Chapter 1
B 1. An organizational concept that groups business functions around resources, processes, and human
interrelations is the:
A. resources function
B. functionalteamwork concept
C. processes function
D. linestaff concept
E. matching concept
E 2. The measurement of performance and the control of costs is aided the most by:
A. organizational charts
B. continuous supervision
C. preparation for the future
D. planning
E. budgets and standards
A 3. All of the following are abbreviations for systems or processes that represent changes in
manufacturing technology, except:
A. CMA
B. JIT
C. CIM
D. CAD
E. FMS
D 4. The process of providing individuals with the authority to carry out their assigned responsibilities is
referred to as:
A. control circuit
B. objective setting
C. accountability
D. delegation
E. linestaff organization
A 5. The department that uses pertinent cost data to determine products that are most profitable and
sales policies is:
A. Marketing
B. Manufacturing
C. Treasury
D. Legal
E. Cost
B 6. Examples of nonroutine planning include all of the following, except:
A. responses to the appearance of new competition
B. estimating the collection of receivables during the next month for the purpose of making
investment/borrowing decisions
C. responses to a proposed government regulation of the industry
D. responses to a significant change in consumer tastes
E. none of the above
B 7. The coordinated development of a company's organization with the cost and budgetary system will
lead to an approach to accounting and reporting called:
A. functionalteamwork system
B. responsibility accounting
C. linestaff organization
D. controllable segmentation
E. superiorsubordinate relationship
E 8. The organizational group that advises or performs technical functions of an enterprise is the:
A. line
B. function
C. team
D. executive management
E. staff
A 9. The business function in the functionalteamwork concept of management that deals with activities
such as product design, research and development, purchasing, manufacturing, advertising, marketing,
and billing is the:
A. processes function
B. executive function
C. resources function
D. staff
E. human interrelations function
E 10. Pronouncements of the Cost Accounting Standards Board adhere to the concept of:
A. indirect costing
B. common costing
C. direct costing
D. standard costing
E. full costing
B 11. The professional certification developed by the IMA indicating professional competence in the
management accounting field is the:
A. CIA
B. CMA
C. CA
D. CPA
E. CPM
C 12. The plans that are sufficiently detailed to permit the preparation of budgeted financial statements
for the entity as of a future date are:
A. strategic plans
B. medium-range plans
C. short-range plans
D. long-range plans
E. none of the above
B 13. All of the following are organizations in the private sector that influence the development of cost
accounting theory and practice except:
A. FEI
B. IRS
C. AICPA
D. FASB
E. IMA
D 14. Budgeting plays an important role in influencing individual and group behavior at all of the
following stages of the management process, except:
A. setting goals
B. motivating desired performance
C. evaluating performance
D. computing bonuses
E. suggesting when corrective action should be taken
B 15. The functional teamwork concept of management is structured to emphasize all of the following
except:
A. human interrelations
B. accountability
C. resources
D. processes
E. none of the above
E 16. All of the following are examples of non-value-added activities except:
A. retrieving
B. handling
C. expediting
D. reworking
E. assembling
D 17. The department that has the responsibility for the financial administration of a company is:
A. Tax
B. Controller's
C. Cost
D. Treasury
E. Internal Audit
D 18. The collection, presentation, and analysis of cost data should help management accomplish all of
the following tasks except:
A. control the physical quantities of inventory
B. determine company costs and profits for an accounting period
C. choose from among two or more alternatives that will increase revenues
D. conform to FASB reporting requirements for pensions
E. establish costing methods and procedures that permit cost reductions
D 19. In an attempt to resolve an ethical conflict in a publicly-held corporation, if the accountant has
unsuccessfully gone to the board of directors, the next step is to:
A. go to the company president
B. go back to middle management to garner support
C. report the problem to the SEC
D. resign
E. none of the above
C 20. An organizational concept recognizing that all positions or functional divisions can be categorized
into two groups is:
A. functionalteamwork concept
B. processes function
C. linestaff concept
D. matching concept
E. resources function
A 21. In an attempt to resolve an ethical conflict when the immediate superior is involved, an
accountant should first:
A. go to the next higher level of management
B. report the problem to the SEC
C. resign
D. go to the company president
E. none of the above
C 22. The Standards of Ethical Conduct for Management Accountants presents fifteen responsibilities of
the management accountant that encompass all of the following categories except:
A. competence
B. confidentiality
C. dependability
D. integrity
E. objectivity
Chapter 2
C 1. A cost accounting information system necessarily should accomplish all of the following except:
A. reflect the division of authority so that individual managers can be held accountable
B. provide management with information that facilitates prompt identification of activities needing
attention
C. be more sophisticated than is required by legal, regulatory, and contractual requirements
D. be tailored to give the most efficient blend of sophistication and simplicity
E. focus management's attention
A 2. Cost classifications are based on the relationship of costs to all of the following except:
A. ledger accounts
B. accounting periods
C. products
D. volume of production
E. manufacturing departments
B 3. Direct materials and direct labor are considered to be:
A. selling expenses
B. prime costs
C. administrative expenses
D. conversion costs
E. factory overhead
E 4. Depreciation on factory buildings and equipment is classified as:
A. selling expense
B. administrative expense
C. direct labor
D. indirect materials
E. factory overhead
A 5. A typical marketing expense is:
A. freight out
B. indirect labor
C. audit fees
D. uncollectible accounts expense
E. direct labor
E 6. A typical indirect labor cost for a manufacturer is:
A. sales office salaries
B. freight out
C. factory insurance
D. sales commissions
E. materials handling
D 7. Usually, a cost easy to assign accurately to a specific operating department is a:
A. standard cost
B. common cost
C. fixed cost
D. variable cost
E. joint cost
C 8. In constructing a chart of accounts, all of the following guidelines should be adhered to except:
A. using numbers rather than letters in coding the accounts
B. dividing charts into balance sheet accounts and income statement accounts
C. using account titles that reflect a maximum level of detail about each item
D. giving maximum information with a minimum of supplementary analysis
E. providing sufficient classification to enable cost assignment to responsible managers
C 9. An expense that is likely to contain both fixed and variable components is:
A. security guard wages
B. supplies
C. heat, light, and power
D. small tools
E. taxes on real estate
C 10. A type of employee whose wages are not a component of indirect labor is a(n):
A. inspector
B. supervisor
C. assembler
D. maintenance worker
E. shop clerk
B 11. Pitino Company has a beginning inventory of direct materials on March 1 of $30,000 and an ending
inventory on March 31 of $36,000. The following additional manufacturing cost data were available for
the month of March:
Direct materials purchased $84,000
Direct labor 60,000
Factory overhead 80,000
During March, prime cost added to production was:
A. $140,000
B. $138,000
C. $144,000
D. $150,000
E. none of the above
SUPPORTING CALCULATION:
$84,000 + $60,000 - ($36,000 - $30,000) = $138,000
C 12. Pitino Company has a beginning inventory of direct materials on March 1 of $30,000 and an ending
inventory on March 31 of $36,000. The following additional manufacturing cost data were available for
the month of March:
Direct materials purchased $84,000
Direct labor 60,000
Factory overhead 80,000
During March, conversion cost added to production was:
A. $80,000
B. $144,000
C. $140,000
D. $138,000
E. none of the above
SUPPORTING CALCULATION: $60,000 + $80,000 = $140,000
A 13. The term "variable costs" refers to:
A. all costs whose total amounts change in proportion to changes in activity within a relevant range
B. all costs that are likely to respond to the amount of attention devoted to them by a specified manager
C. all costs that are associated with marketing, shipping, warehousing, and billing activities
D. all costs that do not change in total for a given period and relevant range, but become progressively
smaller on a perunit basis as volume increases
E. all manufacturing costs incurred to produce units of output
C 14. The following statement that best describes a fixed cost is:
A. it may change in total when such change depends on production within the relevant range
B. it increases on a perunit basis as production increases
C. it decreases on a per-unit basis as production increases
D. it may change in total when such change is related to changes in production
E. it is constant per unit of production
A 15. The term "relevant range" as used in cost accounting means the range over which:
A. cost relationships are valid
B. production may vary
C. relevant costs are incurred
D. costs may fluctuate
E. none of the above
B 16. When the number of units manufactured increases, the most significant change in average unit
cost will be reflected as:
A. a decrease in the variable element
B. a decrease in the nonvariable element
C. an increase in the semivariable element
D. an increase in the variable element
E. an increase in the nonvariable element
C 17. Within a relevant range, the amount of variable cost per unit:
A. moves in the same direction as fixed cost per unit
B. differs at each production level
C. remains constant at each production level
D. increases as production increases
E. decreases as production increases
B 18. The term "prime costs" refers to:
A. the sum of direct labor costs and all factory overhead costs
B. the sum of direct materials costs and direct labor costs
C. manufacturing costs incurred to produce units of output
D. all costs associated with manufacturing other than direct labor and direct materials costs
E. cost standards that are predetermined and should be attained
B 19. The term "conversion costs" refers to:
A. costs that are associated with marketing, shipping, warehousing, and billing activities
B. the sum of direct labor costs and all factory overhead costs
C. the sum of direct materials costs and direct labor costs
D. manufacturing costs incurred to produce units of output
E. all costs associated with manufacturing other than direct labor costs and direct materials costs
A 20. Direct labor is a:
Conversion Cost Manufacturing Cost Prime Cost
A. Yes Yes Yes
B. No Yes Yes
C. No No No
D. No No Yes
E. Yes Yes No
C 21. A factory overhead cost:
A. is a direct cost
B. is a prime cost
C. can be a variable cost or a fixed cost
D. can only be a fixed cost
E. includes all factory labor
A 22. Prime cost and conversion cost share what common element of total cost?
A. direct labor
B. commercial expense
C. variable overhead
D. fixed overhead
E. direct materials
E 23. Factory overhead includes:
A. indirect materials but not indirect labor
B. indirect labor but not indirect materials
C. prime costs
D. all manufacturing costs
E. all manufacturing costs, except direct materials and direct labor
C 24. Indirect materials are a(n):
A. fixed cost
B. irrelevant cost
C. factory overhead cost
D. direct cost
E. prime cost
C 25. Wages of the security guard for a small plant are an example of:
Fixed Factory
Indirect Labor Overhead
A. No Yes
B. No No
C. Yes Yes
D. Yes No
E. none of the above
B 26. Wages paid to factory machine operators of a manufacturing plant are an element of:
Prime Cost Conversion Cost
A. Yes No
B. Yes Yes
C. No No
D. No Yes
E. none of the above
E 27. Common costs are:
A. costs that occur when the production of one product is possible only if one or more other products
are manufactured at the same time
B. intended to benefit future periods
C. variable in direct proportion to the level of production
D. chargeable directly to the product
E. costs of facilities or services employed by two or more operations
D 28. Joint costs are:
A. direct costs
B. costs of facilities or services employed by two or more operations
C. revenue expenditures
D. incurred when the production of one product is possible only if other products are produced at the
same time
E. always variable
B 29. All of the following are examples of nonfinancial performance measures except:
A. the number of defective units produced
B. the gross margin on a product line income statement
C. hours of machine downtime
D. number of days on schedule
E. weight of scrap material produced
E 30. Reasons for the increased attention being given to nonfinancial performance measures include:
A. dissatisfaction with exclusive reliance on financial measures
B. dissatisfaction with financial measures of plant utilization
C. dissatisfaction with financial measures of processing efficiency
D. dissatisfaction with the slow pace at which a company's data processing system can modify
traditional financial measures
E. all of the above
E 31. Of the following items, a cost object is:
A. a unit of product
B. a customer order
C. a project
D. a division of the company
E. all of the above
E 32. General corporate-level costs, such as bond interest and taxes, would be readily traceable to:
A. each unit of product
B. each division of the company
C. each batch of production
D. all units of product ever produced
E. none of the above
D 33. A revenue expenditure is one that:
A. varies with the volume of production
B. is intended to benefit future periods
C. is reported as an asset
D. benefits the current period only
E. remains the same in total as production changes
B 34. An example of a cost that is irrelevant to a future decision is a(n):
A. differential cost
B. sunk cost
C. out-of-pocket cost
D. opportunity cost
variable cost
A 35. The measures in a balanced scorecard’s growth and learning perspective attempt to report on:
A. three kinds of intangible resources: human capital, information, and the alignment of incentives
B. the organization’s most important work—work in which the organization must excel in order to
successful
C. the final results that are most important to the owners of the organization, and the rates of
improvement in those results
D. the extent to which the organization is creating and sustaining desirable customer relationships
all of the above
E 36. An example of a cost that is irrelevant to a future decision is a(n):
A. communicating plans
B. focusing attention
C. implementing strategy
D. monitoring progress toward strategic objectives
all of the above
A 37. When a balanced scorecard represents a series of predictions telling how management intends for
the organization to succeed, the predictions are in a sequence that begins with:
A. growth and learning
B. innovation
C. customer service
D. customer satisfaction
investment opportunity
A 38. Balanced scorecards are called “balanced” because they report:
A. both leading and lagging measures
B. both balance sheets and income statements
C. both historical costs and replacements costs
D. both original costs and book values
all of the above
PROBLEMS
PROBLEM
1.
