Test Bank for Cost Accounting 16th Edition Horngren, Datar, Rajan

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Test Bank for Cost Accounting 16th Edition Horngren, Datar, Rajan

Complete downloadable fle at: hps://TestBanksCae.eu/Test-Bank-or-Cost-Accounting-!th-"dition-#orngren$%atar$-&a'an 2.1 Objective 2.1 1) Which of the following would be considered considered an actual cost of a current period? A) The $2 of !aterials in a !anufactured chair that is read" to be shipped to the custo!er #) The $22 of direct !aterial cost per unit assu!ed in the t he actual budget of a !anufacturer of chairs ) The e%pected cost of !aterials for a chair as a result of engineering speci&cations speci&cations ') The average of historical !aterial cost data for a chair !anufactured in several past accounting periods Answer( A 'i( 2 Objective( 1 AA*#( Anal"tical thin+ing

2) The collection of cost data in an organi,ed wa"- such as in various categories such as !aterials- laborand !anufacturing overhead- is called( A) cost application #) cost accu!ulation ) cost assign!ent ') cost reporting Answer( # 'i( 2 Objective( 1 AA*#( Anal"tical thin+ing

) #udgeted costs are ////////. A) the costs incurred this "ear #) the costs incurred last "ear ) planned or e%pected costs ') co!petitor0s costs Answer(  'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

) ost assign!ent ////////. A) includes future and arbitrar" costs #) associates accu!ulated costs with certain cost objects ) is the sa!e as cost accu!ulation ') is the dierence between budgeted and actual costs Answer( # 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

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) A cost s"ste! deter!ines the cost of a cost object b" ////////. A) accu!ulating and then assigning costs #) accu!ulating costs ) assigning and then accu!ulating costs ') assigning costs Answer( A 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

) A cost object is an"thing for which a cost !easure!ent is desired. Answer( T345 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

6) osts are accounted for in two basic stages( assign!ent followed b" accu!ulation. accu!ulation. Answer( 7A8*5 5%planation( osts are accounted for in two basic stages( accu!ulation accu!ulation followed b" assign!ent. assign!ent. 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

9) An actual cost is the cost incurred:a historical or past cost. Answer( T345 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

;) Accountants de&ne a cost as the a!ount of !one" spent on a resource. Answer( 7A8*5 5%planation( A cost is a resource sacri&ced or foregone and the re
1>) A cost is a resource sacri&ced or forgone to achieve a speci&c objective. Answer( T345 5%planation( A cost object could be an"thing !anage!ent wishes wishes to deter!ine the cost of- for e%a!ple- a depart!ent. 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing

11) anagers use assigned cost infor!ation to !a+e decisions and i!ple!ent the!. Answer( T345 'i( 1 Objective( 1 AA*#( Anal"tical thin+ing 2 Copyright © 2018 Pearson Education, Inc.


12) 8ucas anufacturing has three cost objects that it uses to accu!ulate costs for its !anufacturing plants. The" are( ost ost obje object ct @1( @1( ost ost obje objecct @2( @2( ost ost obje object ct @( @(

The The ph" ph"si sica call buil buildi ding ngss and and e
The following !anufacturing overhead cost categories are found in the accounting records( a. 'eprec 'epreciat iation ion o on n build building ingss and e
2.2 Objective 2.2 1) Which of the following factors aect the directBindirect classi&cation of a cost? A) the level of budgeted pro&t for the ne%t "ear #) the esti!ation of ti!e re
2) All of the following are factors aecting direct versus indirect cost classi&cation e%cept( A) !aterialit" of the cost #) cost accurac" ) infor!ation technolog"0s abilit" to trace costs in an econo!icall" feasible wa" ') design of operations Answer( # 'i( 2 Objective( 1 AA*#( Anal"tical thin+ing 3 Copyright © 2018 Pearson Education, Inc.


) When costs can be traced to a particular cost object in an econo!icall" feasible wa"- the cost is a( A) direct cost #) indirect cost ) allocated cost ') budgeted cost Answer( A 'i( 2 Objective( 1 AA*#( Anal"tical thin+ing

) Which of the following state!ents about the directBindirect cost classi&cation is true? A) Endirect costs are alwa"s traced. #) Endirect costs are alwa"s allocated. ) The design of sales target aects the directBindirect classi&cation. ') The directBindirect classi&cation depends on the cost control !easures. Answer( # 'i( 1 Objective( 2 AA*#( Anal"tical thin+ing

) ost tracing is ////////. A) the assign!ent of direct costs to the chosen cost object #) a function of cost allocation ) the process of trac+ing both direct and indirect costs associated with a cost object ') the process of deter!ining the actual cost of the cost object Answer( A 'i( 1 Objective( 2 AA*#( Anal"tical thin+ing

