> |
| Direct materials used | $ 40,000 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
36. Production costs that are not attached to units that are sold are reported as:
| a. | selling expenses. |
| b. | cost of goods sold. |
| c. | administrative costs. |
| d. | inventory. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-2 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
37. Information from the records of Cain Corporation for December 2011 are as follows:
| Sales | $1,230,000 | ||
| Selling and administrative expenses | 210,000 | ||
| Direct materials used | 264,000 | ||
| Direct labor | 300,000 | ||
| Factory overhead | 405,000 | ||
| Inventories | |||
| Dec. 1, 2011 | Dec. 31, 2011 | ||
| Direct materials | $36,000 | $42,000 | |
| Work in process | 75,000 | 84,000 | |
| Finished goods | 69,000 | 57,000 | |
The conversion costs are:
| a. | $960,000. |
| b. | $1,179,000. |
| c. | $705,000. |
| d. | $564,000. |
ANS: C
SUPPORTING CALCULATIONS:
$300,000 + $405,000 = $705,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry |AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
38. Information from the records of Cain Corporation for December 2011 are as follows:
| Sales | $1,230,000 | ||
| Selling and administrative expenses | 210,000 | ||
| Direct materials used | 264,000 | ||
| Direct labor | 300,000 | ||
| Factory overhead | 405,000 | ||
| Inventories | |||
| Dec. 1, 2011 | Dec. 31, 2011 | ||
| Direct materials | $36,000 | $42,000 | |
| Work in process | 75,000 | 84,000 | |
| Finished goods | 69,000 | 57,000 | |
The prime costs are:
| a. | $960,000. |
| b. | $564,000. |
| c. | $705,000. |
| d. | $969,000. |
ANS: B
SUPPORTING CALCULATIONS:
$264,000 + $300,000 = $564,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
Figure 2-1.
Concam Inc. manufactures television sets. Last month direct materials (electronic components, etc.) costing $500,000 were put into production. Direct labor of $800,000 was incurred, overhead equaled $450,000, and selling and administrative costs totaled $360,000. The company manufactured 8,000 television sets during the month. Assume that there were no beginning or ending work in process balances.
39. Refer to Figure 2-1. The per-unit conversion cost was:
| a. | $218.75 |
| b. | $156.25 |
| c. | $162.50 |
| d. | $100.00 |
ANS: B
SUPPORTING CALCULATIONS:
($800,000 + $450,000)/8,000
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
40. Refer to Figure 2-1. The total product costs for last month were:
| a. | $1,750,000 |
| b. | $2,110,000 |
| c. | $1,300,000 |
| d. | $1,250,000 |
ANS: A
SUPPORTING CALCULATIONS:
$500,000 + $800,000 + $450,000
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
41. Refer to Figure 2-1. The total per unit prime cost was:
| a. | $263.75 |
| b. | $62.50 |
| c. | $162.50 |
| d. | $156.25 |
ANS: C
SUPPORTING CALCULATIONS:
($500,000 + $800,000)/8,000
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
42. Refer to Figure 2-1. What was the amount of cost of goods manufactured last month?
| a. | $1,750,000 |
| b. | $1,250,000 |
| c. | $1,300,000 |
| d. | $2,110,000 |
ANS: A
SUPPORTING CALCULATIONS:
$500,000 + $800,000 + $450,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 2 min.
Figure 2-5.
In July, Econo Company purchased materials costing $21,000 and incurred direct labor cost of $18,000. Overhead totaled $32,000 for the month. Information on inventories was as follows:
| July 1 | July 31 | |
| Materials | $6,200 | $7,100 |
| Work in process | $ 700 | $1,200 |
| Finished goods | $3,300 | $2,700 |
43. Refer to Figure 2-5. What was the cost of direct materials used in July?
| a. | $21,000 |
| b. | $20,100 |
| c. | $21,900 |
| d. | $20,500 |
ANS: B
SUPPORTING CALCULATIONS:
| Materials 7/1 | $ 6,200 |
| Purchases | 21,000 |
| Materials 7/31 | <7,100> |
| Materials used | $20,100 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
44. Refer to Figure 2-5. What were the total manufacturing costs in July?
| a. | $71,000 |
| b. | $50,000 |
| c. | $69,600 |
| d. | $70,100 |
ANS: D
SUPPORTING CALCULATIONS:
| Materials used | $20,100 |
| Direct labor | 18,000 |
| Overhead | 32,000 |
| Total manufacturing costs | $70,100 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
45. Refer to Figure 2-5. What was the cost of goods manufactured for July?
| a. | $70,500 |
| b. | $70,700 |
| c. | $69,600 |
| d. | $69,100 |
ANS: C
SUPPORTING CALCULATIONS:
| Total manufacturing costs | $70,100 |
| Work in process 7/1 | 700 |
| Work in process 7/31 | <1,200> |
| Cost of goods manufactured | $69,600 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 3 min.
46. Refer to Figure 2-5. What was the cost of goods sold for July?
| a. | $70,200 |
| b. | $69,600 |
| c. | $71,300 |
| d. | $71,100 |
ANS: A
SUPPORTING CALCULATIONS:
| Cost of goods manufactured | $69,600 |
| Finished goods 7/1 | 3,300 |
| Finished goods 7/31 | <2,700> |
| Cost of goods sold | $70,200 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Application NOT: 3 min.
47. Refer to Figure 2-5. If Econo Company sold 10,000 units during July and gross margin totaled $29,800, what was the sales price per unit?
| a. | $9.94 |
| b. | $10.00 |
| c. | $10.09 |
| d. | $10.11 |
ANS: B
SUPPORTING CALCULATIONS:
| Gross margin | $ 29,800 |
| Cost of goods sold | 70,200 |
| Sales (10,000 ´ $?) | 100,000 |
| Sales price per unit | $ 10 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 4 min.
Figure 2-7.
Gateway Company produces a product with the following per-unit costs:
| Direct materials | $11 |
| Direct labor | 8 |
| Overhead | 15 |
Last year, Gateway produced and sold 750 units at a sales price of $68 each. Total selling and administrative expense was $22,000.
48. Refer to Figure 2-7. Prime cost per-unit was?
| a. | $19 |
| b. | $23 |
| c. | $34 |
| d. | $11 |
ANS: A
SUPPORTING CALCULATIONS:
$11 + $8 = $19
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
49. Refer to Figure 2-7. Cost of goods sold last year was?
| a. | $47,500 |
| b. | $25,500 |
| c. | $14,250 |
| d. | $51,000 |
ANS: B
SUPPORTING CALCULATIONS:
750 ´ $34
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 1 min.
50. Refer to Figure 2-7. Total operating income last year was?
| a. | $29,000 |
| b. | $51,000 |
| c. | $25,500 |
| d. | $3,500 |
ANS: D
SUPPORTING CALCULATIONS:
| Sales | $51,000 |
| Cost of goods sold | <25,500> |
| Sell. and admin. | <22,000> |
| Operating income | 3,500 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 2 min.
Figure 2-8.
Last year Quest Company incurred the following costs:
| Direct materials: | $40,000 |
| Direct labor: | 60,000 |
| Overhead | 90,000 |
| Selling expenses | 24,000 |
| Administrative expenses | 22,000 |
Quest produced and sold 2,000 units at a sales price of $125 each. Assume that beginning and ending inventories of materials, work in process, and finished goods were zero.