Identification of Variable, Fixed, and Semivariable Costs. Place a check mark in the appropriate column
to indicate whether the following costs are variable, fixed, or semivariable.
Item Variable Fixed Semivariable
1. Small tools
2. Patent amortization
3. Health and accident insurance
4. Heat, light, and power
5. Straightline depreciation
6. Maintenance of buildings and
grounds
7. Royalties
8. Materials handling
9. Property and liability insurance
10. Maintenance of factory equipment
SOLUTION
1. Variable
2. Fixed
3. Semivariable
4. Semivariable
5. Fixed
6. Fixed
7. Variable
8. Variable
9. Fixed
10. Semivariable
PROBLEM
2.
Classification of Costs. Place a check mark in the appropriate column to indicate the proper
classification of each of the following costs.
Other
Indirect AdminiIndirect Indirect Factory Marketing strative
Item Materials Labor _ Costs _ Expenses _ Expenses
1. Factory heat, light,
and power
2. Advertising
3. Wages of stockroom clerk
4. Freight out
5. Oil for machines
6. Salary of vice president
of human relations
7. Legal expenses
8. Salary of the factory manager
9. Employer payroll taxes on
controller's salary
10. Idle time due to assembly
line breakdown
SOLUTION
1. Other indirect factory costs
2. Marketing expenses
3. Indirect labor
4. Marketing expenses
5. Indirect materials
6. Administrative expenses
7. Administrative expenses
8. Indirect labor
9. Administrative expenses
10. Indirect labor
PROBLEM
3.
Fixed and Variable Costs. In 19A, the Lin Company had sales of $2,500,000, with $1,250,000 variable
and $900,000 fixed costs. In 19B, sales are expected to decrease 10% and the fixed costs are not
expected to change.
Required: Determine Lin Company's expected operating income or loss for 19B.
SOLUTION
Sales ($2,500,000 x 90%) $ 2,250,000
Less: Variable costs
($1,250,000 x 90%) $1,125,000
Fixed costs
900,000 2,025,000
Operating income $
225,000
PROBLEM
4.
Determination of per Unit Total Costs. The estimated unit costs for Hoteling Industries, when operating
at a production and sales level of 10,000 units, are as follows:
Cost Item Estimated Unit Cost
Direct materials $15
Direct labor 10
Variable factory overhead 8
Fixed factory overhead 5
Variable marketing 4
Fixed marketing 3
Required:
(1) Identify the estimated conversion cost per unit.
(2) Identify the estimated prime cost per unit.
(3) Determine the estimated total variable cost per unit.
(4) Compute the total cost that would be incurred during a month with a production level of 10,000
units and a sales level of 12,000 units.
SOLUTION
(1) $10 + $8 + $5 = $23 conversion cost per unit
(2) $15 + $10 = $25 prime cost per unit
(3) $15 + $10 + $8 + $4 = $37 variable cost per unit
(4) [ ( $15 + $10 + $8 + $5 + $3 ) x 10,000 ] + ( $4 x 12,000 )
= $410,000 + $48,000 = $458,000 total cost
PROBLEM
5.
Components of Manufacturing Cost. Myerson Inc. produces video cameras. The direct labor cost of one
camera is $200, and the total manufacturing cost is $650. The overhead cost of one camera is twothirds as large as its conversion cost.
Required:
(1) Compute the conversion cost per unit.
(2) Determine the factory overhead cost per unit.
(3) Determine the direct materials cost per unit.
SOLUTION
(1) Let x = Conversion cost per unit
x = $200 + 2/3 x
1/3 x = $200
x = $600
(2) Factory overhead = 2/3 x $600 = $400
(3) Direct materials = $650 - $200 - $400 = $50
PROBLEM
6.
Identification of financial measures, customer measures, internal business process measures, and
growth & learning measures for a balanced scorecard. Place a check mark in the appropriate column to
indicate which one of the four perspectives of a typical balanced scorecard is most likely to contain each
of the following measures.
Internal
Business Growth &
Item
Financial
Customer Process Learning
1. Number of shipments rejected
by customers. . . . . . . . . . . . . .
2. Number of defective units removed
from work in process. . . . . . . . .
3. Percentage of employees who’ve
completed all training relevant
to their duties. . . . . . . . . . . . . .
4. Growth rate of sales revenue . . . .
5. Percentage of employees whose
cash bonuses depend on
achieving scorecard objectives . . .
6. Income from continuing
operations, before income taxes . .
7. Percentage of employees who
receive all information their job
requires, on time and error-free . .
8. Market share in targeted market
segment . . . . . . . . . . . . . . . . .
9. Number of new products launched
10. Number of patents received . . . . .
SOLUTION
1. customer
2. internal business process
3. growth & learning
4. financial
5. growth & learning
6. financial
7. growth & learning
8. customer
9. internal business process
10. internal business proces
Chapter 3
D 1. Expenses that require a series of payments over a long period of timeCsuch as long-term debt and
lease rentalsCare frequently known as:
A. programmed fixed expenses
B. avoidable expenses
C. variable expenses
D. committed fixed expenses
E. normal capacity expenses
C 2. A mathematical technique used to fit a straight line to a set of plotted points is:
A. integral calculus
B. the EOQ model
C. the method of least squares
D. linear programming
E. PERT network analysis
E 3. One advantage of using multiple regression analysis is that:
A. computations are simplified
B. only two data points need be considered
C. a twodimensional graph may be used to show cost relationships
D. costs may be grouped into one independent variable
E. the effects of several variables on costs may be analyzed
B 4. The coefficient of determination indicates:
A. causal relationships among costs and other factors
B. the percentage of explained variance in the dependent variable
C. the linear relationship between two variables
D. whether several variables fluctuate
E. the size of the standard deviation
E 5. Hoyden Co. developed the following equation to predict certain components of its budget for the
coming period:
Costs = $50,000 + ($5 x direct labor hours)
The $5 would approximate:
A. total cost
B. direct labor rate per hour
C. fixed cost per direct labor hour
D. the coefficient of determination
E. variable costs per direct labor hour
E 6. When cost relationships are linear, total variable manufacturing costs will vary in proportion to
changes in:
A. machine hours
B. direct labor hours
C. total material cost
D. total overhead cost
E. volume of production
B 7. The term "relevant range" as used in cost accounting means the range over which:
A. relevant costs are incurred
B. cost relationships are valid
C. costs may fluctuate
D. sales volume fluctuates
E. production may vary
E 8. Within a relevant range, the amount of fixed cost per unit:
A. differs at each production level on a perunit basis
B. remains constant in total
C. decreases as production increases on a perunit basis
D. increases as production decreases on a perunit basis
E. all of the above
C 9. The following relationships pertain to a year's budgeted activity for Buckeye Company:
High Low
Direct labor hours 400,000 300,000
Total costs $154,000 $129,000
What are the budgeted fixed costs for the year?
A. $100,000
B. $25,000
C. $54,000
D. $75,000
E. none of the above
SUPPORTING CALCULATION:
High $ 154,000 400,000
Low
129,000 300,000
Difference $ 25,000 100,000
Variable rate = $25,000  100,000 = $.25/direct labor hour
Fixed cost = $154,000 - $.25(400,000) = $54,000
B 10. Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible
budget. Examination of past records disclosed the following costs and volume measures:
High Low
Cost per month $39,200 $32,000
Machine hours 24,000 15,000
Using the highlow method of analysis, the estimated variable cost per machine hour is:
A. $12.50
B. $0.80
C. $0.08
D. $1.25
E. none of the above
SUPPORTING CALCULATION:
High $ 39,200 24,000
Low
32,000 15,000
Difference $ 7,200 9,000
Variable rate = $7,200  9,000 = $.80/machine hour
D 11. A company allocates its variable factory overhead based on direct labor hours. During the past
three months, the actual direct labor hours and the total factory overhead allocated were as follows:
October November December
Direct labor hours 2,500 3,000 5,000
Total factory
overhead allocated $80,000 $75,000 $100,000
Based upon this information, the estimated variable cost per direct labor hour was:
A. $.125
B. $12.50
C. $.08
D. $8
E. none of the above
SUPPORTING CALCULATION:
High $ 100,000 5,000
Low
80,000 2,500
Difference $ 20,000 2,500
Variable rate = $20,000  2,500 = $8.00/direct labor hour
A 12. The technique that can be used to determine the variable and fixed portions of a company's costs
is:
A. scattergraph method
B. poisson analysis
C. linear programming
D. game theory
E. queuing theory
A 13. The number of variables used in simple regression analysis is:
A. two
B. three
C. more than three
D. three or less
E. one
C 14. Multiple regression analysis:
A. is not a sampling technique
B. involves the use of independent variables only
C. assumes that the independent variables are not correlated
D. establishes a causeandeffect relationship
E. all of the above
E 15. For a simple regression-analysis model that is used to allocate factory overhead, an internal
auditor finds that the intersection of the line of best fit for the overhead allocation on the y-axis is
$50,000. The slope of the trend line is .20. The independent variable, factory wages, amounts to
$900,000 for the month. What is the estimated amount of factory overhead to be allocated for the
month?