) ost allocation is ////////. A) the process of trac+ing both direct and indirect costs associated with a cost object #) the process of deter!ining the opportunit" cost of a cost object chosen ) the assign!ent of indirect costs to the chosen cost object ') !ade based on !aterial ac
6) The deter!ination of a cost as either direct or indirect depends upon the ////////. A) accounting standards #) ta% s"ste! chosen ) inventor" valuation ') cost object chosen Answer( ' 'i( 1 Objective( 2 AA*#( Anal"tical thin+ing



9) lassif"ing a cost as either direct or indirect depends upon ////////. A) the behavior of the cost in response to volu!e changes #) whether the cost is e%pensed in the period in which it is incurred ) whether the cost can be traced to a particular cost object in an econo!icall" feasible wa" ') whether a cost is &%ed or variable Answer(  'i( 1 Objective( 2 AA*#( Anal"tical thin+ing

;) A !anufacturing plant produces two product lines( golf e
1>) A !anufacturing plant produces two product lines( golf e
11) Which one of the following ite!s is a direct cost? A) usto!erCservice costs of a !ultiproduct &r!G roduct A is the t he cost object. #) rinting costs incurred for pa"roll chec+ processingG pa"roll chec+ processing is the cost object. ) The salar" of a !aintenance supervisor in a !ultiproduct !anufacturing plantG roduct # is the cost object. ') 4tilit" costs of the ad!inistrative oDcesG the accounting depart!ent is the cost object. Answer( # 'i( 1 Objective( 2 AA*#( Application of +nowledge



12) Endirect !anufacturing costs ////////. A) can be traced to the product that created the costs #) can be easil" identi&ed with the cost object ) generall" include the cost of !aterial and the cost of labor ') !a" include both variable and &%ed costs Answer( ' 'i( 1 Objective( 2 AA*#( Application of +nowledge

1) Which of the following is true of indirect costs? A) Endirect costs are alwa"s considered sun+ costs. #) All indirect costs are included in cost of goods sold. ) Endirect costs alwa"s var" in direct proportion to the level of production. ') Endirect costs cannot be traced to a particular cost object in an econo!icall" feasible wa". Answer( ' 'i( 1 Objective( 2 AA*#( Application of +nowledge

1) Which of the following state!ents is true? A) A direct cost of one cost object will alwa"s be a direct cost of another cost object. #) #ecause of a costCbene&t tradeo- so!e direct costs !a" be t reated as indirect costs. ) All &%ed costs are indirect costs. ') All direct costs are variable costs. Answer( # 'i( 2 Objective( 2 AA*#( Anal"tical thin+ing

1) Which of the following state!ents is true of direct costs? A) A direct cost of one cost object is a true sense of the budgeted costs. #) All variable costs are direct costs. ) A direct cost of one cost object can be an indirect cost of another cost object. ') All &%ed costs are direct costs. Answer(  'i( 1 Objective( 2 AA*#( Application of +nowledge

1) A cost !a" be direct for one cost object and indirect for another cost object. Answer( T345 'i( 1 Objective( 2 AA*#( Application of +nowledge



16) Assigning indirect costs is easier than assigning direct costs. Answer( 7A8*5 5%planation( Tracing direct costs is
19) E!prove!ents in infor!ationCgathering technologies technologies are !a+ing it possible to trace !ore costs as direct. Answer( T345 'i( 1 Objective( 2 AA*#( Anal"tical thin+ing

1;) The s!aller the a!ount of a cost the !ore li+el" it is econo!icall" feasible to trace it to a particular cost object. Answer( 7A8*5 5%planation( The s!aller the a!ount of a cost the less li+el" it it is econo!icall" feasible to trace it it to a particular cost object. 'i( 1 Objective( 2 AA*#( Application of +nowledge

2>) A direct cost of one cost object cannot be an indirect cost of another cost object. Answer( 7A8*5 5%planation( A direct cost of one cost object can be an indirect cost of another cost cost object. 7or e%a!pledepart!ent A !ight perfor! so!e part of the processing of a product #. The costs incurred in depart!ent A would be direct costs of cost object depart!ent A but could be an indirect cost of cost object product #. 'i( 1 Objective( 2 AA*#( Anal"tical thin+ing

21) The cost of natural gas used to t o heat a production facilit" that !a+es three products FA-#- and ) would be classi&ed as an indirect cost when the cost object is one of the products Feither A- #- or ). Answer( T345 'i( 1 Objective( 2 AA*#( Application of +nowledge

22) The broader the cost object de&nition Fi.e.- plant versus product)- the !ore con&dent the !anager will be about the accurac" accurac" of the direct cost cost a!ounts. Answer( T345 'i( 2 Objective( 2 AA*#( Anal"tical thin+ing

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2) All costs incurred b" a co!pan" Fsacri&ce of a resource) are recorded in the accounting s"ste!. Answer( 7A8*5 5%planation( A co!pan" can incur incur a cost without it being being recorded in the accounting s"ste!. 5%a!ples include opportunit" costs and environ!ental costs. 'i( 2 Objective( 2 AA*#( Anal"tical thin+ing

2) Archa!beau roducts o!pan" !anufactures oDce furniture. 3ecentl"- the co!pan" decided to develop a for!al cost accounting s"ste! and classif" all costs into three categories. ategori,e each of the following ite!s as being appropriate for F1) cost tracing to the &nished furniture- F2) cost allocation of an indirect !anufacturing cost to the &nished furniture- or F) as a non!anufacturing ite!.