51. Refer to Figure 2-8. Total period expense was?
| a. | $24,000 |
| b. | $190,000 |
| c. | $46,000 |
| d. | $250,000 |
ANS: C
SUPPORTING CALCULATIONS:
$24,000 + $22,000 = $46,000
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
52. Refer to Figure 2-8. Gross margin per-unit was?
| a. | $125 |
| b. | $7 |
| c. | $95 |
| d. | $30 |
ANS: D
SUPPORTING CALCULATIONS:
| Sales (2000 ´ $125) | $250,000 |
| Cost of goods sold | 190,000 |
| Gross margin | $ 60,000/2,000 units = $30 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 3 min.
53. Refer to Figure 2-8. Total product costs were?
| a. | $190,000 |
| b. | $100,000 |
| c. | $150,000 |
| d. | $236,000 |
ANS: A
SUPPORTING CALCULATIONS:
$40,000 + $60,000 + $90,000 = $190,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 1 min.
54. Refer to Figure 2-8. Conversion cost per unit was?
| a. | $50 |
| b. | $75 |
| c. | $95 |
| d. | $125 |
ANS: B
SUPPORTING CALCULATIONS:
($60,000 + $90,000)/2,000 = $75
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 1 min.
55. Cost of goods sold
| a. | represents all costs associated with research, development, and general administration of the organization. |
| b. | is found on the Balance Sheet. |
| c. | is the cost of the partially completed goods that are still on the factory floor at the end of the period. |
| d. | is the total product cost for the units sold during a period. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
56. Which of the following would not be found on the income statement of a manufacturer?
| a. | cost of goods sold |
| b. | work in process |
| c. | sales revenue |
| d. | operating income |
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
57. Which of the following would be found on the balance sheet of a manufacturer?
| a. | work in process |
| b. | raw materials |
| c. | finished goods |
| d. | All of the these are correct |
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
58. Which of the following would be found on the balance sheet of a manufacturer?
| a. | sales revenue |
| b. | selling expenses |
| c. | factory equipment |
| d. | all of these are correct |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
59. Gross margin equals
| a. | cost of goods sold - selling and administrative expenses. |
| b. | direct materials + direct labor + manufacturing overhead. |
| c. | sales revenue - cost of goods sold. |
| d. | cost of goods manufactured + selling and administrative expenses. |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
60. Operating income equals
| a. | sales revenue - cost of goods sold - selling and administrative expense |
| b. | gross margin - selling expenses |
| c. | sales revenue - cost of goods sold |
| d. | sales revenue - selling and administrative expenses |
ANS: A PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
61. Gross margin percent equals
| a. | gross margin/cost of goods sold. |
| b. | operating income/sales revenue. |
| c. | gross margin/sales revenue. |
| d. | sales revenue/gross margin. |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Knowledge NOT: 1 min.
62. Which of the following would not be found on an income statement of a service organization?
| a. | selling expenses |
| b. | cost of goods sold |
| c. | operating income |
| d. | sales revenue |
ANS: B PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
63. Which of the following can be found on the income statements of both a manufacturing and service organization?
| a. | revenues |
| b. | operating income |
| c. | administrative expenses |
| d. | all of these can be found on both. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
64. A manufacturer normally has
| a. | one inventory account. |
| b. | four inventory accounts. |
| c. | three inventory accounts. |
| d. | none of these are correct. |
ANS: C PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
65. An income statement of a manufacturer
| a. | will show the ending balance of work in process. |
| b. | contains only manufacturing costs. |
| c. | will show the ending balance of materials inventory. |
| d. | covers a certain period of time. |
ANS: D PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
66. On a manufacturer's income statement expenses are separated into the following three categories:
| a. | production, period, and indirect |
| b. | materials, work in process, and finished goods |
| c. | production, selling, and administrative |
| d. | variable, fixed, and direct |
ANS: C PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 2-3 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Knowledge NOT: 1 min.
Figure 2-2.
Lonborg Co. had the following beginning and ending inventory balances for the year ended December 31, 2011:
| January 1, 2011 | December 31, 2011 | |
| Materials | $10,000 | $ 8,000 |
| Work in Process | $18,000 | $17,000 |
| Finished Goods | $21,000 | $16,500 |
In addition, direct labor costs of $30,000 were incurred, overhead equaled $42,000, materials purchased were $27,000 and selling and administrative costs were $22,000. Lonborg Co. sold 25,000 units of product during the year at a sales price of $5.00 per unit.
67. Refer to Figure 2-2. What was the amount of cost of goods manufactured for the year?
| a. | $101,000 |
| b. | $124,000 |
| c. | $100,000 |
| d. | $102,000 |
ANS: D
SUPPORTING CALCULATIONS:
| Materials 1/1 | $10,000 | |
| Purchases | 27,000 | |
| 37,000 | ||
| Materials 12/31 | <8,000> | |
| Materials used | 29,000 | |
| Direct labor | 30,000 | |
| Overhead | 42,000 | |
| Total manufacturing costs | 101,000 | |
| Work in process 1/1 | 18,000 | |
| Work in process 12/31 | <17,000> | |
| Cost of goods manufactured | $102,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 10 min.
68. Refer to Figure 2-2. What was the amount of cost of goods sold for the year?
| a. | $102,000 |
| b. | $97,500 |
| c. | $106,500 |
| d. | $128,500 |
ANS: C
SUPPORTING CALCULATIONS:
| Cost of goods manufactured | $102,000 |
| Finished goods inventory 1/1 | 21,000 |
| Finished goods inventory 12/31 | <16,500> |
| Cost of goods sold | $106,500 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 15 min.
69. Refer to Figure 2-2. What were the total manufacturing costs for the year?
| a. | $101,000 |
| b. | $102,000 |
| c. | $123,000 |
| d. | $106,500 |
ANS: A
SUPPORTING CALCULATIONS:
| Materials used in production | $ 29,000 |
| Direct labor | 30,000 |
| Overhead | 42,000 |
| Total manufacturing costs | $101,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 3 min.
70. Refer to Figure 2-2. What was Lonborg's operating income <loss> for the year?
| a. | $18,500 |
| b. | $125,000 |
| c. | $<3,500> |
| d. | $5,500 |
ANS: C
SUPPORTING CALCULATIONS:
| Sales | $125,000 |
| Cost of goods sold | 106,500 |
| Gross margin | 18,500 |
| Sell. & admin. | 22,000 |
| Operating income | <3,500> |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 15 min.
71. During the month of June, Telecom Inc. had cost of goods manufactured of $112,000, direct materials cost of $52,000, direct labor cost of $37,000 and overhead cost of $26,000. The work in process balance at June 30 equaled $10,000. What was the work in process balance on June 1?
| a. | $7,000 |
| b. | $13,000 |
| c. | $10,000 |
| d. | $115,000 |
ANS: A
SUPPORTING CALCULATIONS:
| Direct materials | $ 52,000 |
| Direct labor | 37,000 |
| Overhead | 26,000 |
| Total manufacturing costs | 115,000 |
| Work in process 6/1 | 7,000 |
| Work in process 6/30 | <10,000> |
| Cost of goods manufactured | $112,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 3 min.