A. $910,000
B. $950,000
C. $ 50,000
D. $180,000
E. $230,000
SUPPORTING CALCULATION:
Factory overhead = $50,000 + .2($900,000) = $230,000
A 16. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:
y bar = $1,000 + $2 x bar
This equation was probably found by using the mathematical techniques called:
A. simple regression analysis
B. dynamic programming
C. linear programming
D. multiple regression analysis
E. none of the above
A 17. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:
y bar = $1,000 + $2 x bar
The y bar in the equation is an estimate of:
A. total factory overhead
B. total fixed costs
C. total machine costs
D. total variable costs
E. none of the above
C 18. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:
y bar = $1,000 + $2 x bar
The $2 in the equation is an estimate of:
A. fixed costs per machine hour
B. total fixed costs
C. variable costs per machine hour
D. total variable costs
E. none of the above
D 19. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the
following relationship was found:
y bar = $1,000 + $2 x bar
The use of such a relationship of total factory overhead to changes in machine hours is said to be valid
only within the relevant range, which means:
A. within the range of reasonableness as judged by the department supervisor
B. within the budget allowance for overhead
C. within a reasonable dollar amount for machine costs
D. within the range of observations of the analysis
E. none of the above
C 20. A measure of the extent to which two variables are related linearly is referred to as:
A. sensitivity analysis
B. inputoutput analysis
C. coefficient of correlation
D. causeeffect ratio
E. costbenefit analysis
C 21. The appropriate range for the coefficient of correlation (r) is:
A. infinity  r  infinity
B. 0  r  1
C. 1  r  1
D. 100  r  100
E. none of the above
A 22. The covariation between two variables, such as direct labor hours and electricity expense, can best
be measured by:
A. correlation analysis
B. simple regression analysis
C. multiple regression analysis
D. high-low method
E. scattergraph method
B 23. The quantitative method that will separate a semivariable cost into its fixed and variable
components with the highest degree of precision is:
A. simplex method
B. least squares method
C. scattergraph method
D. account analysis
E. highlow method
A 24. If the coefficient of correlation between two variables is zero, a scatter diagram of these variables
would appear as:
A. random points
B. a least squares line that slopes up to the right
C. a least squares line that slopes down to the right
D. under this condition, a scatter diagram could not be plotted on a graph
E. none of the above
D 25. Multiple regression analysis involves the use of:
Dependent Independent
Variables _ Variables
A. 1 none
B. 1> 1
C. 1> 1>
D. 1 1>
C 26. A company using regression analysis to correlate income to a variety of sales indicators found that
the relationship between the number of sales managers in a territory and net income for the territory
had a correlation coefficient of 1. The best description of this situation is:
A. that more sales managers should be hired
B. imperfect negative correlation
C. perfect inverse correlation
D. no correlation
E. perfect positive correlation
B 27. The correlation coefficient that indicates the weakest linear association between two variables is:
A. 0.73
B. 0.11
C. 0.12
D. 0.35
E. 0.72
B 28. If regression was applied to the data shown in Figure 3-1, the coefficients of correlation and
determination would indicate the existence of a:
A. low linear relationship, high explained variation ratio
B. high inverse linear relationship, high explained variation ratio
C. high direct linear relationship, high explained variation ratio
D. high inverse linear relationship, low explained variation ratio
E. none of the above
A 29. Omitting important variables from the multiple regression is referred to as a(n):
A. specification error
B. autocorrelation
C. confidence loss
D. homoscedastic error
E. heteroscedastic error
E 30. When two or more independent variables are correlated with one another, the condition is
referred to as:
A. serial correlation
B. autocorrelation
C. heteroscedacity
D. homoscedacity
E. multicollinearity
A 31. A large value for standard error of the estimate indicates that:
A. the actual cost will likely vary greatly from the estimated cost as portrayed by the regression line
B. the actual cost will be greater than the estimate cost as portrayed by the regression line
C. the actual cost will be less than the estimate cost as portrayed by the regression line
D. the actual cost will likely vary little from the estimated cost as portrayed by the regression line
E. none of the above
D 32. The confidence interval represents:
A. the percentage of variance in the dependent variable as explained by the independent variable
B. the measure of the extent to which variables are related linearly
C. the standard deviation about the regression line
D. a range of values within which the dependent variable is expected to fall a certain percentage of the
time
E. none of the above
C 33. When the distribution of observations around the regression line is uniform for all values of the
independent variable, it is:
A. heteroscedastic
B. serially correlated
C. homoscedastic
D. autocorrelated
E. none of the above
E 34. Expenses that are fixed at management's discretion at a certain level for the period are referred to
as:
A. committed fixed costs
B. mixed costs
C. opportunity costs
D. sunk costs
E. programmed fixed costs
A 35. The separation of fixed and variable costs is necessary for all of the following purposes except:
A. absorption costing and net income analysis
B. direct costing and contribution margin analysis
C. break-even and cost-volume-profit analysis
D. differential and comparative cost analysis
E. capital budgeting analysis
PROBLEMS
PROBLEM
1.
High and Low Points Method. A controller is interested in analyzing the fixed and variable costs of
indirect labor as related to direct labor hours. The following data have been accumulated:
Indirect Direct Labor
Month Labor Cost
Hours
March $2,880 425
April 3,256 545
May 2,820 440
June 3,225 560
July 3,200 540
August 3,200 495
Required: Determine the amount of the fixed portion of indirect labor expense and the variable rate for
indirect labor expense, using the high and low points method. (Round the variable rate to three decimal
places and the fixed cost to the nearest whole dollar.)
SOLUTION
Indirect Direct Labor
Labor Cost
Hours
High $ 3,225 560
Low
2,880 425
Difference $
345 135
Variable rate = $345  135 = $2.556 per direct labor hour
Fixed cost = $3,225 ($2.556 x 560) = $1,794
PROBLEM
2.
Fixed, Variable, and Semivariable Production Costs. Ibus Instruments Co. developed the following
regression equations to indicate costs at various activity levels:
Direct labor = $4 per unit
Materials = $3 per unit
Supervision = $5,000
Power = $300 + $.25 per unit + $.50 per machine hour
Factory supplies = $250 + $.75 per unit
DepreciationCequipment = $1 per machine hour
DepreciationCbuilding = $10,000
During the next period, the company anticipates production of 20,000 units and usage of 3,000 machine
hours.
Required: Prepare a schedule of the production costs to be incurred during the next period.
SOLUTION
Production costs:
Direct labor $ 80,000
Direct materials
60,000
Overhead to be incurred:
Supervision $ 5,000
Power [$300 + ($.25 x 20,000 units) +
($.50 x 3,000 machine hours)] 6,800
Factory supplies [$250 + ($.75 x 20,000 units)] 15,250
DepreciationCequipment 3,000
DepreciationCbuilding 10,000 _ 40,050
Total production cost $ 180,050
PROBLEM
3.
Statistical Scattergraph. Dale Company management is interested in determining the fixed and variable
components of electricity expense, a semivariable cost, as measured against machine hours. Data for
the first eight months of the current year follow:
Machine Electricity
Month Hours _ Cost
January 4,500 $650
February 4,750 600
March 5,000 750
April 5,500 700
May 7,250 900
June 7,500 800
July 6,750 825
August 5,250 725
Required: Graph the data provided and determine the total fixed cost and the variable cost per machine
hour for electricity. (Round estimates to the nearest cent.)
SOLUTION
Average cost ($5,950  8) $743.75
Fixed cost per month (from graph) 200.00
Average total variable cost $543.75
PROBLEM
4.
Method of Least Squares. The management of Rainbow Inc. would like to separate the fixed and
variable components of electricity as measured against machine hours in one of its plants. Data
collected over the most recent six months follow:
Electricity Machine
Month Cost _ Hours
January $1,100 4,500
February 1,110 4,700
March 1,050 4,100
April 1,200 5,000
May 1,060 4,000
June 1,120 4,600
Required: Using the method of least squares, compute the fixed cost and the variable cost rate for
electricity expense. (Round estimates to the nearest cent.)
SOLUTION
(1) (2) (3) (4) (5) (6)
Electricity Cost Machine Activity
Month Cost _ Deviation Hours _ Deviation (4) Squared (4) x (2)
January $1,100 (7) 4,500 17 289 (119)
February 1,110 3 4,700 217 47,089 651
March 1,050 (57) 4,100 (383) 146,689 21,831
April 1,200 93 5,000 517 267,289 48,081
May 1,060 (47) 4,000 (483) 233,289 22,701
June 1,120 13 _ 4,600 117 _ 13,689 1,521
$6,640 (2)* 26,900
2* 708,334 94,666
y bar = Σy  n = $6,640  6 = $1,107
x bar = Σx  n = $26,900  6 = $4,483
*rounding difference
Fixed cost = $1,107 - ($.13)(4,483) = $524.21
PROBLEM
5.
Coefficients of Correlation and Determination. The president of Scranton Steel Co. has prepared the
following data so that an assessment may be made for developing a regression analysis of smelting
costs:
Year Smelting Costs Direct Labor Hours Kilograms of Iron Smelted
19_1 $12,000 2,100 50.2
19_2 12,900 1,800 55.6
19_3 13,500 2,250 60.0
19_4 12,750 2,400 54.0
19_5 14,100 2,250 64.4
Total $65,250 10,800 284.2
Required: Compute the coefficient of correlation (r) and the coefficient of determination (r2) for each of
the independent variables. (Round to three decimal places.)
Note to instructor: It may be helpful to provide students with the following equation:
SOLUTION
DIRECT LABOR HOURS
(1) (2) (3) (4) (5) (6) (7)
Difference Difference
from from
Average Direct Average
Smelting of Labor of 2,160
Costs _ $13,050 _ Hours _ Hours _ (4) Squared (4) x (2) (2) Squared
$12,000 (1,050) 2,100 (60) 3,600 63,000 1,102,500
12,900 (150) 1,800 (360) 129,600 54,000 22,500
13,500 450 2,250 90 8,100 40,500 202,500
12,750 (300) 2,400 240 57,600 (72,000) 90,000
14,100 1,050 2,250 90 8,100 94,500 1,102,500
$65,250
0 10,800 0 207,000 180,000 2,520,000
KILOGRAMS OF IRON SMELTED
(8) (9) (10) (11)
Difference
Kilograms of from Average
Iron Smelted
of 56.84 _ (9) Squared (9) x (2)
50.2 (6.64) 44.0896 $6,972
55.6 (1.24) 1.5376 186
60.0 3.16 9.9856 1,422
54.0 (2.84) 8.0656 852
64.4 7.56 57.1536 7,938
284.2 0.00 120.8320 $17,370
PROBLEM
6.
Standard Error of the Estimate and Confidence Interval Estimation. The production supervisor of Lyle
Inc. would like to know the range of electricity cost that should be expected about 95 percent of the
time at the 15,000 direct labor hour level of activity. The least squares estimate of electricity cost at
that level of activity is $750. The least squares parameter estimates (i.e., the estimates of fixed cost and
the variable cost rate) were derived from a sample of data for a recent 12-month period. The direct
labor hour average for the sample period is 13,000, and the direct labor hour deviations from its average
squared and summed (Σ(xi-xi)2) is 80,000,000. The prediction error squared (Σ(yi-yi)2) over the sample
period is $40,850.
Required:
Compute:
(1) the standard error of the estimate
(2) the 95 percent confidence interval (Table factor 2.228) estimate for electricity cost at the 15,000
direct labor hour level of activity
(Round answers to the nearest whole dollar.)
SOLUTION
(1)
(2)
PROBLEM
7.
Method of Least Squares. The data below are found to be highly correlated for Mystic Modem
Manufacturing Corp.:
Fabricating Kilograms of
Costs _ Materials Used
$15,600 360
18,000 463
17,100 412
21,300 595
19,500 520
$91,500 2,350
Required:
(1) Write an equation reflecting the relationship between fabricating costs and kilograms of materials
used, using the method of least squares.
(2) Determine the standard error of the estimate.
(3) Determine the standard error of the estimate correction factor when direct labor hours are 500.
(4) Determine the coefficient of correlation (r) and the coefficient of determination (r2).
(Round dollar amounts to the nearest cent and unit amounts to four decimal places.)