*tem

Cost Tracing

Cost Allocation

)onmanuacturing

arpenter wages 'epreciation C oDce building Hlue for asse!bl" 8athe depart!ent supervisor 8athe depreciation 8athe !aintenance 8athe operator wages 8u!ber *a!ples for trade shows etal brac+ets for drawers 7actor" washroo! supplies Answer( *tem

//////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //////// Cost Tracing

//////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //////// Cost Allocation

//////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //////// )onmanuacturing

arpenter wages 'epreciation C oDce building Hlue for asse!bl" 8athe depart!ent supervisor 8athe depreciation 8athe !aintenance 8athe operator wages 8u!ber *a!ples for trade shows etal brac+ets for drawers 7actor" washroo! supplies

I I I I I I I I I I I

'i( 2 Objective( 2 AA*#( Application of +nowledge



2) What are the factors that aect the classi&cation of a cost as direct or indirect? Answer( *everal factors aect whether whether a cost is classi&ed as direct or indirect( The materialit+ o the cost in (uestion. (uestion. The s!aller the a!ount of a cost:that is- the !ore i!!aterial the cost is:the less li+el" it is econo!icall" feasible to trace it to a particular cost object. A,ailable inormation-gathering technolog+. technolog+. E!prove!ents in infor!ationCgathering technolog" !a+e it possible to consider !ore and !ore costs as direct costs. %esign o operations. operations. lassif"ing a cost as direct is easier if a co!pan"0s facilit" For so!e part of it) is used e%clusivel" e%clusivel" for a speci&c cost object- such as a speci&c product or a particular custo!er. 'i(  Objective( 2 AA*#( Anal"tical thin+ing

2) What are the dierences between direct costs and indirect costs? Hive an e%a!ple of each. Answer( 'irect costs are costs that can be traced easil" to the product !anufactured !anufactured or the service rendered. 5%a!ples of direct costs include direct !aterials and direct !anufacturing labor used in a product. Endirect costs cannot be easil" identi&ed with individual products or services rendered- and are usuall" assigned using allocation for!ulas. En a plant that !anufactures !ultiple products- e%a!ples of indirect costs include the plant supervisor0s salar" and the cost of !achines used to produce !ore than one t"pe of product. 'i( 2 Objective( 2 AA*#( Anal"tical thin+ing

2. Objective 2. 1) Which of the following is true if the volu!e of sales increases Fwithin a relevant range)? A) total &%ed cost increases #) total variable cost decreases ) total variable cost increases ') total &%ed cost decreases Answer(  'i( 1 Objective(  AA*#( Application of +nowledge

2) Which of the following is a &%ed cost with respect to units produced in a factor"? A) !onthl" rent pa"!ent for the building #) electricit" e%penses ) utilities cost of the building ') direct !aterial costs Answer( A 'i( 1 Objective(  AA*#( Application of +nowledge

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) ost behavior refers to ////////. A) how costs react to a change in the level of activit" #) whether a cost is incurred in a !anufacturing- !erchandising- or service co!pan" ) classif"ing costs as either perpetual or period costs ') whether a particular e%pense is e%pensed in the sa!e or the following period Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) Which of the following is true if the production volu!e decreases? A) &%ed cost per unit increases #) average cost per unit decreases ) variable cost per unit increases ') variable cost per unit decreases Answer( A 'i( 1 Objective(  AA*#( Application of +nowledge

) At At a plant where a union agree!ent sets annual salaries and conditions- annual labor costs usuall" ////////. A) are considered a variable cost #) are considered a &%ed cost ) depend on the scheduling of Joor wor+ers ') depend on the scheduling of production runs Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) Kariable costs ////////. A) are alwa"s indirect costs #) increase in total when the actual level of activit" increases ) include !ost personnel costs and depreciation on !achiner" ') are never considered a part of pri!e cost Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing



6) 3all" *"nthesis Enc. !anufactures and sells 1>> boLles per da". 7i%ed costs are $22->>> and the variable costs for !anufacturing 1>> boLles are $>->>>. 5ach boLle is sold for $1-2>>. Mow would the dail" pro&t be aected if the dail" volu!e of sales drop b" 1>N? A) pro&ts are reduced b" $;->>> #) pro&ts are reduced b" $->>> ) pro&ts are reduced b" $12->>> ') pro&ts are reduced b" $;->>> Answer( A 5%planation( Kariable cost per unit  $>->>> B 1>>  $>> ro&t for 1>> boLles  F$1-2>> P 1>>) C F$22->>> Q $>->>> )  9->>> *ales after 1>N drop  1>> P F1 C >.1)  ;> ro&t for ;> boLles  F$1-2>> P ;>) C F$22->>> Q F;> P >>)) $;->>> hange in pro&t  $9->>> C $;->>>  $;->>>. Mence- the pro&t has decreased b" $;->>>. 'i(  Objective(  AA*#( Application of +nowledge

9) 7i%ed costs depend on the ////////. A) a!ount of resources used #) a!ount of unchanged costs for a given ti!e period ) volu!e of production ') total nu!ber of units sold Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

;) Which one of the following is a variable cost for an insurance co!pan"? A) rent of the building #) 5O0s salar" ) electricit" e%penses ') propert" ta%es Answer(  'i( 1 Objective(  AA*#( Application of +nowledge

1>) Which of the following is a &%ed cost for an auto!obile !anufacturing plant? A) ad!inistrative salaries #) electricit" used b" asse!bl"Cline !achines ) sales co!!issions ') tires Answer( A 'i( 1 Objective(  AA*#( Application of +nowledge



11) Ef each !otorc"cle re and 2->>> !otorc"cles are produced for the !onth- the total cost for belts is ////////. A) considered to be a direct &%ed cost #) considered to be a direct variable cost ) considered to be an indirect &%ed cost ') considered to be an indirect variable cost Answer( # 'i( 1 Objective(  AA*#( Application of +nowledge

12) The !ost li+el" cost driver of distribution costs is the ////////. A) nu!ber of parts within the product #) nu!ber of !iles driven ) nu!ber of products !anufactured ') nu!ber of production hours Answer( # 'i( 1 Objective(  AA*#( Application of +nowledge

1) The !ost li+el" cost driver of direct labor costs is the ////////. A) nu!ber of !achine setups for the product #) nu!ber of !iles driven ) nu!ber of production hours ') nu!ber of !achine hours Answer(  'i( 1 Objective(  AA*#( Application of +nowledge

1) Which of the following state!ents is true? A) There is a causeCandCeect relationship between between the cost driver and the a!ount of cost. #) 7i%ed costs have cost drivers over the short run. ) Over the short run all costs have cost drivers. ') Kolu!e of production is a cost driver of distribution costs. Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing



1) A band of nor!al activit" or volu!e in which speci&c costCvolu!e relationships are !aintained is referred to as the ////////. A) average range #) costCallocation range ) cost driver range ') relevant range Answer( ' 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) Within the relevant range- if there is a change in the level of the cost driver- then ////////. A) total &%ed costs and total variable costs will change #) total &%ed costs and total variable costs will re!ain the sa!e ) total &%ed costs will re!ain the sa!e and total variable costs will change ') total &%ed costs will change and total variable costs will re!ain the sa!e Answer(  'i( 2 Objective(  AA*#( Anal"tical thin+ing

16) Outside the relevant range- variable costs- such as direct !aterial costs ////////. A) will decrease proportionatel" with changes in sales volu!es #) will re!ain the sa!e with changes in production volu!es ) will not change proportionatel" with changes in production volu!es ') will increase proportionatel" with changes in sales volu!es Answer(  'i( 2 Objective(  AA*#( Anal"tical thin+ing

19) Which of the following is a cost driver for a co!pan"0s hu!an resource costs? A) the nu!ber of e!plo"ees in the co!pan" #) the nu!ber of job applications processed ) the nu!ber of units sold ') the s


1;) uritan Apparels is a clothing retailer. 4nit costs associated with one of its products- roduct AM7 1>- are as follows( 'irect !aterials $11> 'irect !anufacturing labor ;> Kariable !anufacturing overhead  7i%ed !anufacturing overhead  *ales co!!issions F2N of sales) 1> Ad!inistrative salaries 29 Total $1 What are the direct variable !anufacturing !anufacturing costs per unit associated with roduct AM7 1>? A) $299 #) $2>> ) $2 ') $2 Answer(  5%planation( 'irect variable variable !anufacturing costs  $11> Q $;> Q $  $2 'i( 1 Objective(  AA*#( Application of +nowledge