72. Talcum Inc. had materials inventory at July 1 of $12,000. The materials inventory at July 31 was $15,000 and the cost of direct materials used in production was $20,000. What was the cost of materials purchased during the month?
| a. | $23,000 |
| b. | $17,000 |
| c. | $35,000 |
| d. | $20,000 |
ANS: A
SUPPORTING CALCULATIONS:
| Materials inventory 7/1 | $12,000 |
| Purchases | 23,000 |
| Available | 35,000 |
| Materials inventory 7/31 | 15,000 |
| Materials used in production | 20,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 3 min.
73. Kutlow Inc. had cost of goods sold of $112,000 for the year ended December 31, 2011. The finished goods inventory on January 1, 2011 was $28,000 and the finished goods inventory on December 31, 2011 was $17,000. What was the amount of cost of goods manufactured for the year?
| a. | $129,000 |
| b. | $101,000 |
| c. | $67,000 |
| d. | $113,000 |
ANS: B
SUPPORTING CALCULATIONS:
| Finished goods 1/1 | $ 28,000 |
| Cost of goods manufactured | 101,000 |
| Goods available | 129,000 |
| Finished goods 12/31 | <17,000> |
| Cost of goods sold | $112,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 3 min.
74. Andover Inc. had a gross margin for the month of February totaling $42,000. They sold 5,000 units during the month at a sales price of $20 per unit. What was the amount of cost of goods sold for the month?
| a. | $100,000 |
| b. | $42,000 |
| c. | $58,000 |
| d. | none of these are correct |
ANS: C
SUPPORTING CALCULATIONS:
| Sales (5,000 ´ $20) | $100,000 |
| Cost of goods sold | 58,000 |
| Gross margin | 42,000 |
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 1 min.
Figure 2-3.
Bartlow, Inc. had the following income statement for the month of May.
| Sales revenue | $428,000 | |
| Cost of goods sold | 205,440 | |
| Gross margin | 222,560 | |
| Less: | ||
| Selling expenses | 81,320 | |
| Administrative expenses | 72,760 | |
| Operating income | $ 68,480 |
75. Refer to Figure 2-3. What was the sales revenue percent?
| a. | 100% |
| b. | 48% |
| c. | 52% |
| d. | 16% |
ANS: A
SUPPORTING CALCULATIONS:
$428,000/$428,000 = 100%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Knowledge NOT: 1 min.
76. Refer to Figure 2-3. What was the cost of goods sold percent?
| a. | 100% |
| b. | 19% |
| c. | 52% |
| d. | 48% |
ANS: D
SUPPORTING CALCULATIONS:
$205,440/$428,000 = 48%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 1 min.
77. Refer to Figure 2-3. What was the gross margin percent?
| a. | 52% |
| b. | 48% |
| c. | 17% |
| d. | 19% |
ANS: A
SUPPORTING CALCULATIONS:
$222,560/$428,000 = 52%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 1 min.
78. Refer to Figure 2-3. What was the selling expense percent?
| a. | 17% |
| b. | 19% |
| c. | 16% |
| d. | no correct answer |
ANS: B
SUPPORTING CALCULATIONS:
$81,320/$428,000 = 19%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 1 min.
79. Refer to Figure 2-3. What was the administrative expense percent?
| a. | 17% |
| b. | 19% |
| c. | 16% |
| d. | 15% |
ANS: A
SUPPORTING CALCULATIONS:
$72,760/$428,000 = 17%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 1 min.
80. Refer to Figure 2-3. What was the operating income percent?
| a. | 15% |
| b. | 19% |
| c. | 17% |
| d. | 16% |
ANS: D
SUPPORTING CALCULATIONS:
$68,480/$428,000 = 16%
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 1 min.
Figure 2-4.
Junko Company makes financial calculators. During the year Junko manufactured 97,000 financial calculators. Finished goods inventory had the following units on hand:
| January 1 | 1,260 |
| December 31 | 1,040 |
81. Refer to Figure 2-4. How many financial calculators did Junko sell during the year?
| a. | 96,780 |
| b. | 97,220 |
| c. | 97,000 |
| d. | 98,260 |
ANS: B
SUPPORTING CALCULATIONS:
| Units manufactured | 97,000 |
| Decrease in inventory balances | 220 |
| Units sold | 97,220 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application NOT: 1 min.
82. Refer to Figure 2-4. If each financial calculator had a per-unit product cost of $112, what was the cost of Finished goods inventory on December 31?
| a. | $116,480 |
| b. | $141,120 |
| c. | $24,640 |
| d. | none of these are correct |
ANS: A
SUPPORTING CALCULATIONS:
1,040 ´ $112 = $116,480
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 1 min.
83. Refer to Figure 2-4. If each financial calculator has a per-unit product cost of $112, what was the cost of goods sold last year?
| a. | $10,864,000 |
| b. | $10,839,360 |
| c. | $11,005,120 |
| d. | $10,888,640 |
ANS: D
SUPPORTING CALCULATIONS:
97,220 ´ $112 = $10,888,640
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 2 min.
Figure 2-6.
Seaview Company took the following data from their income statement at the end of the current year.
| Per-unit product cost: | $30 |
| Gross margin percentage: | 40% |
| Selling and administrative expenses | $30,000 |
| Operating income | $10,000 |
84. Refer to Figure 2-6. What was gross margin for the year?
| a. | $60,000 |
| b. | $100,000 |
| c. | $40,000 |
| d. | none of these |
ANS: C
SUPPORTING CALCULATIONS:
| Operating income | $10,000 |
| Selling and admin. | $30,000 |
| Gross margin | $40,000 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 1 min.
85. Refer to Figure 2-6. What was cost of goods sold for the year?
| a. | $60,000 |
| b. | $40,000 |
| c. | $100,000 |
| d. | none of these |
ANS: A
SUPPORTING CALCULATIONS:
| Sales ($40,000/.40) | $100,000 |
| Gross margin | <40,000> |
| Cost of goods sold | 60,000 |
| Also $40,000/.40 ´ .60 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 2 min.
86. Refer to Figure 2-6. How many units were sold during the year?
| a. | 3,333 |
| b. | 1,000 |
| c. | 1,500 |
| d. | 2,000 |
ANS: D
SUPPORTING CALCULATIONS:
Cost of goods sold $60,000/$30 = 2,000 units
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Cost Management | ACBSP: APC-25-Managerial Characteristics/Terminology KEY: Bloom's: Application
NOT: 2 min.
87. Refer to Figure 2-6. What was the sales price per unit?
| a. | $50 |
| b. | $30 |
| c. | $20 |
| d. | $10 |
ANS: A
SUPPORTING CALCULATIONS:
Sales $100,000/2,000 units = $50
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 2 min.