SOLUTION
(1)
(1) (2) (3) (4) (5) (6) (7)
Difference
from Difference
Average Kilograms from
Fabricating of of Materials Average of
Costs _ $18,300 _
Used _
470
_ (4) Squared (4) x (2) (2) Squared
$15,600 (2,700) 360 (110) 12,100 $297,000 $ 7,290,000
18,000 (300) 463 (7) 49 2,100 90,000
17,100 (1,200) 412 (58) 3,364 69,600 1,440,000
21,300 3,000 595 125 15,625 375,000 9,000,000
19,500 1,200 520 50 _ 2,500 60,000 1,440,000
$91,500
0 2,350
0 _ 33,638 $803,700 $19,260,000
y = a + bx
$18,300 = a + ($23.89 x 470)
a = $18,300 $11,228.30
a = $7,071.70
Equation: y = $7,071.70 + $23.89x
(2)
(1) (2) (3) (4) (5)
Kilograms of Prediction Prediction
Materials Fabricating Predicted Error Error Squared
Used
Costs _ Fabricating Costs (2) (3) (4) Squared
360 $15,600 $15,672 $ (72) $ 5,184
463 18,000 18,133 (133) 17,689
412 17,100 16,914 186 34,596
595 21,300 21,286 14 196
520 19,500 19,495
5
25
2,350 $91,500 $91,500 $ 0 $57,690
(3)
(4)
Chapter 4
E 1. The tiein between general accounts and cost accounts is often discussed with accounting
procedures. An example of a general account is:
A. Materials
B. Work in Process
C. Factory Overhead Control
D. Finished Goods
E. Accumulated Depreciation
C 2. One feature of a standard cost system is that:
A. selection of the cost unit becomes simplified
B. predetermined amounts are ignored
C. an analysis of cost variances is facilitated
D. historical costs are recorded as they are incurred
E. reports are delayed until operations have been performed
A 3. An industry that would most likely use job order costing procedures is:
A. road building
B. fertilizer manufacturing
C. flour milling
D. petroleum refining
E. textile manufacturing
D 4. An industry that would most likely use process costing procedures is:
A. musical instrument manufacturing
B. construction
C. aircraft
D. chemicals
E. office equipment
A 5. Supplies needed for use in the factory are issued on the basis of:
A. materials requisitions
B. time tickets
C. factory overhead analysis sheets
D. clock cards
E. purchase invoices
D 6. Finished Goods is debited and Work in Process is credited for a:
A. transfer of materials to the factory
B. return of unused materials from the factory
C. purchase of goods on account
D. transfer of completed production
E. transfer of completed goods out of the factory
B 7. The best cost accumulation procedure to use when many batches, each differing as to product
specifications, are produced is:
A. absorption
B. job order
C. process
D. actual
E. standard
A 8. Job order costs are most useful for:
A. determining the cost of a specific project
B. determining the labor cost involved in production
C. determining inventory valuation using lifo
D. estimating overhead costs
E. controlling indirect costs of future production
E 9. Under a job order cost system, the dollar amount of the entry to transfer the inventory from
Finished Goods to Cost of Goods Sold is the sum of the costs charged to all jobs:
A. completed during the period
B. started in process during the period
C. in process during the period
D. completed and sold during the period
E. sold during the period
A 10. The industry most likely to use job order costing in accounting for costs is:
A. accounting firms
B. textile manufacturer
C. paint manufacturer
D. oil refinery
E. none of the above
A 11. Job order cost accounting systems and process accounting systems differ in the way:
A. costs are traced to cost objects
B. orders are taken and in the number of units in the orders
C. product profitability is determined and compared with planned costs
D. manufacturing processes can be accomplished and in the number of production runs that may be
performed in a year
E. none of the above
D 12. In a job order cost system, the distribution of direct labor costs usually are recorded as an increase
in:
A. Cost of Goods Sold
B. Factory Overhead Control
C. Finished Goods
D. Work in Process
E. none of the above
C 13. Process costing techniques should be used in assigning costs to products:
A. if the product is manufactured on the basis of each order received
B. when production is only partially completed during the accounting period
C. if the product is composed of massproduced homogeneous units
D. whenever standard costing techniques should not be used
E. none of the above
A 14. A characteristic of a process costing system is:
A. partially processed inventory is restated in terms of completed units
B. costs are accumulated by order
C. it is used by a company manufacturing custom machinery
D. standard costs are not applicable
E. none of the above
C 15. The industry most likely to use process costing in accounting for costs is:
A. road builder
B. electrical contractor
C. airlines
D. automobile repair shop
E. none of the above
B 16. In the computation of manufacturing cost per equivalent unit, the weighted average method of
process costing considers:
A. current costs only
B. current costs plus cost of beginning work in process inventory
C. current costs plus cost of ending work in process inventory
D. current costs less cost of beginning work in process inventory
E. none of the above
B 17. The element of manufacturing cost that supports time tickets is:
A. materials
B. labor
C. factory overhead
D. all of the above
E. none of the above
C 18. The element of manufacturing cost that supports depreciation schedules is:
A. materials
B. labor
C. factory overhead
D. all of the above
E. none of the above
D 19. Work in Process is debited and Materials is credited for:
A. indirect materials requisitioned to production
B. the completion of work in process
C. the sale of completed product
D. direct materials requisitioned to production
E. materials returned to the storeroom
E 20. Factory Overhead Control is debited and Work in Process is credited for:
A. indirect materials requisitioned to production
B. the completion of work in process
C. the sale of completed product
D. direct materials requisitioned to production
E. none of the above
A 21. Products, operations, and processes costed on the basis of predetermined quantities of resources
to be used and predetermined prices of those resources are distinguishing characteristics of which:
A. standard cost system
B. historical cost system
C. process cost system
D. job order cost system
E. backflush cost system
D 22. The tax requirement that certain purchasing and storage costs be allocated to inventory is known
as:
A. backflush costing
B. postdeduction
C. justintime
D. super absorption
E. none of the above
C 23. The manufacturing systems characterized by short setup times, moderate to low lead times, and
very low direct labor cost is:
A. manual systems
B. fixed automation systems
C. flexible manufacturing systems
D. process cost systems
E. job order cost systems
E 24. The cost accounting system noted for its lack of detailed tracking of work in process during the
accounting period is:
A. process costing
B. job order costing
C. standard costing
D. actual costing
E. backflush costing
D 25. Ziffel Company had the following account balances and results from operations for the month of
July: direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work in
process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods inventory, July 1,
$1,200; finished goods inventory, July 31, $1,000. The total manufacturing cost for the month of July
was:
A. $27,800
B. $28,000
C. $18,400
D. $27,200
E. none of the above
SUPPORTING CALCULATION: $10,400 + $8,000 + $8,800 = $27,200
C 26. Ziffel Company had the following account balances and results from operations for the month of
July: direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work in
process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods inventory, July 1,
$1,200; finished goods inventory, July 31, $1,000. The cost of goods manufactured was:
A. $27,200
B. $28,000
C. $27,800
D. $26,600
E. none of the above
SUPPORTING CALCULATION: $27,200 + $2,400 - $1,800 = $27,800
B 27. Ziffel Company had the following account balances and results from operations for the month of
July: direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work in
process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods inventory, July 1,
$1,200; finished goods inventory, July 31, $1,000. The cost of goods sold was:
A. $27,200
B. $28,000
C. $27,800
D. $27,600
E. none of the above
SUPPORTING CALCULATION: $27,800 + $1,200 - $1,000 = $28,000
A 28. A cost system where only the variable manufacturing costs are allocated to production is:
A. direct costing
B. prime costing
C. absorption costing
D. standard costing
E. none of the above
D 29. A cost system where all manufacturing cost elements are allocated to production is:
A. direct costing
B. prime costing
C. standard costing
D. full absorption costing
E. none of the above
C 30. A cost system where only direct material and direct labor costs are allocated to production is:
A. direct costing
B. standard costing
C. prime costing
D. full absorption costing
E. none of the above
B 31. The manufacturing systems that are characterized by very high setup times, moderate lead times,
and high direct labor cost are:
A. flexible manufacturing systems
B. fixed automation systems
C. manual systems
D. backflush systems
E. none of the above
PROBLEMS
PROBLEM
1.
Computation of Total Manufacturing Cost, Cost of Goods Manufactured, and Cost of Goods Sold. During
the past year, the Rocco Company incurred these costs: direct labor, $2,500,000; factory overhead,
$4,000,000; and direct materials purchases, $1,500,000. Inventories were costed as follows:
Beginning Ending
Finished goods $250,000 $300,000
Work in process 450,000 550,000
Materials 75,000 125,000
Required:
(1) Calculate total manufacturing cost for the year.
(2) Calculate the cost of goods manufactured for the year.
(3) Calculate the cost of goods sold for the year.
SOLUTION
(1) Direct materials:
Materials inventory, beginning $ 75,000
Purchases
1,500,000
Materials available for use $ 1,575,000
Less raw materials inventory, ending
125,000
Direct materials consumed $ 1,450,000
Direct labor 2,500,000
Factory overhead
4,000,000
Total manufacturing costs $ 7,950,000
(2) Total manufacturing costs [from (1)] $ 7,950,000
Add work in process inventory, beginning
450,000
$ 8,400,000
Less work in process inventory, ending 550,000
Cost of goods manufactured $ 7,850,000
(3) Cost of goods manufactured [from (2)] $ 7,850,000
Add finished goods inventory, beginning 250,000
Cost of goods available for sale $ 8,100,000
Less finished goods inventory, ending
Cost of goods sold $ 7,800,000
PROBLEM
2.
300,000
Journal Entries for the Cost Accounting Cycle. On January 1, the ledger of the Phinney Furniture
Company contained, among other accounts, the following: Finished Goods, $25,000; Work in Process,
$30,000; Materials, $15,000. During January, the following transactions were completed:
(a) Materials were purchased at a cost of $28,000.
(b) Direct materials in the amount of $21,000 were issued from the storeroom.
(c) Storeroom requisitions for indirect materials and supplies amounted to $3,200.
(d) The total payroll for January amounted to $31,000, including marketing salaries of $7,500 and
administrative salaries of $5,500. Labor time tickets show that $15,500 of the labor cost was direct
labor.
(e) Various factory overhead costs were incurred for $12,000 on account.
(f) Total factory overhead is charged to the work in process account.
(g) Cost of production completed in January totaled $58,000, and finished goods in the shipping room on
January 31 totaled $18,000.
(h) Customers to whom shipments were made during the month were billed for $88,000. (Also record
entry for cost of goods sold.)
Required: Prepare journal entries for the transactions, including the recording, payment, and
distribution of the payroll.
SOLUTION
(a) Materials 28,000
Accounts Payable 28,000
(b) Work in Process 21,000
Materials 21,000
(c) Factory Overhead Control 3,200
Materials 3,200
(d) Payroll 31,000
Accrued Payroll 31,000
Accrued Payroll 31,000
Cash 31,000
Work in Process 15,500
Factory Overhead Control 2,500
Marketing Expenses Control 7,500
Administrative Expenses Control 5,500
Payroll 31,000
(e) Factory Overhead Control 12,000
Accounts Payable 12,000
(f) Work in Process 17,700
Factory Overhead Control 17,700
(g) Finished Goods 58,000
Work in Process 58,000
(h) Accounts Receivable 88,000
Sales 88,000
Cost of Goods Sold (25,000 + 58,000 18,000) 65,000
Finished Goods 65,000
PROBLEM
3.
Cost of Goods Manufactured Statement. Cuervo Company manufacturers file cabinets made to
consumer specifications. The following information was available at the beginning of March:
Materials inventory $12,800
Work in process inventory 4,700
Finished goods inventory 2,300
During March, materials costing $26,000 were purchased, direct labor cost totaled $19,300, and factory
overhead was $12,500 (including $2,500 of indirect materials). March 31 inventories were:
Materials inventory $13,300
Work in process inventory 6,800
Finished goods inventory 2,800
Required: Prepare a cost of goods manufactured statement for March, 19--. (AICPA adapted)
SOLUTION
Cuervo Company
Cost of Goods Manufactured Statement
For the Month Ended March 31, 19--
Direct materials:
Materials inventory, March 1 $ 12,800
Purchases
26,000
Materials available for use $ 38,800
Less: Indirect materials used $ 2,500
Materials inventory, March 31 13,300 15,800
Direct materials consumed
Direct labor
$ 23,000
19,300
Factory overhead
12,500
Total manufacturing cost
$ 54,800
Add work in process inventory, March 1
4,700
$ 59,500
Less work in process inventory, March 31
Cost of goods manufactured
6,800
$ 52,700
PROBLEM
4.
Income Statement Relationships. The following data are available for three companies at the end of
their fiscal years:
Company Alpha:
Finished goods, April 1 $ 400,000
Cost of goods manufactured 2,600,000
Sales 3,500,000
Gross profit on sales 35%
Finished goods inventory, March 31 ?
Company Beta:
Freight in $ 12,000
Purchases returns and allowances 22,000
Marketing expense 85,000
Finished goods, December 31 65,000
Cost of goods sold 550,000
Cost of goods available for sale ?
Company Chi:
Gross profit $ 264,000
Cost of goods manufactured 612,000
Finished goods, January 1 34,000
Finished goods, December 31 26,000
Work in process, January 1 18,000
Work in process, December 31 12,000
Sales ?
Required: Determine the amounts indicated by the question marks. (AICPA adapted)
SOLUTION
Company Alpha:
Sales $ 3,500,000
Cost of goods sold:
Finished goods inventory, April 1 $ 400,000
Cost of goods manufactured
2,600,000
Cost of goods available for sale $ 3,000,000
Finished goods inventory, March 31
Less cost of goods sold
725,000
2,275,000
Gross profit (20% of sales) $ 1,225,000
Company Beta:
Cost of goods available for sale $ 615,000
Less finished goods ending inventory
Cost of goods sold $ 550,000
65,000
Company Chi:
Sales $ 884,000
Cost of goods sold:
Cost of goods manufactured $ 612,000
Add beginning finished goods inventory 34,000
Cost of goods available for sale $ 646,000
Less ending finished goods inventory 26,000
Less cost of goods sold
620,000
Gross profit $ 264,000
PROBLEM
5.
Cost of Goods Manufactured; Prime and Conversion Costs. Wyoming Company's purchases of materials
during June totaled $25,000, and the cost of goods sold for June was $130,000. Factory overhead was
200% of direct labor cost. Other information pertaining to Wyoming Company's inventories and
production for June is as follows:
Inventories Beginning Ending
Finished goods $42,500 $39,000
Work in process 15,500 17,000
Materials 5,000 8,500
Required:
(1) Prepare a schedule of cost of goods manufactured.
(2) Compute the prime cost charged to Work in Process.