2>) uritan Apparels Apparels is a clothing retailer. 4nit costs associated with one of its products- roduct '7 1>- are as follows( 'irect !aterials $12> 'irect !anufacturing labor > Kariable !anufacturing overhead 1 7i%ed !anufacturing overhead  *ales co!!issions F2N of sales)  Ad!inistrative salaries 2 Total $26 What are the indirect non!anufacturing variable costs per unit associated with roduct '71>? A) $ #) $2; ) $1> ') $21 Answer( A 5%planation( Endirect variable variable costs  *ales co!!issions co!!issions  $ 'i( 1 Objective(  AA*#( Application of +nowledge



21) The 5ast o!pan" !anufactures several dierent products. 4nit costs associated with roduct O3'1> are as follows( 'irect !aterials $;2 'irect !anufacturing labor 2 Kariable !anufacturing overhead 12 7i%ed !anufacturing overhead 2 *ales co!!issions F2N of sales) 2 Ad!inistrative salaries  Total $2>> What is the percentage of the total variable costs per unit associated with roduct O3'1> with respect to total cost? A) 91N #) 9N ) 9N ') 61N Answer( A 5%planation( $;2 Q $2 Q $12 Q $2  $12 R 2>>  91N 'i(  Objective(  AA*#( Application of +nowledge

22) The 5ast o!pan" !anufactures several dierent products. 4nit costs associated with roduct O3'1> are as follows( 'irect !aterials $ 'irect !anufacturing labor 9 Kariable !anufacturing overhead 11 7i%ed !anufacturing overhead 2 *ales co!!issions F2N of sales)  Ad!inistrative salaries 12 Total $11 What is the percentage of the total &%ed costs per unit associated with roduct O3'1> with respect to total cost? A) 6N #) 2N ) 1N ') 2N Answer( # 5%planation( $2 Q 12  $6B11  2N 'i(  Objective(  AA*#( Application of +nowledge



2) A &%ed cost is &%ed onl" in relation to a given wide range of total activit" or volu!e and onl" for a given ti!e span- usuall" a particular budget period. Answer( T345 'i( 2 Objective(  AA*#( Application of +nowledge

2) A cost driver is a variable- such as the level of activit" or volu!e that causall" aects costs over a given ti!e span. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2) 7i%ed cost per unit falls with an increase in production volu!e. Answer( T345 'i( 2 Objective(  AA*#( Anal"tical thin+ing

2) Kariable Kariable costs per unit var" with the level of production or sales volu!e. Answer( 7A8*5 5%planation( Kariable costs per unit are constant with the level of production or sales volu!e. 'i( 2 Objective(  AA*#( Anal"tical thin+ing

26) Wood used to !anufacture chairs is considered a direct variable cost when the cost object is the chair. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

29) ost drivers casuall" aect total costs of a cost object over a given ti!e span. Answer( T345 5%planation( ost drivers are variables variables - such as the level of activit" activit" or volu!e- that casuall" aects aects costs over a given ti!e span. 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2;) A &%ed cost re!ains unchanged in total for a given ti!e period- despite wide changes in the related r elated level of total activit" or volu!e of output produced. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing



>) A lease for a store calls for a base !onthl" rent of $1->> up to $1>->>> of sales with a possible additional !onthl" cost of 2N of sales over $1>->>>. The rent is a &%ed cost for the !onth for a relevant range of ,ero to $1>->>> sales. Answer( T345 'i( 2 Objective(  AA*#( Application of +nowledge

1) #utler Mospital wants to esti!ate the cost for each patient sta". Et is a general health care facilit" oering onl" basic services and not speciali,ed services such as organ transplants. &e(uired: a. lassif" lassif" each each of the following following costs costs as either direct direct or indirect indirect with with respect respect to each patient. patient. b. lassif" each of the following costs as either either &%ed or variable variable with respect respect to hospital costs per per da". %irect

*ndirect

ied

ariable

5lectronic !onitoring eals for patients Surses0 sa salaries ar+ing !aintenance *ecurit" Answer(

//////// //////// //////// //////// //////// %irect

//////// //////// //////// //////// //////// *ndirect

//////// //////// //////// //////// //////// ied

//////// //////// //////// //////// //////// ariable

5lectronic !onitoring eals for patients Surses0 salaries ar+ing !aintenance *ecurit"

I I

I I I I I

I I I

'i(  Objective( 2-  AA*#( Application of +nowledge

1 Copyright © 2018 Pearson Education, Inc.


2) The list of representative cost drivers in the right colu!n below are rando!i,ed with respect to the list of functions in the left colu!n. That is- the" do not !atch.

1. 2. . . . .