88. If beginning work-in-process inventory is $120,000, ending work-in-process inventory is $160,000, cost of goods manufactured is $400,000 and direct materials used are $100,000, what are the conversion costs?
| a. | $140,000 |
| b. | $280,000 |
| c. | $300,000 |
| d. | $340,000 |
ANS: D
SUPPORTING CALCULATIONS:
$400,000 + $160,000 - $120,000 - $100,000 = $340,000
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
89. Information from the records of Place, Inc., for December 2011 is as follows:
| Sales | $820,000 |
| Selling and administrative expenses | 140,000 |
| Direct materials purchases | 176,000 |
| Direct labor | 200,000 |
| Factory overhead | 270,000 |
| Direct materials, December 1 | 24,000 |
| Work in process, December 1 | 50,000 |
| Finished goods, December 1 | 46,000 |
| Direct materials, December 31 | 28,000 |
| Work in process, December 31 | 56,000 |
| Finished goods, December 31 | 38,000 |
Net income for the month of December is:
| a. | $644,000. |
| b. | $36,000. |
| c. | $636,000. |
| d. | $180,000. |
ANS: B
SUPPORTING CALCULATIONS:
COGM = ($24,000 + $176,000 - $28,000) + $200,000 + $270,000 + $50,000 - $56,000 = $636,000
COGS = $636,000 + $46,000 - $38,000 = $644,000
NI = $820,000 - $140,000 - $644,000 = $36,000
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Business Economics | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 15 min.
90. Selected data concerning the past year's operations of the Burner Corporation are as follows:
| Selling and administrative expenses | $225,000 | ||
| Direct materials used | 397,500 | ||
| Direct labor | 450,000 | ||
| Inventories | |||
| Dec. 1, 2011 | Dec. 31, 2011 | ||
| Direct materials | $36,000 | $42,000 | |
| Work in process | 75,000 | 84,000 | |
| Finished goods | 69,000 | 57,000 | |
The cost of direct materials purchased is:
| a. | $397,500. |
| b. | $403,500. |
| c. | $367,500. |
| d. | $405,000. |
ANS: B
SUPPORTING CALCULATIONS:
$397,500 + $42,000 - $36,000 = $403,500
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 2 min.
PROBLEM
1. Stone Company, maker of computers, incurred the following costs during the year:
Required: Classify each cost as either fixed or variable cost.
| Fixed | Variable | ||
| 1. | Salary of the factory supervisor | ||
| 2. | Materials needed to assemble the computers | ||
| 3. | Wages paid to an assembly line worker | ||
| 4. | Depreciation on the factory | ||
| 5. | Utility bill for the factory | ||
| 6. | Grease used to lubricate the machine | ||
| 7. | Rent paid for the factory | ||
| 8. | Property taxes on the factory and corporate office | ||
| 9. | Boxes used to package the completed computers | ||
| 10. | Advertising in a newspaper monthly |
ANS:
1. Fixed
2. Variable
3. Variable
4. Fixed
5. Variable
6. Variable
7. Fixed
8. Fixed
9. Variable
10. Fixed
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-1
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Cost Management | ACBSP: APC-28-Variable and Fixed Costs
KEY: Bloom's: Knowledge NOT: 2 min.
2. Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year:
Required: Classify each cost as either a product or period cost.
| Product | Period | ||
| 1. | Depreciation on automobiles used by the sales staff. | ||
| 2. | Salary of Ashland's chief executive officer | ||
| 3. | Glue used in the production process | ||
| 4. | Supplies for factory washroom | ||
| 5. | Research and development costs | ||
| 6. | Property taxes on factory building | ||
| 7. | Salary of company controller | ||
| 8. | Depreciation on furniture in factory lunchroom | ||
| 9. | Cost of lubricating machinery | ||
| 10. | Wood used in production process |
ANS:
| Product | Period | ||
| 1. | Depreciation on automobiles used by the sales staff. | X | |
| 2. | Salary of Ashland's chief executive officer | X | |
| 3. | Glue used in the production process | X | |
| 4. | Supplies for factory washroom | X | |
| 5. | Research and development costs | X | |
| 6. | Property taxes on factory building | X | |
| 7. | Salary of company controller | X | |
| 8. | Depreciation on furniture in factory lunchroom | X | |
| 9. | Cost of lubricating machinery | X | |
| 10. | Wood used in production process | X |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 2 min.
3. Arcadia Company manufactures recreational vehicles and incurred the following costs during the current year.
Required: Classify each cost using the table format given below:
| Product Cost | Period Cost | |||||
| Direct Materials | Direct Labor |
Overhead | Selling Expense | Administrative Expense | ||
| 1. | Wages of general office personnel | |||||
| 2. | Cost of tires | |||||
| 3. | Factory supervisor's salary | |||||
| 4. | Conference for marketing personnel | |||||
| 5. | Factory security guards | |||||
| 6. | Research and development | |||||
| 7. | Assembly line workers | |||||
| 8. | Company receptionist | |||||
| 9. | Advertising cost | |||||
| 10. | Cost of shipping vehicles to customers |
ANS:
| Product Cost | Period Cost | |||||
| Direct Materials | Direct Labor |
Overhead | Selling Expense | Administrative Expense | ||
| 1. | Wages of general office personnel | X | ||||
| 2. | Cost of tires | X | ||||
| 3. | Factory supervisor's salary | X | ||||
| 4. | Conference for marketing personnel | X | ||||
| 5. | Factory security guards | X | ||||
| 6. | Research and development | X | ||||
| 7. | Assembly line workers | X | ||||
| 8. | Company receptionist | X | ||||
| 9. | Advertising cost | X | ||||
| 10. | Cost of shipping vehicles to customers | X |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge NOT: 3 min.
4. The Bayou Company makes crab pots. During the current month, direct materials costing $126,000 were put into production. Direct labor of $78,000 was incurred and overhead equaled $84,000. Selling and administrative expenses totaled $66,000 for the month and the company manufactured 3,000 crab pots. Assume there was no beginning inventory and that 2,800 crab pots were sold.
Required:
| A. | Compute the per-unit product cost |
| B. | Compute the per-unit prime cost |
| C. | Compute the per-unit conversion cost |
| D. | What is cost of goods sold for the month? |
| E. | What is the cost of ending finished goods for the month? |
ANS:
| A. | ($126,000 + $78,000 + $84,000)/3,000 = $96 |
| B. | ($126,000 + $78,000)/3,000 = $68 |
| C. | ($78,000 + $84,000)/3,000 = $54 |
| D. | ($96 ´ 2,800) = $268,800 |
| E. | ($96 ´ 200) = $19,200 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Cost Management | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 10 min.
5. Ross Company makes handbags. Last month direct materials (leather, thread, zippers, decorative accents) costing $76,000 were put into production. Ross had 30 workers, each worked 160 hours this month and each are paid $12 per hour. Overhead equaled $80,000 for the period. Ross Company produced 40,000 handbags as of the end of the month.
Required: Calculate the total product cost for the month and calculate the cost of one handbag that was produced.
ANS:
Direct materials = 76,000
Direct labor = 57,600 (30 employees x 160 hrs. x $12 per hour)
Overhead = 80,000
Total cost 213,600
Cost of one handbag: 213,600/40,000 = $5.34
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Cost Management | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 5 min.
6. Room With A View Company manufactures curtains. Last week, direct materials costing $42,000 were put into production. Direct labor of $22,000 was incurred and overhead totaled $50,000. By the end of the week, the company had produced 12,000 curtains.
Required:
1. Calculate the total prime cost for the week.
2. Calculate the per-unit prime cost.
3. Calculate the total conversion cost for the week.
4. Calculate the per-unit conversion cost.
ANS:
1. $64,000 (42,000 + 22,000)
2. $5.33 (64,000/12,000)
3. $72,000 (22,000 + 50,000)
4. $6.00 (72,000/12,000)
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Cost Management | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Application
NOT: 4 min.
