I - Basic Cost Concepts
1.) The records of Bentler Shoppers, Inc. for December 2018 shows the following
information:
Sales
$2,050,000
Selling and administrative expenses
250,000
Direct materials purchases
205,000
Direct labor
298,000
Factory overhead
350,000
Direct materials, December 1
50,000
Work-in-process, December 1
85,000
Finished goods, December 1
64,000
Direct materials, December 31
41,000
Work-in-process, December 31
72,000
Finished goods, December 31
55,000
The net income for the month of December is:
a.$916,000.
b.$770,000.
c.$884,000.
d.$875,000
2.) Beginning work-in-process inventory is $188,000, ending work-in-process inventory is
$220,000, cost of goods manufactured is $850,000, and direct materials used are $162,000.
What are the conversion costs?
a.$980,000
b.$720,000
c.$656,000
d.$688,000
3.) The following information pertains to Steel Wheels, Inc:
Cost of goods manufactured
Beginning work-in-process inventory
$350,000
110,000
Ending work-in-process inventory
80,000
Manufacturing overhead
50,000
What are the prime costs for the year?
a.$480,000
b.$300,000
c.$270,000
d.$360,000
4) Inventory balances for Balmer Company in April 2018 are as follows:
April 1, 2018
April 30, 2018
$ 40,000
$ 35,000
67,500
59,800
150,000
120,000
Raw materials
Work in process
Finished goods
During April, purchases of direct materials were $58,000. Direct labor and factory overhead
costs were $82,000 and $110,000, respectively.
Prime costs for April were:
a.$140,000.
b.$152,700.
c.$88,000.
d.$145,000.
5) Inventory balances for Marshall, Inc., in June 2018 are as follows:
Raw materials
June 1, 2018
June 30, 2018
$1,125
$ 875
Work in process
2,000
1,550
Finished goods
4,500
3,750
During June, purchases of direct materials were $1,500. Direct labor and factory overhead
costs were $2,500 and $3,500, respectively.
Conversion costs for June were
a.$7,750.
b.$6,000.
c.$7,500.
d.$8,200.
Questions 6 to 8 Refers to Jameson Company
6) Inventory balances for the Jameson Company in October 2018 are as follows:
October 1,
2018
Raw materials
Work in process
Finished goods
October 31, 2018
$ 27,000
$21,000
48,000
37,200
108,000
90,000
During October, purchases of direct materials were $36,000. Direct labor and factory
overhead costs were $60,000 and $84,000, respectively.
What is the cost of materials used in production?
a.$42,000
b.$54,000
c.$47,800
d.$36,000
7) Inventory balances for the Jameson Company in October 2018 are as follows:
October 1,
2018
Raw materials
Work in process
Finished goods
October 31, 2018
$ 27,000
$21,000
48,000
37,200
108,000
90,000
During October, purchases of direct materials were $36,000. Direct labor and factory
overhead costs were $60,000 and $84,000, respectively.
What are the total manufacturing costs added to production in the period?
a.$180,000
b.$174,200
c.$144,000
d.$186,000
8) Inventory balances for the Jameson Company in October 2018 are as follows:
October 1,
2018
Raw materials
$ 27,000
$21,000
48,000
37,200
108,000
90,000
Work in process
Finished goods
October 31, 2018
During October, purchases of direct materials were $36,000. Direct labor and factory
overhead costs were $60,000 and $84,000, respectively.
What is the cost of goods manufactured?
a.$186,000
b.$196,800
c.$194,000
d.$180,000
9) The following information for the Sutton Glass Company has been provided:
Cost of goods manufactured
$100,000
Work in process:
Beginning
15,000
Ending
20,000
Direct labor
30,000
Direct materials used
Factory overhead
?
45,000
What is the amount of direct materials used?
a.$30,000
b.$100,000
c.$35,000
d.$25,000
10) Cost of goods sold equals cost of goods manufactured
a.when work-in-process inventories remain constant.
b.when materials inventories remain constant.
c.plus beginning work-in-process inventory minus ending work-in-process inventory.
d.when finished goods inventories remain constant.