7unction urchasing #illing *hipping o!puter *upport ersonnel usto!er *ervice

A. #. . '. 5. 7.

3epresentative ost 'river Su!ber of e!plo"ees Su!ber of ship!ents Su!ber of custo!ers Su!ber of invoices Su!ber of des+top co!puters Su!ber of purchase orders

&e(uired: atch each business function with its representative cost driver. unction 1. urchasing 2. #illing . *hipping . o!p o!pu uter ter *up *upport ort . ersonnel . ust usto! o!er er *e *ervi rvice Answer( unction 1. urchasing 2. #illing . *hipping . o!puter *upport . ersonnel . usto!er *ervice

*nsert leer o appropriate dri,er 0A through 1

*nsert leer o appropriate dri,er 0A through 1 7 ' # 5 A 

'i(  Objective(  AA*#( Application of +nowledge

) 'escribe both variable and &%ed costs. 5%plain wh" the distinction between variable and &%ed costs is i!portant in cost accounting. Answer( Total variable costs increase increase with increased production or sales volu!es. volu!es. 7i%ed costs are not inJuenced b" Juctuations in production or sales volu!es. Mowever- variable variable cost per unit re!ains the sa!e at all levels of production and &%ed cost per unit reduces with increase in production. Without the +nowledge of cost behaviors- budgets and other forecasting tools will be inaccurate and unreliable. 4nderstanding whether a cost behaves as a variable or a &%ed cost is essential to esti!ating and planning for business success. 'i(  Objective(  AA*#( Anal"tical thin+ing



2. Objective 2. 1) A unit cost is co!puted b" ////////. A) !ultipl"ing total cost b" the nu!ber of units produced #) dividing total cost b" the nu!ber of units produced ) dividing variable cost b" the nu!ber of units produced ') dividing &%ed cost b" the nu!ber of units produced Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2) En its &rst "ear of operation- the 5%cellent ublishing o!pan" sells 2->>> units and has 1-6>> units in stoc+ at "ear end. The cost of goods sold are $-1>>->>>. What are the total !anufacturing costs for the "ear if the average unit cost is $9.>? A) $-11-> #) $-1>>->>> ) $->9-> ') $1-> Answer( A 5%planation( $-1>>->>> Q F1-6>> % $9.>)  $-11-> $-11-> 'i( 2 Objective(  AA*#( Anal"tical thin+ing

) When 2->>> units are produced- &%ed costs are $21.>> per unit. Therefore- when 2>->>> units are produced- &%ed costs will ////////. A) increase to $2.2 per unit #) re!ain at $21.>> per unit ) decrease to $1.9> per unit ') total $2>->>> Answer( A 5%planation( 7i%ed costs are $2->>> F$21.>> P 2->>> units). units). 'ividing $2->>> b" 2>->>> units  $2.2. 'i(  Objective(  AA*#( Application of +nowledge

) When 2->>> units are produced- variable costs are $12.>> per unit. Therefore- when 19->>> units are produced ////////. A) variable costs will re!ain at $12.>> per unit #) variable costs will total $299->>> ) variable unit costs will increase to $1.>> per unit ') variable unit costs will decrease to $;.>> per unit Answer( A 'i( 2 Objective(  AA*#( Application of +nowledge

1! Copyright © 2018 Pearson Education, Inc.


) Wonderful roducts anufacturing orp. provided the following infor!ation for last !onth( *ales Kariable costs 7i%ed costs Operating inco!e

$->>> 1->>> 11->>> $19->>>

Ef sales reduce to half of the a!ount in the ne%t !onth- what is the projected operating inco!e? A) $2->>> #) $;->>> ) $19->>> ') $->> Answer( ' 5%planation( rojected operating inco!e  F$->>> F$->>> B 2)  F$1->>> B 2)  $11->>>  $->> 'i(  Objective(  AA*#( Application of +nowledge

) 3apid abinet a+ers Enc. provided the following infor!ation for last !onth( *ales Kariable costs 7i%ed costs Operating inco!e

$2->>> 1>->>> ->>> $12->>>

Ef sales reduce to half the a!ount in the ne%t !onth- what is the projected operating inco!e? A) $1->>> #) $->>> ) $->> ') $19->> Answer(  5%planation( rojected operating inco!e  F$2->>> F$2->>> P >.)  F$1>->>> P >.)  $->>>  $->> 'i(  Objective(  AA*#( Application of +nowledge



6) *wansea anufacturing currentl" produces ->>> tires per !onth. The following per unit data for ->>> tires appl" for sales to regular custo!ers( 'irect !aterials 'irect !anufacturing labor Kariab riablle !an !anu ufactu acturi ring ng ov overhe rhead 7i%ed !a !anufacturing overhead Total !anufacturing costs

$9 1 1; 2> $;1

The plant has capacit" for ->>> tires and is considering e%panding production to ->>> tires. What is the total cost of producing ->>> tires? A) $->>> #) $->>> ) $2>;->>> ') $299->>> Answer( # 5%planation( Total cost of producing ->>> tires  UF$9Q $1 Q $1;) P ->>> unitsV unitsV Q F$2> P ->>> units)  $->>> 'i(  Objective(  AA*#( Application of +nowledge