7. The Blanchett Company manufactures fishing rods. Last year, direct materials costing $516,000 were put into production. Direct labor of $430,000 was incurred and overhead equaled $645,000. The company had operating income for the year of $58,000 and manufactured and sold 86,000 fishing rods at a sales price of $21 per unit. Assume that there were no beginning or ending inventory balances in the work in process and finished goods inventory accounts.
Required:
| A. | Compute the per-unit product cost |
| B. | Compute the per-unit prime cost |
| C. | Compute the per-unit conversion cost |
| D. | Compute the gross margin for the year |
| E. | Compute the selling and administrative expenses for the year |
| F. | Assume production amounted to 86,000 fishing rods and 80,000 were sold. Compute cost of goods sold. |
| G. | Assume production amounted to 86,000 fishing rods and 80,000 were sold. Compute the balance in ending finished goods inventory. |
ANS:
| A. | ($516,000 + $430,000 + $645,000)/86,000 = $18.50 | ||||
| B. | ($516,000 + $430,000)/86,000 = $11.00 | ||||
| C. | ($430,000 + $645,000)/86,000 = $12.50 | ||||
| D. | Sales (86,000 ´ $21) | $1,806,000 | |||
| COGS (86,000 ´ $18.50) | 1,591,000 | ||||
| Gross Margin | 215,000 | ||||
| E. | Gross Margin | $ 215,000 | |||
| Less: Sell. and admin. | 157,000 | ||||
| Operating Income | 58,000 | ||||
| F. | (80,000 ´ $18.50) = $1,480,000 | ||||
| G. | (6,000 ´ $18.50) = $111,000 | ||||
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2 | LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Application NOT: 15 min.
8. The Butchart Company manufactures microwave ovens. Last year, the per-unit product cost was $56, the per-unit prime cost was $34, and the per-unit conversion cost was $42. Cost of goods sold for the year was $560,000 and the sale price per unit was $100. In addition, direct labor costs of $200,000 and selling and administrative expenses of $240,000 were incurred.
Required:
| A. | Calculate how many units were sold last year |
| B. | Compute the cost of direct materials used |
| C. | Compute the cost of overhead |
| D. | Compute the gross margin for the year |
| E. | Calculate operating income |
ANS:
| A. | Cost of goods sold | $560,000/$56 = 10,000 units | |
| B. | 10,000 ´ $34 - ($200,000 of direct labor cost) = $140,000 | ||
| C. | 10,000 ´ $42 - ($200,000 of direct labor cost) = $220,000 | ||
| D. | Sales revenue (10,000 ´ $100) | $1,000,000 | |
| Cost of goods sold | 560,000 | ||
| Gross margin | 440,000 | ||
| E. | Gross margin | $ 440,000 | |
| Less: Sell. and admin. | 240,000 | ||
| Operating income | 200,000 | ||
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-2 | LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Application NOT: 10 min.
9. Picture It Inc. manufactures customized wooden frames. The direct materials needed to construct the frames are wood, glass and cardboard. Picture It has 22 employees who work a 40 hour work week and are each paid $17 per hour. The company produced and sold 900 frames in the month of September.
During the month of September the following purchases were made to produce the 900 frames:
Wood- 4000 ft. at $1.20/ft.
Glass- 400 pieces at $5.60/piece
Cardboard- 500 pieces at $.50/piece
Required:
1. Calculate the total product cost for the month. Assume that all employees worked four full weeks in September and that the company incurred $55,000 in overhead costs.
2. Calculate the per unit cost.
3. Calculate the gross margin for the month of September assuming that the company sells each frame for $250.
ANS:
1. Direct materials:
| Wood = | $4,800 (4,000 x 1.20) | |
| Glass = | 2,240 (400 x 5.65) | |
| Cardboard = | 250 (500 x .50) | |
| $7,290 |
Direct labor: 59,840 (22 x 160 x 17)
Overhead 55,000
Total cost 122,130
2. 122,130/900 = $135.70
3. Gross margin = sales revenue-cost of goods sold
Gross margin = 225,000 (250 x 900) - 122,130 = $102,870
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2 | LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Cost Management | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 5 min.
10. Tucker Company, a manufacturing firm, has supplied the following information from its accounting records for the month of April.
| Direct labor cost | $12,000 |
| Purchases of raw materials | 17,000 |
| Factory insurance | 4,000 |
| Research and development | 7,500 |
| Factory property taxes | 3,000 |
| Sales commissions paid | 4,500 |
| Work in process, April 1 | 2,000 |
| Work in process, April 30 | 2,800 |
| Materials inventory, April 1 | 1,475 |
| Materials inventory, April 30 | 1,200 |
| Finished goods inventory, April 1 | 2,250 |
| Finished goods inventory, April 30 | 750 |
Required: Prepare a Statement of Cost of Goods Manufactured
ANS:
| Tucker Company | ||
| Statement of Cost of Goods Manufactured | ||
| For the Month of April | ||
| Materials inventory, April 1 | $ 1,475 | |
| Materials purchased | 17,000 | |
| Materials available for use | 18,475 | |
| Materials inventory, April 30 | 1,200 | |
| Materials used | $17,275 | |
| Direct labor | 12,000 | |
| Overhead | 7,000 | |
| Total manufacturing costs | 36,275 | |
| Work in process, April 1 | 2,000 | |
| Work in process, April 30 | (2,800) | |
| Cost of goods manufactured | $35,475 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 10 min.
11. In June, Olympic Company purchased materials costing $38,000, and incurred direct labor cost of $42,000. Overhead totaled $27,000 for the month. Information on inventories was as follows.
| June 1 | June 30 | |
| Materials | $3,000 | $2,700 |
| Work in process | 1,000 | 1,275 |
| Finished goods | 2,500 | 1,775 |
Required:
| A. | Calculate the cost of direct materials used during June. |
| B. | Calculate the total manufacturing cost for June. |
| C. | Calculate the cost of goods manufactured for June. |
| D. | Calculate cost of goods sold for June. |
ANS:
| A. | Materials, 6/1 | $ 3,000 |
| Purchases | 38,000 | |
| Materials, 6/30 | (2,700) | |
| Materials used | $ 38,300 | |
| B. | ($38,300 + $42,000 + $27,000) = $107,300 | |
| C. | Total manufacturing costs | $107,300 |
| Work in process, 6/1 | 1,000 | |
| Work in process, 6/30 | (1,275) | |
| Cost of goods manufactured | $107,025 | |
| D. | Cost of goods manufactured | $107,025 |
| Finished goods, 6/1 | 2,500 | |
| Finished goods, 6/30 | (1,775) | |
| Cost of goods sold | $107,750 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP: APC-09-Financial Statements KEY: Bloom's: Application NOT: 5 min.