11) Selected data concerning the past year's operations of the Motor City Corporation are
as follows:
Selling and administrative expenses
$225,000
Direct materials used
467,500
Direct labor (50,000 hours)
450,000
Factory overhead application rate
8 per DLH
Inventories
Beginning
Ending
Direct material
$75,000
$67,500
Work in process
112,500
135,000
60,000
37,500
Finished goods
The cost of direct materials purchased is
a.$460,000.
b.$445,000.
c.$437,500.
d.$467,500.
12) Inventory balances for Spiritlight Ventures for November 2018 are as follows:
November 1,
2018
November 30, 2018
$ 9,000
$ 7,000
Work in process
16,000
12,400
Finished goods
36,000
30,000
Materials
During November, purchases of direct materials were $18,000. Direct labor and factory
overhead costs were $20,000 and $28,000, respectively.
The cost of goods manufactured in November was
a.$77,600.
b.$71,600.
c.$74,000.
d.$68,000.
Problem 13 & 14 pertains to Lauren Enterprises:
13) The following is the data for Lauren Enterprises:
Selling and administrative
expenses
$75,000
Direct materials used
265,000
Direct labor (25,000 hours)
300,000
Factory overhead application rate
$16 per DLH
Inventories
Beginning
Ending
Direct materials
$50,000
$45,000
Work in process
75,000
90,000
Finished goods
40,000
25,000
What is the cost of goods manufactured?
a.$965,000
b.$950,000
c.$955,000
d.$1,115,000
The following is the data for Lauren Enterprises:
Selling and administrative
expenses
$75,000
Direct materials used
265,000
Direct labor (25,000 hours)
300,000
Factory overhead application rate
$16 per DLH
Inventories
Beginning
Ending
Direct materials
$50,000
$45,000
Work in process
75,000
90,000
Finished goods
40,000
25,000
What is the cost of goods sold?
a.$950,000
b.$980,000
c.$965,000
d.$565,000
15) The cost of units completed during a period is called
a.cost of goods manufactured.
b.finished goods inventory.
c.current manufacturing costs.
d.cost of goods sold.
16) The records for the previous year for Sarasota Boat Builders, Inc., shows the following
data:
Selling and administrative expenses
$300,000
Direct materials used
530,000
Direct labor (100,000 hours)
600,000
Factory overhead application rate
$5 per DLH
Inventories
Work in process
Finished goods
Beginning
Ending
$150,000
$160,000
80,000
50,000
The cost of goods sold is
a.$1,880,000.
b.$1,650,000.
c.$1,600,000.
d.$1,630,000.
17) The following information has been provided for Hopen Enterprises:
Cost of goods manufactured
$7,500
Work in process
Beginning
1,200
Ending
1,400
Direct labor
4,000
Materials placed in production
1,500
Factory overhead
What is the amount of factory overhead?
a.$2,200
?
b.$5,500
c.$1,400
d.$2,000
18) The following information is from the records of Stretch Limousines, Inc.:
Net direct materials purchase cost
$225,000
Total direct materials used
275,000
Beginning direct materials inventory
125,000
The ending direct materials inventory is
a.$75,000.
b.$100,000.
c.$50,000.
d.$175,000.
19) The Sumter Company recently had a fire in its accounting office, destroying most of its
records. Only the following information could be salvaged for 2018:
Direct labor
$400,000
Factory overhead
200,000
Cost of goods sold
800,000
Work in process, January 1
80,000
Finished goods, January 1
160,000
Work in process, December 31
100,000
Finished goods, December 31
120,000
The cost of direct materials used in production during 2018 is
a.$180,000.
b.$260,000.
c.$200,000.
d.$140,000.
20) Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:
Sales
Direct labor
$41,000
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
June 1, 2018
June 30, 2018
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
What was the cost of materials used in production?
a.$6,000
b.$19,500
c.$5,800
d.$6,200
PROBLEMS 21 to 24 REFERES TO CHROME PONIES ENTERPRISE
21) Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:
Sales
$41,000
Direct labor
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
June 1, 2018
June 30, 2018
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
Chrome Ponies Enterprises' cost of goods manufactured in June is
a.$29,700.
b.$29,000.
c.$29,200.
d.$29,300.
22) Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:
Sales
$41,000
Direct labor
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
June 1, 2018
June 30, 2018
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
What are the total manufacturing costs added?
a.$19,300
b.$29,300
c.$29,000
d.$18,500
23) Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:
Sales
$41,000
Direct labor
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
June 1, 2018
June 30, 2018
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
What is the gross margin (profit)?
a.$11,600
b.$4,600
c.$4,500
d.$11,500
24) Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:
Sales
$41,000
Direct labor
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
June 1, 2018
June 30, 2018
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
What is the cost of goods sold?
a.$28,600
b.$29,500
c.$29,400
d.$36,500
25) Morton Manufacturing shows cost of goods sold for the month of March was $90,000.
The finished goods inventory was $15,000 on March 1 and $17,500 on March 31. Beginning
and ending work-in-process inventories were $20,000 and $25,000, respectively. What was
the cost of goods manufactured during March?
a.$90,000
b.$97,500
c.$87,500
d.$92,500
26) Assume the following information for the Blue Knights Corporation for the year ended
December 31, 2018:
Sales
$2,250
Cost of goods manufactured for the
year
1,350
Beginning finished goods inventory
450
Ending finished goods inventory
495
Selling and administrative expenses
300
What is the cost of goods sold for the year ended December 31, 2018?
a.$1,605
b.$1,650
c.$1,350
d.$1,305
27) Rebel Yell, Inc., recorded the following data for April:
Beginning finished goods inventory
$60,000
Beginning work-in-process inventory
40,000
Ending work-in-process inventory
80,000
Ending finished goods inventory
50,000
Factory overhead costs
200,000
Direct materials used
160,000
Direct labor
100,000
What is the cost of goods manufactured for April?
a.$420,000
b.$430,000
c.$460,000
d.$470,000
28) The records of the Williamson Company show the following information:
Direct materials used
$90,000
Direct labor
130,000
Factory overhead
150,000
Beginning work-in-process inventory
15,000
Beginning finished goods inventory
20,000
Ending work-in-process inventory
42,000
Selling and administrative expenses
37,500
What was the cost of goods manufactured during the year?
a.$365,000
b.$355,000
c.$343,000
d.$370,000
29) Which of the following is NOT an example of a difference between the income
statement of a service organization and the income statement of a manufacturing
organization?
a.The service company will not have a finished goods inventory.
b.Research and development expenses are not usually a major component of a service
organization.
c.Fulfillment costs may be added to cost of goods sold of a service company.
d.A service company will never have work in process.
30) Which of the following items would NOT appear on an income statement of a service
organization?
a.cost of goods sold
b.gross margin
c.administrative expenses
d.selling expenses
31) Which of the following items is NEVER relevant to the cost flows of a service
organization?
a.finished goods inventory
b.work-in-process inventory
c.materials inventory
d.All of these choices are always relevant.
32) Assume the following data for Rodriguez Services, an accounting firm, for November:
Beginning materials inventory
$20,000
Beginning work-in-process inventory
40,000
Ending work-in-process inventory
50,000
Ending materials inventory
10,000
Actual overhead costs
Direct materials used
Direct labor
What is the cost of services sold for November?
a.$350,000
b.$330,000
c.$360,000
d.$370,000
100,000
60,000
200,000
33) A small engine repair shop purchased materials costing $9,000 in July. The beginning
inventory of material parts was $4,500 and the ending inventory of material parts was
$4,000. Payments for direct labor for July totaled $27,000, secretarial costs were $2,000,
and overhead of $5,000 was incurred. In addition, $5,000 was spent on advertising and
$2,000 for the franchise name. Revenue for July was $50,000.
What is the cost of services sold for July?
a.$43,500
b.$40,500
c.$50,500
d.$36,500
34) A small engine repair shop purchased materials costing $9,000 in July. The beginning
inventory of material parts was $4,500 and the ending inventory of material parts was
$4,000. Payments for direct labor for July totaled $27,000, secretarial costs were $2,000,
and overhead of $5,000 was incurred. In addition, $5,000 was spent on advertising and
$2,000 for the franchise name. Revenue for July was $50,000.
What is the gross margin for July?
a.$43,500
b.$13,500
c.$1,500
d.$41,500
II – Cost Behavior
1.) Fixed cost per unit is $7 when 25,000 units are produced and $5 when 35,000 units are produced.