(3) Compute the conversion cost charged to Work in Process. (AICPA adapted)
SOLUTION
(1) Wyoming Company
Schedule of Cost of Goods Manufactured
For Month Ended June 30, 19--
Work in process, June 1
$ 15,500
Production costs:
Direct materials 21,500 **
Direct labor 35,500
Factory overhead 71,000 128,000
$ 143,500
Less work in process, June 30
17,000
Cost of goods manufactured $ 126,500 *
Let x = direct labor
3x = $106,500
x = $35,500 direct labor
2x = $71,000 factory overhead
(2) Prime cost:
Direct materials [from (1)] $ 21,500
Direct labor [from (1)]
35,500
$ 57,000
(3) Conversion cost:
Direct labor [from (1)] $ 35,500
Factory overhead [from (1)] 71,000
$ 106,500 ***
* Cost of goods sold ($130,000) + ending finished goods inventory ($39,000) - beginning finished goods
inventory ($42,500) = $126,500.
** Purchases of materials during June ($25,000) + beginning materials inventory ($5,000) - ending
materials inventory ($8,500) = $21,500.
*** Production costs for June ($128,000) - direct materials ($21,500) = direct labor and factory overhead
($106,500).
PROBLEM
6.
Cost of Goods Manufactured and Sold. For May, Jimbo Inc. had cost of goods manufactured equal to
$90,000; direct materials used $30,000; cost of goods sold, $100,000; direct labor, $38,000; purchases of
materials, $40,000; cost of goods available for sale, $125,000; and total factory labor, $48,000. Work in
process was $25,000 on May 1 and $15,000 on May 31. The company uses a single materials account
for direct and indirect materials.
Required: Prepare the following:
(1) A cost of goods sold statement. For brevity, show single-line items for factory overhead and direct
materials used.
(2) Summary general journal entries to record:
(a) purchase of materials on account
(b) use of materials, including direct materials of 1,000
(c) accrual of factory payroll, including indirect labor of $10,000 (use a payroll clearing account)
(d) distribution of factory labor cost
(e) transfer of completed work to finished goods
(f) sales on account, at a markup equal to 100% of production cost
SOLUTION
(1) Jimbo Inc.
Cost of Goods Sold Statement
For Month Ended May 31, 19-(in thousands)
Direct materials consumed $ 30
Direct labor
38
Factory overhead
12
Total manufacturing cost [Note (a)] $ 80
Add work in process inventory, May 1
25
$ 105
Less work in process inventory, May 31
Cost of goods manufactured
15
$ 90
Add finished goods inventory, May 1 [Note (b)]
35
Cost of goods available for sale $ 125
Less finished goods inventory, May 31 [Note (c)]
Cost of goods sold $ 100
Note (a): Cost of goods manufactured $ 90
Add work in process, ending 15
$ 105
Less work in process, beginning 25
Equals total manufacturing cost $ 80
Note (b): Cost of goods available for sale $ 125
Less cost of goods manufactured 90
25
Equals finished goods, beginning $ 35
Note (c): Cost of goods available for sale $ 125
Less cost of goods sold 100
Equals finished goods, ending $ 25
(2)
(a) Materials 40,000
Accounts Payable 40,000
(b) Work in Process 30,000
Factory Overhead Control 1,000
Materials 31,000
(c) Payroll ($38,000 + $10,000) 48,000
Accrued Payroll 48,000
(d) Work in Process 38,000
Factory Overhead Control 10,000
Payroll 48,000
(e) Finished Goods 90,000
Work in Process 90,000
(f) Accounts Receivable 200,000
Sales [$100,000 + (100% of $100,000)] 200,000
Cost of Goods Sold 100,000
Finished Goods 100,000
Chapter 5
A 1. Under job order cost accumulation, the factory overhead control account controls:
A. factory overhead analysis sheets
B. all general ledger subsidiary accounts
C. job order cost sheets
D. cost reports by processes
E. materials inventories
B 2. Supplies needed for use in the factory are issued on the basis of:
A. job cost sheets
B. materials requisitions
C. time tickets
D. factory overhead analysis sheets
E. clock cards
B 3. Finished Goods is debited and Work in Process is credited for a:
A. transfer of completed goods out of the factory
B. transfer of completed production to the finished goods storeroom
C. purchase of goods on account
D. transfer of materials to the factory
E. return of unused materials from the factory
A 4. In job order costing, when materials are returned to the storekeeper that were previously issued to
the factory for cleaning supplies, the journal entry should be made to:
A. Materials
Factory Overhead
B. Materials
Work in Process
C. Purchases Returns
Work in Process
D. Work in Process
Materials
E. Factory Overhead
Work in Process
A 5. Under a job order cost system, the dollar amount of the entry to transfer the inventory from Work
in Process to Finished Goods is the sum of the costs charged to all jobs:
A. completed during the period
B. started in process during the period
C. in process during the period
D. completed and sold during the period
E. none of the above
B 6. When a manufacturing company has a highly automated plant producing many different products,
probably the most appropriate basis of applying factory overhead costs to Work in Process is:
A. units processed
B. machine hours
C. direct labor hours
D. direct labor dollars
E. none of the above
A 7. Cherokee Company applies factory overhead on the basis of direct labor hours. Budget and actual
data for direct labor and overhead for the year are as follows:
Budget Actual
Direct labor hours 600,000 650,000
Factory overhead costs $720,000 $760,000
The factory overhead for Cherokee for the year is:
A. overapplied by $20,000
B. overapplied by $40,000
C. underapplied by $20,000
D. underapplied by $40,000
E. neither underapplied nor overapplied
SUPPORTING CALCULATION:
C 8. At the end of the year, Paola Company had the following account balances after applied factory
overhead had been closed to Factory Overhead Control:
Factory Overhead Control $ 1,000 CR
Cost of Goods Sold 980,000 DR
Work in Process 38,000 DR
Finished Goods 82,000 DR
The most common treatment of the balance in Factory Overhead Control would be to:
A. carry it as a deferred credit on the balance sheet
B. report it as miscellaneous operating revenue on the income statement
C. credit it to Cost of Goods Sold
D. prorate it between Work in Process and Finished Goods
E. prorate it among Work in Process, Finished Goods, and Cost of Goods Sold
B 9. Overapplied factory overhead would result if:
A. the plant were operated at less than normal capacity
B. factory overhead costs incurred were less than costs charged to production
C. factory overhead costs incurred were unreasonably large in relation to units produced
D. factory overhead costs incurred were greater than costs charged to production
E. a firm incurred a significant amount of overhead
A 10. The Waitkins Company estimated Department A's overhead at $255,000 for the period based on
an estimated volume of 100,000 direct labor hours. At the end of the period, the factory overhead
control account for Department A had a balance of $265,500; actual direct labor hours were
105,000. What was the over- or under-applied overhead for the period?
A. $2,250
B. $(2,250)
C. $15,000
D. $(15,000)
E. $(5,000)
SUPPORTING CALCULATION:
D 11. Howell Corporation has a job order cost system. The following debits (credits) appeared in Work
in Process for the month of July:
July 1, balance $ 12,000
July 31, direct materials 40,000
July 31, direct labor 30,000
July 31, factory overhead 27,000
July 31, to finished goods (100,000)
Howell applies overhead to production at a predetermined rate of 90% based on the direct labor
cost. Job 1040, the only job still in process at the end of July, has been charged with factory overhead of
$2,250. What was the amount of direct materials charged to Job 1040?
A. $6,750
B. $2,250
C. $2,500
D. $4,250
E. $9,000
SUPPORTING CALCULATION:
Job 1040 = $12,000 + $40,000 + $30,000 + $27,000 - $100,000 = $9,000
E 12. Valentino Corporation makes aluminum fasteners. Among Valentino's 19- manufacturing costs
were:
Wages and salaries:
Machine operators $80,000
Factory supervisors 30,000
Machine mechanics 20,000
Direct labor amounted to:
A. $50,000
B. $100,000
C. $110,000
D. $130,000
E. none of the above
B 13. Rudolpho Corporation makes aluminum fasteners. Among Rudolpho's 19-- manufacturing costs
were:
Materials and supplies:
Aluminum $400,000
Machine parts 18,000
Lubricants for machines 5,000
Direct materials amounted to:
A. $23,000
B. $400,000
C. $405,000
D. $418,000
E. $423,000
C 14. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.
Inventories
Beginning Ending
Materials $75 $ 85
Work in process 80 30
Finished goods 90 110
Materials used, $326
Total manufacturing costs charged to production during the year (including direct materials, direct
labor, and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25
The cost of direct materials purchased during the year amounted to:
A. $360
B. $316
C. $336
D. $411
E. none of the above
SUPPORTING CALCULATION: $326 + $85 - $75 = $336
C 15. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.
Inventories
Beginning Ending
Materials $75 $ 85
Work in process 80 30
Finished goods 90 110
Materials used, $326
Total manufacturing costs charged to production during the year (including direct materials, direct labor,
and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25
Direct labor costs charged to production during the year amounted to:
A. $216
B. $135
C. $225
D. $360
E. none of the above
SUPPORTING CALCULATION: $686 = $326 + x + .6x
x = $225
A 16. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.
Inventories
Beginning Ending
Materials $75 $ 85
Work in process 80 30
Finished goods 90 110
Materials used, $326
Total manufacturing costs charged to production during the year (including direct materials, direct labor,
and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25
The cost of goods manufactured during the year was:
A. $736
B. $716
C. $636
D. $766
E. none of the above
SUPPORTING CALCULATION: $80 + $686 - $30 = $736
A 17. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow
Manufacturing Company are presented below.
Inventories
Beginning Ending
Materials $75 $ 85
Work in process 80 30
Finished goods 90 110
Materials used, $326
Total manufacturing costs charged to production during the year (including direct materials, direct labor,
and factory overhead applied at the rate of 60% of direct labor cost), $686
Cost of goods available for sale, $826
Selling and general expenses, $25
The cost of goods sold during the year was:
A. $716
B. $691
C. $801
D. $736
E. none of the above
SUPPORTING CALCULATION: $90 + $736 - $110 = $716
A 18. J. D. Doonesbury Company manufactures tools to customer specifications. The following data
pertain to Job 1501 for April:
Direct materials used $ 4,200
Direct labor hours worked 300
Direct labor rate per hour $ 8.00
Machine hours used 200
Applied factory overhead rate per machine hour $ 15.00
What is the total manufacturing cost recorded on Job 1501 for April?
A. $9,600
B. $10,300
C. $11,100
D. $5,400
E. $8,800
SUPPORTING CALCULATION: $4,200 + (300 x $8) + (200 x $15) = $9,600
C 19. In service businesses using job order costing, the most commonly used base for applying overhead
to jobs is:
A. machine hours
B. direct materials consumed
C. direct labor cost
D. meals, travel, and entertainment
E. none of the above
A 20. In service businesses using job order costing, the hourly rate used to charge costs to a job usually
includes:
A. both labor and overhead cost
B. labor cost only
C. overhead cost only
D. labor, overhead, and miscellaneous costs
E. none of the above
A 21. Work in Process is debited and Materials is credited for:
A. the issuance of direct materials into production
B. the issuance of indirect materials into production
C. the return of materials to the storeroom
D. the application of materials overhead
E. none of the above
B 22. Factory Overhead Control is debited and Payroll is credited for:
A. the recording of payroll
B. the distribution of indirect labor costs
C. the distribution of direct labor costs
D. the distribution of withholding taxes
E. none of the above
A 23. Applied Factory Overhead is debited and Factory Overhead is credited to:
A. close the estimated overhead account to actual overhead
B. record the actual factory overhead for the period
C. charge estimated overhead to all jobs worked on during the period
D. to record overapplied overhead for the period
E. none of the above
C 24. The best overhead allocation base to use in a labor-intensive manufacturing environment probably
would be:
A. materials cost
B. machine hours
C. direct labor hours
D. units of production
E. none of the above
D 25. Finished Goods is debited and Cost of Goods Sold is credited for:
A. transfer of completed goods to the customer
B. sale of a customer order
C. return of materials to the supplier
D. return of goods by the customer
E. none of the above
PROBLEMS
PROBLEM
1.
Job Order Cost Schedule. Winkel Woodcrafters produces special-order wood products. The company
uses job order costing for pricing and cost accumulation purposes. The following costs were incurred on
two recent jobs:
Cost Item
Job Pine-20 Job Birch-10
Direct materials:
Issued $6,500 $8,000
Returned 500 0
Indirect materials used 500 400
Direct labor $9,000 $15,000
Direct labor rate $9 per hour $10 per hour
Overhead application rate $10 per direct labor hour $15 per direct labor hour
The company adds a 50% markup on cost in determining the amount to charge for each job.