12. Templar Company, a manufacturing firm, has supplied the following information from its accounting records for the month of November:
| Factory supplies used | $18,000 |
| Depreciation on factory building | 17,000 |
| Salary of company controller | 6,000 |
| Factory janitorial costs | 5,000 |
| Marketing and promotion | 4,500 |
| Direct labor cost | 22,000 |
| Purchases of raw materials | 10,000 |
| Finished goods inventory, Nov. 1 | 2,250 |
| Finished goods inventory, Nov. 30 | 3,750 |
| Work-in-process inventory, Nov. 1 | 4,200 |
| Work-in-process inventory, Nov. 30 | 2,750 |
| Materials inventory, Nov. 1 | 3,500 |
| Materials inventory, Nov. 30 | 5,100 |
Required:
| A. | Prepare a Statement of Cost of Goods Manufactured |
| B. | Prepare a Statement of Cost of Goods Sold |
ANS:
| Templar Company Statement of Cost of Goods Manufactured For the Month of November | ||
| Materials inventory, Nov. 1 | $ 3,500 | |
| Purchases of materials | 10,000 | |
| Materials inventory, Nov. 30 | (5,100) | |
| Materials used | $ 8,400 | |
| Direct labor | 22,000 | |
| Overhead | 40,000 | |
| Total manufacturing costs | 70,400 | |
| Work-in-process inventory, Nov. 1 | 4,200 | |
| Work-in-process inventory, Nov. 30 | (2,750) | |
| Cost of goods manufactured | $71,850 |
| Templar Company Statement of Cost of Goods Sold For the Month of November | |
| Cost of goods manufactured | $71,850 |
| Finished goods inventory, Nov. 1 | 2,250 |
| Finished goods inventory, Nov. 30 | (3,750) |
| Cost of goods sold | $70,350 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 15 min.
13. Fidalgo Company makes stereos. During the year, Fidalgo manufactured and sold 75,000 stereos at a sales price of $575 per unit. Fidalgo's per-unit product cost was $540 and selling and administrative expenses totaled $2,000,000.
Required:
| A. | Compute the total sales revenue |
| B. | Compute the gross margin |
| C. | Compute the operating income |
| D. | Compute the operating income if 75,000 stereos were produced and 69,000 were sold. |
ANS:
| A. | 75,000 ´ $575 = $43,125,000 | |
| B. | Sales revenue | $43,125,000 |
| Cost of goods sold | ||
| (75,000 ´ $540) | 40,500,000 | |
| Gross margin | 2,625,000 | |
| C. | Gross margin | $ 2,625,000 |
| Selling and admin. expenses | 2,000,000 | |
| Operating income | 625,000 | |
| D. | Sales revenue | $39,675,000 |
| Cost of goods sold | ||
| (69,000 ´ $540) | 37,260,000 | |
| Gross margin | 2,415,000 | |
| Selling and admin. expenses | 2,000,000 | |
| Operating income | 415,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 5 min.
14. Baleen Company supplied the following data at the end of the current year:
| Sales commissions | $ 12,000 |
| Sales revenue | 120,000 |
| Research and development | 17,000 |
| Finished goods inventory, Jan. 1 | 7,500 |
| Work in process inventory, Jan 1 | 9,000 |
| Finished goods inventory, Dec. 31 | 6,000 |
| Work in process inventory, Dec. 31 | 11,000 |
| Cost of goods manufactured | 52,000 |
Required: Prepare an income statement for Baleen Company.
ANS:
| Baleen Company Income Statement For the Year Ended December 31, 2011 | |
| Sales revenue | $120,000 |
| Cost of goods sold* | 53,500 |
| Gross margin | 66,500 |
| Less: | |
| Selling expense | 12,000 |
| Administrative expense | 17,000 |
| Operating income | $ 37,500 |
| *Cost of goods manufactured | $ 52,000 |
| Finished goods inventory, Jan. 1 | 7,500 |
| Finished goods inventory, Dec. 31 | (6,000) |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 10 min.
15. Macon Company supplied the following data and information on inventories at the end of the current year.
| January 1, 2011 | December 31,2011 | |
| Materials | $21,000 | $23,500 |
| Work in process | 17,500 | 8,500 |
| Finished goods | 26,000 | 27,000 |
| Direct labor | $ 40,000 |
| Selling expenses | 31,000 |
| Sales revenue | 400,000 |
| Administrative expenses | 14,500 |
| Purchases of raw materials | 62,000 |
| Factory supervision | 50,000 |
| Factory supplies used | 25,000 |
Required: Prepare an income statement of Macon Company for the current year.
ANS:
| Macon Company | |
| Income Statement | |
| For the Year Ended December 31, 2011 | |
| Sales revenue | $ 400,000 |
| Cost of goods sold* | 182,500 |
| Gross margin | 217,500 |
| Less: | |
| Selling expenses | 31,000 |
| Administrative expenses | 14,500 |
| Operating income | $172,000 |
| *Cost of goods manufactured** | $183,500 |
| Finished goods inventory, Jan. 1 | 26,000 |
| Finished goods inventory, Dec. 31 | (27,000) |
| Cost of goods sold | 182,500 |
| **Purchases of raw materials | $ 62,000 |
| Materials inventory, 1/1 | 21,000 |
| Materials inventory, 12/31 | (23,500) |
| Materials used | 59,500 |
| Direct labor | 40,000 |
| Overhead ($50,000 + $25,000) | 75,000 |
| Total manufacturing costs | 174,500 |
| Work in process inventory, Jan. 1 | 17,500 |
| Work in process inventory, Dec. 31 | (8,500) |
| Cost of goods manufactured | $183,500 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 20 min.
16. Bartlow Company has supplied the following information from its accounting records for the month of May.
| Direct labor cost | $11,500 |
| Purchases of raw materials | 20,000 |
| Factory depreciation | 7,500 |
| Advertising | 10,000 |
| Factory property taxes | 6,500 |
| Materials inventory, 5/1 | 1,250 |
| Materials inventory, 5/31 | 2,500 |
| Work in process Inventory, 5/1 | ? |
| Work in process Inventory, 5/31 | 1,500 |
| Cost of goods manufactured | 45,850 |
| Sales revenue | ? |
| Executive salary cost | 25,000 |
| Finished goods inventory, 5/1 | 5,500 |
| Finished goods inventory, 5/31 | 4,250 |
| Operating income | 67,900 |
| Gross margin | ? |
Required: Solve for the missing amounts (?)
ANS:
| Bartlow Company Schedule of Cost of Goods Manufactured For the Month of May | |
| Materials inventory, 5/1 | $ 1,250 |
| Purchases of materials | 20,000 |
| Materials inventory, 5/31 | (2,500) |
| Materials used | $18,750 |
| Direct labor | 11,500 |
| Overhead (7,500 + 6,500) | 14,000 |
| Total manufacturing costs | 44,250 |
| Work in process, 5/1 | 3,100 |
| Work in process, 5/31 | (1,500) |
| Cost of goods manufactured | $45,850 |
| Bartlow Company Income Statement For the Month of May | |
| Sales revenue | $150,000 |
| Cost of goods sold* | 47,100 |
| Gross margin | 102,900 |
| Less: | |
| Selling expense | 10,000 |
| Administrative expense | 25,000 |
| Operating income | $ 67,900 |
| *Cost of goods manufactured | $ 45,850 |
| Finished goods inventory, 5/1 | 5,500 |
| Finished goods inventory, 5/31 | (4,250) |
| Cost of goods sold | $ 47,100 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 15 min.