9) Atlas Atlas anufacturing produces a uni->>> valves annuall". urrentl" Atlas Atlas produces >->>> valves and is thin+ing about increasing production to ->>> valves ne%t "ear. What is the !ost li+el" behavior of total !anufacturing costs and unit !anufacturing costs given this change? A) Total !anufacturing costs will increase and unit !anufacturing costs will sta" the sa!e. #) Total !anufacturing costs will increase and unit !anufacturing costs will decrease. ) Total !anufacturing costs will sta" the sa!e and unit !anufacturing costs will sta" the sa!e. ') Total !anufacturing costs will increase and unit !anufacturing costs will also increase. Answer( # 'i( 2 Objective(  AA*#( Application of +nowledge



;) 3ide, anufacturing currentl" produces ->>> bic"cles per !onth. The following per unit data appl" for sales to regular custo!ers( 'irect !aterials 'irect !anufacturing labor Karia ariabl blee !a !anu nufa fact ctur urin ing g over overhe head ad 7i%ed !anufacturing overhead Total !anufacturing costs

$ 1> 12 1 $9;

The plant has capacit" for ->>> bic"cles and is considering e%panding production to ->>> bic"cles. What is the per unit cost of producing ->>> bic"cles? A) $;1.9> per unit #) $111.2 per unit ) $;.9> per unit ') $9.2> per unit Answer( ' 5%planation( ost of producing ->>> bic"cles bic"cles  UF$ Q $1> Q $12 ) P ->>> unitsV Q F$1 P ->>> units)  6->>> R ->>> units  $9.2> 'i(  Objective(  AA*#( Application of +nowledge

1>) #uild, anufacturing currentl" produces 2->>> tables per !onth. The following per unit data for 2->>> tables appl" for sales to regular custo!ers( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing !anufact uring overhead 7i%ed !anufacturing overhead Total !anufacturing costs

$6 2> 2> > $1

The plant has capacit" for ->>> tables and is considering e%panding production to ->>> tables. What is the total cost of producing ->>> tables? A) $>->>> #) $>>->>> ) $;>->>> ') $2>->>> Answer( A 5%planation( UF$6 Q $2> Q $2>) P ->>> unitsV Q F$> P 2->>> units)  $>->>> $>->>> 'i(  Objective(  AA*#( Application of +nowledge



11) #uild, anufacturing currentl" produces 2->>> tables per !onth. The following per unit data for 2->>> tables appl" for sales to regular custo!ers( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing !anufact uring overhead 7i%ed !anufacturing overhead Total !anufacturing costs

$6 2> 2> > $1

What is the per unit cost when producing ->>> tables? A) $12.>> #) $1;.>> ) $1.>> ') $1.>> Answer(  5%planation( $>->>> B ->>> ->>>  $1.>> 'i( 2 Objective(  AA*#( Application of +nowledge

12) ederson o!pan" reported the following( anufacturing costs 4nits !anufactured 4nits sold #eginning #eginning inventor" inventor"

$9>->>> 9->>> 6->> units sold for $;> per unit 2->>> units

What is the average !anufacturing cost per unit? F3ound the answer to the nearest dollar.) A) $9.>> #) $9>.>> ) $>.>> ') $.>> Answer(  5%planation( $9>->>> B 9->>> 9->>>  $>.>> 'i( 2 Objective(  AA*#( Application of +nowledge



1) ederson o!pan" reported the following( anufacturing costs 4nits !anufactured 4nits 4nits sold sold #eginn #eginning ing invent inventor" or"

$>->>> ;->>> 6->> 6->> units units sold sold for $;> per unit unit 1->>> 1->>> units units

What is the !anufacturing cost for the ending &nished goods inventor"? A) $1>>->>> #) $>->>> ) $6->>> ') $->>> Answer( A 5%planation( F1->>> Q ;->>> C 6->> ) P >  $1>>->>> $1>>->>> 'i(  Objective(  AA*#( Application of +nowledge

1) ederson o!pan" reported the following( anufacturing costs 4nits !anufactured 4nits 4nits sold sold #eginn #eginning ing invent inventor" or"

$196->>> 16->>> 9->> 9->> units units sold sold for $> per unit unit ->> ->> units units

What is the average !anufacturing cost per unit? A) $11.2> #) $11.>> ) $22.>> ') $22.> Answer( # 5%planation( $196->>> B 16->>> 16->>>  $11.>> 'i( 2 Objective(  AA*#( Application of +nowledge



1) ederson o!pan" reported the following( anufacturing costs 4nits !anufactured 4nits 4nits sold sold #eginn #eginning ing invent inventor" or"

$196->>> 16->>> 9->> 9->> units units sold sold for $2> per unit unit ->> ->> units units