Required: Prepare a schedule showing the cost and the amount to be charged for each job.
SOLUTION
Job Pine20 Job Birch10
Direct materials $ 6,000 $ 8,000
Direct labor 9,000 15,000
Factory overhead applied 10,000 22,500
Total $ 25,000 $ 45,500
Allowance for profit and other costs 12,500 22,750
Amount to be charged $ 37,500 $ 68,250
PROBLEM
2.
Job Order Cost Sheet; Over- or Underapplied Overhead. During June, the following transactions took
place at the Cassandran Corp.
June 3 Purchased materials, $30,000.
5 Requisitioned materials from inventory, $20,000 (75% of these were direct; 25% were
indirect). Direct materials of $3,000 and indirect materials of $1,000 were for Job 001. The remainder
were for Job 002.
7 For Job 002, returned $150 of direct materials and $200 of indirect materials.
8 Recorded liabilities for payroll: direct labor, $15,000 and indirect labor, $5,000. Of the direct labor
cost, 60% was for Job 001; the remainder was for Job 002.
10 Incurred other factory overhead costs, $20,000 (all applicable to Jobs 001 and 002).
14 Applied overhead at the rate of 200% of direct labor cost to Jobs 001 and 002, which were
completed and transferred to finished goods account today.
Required: Assuming that Jobs 001 and 002 were the only jobs during the period and that all overhead
(as recorded above) is the total applicable overhead for these projects:
(1) Prepare a job order cost sheet for each job.
(2) Determine the difference between applied and actual overhead for the month.
SOLUTION
(1)
Job 001 Job 002
Materials $ 3,000 $ 11,850
Labor 9,000 6,000
Overhead applied 18,000 12,000
Total cost $ 30,000 $ 29,850
(2) Analysis of Factory Overhead
Incurred:
Indirect materials $ 4,800
Indirect labor 5,000
Other overhead incurred 20,000 $ 29,800
Applied:
Job 001 $ 18,000
Job 002 12,000 30,000
Amount overapplied
$ (200 )
PROBLEM
3.
Job Order Cycle Entries. The following completed cost sheets were prepared for three jobs that were in
production during April in the Special Order Division of Byron Company:
Job 097 Job 781 Job 946
Direct materials $ 6,000 $2,700 $4,100
Direct labor 9,200 7,300 8,200
Applied factory overhead 6,900 5,475 6,120
Allowance for commercial expenses and profit 11,050 7,738 9,210
On April 1, Job 097 was 75% complete as to materials, labor, and overhead. It was finished during the
month. The other jobs were started and finished during the month. Jobs 097 and 946 were sold on
account at the end of the month.
Required: Prepare general journal entries to be recorded in April to accumulate these job costs for
Work in Process as well as for Finished Goods and for the sale of the two jobs.
SOLUTION
Debit Credit
Work in Process 8,300 *
Materials 8,300
Work in Process 17,800 **
Accrued Payroll 17,800
Work in Process 13,320 ***
Factory Overhead Control 13,320
Finished Goods 55,995
Work in Process 55,995
Cost of Goods Sold 40,520
Finished Goods 40,520
Accounts Receivable 60,780
Sales 60,780
* (.25 x $6,000) + $2,700 + $4,100
** (.25 x $9,200) + $7,300 + $8,200
*** (.25 x $6,900) + $5,475 + $6,120
PROBLEM
4.
Voyager Inc. produces customized vans in a job order shop. On November 1, the following balances
appear in the inventory records:
Finished goods $179,000
Work in process 308,000
Materials 83,000
The amount in Finished Goods represents $101,000 recorded for Van 175 and $78,000 recorded for Van
177. The work in process account represents the three vans in process, as follows:
Van 179 Van 180 Van 181
Factory overhead $75,000 $50,000 $25,000
Direct labor 60,000 40,000 20,000
Direct materials 26,000 7,000 5,000
The following transactions occurred during November:
(a) Purchased materials on account, $80,000.
(b) Requisitioned $60,000 of materials from inventory: $15,000 applied to Van 180, $25,000 to Van 181,
and $16,000 to Van 182, a new order; the balance was for indirect materials.
(c) Recorded the liability for the payroll and the labor cost distribution in a single entry: total payroll,
$208,750. Of the payroll cost, 10% applied to Van 179, 20% to Van 180, 35% to Van 181, 30% to Van
182, and the remainder to indirect labor.
(d) Paid the payroll.
(e) Applied factory overhead at the rate of 150% of direct labor cost.
(f) Completed Vans 179 and 180.
(g) Sold Vans 175, 177, and 180 at 50% over manufacturing costs.
Required: Prepare general journal entries to record these transactions.
SOLUTION
Debit Credit
(a) Materials 80,000
Accounts Payable 80,000
(b) Factory Overhead Control 4,000
Work in Process 56,000
Materials 60,000
(c) Factory Overhead Control 10,437
Work in Process 198,313
Accrued Payroll 208,750
(d) Accrued Payroll 208,750
Cash 208,750
(e) Work in Process 297,470
Applied Factory Overhead 297,470
(f) Finished Goods 429,563
Work in Process 429,563
(g) Accounts Receivable 593,063
Sales 593,063
Cost of Goods Sold 395,375
Finished Goods 395,375
PROBLEM
5.
Manufacturing Costs. The work in process account of Meyers Company showed:
Work in Process
Materials $22,000 | Finished goods $68,000
Direct labor 37,000 |
Factory overhead 55,500 |
Materials charged to the one job still in process amounted to $5,000. Factory overhead is applied as a
predetermined percentage of direct labor cost.
Required: Compute the following:
(1) The amount of direct labor cost in finished goods.
(2) The amount of factory overhead in finished goods.
SOLUTION
(1) The amount of direct labor in finished goods:
Finished goods $68,000
Materials included in finished goods 17,000
Direct labor and factory overhead in finished goods $51,000
Let x = direct labor in finished goods
2.5x = $51,000 direct labor and factory overhead in finished goods
x = $20,400 direct labor in finished goods
(2) The amount of factory overhead in finished goods:
x = $20,400
1.5x = 1.5($20,400)
1.5x = $30,600 factory overhead in finished goods
PROBLEM
6.
Manufacturing Costs. Teddy Company is to submit a bid on the production of 5,500 vases. It is
estimated that the cost of materials will be $8,500, and the cost of direct labor will be $12,000. Factory
overhead is applied at 50% of direct labor cost in the Molding Department and at $7.50 per direct labor
hour in the Finishing Department. Of the above direct labor, it is estimated that 500 direct labor hours
at a cost of $4,000 will be required in Finishing. The company wishes a markup of 100% of its total
production cost.
Required: Determine the following:
(1) Estimated cost to produce.
(2) Estimated prime cost.
(3) Estimated conversion cost.
(4) Bid price.
SOLUTION
(1) Materials $ 8,500
Direct labor 12,000
Factory overhead:
Molding (50% x $8,000) 4,000
Finishing (500 DLH x $7.50) _ 3,750
Estimated cost to produce $ 28,250
(2) Materials $ 8,500
Direct labor _ 12,000
Estimated prime cost $ 20,500
(3) Direct labor $ 12,000
Factory overhead _ 7,750
Estimated conversion cost $ 19,750
(4) Estimated cost to produce $ 28,250
Markup ($28,250 x 100%) 28,250
Bid price $ 56,500
PROBLEM
7.
Flow of Costs Through T Accounts. The Palmer Company had the following inventories at the beginning
and end of July:
July 1 July 31
Materials $20,000 $ 45,000
Work in process ? 185,000
Finished goods 65,000 115,000
During July, the cost of materials purchased was $160,000 and factory overhead of $125,000 was
applied at a rate of 75% of direct labor cost. July cost of goods sold was $240,000.
Required: Prepare completed T accounts showing the flow of the cost of goods manufactured and sold.
SOLUTION
Materials Work in Process
Inv. 20,000 | WIP 135,000 Inv. 48,333 ** | FG 290,000
Purch. 160,000 | Materials 135,000 |
180,000 | Factory |
45,000 |
overhd. 125,000 |
| Labor 166,667 |
| 475,000 |
|
185,000 |
Finished Goods Cost of Goods Sold
Inv. 65,000 | CGS 240,000 FG 240,000 |
WIP 290,000* |
355,000 |
|
115,000 |
|
|
CGA-Canada (adapted). Reprinted with permission.
*Beginning inventory + WIP = Ending inventory + CGS
$65,000 + WIP = $115,000 + $240,000
WIP = $290,000
**Beginning WIP + Mfg. costs = Ending WIP + FG
Beginning WIP + $426,667 = $185,000 + $290,000
Beginning WIP = $48,333
Chapter 6
B 1. An equivalent unit of material or conversion cost is equal to:
A. the prime cost
B. the amount of material or conversion cost necessary to complete one unit of production
C. a unit of work in process inventory
D. the amount of material or conversion cost necessary to start a unit of production into work in
process
E. 50% of the material or conversion cost of a unit of finished goods inventory, assuming a linear
production pattern
B 2. The product flow format where certain portions of the work are done simultaneously and then
brought together for completion is called:
A. applied
B. parallel
C. standard
D. selective
E. sequential
C 3. An item that does not appear on a cost of production report is:
A. work in processCbeginning inventory
B. cumulative costs through the end of departmental production
C. finished goodsCending inventory
D. materials used in the department
E. unit costs added by the department
C 4. Goode Manufacturing has three producing departments in its factory. The ending inventory in the
Milling Department consisted of 3,000 units. These units were 60% complete with respect to labor and
factory overhead. Materials are applied at the end of the milling process. Unit costs for the complete
process in the Milling Department are: materials, $1; labor, $2; and factory overhead, $3. The
appropriate unit cost for each unit in the ending inventory is:
A. $2
B. $5
C. $3
D. $6
E. $4
SUPPORTING CALCULATION: 60% ($2 + $3) = $3
D 5. When added materials in subsequent departments result in an increase of the units produced, the
unit transferred-in costs will:
A. be reclassified as new materials
B. be increased to provide for the additional units
C. be accounted for under the fifo costing method
D. be decreased as they are spread over more units
E. remain unchanged
E 6. Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials
were added in the department. At the end of the month, 7,000 units were transferred to the next
department. There was no beginning inventory. The costs for units transferred in would be effectively
allocated over:
A. 17,000 units
B. 3,000 units
C. 10,000 units
D. 7,000 units
E. 13,000 units
SUPPORTING CALCULATION: 7,000 units transferred out + 6,000 units in ending inventory = 13,000
units
E 7. A characteristic of a process costing system is that:
A. costs are accumulated by order
B. it is used by a company manufacturing custom machinery
C. standard costs are not applicable
D. it requires a lot more detailed accounting than does a job order system
E. work in process inventory is restated in terms of completed units
D 8. Transferred-in costs as used in a process cost accounting system are:
A. supervisory salaries that are transferred from an overhead cost center to a production cost center
B. ending work in process inventory of a previous process that will be used in a succeeding process
C. labor that is transferred from another department within the same plant instead of hiring temporary
workers from the outside
D. costs of the product of a previous internal process that is subsequently used in a succeeding internal
process
E. none of the above
E 9. In a process costing system, how is the unit cost affected in a production cost report when materials
are added in a department subsequent to the first department and the added materials result in
additional units?
A. The first department's unit cost is increased, but it does not necessitate an adjustment of the
transferred-in unit cost.
B. The first department's unit cost is decreased, but it does not necessitate an adjustment of the
transferred-in unit cost.
C. The first department's unit cost is not affected.
D. The first department's unit cost is increased, which necessitates an adjustment of the transferred-in
unit cost.
E. The first department's unit cost is decreased, which necessitates an adjustment of the transferred-in
unit cost.