What is the total fixed cost when nothing is produced?
a.$200,000
b.$175,000
c.$12
d.$130,000
2.) Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis,
which of the following costs would be represented by a line that is parallel to the horizontal axis?
a.a consultant paid $75 per hour with a maximum fee of $1,200
b.rent on exhibit space at a convention
c.employees who are paid $10 per hour and guaranteed a minimum weekly wage of $200
d.total direct material costs
3.) A manufacturing company pays an assembly line worker $12 per hour. What is the proper
classification of this labor cost?
a.semivariable cost
b.mixed cost
c.fixed cost
d.variable cost
4.) Direct material cost is $15,000 when 3,000 units are produced. What is the direct material cost
when 1,500 units produced?
a.$3,500
b.$7,500
c.$6,000
d.$3,000
5.) Sandusky Corporation has the following costs for 1,000 units:
Direct materials
Direct labor
Depreciation on building
Total Cost
Cost per Unit
$1,500
$1.50
7,500
7.50
30,000
30.00
What is the total cost of direct materials for 100 units?
a.$3.00
b.$225.00
c.$150.00
d.$1.50
6.) Which of the following statements is TRUE about fixed and variable costs?
a.Both costs are constant when considered on a total basis.
b.Fixed costs are constant in total and variable costs are constant per unit.
c.Both costs are constant when considered on a per-unit basis.
d.Variable costs are constant in total and fixed costs are constant per unit.
7.) Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis,
which of the following costs would be represented by a line that starts at the origin and reaches a
maximum value beyond which the line is parallel to the horizontal axis?
a.a consultant paid $100 per hour with a maximum fee of $2,000
b.rent on exhibit space at a convention
c.employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300
d.total direct material costs
8.) Longhorn Enterprises rents a truck for a flat fee plus an additional charge per mile. What type of
cost is the rent?
a.fixed cost
b.mixed cost
c.variable cost
d.step cost
9.) If production volume increases from 16,000 to 20,000 units,
a.total costs will increase by 25 percent.
b.mixed and variable costs will increase by 25 percent.
c.total variable costs will increase by 25 percent.
d.total costs will increase by 20 percent.
10.) Marlowe Company currently leases a delivery truck from Burton Enterprises for a fee of $250 per
month plus $0.40 per mile. Management is evaluating the desirability of switching to a modern, fuelefficient truck, which can be leased from Goliath, Inc., for a fee of $600 per month plus $0.05 per
mile. All operating costs and fuel are included in the rental fees. In general, a lease from
a.Burton Enterprises is economically preferable below 1,000 miles per month.
b.Burton Enterprises is economically preferable above 1,000 miles per month.
c.Burton Enterprises is economically preferable to a lease from Goliath, Inc., regardless of the
monthly use.
d.Goliath, Inc., is economically preferable to a lease from Burton Enterprises regardless of the
monthly use.
11.) An equipment lease that specifies a payment of $8,000 per month plus $7 per machine hour used
is an example of a
a.variable cost.
b.mixed cost.
c.step cost.
d.fixed cost.
12.) If at a given volume total costs and fixed costs are known, the variable costs per unit may be
computed as follows:
a.(Total costs/Unit volume) − Fixed costs
b.Total costs − (Fixed costs/Unit volume)
c.(Total costs × Unit volume) − (Fixed costs/Unit volume)
d.(Total costs − Fixed costs)/Unit volume
13.) Assume the following information:
Volume
Total Cost
100 units
$1,300
90 units
$1,500
106 units
$1,750
What is the variable cost per unit? (Round your answer to three decimal places.)
a.$28.125
b.$20.178
c.$13.175
d.$15.625
14.) The following cost functions were developed for manufacturing overhead costs:
Manufacturing Overhead Cost
Cost Function
Electricity
$200 + $20 per direct labor hour
Maintenance
$400 + $30 per direct labor hour
Supervisors' salaries
$20,000 per month
Indirect materials
$16 per direct labor hour
If January production is expected to be 2,000 units requiring 3,000 direct labor hours, estimated
manufacturing overhead costs would be
a.$198,000.
b.$218,600.
c.$152,600.
d.$20,733.
15.) The following information is available for electricity costs for the last six months of the year:
Month
Production Volume
Electricity Costs
February
1,000
$1,700
March
2,200
4,000
April
2,000
3,200
May
1,630
3,100
June
1,240
2,600
July
1,340
3,020
Using the high-low method, what is the estimated variable cost per unit of production? (Round your
answer to two decimal places.)
a.1.92
b.1.37
c.1.53
d.1.75
16.) The following information is available for electricity costs for the last six months of the year:
Month
Production Volume
Electricity Costs
January
1,400
$2,200
February
2,800
5,400
March
3,200
5,700
April
1,750
3,900
May
1,200
2,400
June
2,100
4,050
What are the fixed costs?
a.$420
b.$200
c.$100
d.None of these choices are correct.