17. See the following separate cases.
| Case #1 | Case #2 | |
| Sales | $1,000 | $1,300 |
| Cost of goods manufactured | A | 500 |
| Finished goods inventory (beginning balance) | 100 | D |
| Finished goods inventory (ending balance) | 150 | 200 |
| Cost of goods sold | B | 600 |
| Gross margin | 300 | E |
| Selling expenses | C | 75 |
| Administrative expenses | 50 | 40 |
| Operating income | 200 | F |
Required: Solve for the missing amounts (A,B,C,D,E,F)
ANS:
| Case #1 | Case #2 | |
| Sales | $1,000 | $1,300 |
| Cost of goods manufactured | 750 | 500 |
| Finished goods inventory (beginning balance) | 100 | 300 |
| Finished goods inventory (ending balance) | (150) | (200) |
| Cost of goods sold | 700 | 600 |
| Gross margin | 300 | 700 |
| Selling expenses | 50 | 75 |
| Administrative expenses | 50 | 40 |
| Operating income | 200 | 585 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 10 min.
18. See the following separate cases.
| Case #1 | Case #2 | |
| Purchase of materials | $ 5,000 | C |
| Materials inventory (beginning balance) | A | 220 |
| Materials inventory (ending balance) | 1,000 | 350 |
| Direct labor | 7,000 | 4,250 |
| Factory supervision | 1,500 | 1,100 |
| Factory supplies | 1,250 | 900 |
| Total manufacturing costs | 14,500 | D |
| Work in process inventory (beginning balance) | 1,200 | 1,230 |
| Work in process inventory (ending balance) | B | 650 |
| Cost of goods manufactured | 14,600 | 10,200 |
Required: Solve for the missing amounts (A,B,C,D).
ANS:
| Case #1 | Case #2 | |
| Purchases of materials | $ 5,000 | $ 3,500 |
| Materials inventory (beginning balance) | 750 | 220 |
| Materials inventory (ending balance) | (1,000) | (350) |
| Materials used | 4,750 | 3,370 |
| Direct labor | 7,000 | 4,250 |
| Overhead | 2,750 | 2,000 |
| Total manufacturing costs | 14,500 | 9,620 |
| Work in process inventory, (beginning balance) | 1,200 | 1,230 |
| Work in process inventory, (ending balance) | (1,100) | (650) |
| Cost of goods manufactured | $14,600 | $10,200 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 10 min.
19. Rancor Company's accountant prepared the following income statement for the month of August.
| Rancor Company Income Statement For the Month of August | |
| Sales revenue | $912,200 |
| Cost of goods sold | 601,920 |
| Gross margin | 310,280 |
| Less: | |
| Selling expense | 164,160 |
| Administrative expense | 63,840 |
| Operating income | $ 82,280 |
Required:
| A. | Calculate the sales revenue percent |
| B. | Calculate the cost of goods sold percent |
| C. | Calculate the gross margin percent |
| D. | Calculate the selling expense percent |
| E. | Calculate the administrative expense percent |
| F. | Calculate the operating income percent |
ANS:
| A. | 912,000/912,000 = 100% |
| B. | 601,920/912,000 = 66% |
| C. | 310,280/912,000 = 34% |
| D. | 164,160/912,000 = 18% |
| E. | 63,840/912,000 = 7% |
| F. | 82,280/912,000 = 9% |
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 5 min.
20. Extrema Company supplied the following data at the end of the current year.
| Finished goods inventory, Jan 1. | $ 12,000 |
| Finished goods inventory, Dec. 31 | 7,500 |
| Cost of goods manufactured | 152,380 |
| Sales revenue | 212,000 |
| Sales commissions | 19,080 |
| Research and development costs | 15,900 |
Required:
| A. | Calculate the cost of goods sold percent |
| B. | Calculate the gross margin percent |
| C. | Calculate the selling expense percent |
| D. | Calculate the administrative expense percent |
| E. | Calculate the operating income percent |
ANS:
| A. | Cost of goods manufactured | $152,380 |
| Finished goods inventory, 1/1 | 12,000 | |
| Finished goods inventory, 12/31 | (7,500) | |
| Cost of goods sold | 156,880 | |
| Sales revenue | $212,000 | |
| Cost of goods sold | 156,880 | |
| Gross margin | 55,120 | |
| Less: | ||
| Selling expense | 19,080 | |
| Administrative expense | 15,900 | |
| Operating income | $ 20,140 |
| A. | 156,880/212,000 = 74% |
| B. | 55,120/212,000 = 26% |
| C. | 19,080/212,000 = 9% |
| D. | 15,900/212,000 = 7.5% |
| E. | 20,140/212,000 = 9.5% |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Application NOT: 10 min.
21. Rizzuto Company supplied the following information for the month of January.
| Cost of Goods Sold percent | 62% |
| Selling Expense percent | 6% |
| Administrative expense | 13% |
Required: Reconstruct Rizzuto's income statement for January assuming that their total sales revenue for the month equaled $500,000.
ANS:
| Rizzuto Company Income Statement For the Month of January | |
| Sales revenue | $500,000 |
| Cost of goods sold (500,000 ´ 62%) | 310,000 |
| Gross margin (500,000 ´ 38%) | 190,000 |
| Less: | |
| Selling expense (500,000 ´ 6%) | 30,000 |
| Administrative expense (500,000 ´ 13%) | 65,000 |
| Operating income | 95.000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 4 min.
22. Cashman Company supplied the following information for the month of December.
| Operating income percent | 10.5% |
| Gross margin percent | 30% |
Required: Solve for the following amounts assuming that Cashman Company's operating income in December was $44,100.
| A. | Sales revenue |
| B. | Cost of good sold |
| C. | Total Selling and administrative expenses |
ANS:
| A. | Sales Revenue = $44,100/.105 = 420,000 | |
| B. | Cost of goods sold = 420,000 ´ .70 = $294,000 | |
| C. | Gross margin (420,000 ´ .30) | 126,000 |
| Less: Selling and administrative expense | 81,900 | |
| Operating income | 44,100 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 5 min.
23. Wapato Company produces a product with the following per unit costs.
| Direct materials | $17 |
| Direct labor | 11 |
| Overhead | 12 |
Last year, Wapato produced and sold 3,000 units at a sales price of $80 each. Total selling and administrative expenses were $25,000.
Required: Solve for the following:
| A. | Total cost of goods sold for last year |
| B. | Operating income for last year |
| C. | Total gross margin for last year |
| D. | Prime cost per unit |
ANS:
| A. | (17 + 11 + 12) ´ 3,000 = $120,000 | |
| B. & C. | Sales revenue (3,000 ´ 80) | $240,000 |
| Cost of goods sold | 120,000 | |
| Gross margin | 120,000 | |
| Less: | ||
| Selling and administrative expenses | 25,000 | |
| Operating income | $ 95,000 | |
| D. | 17 + 11 = $28 |
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 5 min.
24. Tesco Company showed the following costs for last month:
| Direct materials | $40,000 |
| Direct labor | 35,000 |
| Overhead | 52,000 |
| Selling expense | 17,000 |
| Administrative expense | 12,000 |
Last month, Tesco produced and sold 20,000 units at a sales price per unit of $18. Assume no beginning or ending inventory balances for work in process and finished goods inventory.