E 10. Assuming that there was no beginning work in process inventory and the ending work in process
inventory is 50% complete as to conversion costs, the number of equivalent units as to conversion costs
would be:
A. less than the units completed
B. more than the units completed
C. the same as the units placed in process
D. the same as the units completed
E. less than the units placed in process
A 11. An error was made in the computation of the percentage of completion of the current year's
ending work in process inventory. The error resulted in assigning a lower percentage of completion to
each component of the inventory than actually was the case. What is the effect of this error upon:
(1) the computation of equivalent units in total
(2) the computation of costs per equivalent unit
(3) costs assigned to cost of goods completed for the period
(1) (2) (3)
A. understate overstate overstate
B. understate understate overstate
C. overstate understate understate
D. overstate overstate understate
E. none of the above
C 12. Read, Inc. instituted a new process in October. During October, 10,000 units were started in
Department A. Of the units started, 7,000 were transferred to Department B, and 3,000 remained in
work in process at October 31. The work in process at October 31 was 100% complete as to material
costs and 50% complete as to conversion costs. Materials costs of $27,000 and conversion costs of
$39,950 were charged to Department A in October. What were the total costs transferred to
Department B?
A. $46,900
B. $53,600
C. $51,800
D. $57,120
E. none of the above
SUPPORTING CALCULATION:
Materials unit cost = $27,000  (7,000 + 3,000) = $2.70
Conversion unit cost = $39,950  [7,000 + 50%(3,000)] = $4.70
Costs transferred = 7,000($2.70 + $4.70) = $51,800
D 13. In accounting for beginning inventory costs, the method that allows the addition of beginning
inventory costs with costs incurred during the period is referred to as:
A. first-in, first-out
B. addition
C. last-in, first-out
D. average
E. first-in, last-out
E 14. Chicago Processing Co. uses the average costing method and reported a beginning inventory of
5,000 units that were 20% complete with respect to materials in one department. During the month,
11,000 units were started; 8,000 units were finished; ending inventory amounted to 8,000 units that
were 60% complete with respect to materials. Total materials cost during the period for work in process
should be spread over:
A. 7,200 units
B. 16,000 units
C. 11,200 units
D. 13,200 units
E. 12,800 units
SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units
E 15. In determining the cost of goods transferred in from a previous department under the average cost
method:
A. a simple average of unit costs is used
B. beginning inventory costs are separated from costs transferred in during the period
C. a first-in, first-out approach is used
D. equivalent production in ending inventory is separated from other transferred-in costs
E. a weighted average of unit costs is used
E 16. The average and fifo process costing methods differ in that the average method:
A. can be used under any cost flow assumption
B. is much more difficult to apply than the fifo method
C. requires that ending work in process inventory be stated in terms of equivalent units of production
D. considers the ending work in process inventory only partially complete
E. does not consider the degree of completion of beginning work in process inventory when computing
equivalent units of production
A 17. The first step in applying the average cost method is to:
A. add the beginning work in process costs to the current period's production costs
B. divide the current period's production costs by the equivalent units
C. subtract the beginning work in process costs from the current period's production costs
D. A and B
E. B and C
C 18. Beginning work in process was 60% complete as to conversion costs, and ending work in process
was 45% complete as to conversion costs. The dollar amount of the conversion cost included in ending
work in process (using the average cost method) is determined by multiplying the average unit
conversion costs by what percentage of the total units in ending work in process?
A. 60%
B. 55%
C. 45%
D. 522%
E. 100%
C 19. Dover Corporation's production cycle starts in the Mixing Department. The following information is
available for April:
Units
Work in process, April 1 (50% complete) 40,000
Started in April 240,000
Work in process, April 30 (60% complete) 25,000
Materials are added at the beginning of the process in the Mixing Department. Using the average cost
method, what are the equivalent units of production for the month of April?
Materials Conversion
A. 255,000 255,000
B. 270,000 280,000
C. 280,000 270,000
D. 305,000 275,000
E. 240,000 250,000
SUPPORTING CALCULATION:
Materials = 40,000 + 240,000 = 280,000
Conversion = (280,000 - 25,000) + .6(25,000) = 270,000
B 20. Information concerning Department A of Neeley Company for June is as follows:
Materials
Units Costs
Beginning work in process 17,000 $12,800
Started in June 82,000 69,700
Units completed 85,000
Ending work in process 14,000
All materials are added at the beginning of the process. Using the average cost method, the cost per
equivalent unit for materials is:
A. $0.825
B. $0.833
C. $0.85
D. $0.97
E. $1.01
SUPPORTING CALCULATION: ($12,800 + $69,700)  (85,000 + 14,000) = $.833
B 21. Kennedy Company adds materials in the beginning of the process in the Forming Department,
which is the first of two stages of its production cycle. Information concerning the materials used in the
Forming Department in October is as follows:
Materials
Units Costs
Work in process, October 1 6,000 $ 3,000
Units started 50,000 25,560
Units completed and transferred out 44,000
Using the average cost method, what was the materials cost of work in process at October 31?
A. $3,000
B. $6,120
C. $3,060
D. $5,520
E. $6,000
SUPPORTING CALCULATION:
($3,000 + $25,560)  (44,000 + 12,000) = $.51
$.51 x 12,000 = $6,120
E 22. Roger Company manufactures Product X in a two-stage production cycle in Departments A and B.
Materials are added at the beginning of the process in Department B. Roger uses the average costing
method. Conversion costs for Department B were 50% complete as to the 6,000 units in beginning work
in process and 75% complete as to the 8,000 units in ending work in process. A total of 12,000 units
were completed and transferred out of Department B during February. An analysis of the costs relating
to work in process and production activity in Department B for February follows:
Transferred- Materials Conversion
in Costs _
Costs _
Costs
Work in process, February 1:
Costs attached $12,000 $2,500 $1,000
February activity:
Costs added 29,000 5,500 5,000
The total cost per equivalent unit transferred out for February of Product X, rounded to the nearest
penny, was:
A. $2.82
B. $2.85
C. $2.05
D. $2.75
E. $2.78
SUPPORTING CALCULATION:
Transferred-in costs = $41,000  20,000 = $2.05
Materials cost = $8,000  20,000 = .40
Conversion cost = $6,000  18,000 = .33
$2.78
A 23. Simpson Co. adds materials at the beginning of the process in Department M. The following
information pertains to Department M's work in process during April:
Units
Work in process on April 1
(60% complete as to conversion cost) 3,000
Started in April 25,000
Completed in April 20,000
Work in process on April 30
(75% complete as to conversion cost) 8,000
Under the average costing method, the equivalent units for conversion cost are:
A. 26,000
B. 25,000
C. 24,000
D. 21,800
E. none of the above
SUPPORTING CALCULATION: 20,000 + .75(8,000) = 26,000
D 24. During March, Quig Company's Department Y equivalent unit product costs, computed under the
average cost method, were as follows:
Materials $1
Conversion 3
Transferred-in 5
Materials are introduced at the end of the process in Department Y. There were 4,000 units (40%
complete as to conversion costs) in work in process at March 31. The total costs assigned to the March
31 work in process inventory should be:
A. $36,000
B. $28,800
C. $27,200
D. $24,800
E. none of the above
SUPPORTING CALCULATION: $5(4,000) + $3(4,000 x .4) = $24,800
The following questions are based on the material in the Appendix to the chapter.
B 25. If a company reports two different unit costs for goods transferred to the next department, it is
reasonable to assume that:
A. the department accounts for lost units at the end of the process
B. a fifo costing method is used
C. lost unit costs are computed separately
D. an average costing method is used
E. errors must have occurred in recording costs
C 26. In order to compute equivalent units of production using the fifo method of process costing, work
for the period must be broken down to units:
A. started and completed during the period
B. completed during the period and units in ending inventory
C. completed from beginning inventory, started and completed during the month, and units in ending
inventory
D. started during the period and units transferred out during the period
E. processed during the period and units completed during the period
A 27. The first-in, first-out method of process costing will produce the same cost of goods manufactured
amount as the average cost method when:
A. there is no beginning inventory
B. there is no ending inventory
C. beginning and ending inventories are each 50% complete
D. beginning inventories are 100% complete as to materials
E. goods produced are homogeneous
B 28. The fifo method of process costing differs from the average cost method of process costing in that
fifo:
A. allocates costs based on whole units, but the average cost method uses equivalent units
B. considers the stage of completion of beginning work in process in computing equivalent units of
production, but the average cost method does not
C. does not consider the stage of completion of beginning work in process in computing equivalent
units of production, but the average cost method does
D. is applicable only to those companies using the fifo inventory pricing method, but the average cost
method may be used with any inventory pricing method
E. none of the above
A 29. Connor Company computed the flow of physical units completed for Department M for the month
of March as follows:
Units completed:
From work in process on March 1 15,000
From March production 45,000
Total 60,000
Materials are added at the beginning of the process. The 12,000 units of work in process at March 31
were 80% complete as to conversion costs. The work in process at March 1 was 60% complete as to
conversion costs. Using the fifo method, the equivalent units for March conversion costs were:
A. 60,600
B. 55,200
C. 57,000
D. 54,600
E. 63,600
SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600
D 30. The Hilo Company computed the physical flow of units for Department A for the month of April as
follows:
Units completed:
From work in process on April 1 10,000
From April production 30,000
Total 40,000
Materials are added at the beginning of the process. Units of work in process at April 30 were 8,000. The
work in process at April 1 was 80% complete as to conversion costs, and the work in process at April 30
was 60% complete as to conversion costs. What are the equivalent units of production for the month of
April using the fifo method?
Materials Conversion Costs
A. 48,000 48,000
B. 40,000 47,600
C. 36,800 38,000
D. 38,000 36,800
E. 48,000 44,800
SUPPORTING CALCULATION:
Materials = 30,000 + 8,000 = 38,000
Conversion = (10,000 x .2) + 30,000 + (8,000 x .6) = 36,800
E 31. Department A is the first stage of Mann Company's production cycle. The following information is
available for conversion costs for the month of April:
Units
Beginning work in process (60% complete) 20,000
Started in April 340,000
Completed in April and transferred to Department B 320,000
Ending work in process (40% complete) 40,000
Using the fifo method, the equivalent units for the conversion cost calculation are:
A. 336,000
B. 360,000
C. 328,000
D. 320,000
E. 324,000
SUPPORTING CALCULATION:
(20,000 x .4) + 300,000 + (40,000 x .4) = 324,000
PROBLEMS
PROBLEM
1.
Cost of Production Report. Fort Myers Corporation manufactures a product that is processed in two
departments: Mixing and Cooking. At the beginning and end of May, there were no inventories of
unfinished work. During May, 50,000 units of this product were completed. Materials used during May
cost $28,000, of which one half were used in the Mixing Department and one half were used in the
Cooking Department. Direct labor wages totaled $60,000, with $40,000 applicable to Mixing and
$20,000 to Cooking. The amounts for direct factory overhead incurred for each department and for
general factory overhead apportioned to each department were:
Mixing Cooking
Department Department
Factory overhead incurred $7,500 $9,000
General factory overhead apportioned 5,000 6,000
Required: Prepare a partial cost of production report, showing the total cost to be accounted for in each
department.
SOLUTION
Fort Myers Corporation
Partial Cost of Production Report
For May, 19--
Mixing Department Cooking Department
Total Equivalent Unit Total Equivalent Unit
Cost Units _ Cost Cost Units _ Cost
Cost from preceding
department
50,000
$ 66,500 50,000 $1.33
Cost added by department
Materials $ 14,0001 50,000 $ 0.282 $ 14,000 50,000 $0.28
Labor 40,000 50,000 0.80 20,000 50,000 0.40
Factory overhead 12,500 50,000 0.25 15,000 50,000 0.30
Total cost added $ 66,500 $ 1.33 $ 49,000 $0.98
Total cost to be accounted
for $ 66,500 $ 1.33 $ 115,500 $2.31
1$28,000 x 1/2 = $14,000
2$14,000  50,000 units = $.28
PROBLEM
2.
Computation of Equivalent Production. Hanrahan Company uses process costing to account for the costs
of its only product, X. Production takes place in two departmentsCSanding and Polishing. On December
31, the inventory for Product X was as follows:
No unused materials
Work in processC
Sanding Department 800 units (3/4 complete as to labor)
Work in processC
Polishing Department 1,000 units (1/2 complete as to materials and
3/4 complete as to direct labor)
Finished Goods 600 units
Required:
(1) Compute the equivalent units of materials in all inventories combined at December 31.
(2) Compute the equivalent units of the Sanding Department's direct labor in all inventories at
December 31.