17.) The following information was available about supplies cost for the second quarter of the year:
Month
Production Volume
July
August
September
Supplies Cost
700
$3,185
1,600
7,100
600
2,700
Using the high-low method, the estimate of supplies cost at 1,000 units of production is
a.$4,460.
b.$7,100.
c.$4,900.
d.$2,700.
18.) Stanfil Corporation developed a cost function for manufacturing overhead costs of Y = $8,000 +
$1.60X. Estimated manufacturing overhead costs at 10,000 units of production are
a.$17,600.
b.$26,000.
c.$24,000.
d.$16,000.
19.) Barron Enterprises has the following information about its truck fleet miles and operating costs:
Year
Miles
Operating Costs
2016
400,000
$256,000
2017
480,000
280,000
2018
560,000
320,000
What is the best estimate of total costs using the high-low method if the expected fleet mileage for
2018 is 500,000 miles?
a.$296,000
b.$320,000
c.$256,000
d.$288,000
20.) The Ladder Company wants to develop a cost estimating equation for its monthly cost of
electricity. It has the following data:
Month
February
May
August
Cost of Electricity
Direct Labor Hours
$ 8,100
750
9,000
850
10,200
1,000
November
8,700
800
Using the high-low method, which of the following is the best equation?
a.Y = $900 + $8.40X
b.Y = $2,400 + $8.40X
c.Y = $1,800 + $8.40X
d.Y = $900 + $12.00X
21.) The following information was taken from a computer printout generated with the least-squares
method for use in estimating overhead costs:
Slope
45
Intercept
5,700
Correlation coefficient
.72
Activity variable
Direct labor hours
The cost formula is
a.Overhead = $5,700 + $45X
b.Overhead = $5,700 × 0.72
c.Overhead = $5,700 + ($45 × 0.72)
d.Overhead = $5,700 − $45X
22.) Spokane Corporation found its maintenance cost and sales dollars to be somewhat correlated.
Last year's high and low observations were as follows:
Maintenance Cost
Sales
$46,000
$600,000
$52,000
$800,000
What is the fixed portion of the maintenance cost?
a.$52,000
b.$14,000
c.$60,000
d.$28,000
23.) Mixed Costs and Cost Formula
Callie's Gym is a complete fitness center. Owner Callie Ducain employs various fitness trainers who
are expected to staff the front desk and to teach fitness classes. While on the front desk, trainers
answer the phone, handle walk-ins and show them around the gym, answer member questions about
the weight machines, and do light cleaning (wiping down the equipment, vacuuming the floor). The
trainers also teach fitness classes (e.g., pilates, spinning, body pump) according to their own interest
and training level. The cost of the fitness trainers is $600 per month and $20 per class taught. Last
month, 100 classes were taught.
Required:
1. Develop a cost equation for total cost of labor.
2. What was total variable labor cost last month?
3. What was total labor cost last month?
4. What was the unit cost of labor (per class) for last month?
5. What if Callie increased the number of classes offered by 50 percent?
a. What would be the total labor cost?
b. The unit labor cost?
c. Explain why the unit labor cost decreased.
24.) Activity Availability, Capacity Used, Unused Capacity
Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each
agent is paid $28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800
purchase orders were processed by the five agents.
Required:
1. Calculate the activity rate per purchase order.
2. Calculate, in terms of purchase orders, the:
a.
Total activity availability
b.
Unused capacity
3. Calculate the dollar cost of:
a.
Total activity availability
b.
Unused capacity
4. Express total activity availability in terms of activity capacity used and unused capacity. Express
total activity availability in terms of activity capacity used and unused capacity.
In terms of Purchase orders:
Total Activity availability
-------
Activity capacity used
-------
Unused capacity
-------
In Dollars cost
Total Activity availability
-------
Activity capacity used
-------
Unused capacity
-------
5. What if one of the purchasing agents agreed to work half time for $14,000?
a. How many purchase orders could be processed by four and a half purchasing agents?
b. What would unused capacity be in purchase orders?