Required: Solve for the following amounts.
| A. | Total product cost for last month |
| B. | Unit product cost for last month |
| C. | Total period costs |
| D. | Gross margin for last month |
| E. | Operating income for last month |
ANS:
| A. | 40,000 + 35,000 + 52,000 = $127,000 | |
| B. | 127,000/20,000 = $6.35 | |
| C. | 17,000 + 12,000 = $29,000 | |
| D & E. | Sales revenue (20,000 ´ $18) | 360,000 |
| Cost of goods sold | 127,000 | |
| Gross margin | 233,000 | |
| Less: | ||
| Selling expense | 17,000 | |
| Administrative expense | 12,000 | |
| Operating income | $204,000 |
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement |AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements | ACBSP: APC-27-Managerial Accounting Features/Costs
KEY: Bloom's: Application NOT: 5 min.
25. Stabler Company, a manufacturing firm, has provided the following information for the month of May:
| Factory supplies used | 22,000 |
| Depreciation on factory building | 10,000 |
| Commissions for sales personnel | 32,000 |
| Salary of company CFO | 9,000 |
| Factory janitorial costs | 3,000 |
| Research and development | 5,000 |
| Depreciation on corporate office | 8,500 |
| Advertising costs | 2,500 |
| Direct labor cost | 40,000 |
| Purchases of raw materials | 15,000 |
| Finished goods inventory units, May 1 | 4,000 |
| Finished goods inventory units, May 31 | 6,500 |
| Finished goods inventory, May 1 | 36,000 |
| Finished goods inventory, May 31 | 59,865 |
| Work in process inventory, May 1 | 7,500 |
| Work in process inventory, May 31 | 3,300 |
| Materials inventory, May 1 | 2,100 |
| Materials inventory, May 31 | 4,200 |
Required:
| A. | Prepare a Statement of Cost of Goods Manufactured. |
| B. | Calculate the cost of one unit assuming 10,000 units were completed during May. |
| C. | Prepare a Statement of Cost of Goods Sold. |
| D. | Calculate the number of units that were sold during May. |
| E. | Prepare an Income Statement assuming the sales price per unit is $35. |
ANS:
A.
| Stabler Company Statement of Cost of Goods Manufactured For the Month of May | ||
| Materials Inventory, May 1 | $ 2,100 | |
| Purchases of materials | 15,000 | |
| Materials Inventory, May 31 | (4,200) | |
| Materials used | $ 12,900 | |
| Direct Labor | 40,000 | |
| Overhead | 35,000 | |
| Total manufacturing costs | 87,900 | |
| Work in Process Inventory, May 1 | 7,500 | |
| Work in Process Inventory, May 31 | (3,300) | |
| Cost of Goods Manufactured | $92,100 |
B. 92,100/10,000 = $9.21
C.
| Stabler Company Statement of Cost of Goods Sold For the Month of May | |
| Cost of Goods Manufactured | $92,100 |
| Finished Goods Inventory, May 1 | 4,000 |
| Finished Goods Inventory, May 31 | (6,500) |
| Cost of Goods Sold | $89,600 |
D. Number of units sold:
Finished goods inventory, May 1 434
Units finished during May 10,000
Finished goods inventory, May 31 (706)
Units sold during May 9,728
E.
| Stabler Company | ||
| Income Statement | ||
| For the Month of May | ||
| Sales revenue (9,728 x 35) | 340,480 | |
| Cost of goods sold | 89,600 | |
| Gross margin | 250,880 | |
| Less: | ||
| Selling expense | ||
| Commissions | 32,000 | |
| Advertising | 2,500 | 34,500 |
| Administrative expense | ||
| Salary of CFO | 9,000 | |
| Research and development | 5,000 | |
| Depreciation on corporate office | 8,500 | 22,500 |
| Operating income | 193,880 |
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | IMA: Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Application NOT: 30 min.
ESSAY
1. What is the difference between a period cost and a product cost?
ANS:
A period cost is a cost that is not a product cost. It is expensed during the current period rather than inventoried. Examples of period costs are selling and administrative costs. A product cost is a manufacturing cost that is inventoried and expensed as Cost of Goods Sold only when the goods have been sold. Product costs are classified as direct materials, direct labor, or overhead.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension NOT: 5 min.
2. List and describe the three categories of manufacturing costs.
ANS:
Direct materials consists of the cost of materials requisitioned and used in production during the current period. Direct materials are materials that can be accurately and conveniently traced to the product. Direct labor consists of labor costs of workers directly involved in the manufacture of the product. Overhead consists of all the manufacturing costs that do not fall into the direct material or direct labor category. Examples of overhead costs include; insurance on the factory, machinery deprecation, indirect labor, indirect materials, factory supplies, etc.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension NOT: 5 min.
3. Explain the difference between a cost that is included in valuing inventory and a cost that is not included in valuing inventory.
ANS:
A cost that is included in valuing inventory is a cost of manufacturing the product. These costs are also referred to as product costs and manufacturing costs. They include direct materials, direct labor, and overhead. These costs are not expensed until the goods are sold. A cost that is not included in valuing inventory is a selling or administrative cost that is expensed immediately in the accounting period that it is incurred. These costs are also referred to as period costs or non-manufacturing costs.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Business Economics | ACBSP: APC-17-Inventories Reporting
KEY: Bloom's: Comprehension NOT: 5 min.
4. Describe the purpose of the three inventory accounts used by a manufacturer.
ANS:
The materials inventory is used to keep track of materials that have not yet been used in production. The work in process inventory is used to account for the costs of goods that were partially completed at the end of the accounting period and is used to accumulate current production costs. The finished goods inventory is used to account for the cost of goods that were finished at the end of the current period but have not yet been sold.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-2 | LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry |AICPA: FN-Reporting | IMA: Business Economics | IMA: Reporting | ACBSP: APC-17-Inventories Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom's: Comprehension NOT: 5 min.
5. What is the difference between total manufacturing costs and cost of goods manufactured?
ANS:
Total manufacturing costs would consist of the cost of materials used, the direct labor costs incurred and the overhead costs incurred during the current period. Cost of goods manufactured would be computed by adding the beginning balance of work in process to and subtracting the ending balance of work in process from the total manufacturing costs.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 2-3
NAT: BUSPROG: Analytic
STA: AICPA: BB-Industry | IMA: Reporting | ACBSP: APC-27-Managerial Accounting Features/Costs | KEY: Bloom's: Comprehension NOT: 5 min.
You Decide
6. You are the accounting manager at Falcon Inc. You just hired a new staff accountant to assist you in breaking out costs into their appropriate classifications. The staff accountant asks you why cost classification is important.
How would you respond?
ANS:
Cost classification is important for a variety of reasons. Probably the two most important are decision making and proper presentation on the financial statements. For example, by determining if a cost is fixed or variable it can help a company determine if each cost has a direct relationship to the level of output. If the company feels that their costs are becoming too high, then this type of classification can give them important information. Maybe the cost of the direct materials has increased significantly and they may need to look for a new supplier. Or when reviewing their fixed costs, they determine that the rent for their factory is causing the rise in costs and they should consider moving locations. The break out of product cost and period cost in also vital to a company. A company wants to know how much they are spending to actually produce the product (direct materials, direct labor, overhead) so that they can make such decisions as to the appropriate price to charge a customer. The allocation of product and period costs is also essential to properly generate the income statement, which is also used by external users to make decisions.
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 2-1 | LO: 2-2 | LO: 2-3
NAT: BUSPROG: Analytic | BUSPROG: Reflective Thinking
STA: AICPA: BB-Critical Thinking | IMA: Business Applications | ACBSP: APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 10 min.
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