SOLUTION
(1) Work in processCSanding Department 800
Work in processCPolishing Department (1,000 units x 1/2) 500
Finished goods 600
Units of materials in all inventories, Dec. 31 1,900
(2) Work in processCSanding Department (800 units x 3/4) 600
Work in processCPolishing Department 1,000*
Finished goods 600*
Units of Sanding Dept.'s direct labor in all inventories, December 31 2,200
* All Sanding Department direct labor would be in all of these units or else they never would have been
transferred.
PROBLEM
3.
Calculation of Unit CostsCAverage Costing Method. Barcelona Beach Products reports the following data
for the first department in its production process:
Units in process at beginning of period (all materials; 3/4 labor
and factory overhead) 5,000
Units started in process 35,000
Units transferred out 33,000
Units still in process (all materials; 1/2 labor and factory overhead) 5,000
Units completed but not yet transferred to Finished Goods 2,000
Related data were:
Work in Process at Added During
Beginning of Period
Period
Materials $100,000 $ 304,000
Labor 125,400 407,100
Factory overhead 173,500
407,750
Total $398,900 $ 1,118,850
Required: Using the average costing method:
(1) Compute the unit cost for materials, labor, and factory overhead.
(2) Determine the cost of the work in process ending inventory.
SOLUTION
(1) Materials: ($100,000 + $304,000) / 40,000 units* = $10.10 per unit
Labor: ($125,400 + $407,100) / 37,500 units* = $14.20 per unit
Factory overhead: ($173,500 + $407,750) / 37,500 units = $15.50 per unit
*Equivalent production:
Materials: 33,000 + 2,000 + 5,000 = 40,000 units
Labor and factory overhead: 33,000 + 2,000 + (1/2 x 5,000) = 37,500 units
(2) Units in process at end of period:
Completed and on hand (2,000 x $39.80) $ 79,600
Materials (5,000 units x $10.10) 50,500
Labor (5,000 units x 1/2 x $14.20) 35,500
Factory overhead (5,000 units x 1/2 x $15.50) 38,750
$ 204,350
PROBLEM
4.
Journal Entries for Process Cost System. Xavier Corporation uses process costing in its two production
departments. A separate work in process account is kept in the general ledger for each production
department. The following data relate to operations for the month of March:
Beginning Added
Inventory During March
Direct materials cost: Department A $ 5,000 $25,000
Department B 3,000 20,000
Direct labor cost: Department A 6,000 40,000
Department B 4,500 35,000
Applied overhead: Department A 12,000 90,000
Department B 4,500 35,000
During March, 45,000 units with a cost of $5 each were transferred from Department A to Department
B, and 40,000 units with a cost of $9 each were transferred from Department B to finished goods
inventory.
Required: Prepare the appropriate general journal entries to record the cost charged to the producing
departments during March and the cost of units transferred from Department A to Department B and
Department B to finished goods inventory.
SOLUTION
Work in Process C Department A 25,000
Work in Process C Department B 20,000
Materials 45,000
Work in Process C Department A 40,000
Work in Process C Department B 35,000
Payroll 75,000
Work in Process C Department A 90,000
Work in Process C Department B 35,000
Applied Factory Overhead 125,000
Work in Process C Department B 225,000
Work in Process C Department A 225,000
Finished Goods Inventory 360,000
Work in Process C Department B 360,000
PROBLEM
5.
Cost of Production Report, Second Department, Average Costing. Isogen Corporation manufactures a
product in three departments. The product is cut out of lumber in the Cutting Department, then
transferred to the Planing Department where it is shaped and certain parts purchased from outside
vendors are added to the unit, and finally transferred to the Finishing Department where it is primed,
painted, and packaged. Since only one product is manufactured by the company, a process cost system
is used. The company adopted the average cost flow assumption to account for its work in process
inventories. Data related to September operations in the Planing Department follow:
Units in beginning inventory 3,000
Units received from the Cutting Department this period 7,500
Units transferred to Finishing Department this period 8,500
Units in ending inventory (75% materials, 50% labor and overhead 2,000
Beginning Added
Costs charged to the department: Inventory _ This Period
Costs from the preceding department $15,500 $63,250
Materials 7,800 20,700
Direct labor 3,200 16,750
Factory overhead 9,975 39,900
Required: Prepare a September cost of production report for the Planing Department.
SOLUTION
Isogen Corporation
Planing Department
Cost of Production Report
For September, 19--
Quantity Schedule Materials Labor Overhead Quantity
Beginning inventory
3,000
Received from Cutting Department
7,500
10,500
Transferred to Finishing Department
8,500
Ending inventory 75% 50% 50% 2,000
10,500
Total Equivalent Unit
Cost Charged to Department Cost Units* _ Cost
Beginning inventory:
Cost from preceding department $ 15,500
Materials 7,800
Labor 3,200
Factory overhead 9,975
Total cost in beginning inventory $ 36,475
Cost added during period:
Cost from preceding department $ 63,250 10,500 $ 7.50
Materials 20,700 10,000 2.85
Labor 16,750 9,500 2.10
Factory overhead 39,900 9,500 5.25
Total cost added during period $ 140,600
Total cost charged to the department $ 177,075 $ 17.70
% Unit Total
Cost Accounted for as Follows Units Complete Cost Cost
Transferred to Finishing
Department 8,500 100% $17.70 $150,450
Work in process,
ending inventory:
Cost from preceding
department 2,000 100 7.50 $ 15,000
Materials 2,000 75 2.85 4,275
Labor 2,000 50 2.10 2,100
Factory overhead 2,000 50 5.25
Total cost accounted for
5,250
26,625
$177,075
* Total number of equivalent units required in the cost accounted for section determined as follows:
Prior
Dept. Cost Materials Labor Overhead
Equivalent units transferred out 8,500 8,500 8,500 8,500
Equivalent units in ending inventory 2,000 1,500 1,000 1,000
Total equivalent units 10,500 10,000 9,500 9,500
PROBLEM
6.
Cost of Production Report, Increase in Quantity with Added Materials, Average Costing. Carlson
Chemical Company produces a chemical in three departments, Mixing, Blending, and Bottling. Mixing,
where the compounds are added, is the first department. The powder is then transferred to the second
department where water is added to produce a liquid. After water has been added, the chemical is
bottled for storage and transported to customers. A process cost system with an average cost flow
assumption is used to account for work in process inventories. Data related to operations in the
Blending Department during the month of October follow:
Units in beginning inventory 2,000
Units received from the Mixing Department this period 4,000
Units added to process in the Blending Department this period 12,000
Units transferred to Bottling Department this period 14,000
Units in ending inventory (100% materials, 40% labor and overhead) 4,000
Beginning Added
Costs charged to the department: Inventory This Period
Costs from the preceding department $2,300 $11,200
Materials 720 2,520
Direct labor 1,150 2,750
Factory overhead 2,100 5,700
Required: Prepare a cost of production report for the Blending Department.
SOLUTION
Carlson Chemical Company
Blending Department
Cost of Production Report
For October, 19--
Quantity Schedule Materials Labor Overhead Quantity
Beginning inventory
2,000
Received from Mixing Department
4,000
Added to process in Blending Department
12,000
18,000
Transferred to Bottling Department
14,000
Ending inventory 100% 40% 40% 4,000
18,000
Total Equivalent Unit
Cost Charged to Department Cost Units* _ Cost
Beginning Inventory:
Cost from preceding department $ 2,300
Materials 720
Labor 1,150
Factory overhead 2,100
Total cost in beginning inventory $ 6,270
Cost added during period:
Cost from preceding department $ 11,200 18,000 $ .75
Materials 2,520 18,000 .18
Labor 2,750 15,600 .25
Factory overhead 5,700 15,600 .50
Total cost added during period $ 22,170
Total cost charged to the department $ 28,440 $ 1.68
% Unit Total
Cost Accounted for as Follows Units Complete Cost Cost
Transferred to Bottling
Department 14,000 100% $1.68 $23,520
Work in process,
ending inventory:
Cost from preceding
department 4,000 100 .75 $3,000
Materials 4,000 100 .18 720
Labor 4,000 40 .25 400
Factory overhead 4,000 40 .50
Total cost accounted for
800
4,920
$28,440
* Total number of equivalent units required in the cost accounted for section determined as follows:
Prior
Dept. Cost Materials Labor Overhead
Equivalent units transferred out 14,000 14,000 14,000 14,000
Equivalent units in ending inventory 4,000 4,000 1,600 1,600
Total equivalent units 18,000 18,000 15,600 15,600
The remaining problems are based on material in the chapter Appendix.
PROBLEM
7.
Equivalent Production Schedule. Javis Jam Co. uses fifo costing for its production processes. In
December, the Cooking Department reported the following summary of its activities:
Units in processCbeginning inventory
(3/4 materials; 1/2 labor and factory overhead) 8,000
Units started in process during the period 15,000 23,000
Units transferred to next department 19,000
Units still in process (1/2 materials;
1/4 labor and factory overhead) 4,000 23,000
Required: Prepare an equivalent production schedule for materials, labor, and factory overhead in the
Cooking Department using fifo costing.
SOLUTION
Labor and
Factory
Materials Overhead
Units transferred out 19,000 19,000
Less beginning inventory (all units) 8,000 8,000
Units started and finished this period 11,000 11,000
Add beginning inventory (work this period):
Materials (8,000 units x 1/4) 2,000
Labor and factory overhead (8,000 units x 1/2) 4,000
Add ending inventory:
Materials (4,000 units x 1/2) 2,000
Labor and factory overhead (4,000 units x 1/4) 1,000
Equivalent production 15,000 16,000
PROBLEM
8.
Cost of Production Report, Second Department, Fifo Costing. Handy Tool Company manufactures a
product in two departments, Shaping and Assembly. The product is cut out of sheet metal, bent to
shape, and painted in the Shaping Department. Then, it is transferred to the Assembly Department
where component parts purchased from outside vendors are added to the unit. A process cost system
with a fifo cost flow assumption is used to account for work in process inventories. Data related to
November operations in the Assembly Department follow:
Units in beginning inventory (90% materials, 80% labor and overhead) 1,000
Units received from the Shaping Department this period 3,000
Units transferred to Finished Goods Inventory this period 2,800
Units in ending inventory (50% materials, 40% labor and overhead) 1,200
Beginning Added
Costs charged to the department: Inventory This Period
Costs from the preceding department $23,600 $29,250
Materials 7,700 13,375
Direct labor 3,500 9,672
Factory overhead 4,900 16,616
Required: Prepare a November cost of production report on a fifo basis for the Assembly Department.
SOLUTION
Handy Tool Corporation
Assembly Department
Cost of Production Report
For November, 19--
Quantity Schedule Materials Labor Overhead Quantity
Beginning inventory 90% 80% 80% 1,000
Received from Shaping Department
3,000
4,000
Transferred to Finishing Department
2,800
Ending inventory 50 40 40 1,200
4,000
Total Equivalent Unit
Cost Charged to Department Cost
Units* _ Cost
Beginning inventory:
Cost from preceding department $ 23,600
Materials 7,700
Labor 3,500
Factory overhead 4,900
Total cost in beginning inventory $ 39,700
Cost added during period:
Cost from preceding department $ 29,250 3,000 $ 9.75
Materials 13,375 2,500 5.35
Labor 9,672 2,480 3.90
Factory overhead 16,616 2,480 6.70
Total cost added during period $ 68,913
Total cost charged to the department $ 108,613 $ 25.70
% Unit Total
Cost Accounted for as Follows Units Complete Cost Cost
Transferred to Finished Goods:
Beginning inventory
$39,700
Cost to complete:
Materials 1,000 10% $ 5.35 535
Labor 1,000 20 3.90 780
Factory overhead 1,000 20 6.70 1,340 $ 42,355
Started and completed this
period 1,800 100 25.70 46,260
Total cost transferred to
Finished Goods
$ 88,615
Work in process,
ending inventory:
Cost from preceding
department 1,200 100% $ 9.75 11,700
Materials 1,200 50 5.35 3,210
Labor 1,200 40 3.90 1,872
Factory overhead 1,200 40 6.70 3,216 19,998
Total cost accounted for
$ 108,613
* Number of equivalent units of cost added during the current period determined as follows:
Prior
Dept. Cost Materials Labor Overhead
To complete beginning inventory 0 100 200 200
Started and completed this period 1,800 1,800 1,800 1,800
Ending inventory 1,200 600 480 480
Total equivalent units 3,000 2,500 2,480 2,480