What is the !anufacturing cost for the ending &nished goods inventor"? A) $29->>> #) $6->> ) $;->> ') $1>-;>> Answer( ' 5%planation( 5nding &nished inventor" inventor"  ->> Q F16->>> C 9->>) P $11  $1>-;>> 'i(  Objective(  AA*#( Application of +nowledge

1) When !a+ing decisions for product !i% and pricing- the focus should be on total costs and not unit costs. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

16) Although unit costs are regularl" used in &nancial reports and for !a+ing product !i% and pricing decisions- !anagers should thin+ in ter!s of total costs rather than unit costs for !a+ing decisions. Answer( T345 'i( 2 Objective(  AA*#( Anal"tical thin+ing

19) A unit cost is co!puted b" dividing total cost b" the nu!ber of units. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1;) A unit cost is also called an average cost. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing



2>) 4niversal Wor+s Enc.- reports the following infor!ation for *epte!ber sales( *ales $;>->>> Kariable costs 1->>> 7i%ed costs 1->>> Operating inco!e $ >->>> ro!otional e%penses for *epte!ber were $1->>>. &e(uired: Ef sales double in October- what is the i!pact on the variable costs? Answer( The variable costs also double up to $1->>> P 2  $29->>>. ro!otional e%penses are variable costs and are alread" included in $1->>>. 'i( 2 Objective(  AA*#( Anal"tical thin+ing

21) 'enver it" anufacturing currentl" produces 2->>> glasses per !onth. The following per unit data appl" for sales to regular custo!ers and is based on 1->>> units produced. 'irect !aterials $2>> 'irect !anufacturing labor > Kariab riablle !an !anu ufactu acturi ring ng ov overhe rhead 6> 7i%ed !a !anufacturing overhead > Total !anufacturing costs $> The plant has capacit" for ->>> glasses. lant supervisor0s salar" is $1->>>. &e(uired: a. What What is the the total total cost cost of of produ producin cing g 2->>> 2->>> glass glasses? es? b. What is the total cost of producing 1->> glasses? glasses? c. What Wh at is the the per per uni unitt cos costt wh when en prod produc ucin ing g 1- 1->> >> glas glasse ses? s? Answer( a. UF$2>> UF$2>> Q $> Q $6>) P 2->>> 2->>> unitsV unitsV Q F$> F$> P 1->>> 1->>> units) units)  $6> $6>->>> ->>> lant supervisor0s salar" is alread" included in &%ed !anufacturing overhead hence not added. b. UF$2>> Q $> Q $6>) P 1->> unitsV Q $>->>> $>->>>  $->>> c. $->>>B 1->>  $1.2 per un unit 'i( 2 Objective(  AA*#( Application of +nowledge



22) 'uring 2>19- Het There orporation incurred !anufacturing e%penses of $2>>->>> to produce >->>> &nished units. Et was deter!ined that ->>> units were sold b" the end of Sove!ber while ->>> units re!ained in ending inventor". The storage cost for 'ece!ber is $>. per unit. &e(uired: a. What What is the cost cost of produc producing ing one unit? unit? b. What is the a!ount that will be reported reported on the inco!e state!ent state!ent for cost of goods sold? c. What What is the the cost cost incurr incurred ed for for storing storing the the inve invento ntor"? r"? Answer( a. $2>> $2>>>>->> >>>> B >-> >->>> >>  $ $ b. ->>> units P $  $16->>> c. ->> ->>>> uni units ts P $>. $>.  $2$2-> >>> 'i( 2 Objective(  AA*#( Application of +nowledge

2. Objective 2. 1) ederson o!pan" reported the following( anufacturing costs 4nits !anufactured 4nits sold #eginning inventor"

$1-6>->>> >->>> ->>> units sold for $6> per unit > units

What is the a!ount of gross pro&t !argin? A) $1-6>->>> #) $-1>->>> ) $-62->>> ') $1-6->>> Answer( ' 5%planation( ->>> P F$6> C F$1-6>->>> B >->>>))  $1-6->>> 'i(  Objective(  AA*#( Application of +nowledge

2) //////// sector co!panies purchase !aterials and co!ponents and convert the! into &nished goods. A) erchandising #) *ervice ) anufacturing ') rofessional Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing



) erchandisingCsectors ////////. A) purchase and then sell tangible products without changing their basic for! #) provide intangible products ) purchase !aterials and co!ponents and convert the! into &nished goods ') purchase and then sell tangible products b" changing their basic for! Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) *erviceCsector co!panies ////////. A) do not produce tangible products but cost accounting is still utili,ed in service &r!s. #) do not !anufacture a product and therefore therefore do not appl" or adapt cost accounting to their operations. ) purchase and then sell tangible products b" changing their basic for! and therefore need cost accounting. ') purchase !erchandise then sell it without without changing its basic for! and therefor do not need cost accounting s"ste!s. Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) Wages Wages paid to !achine operators on an asse!bl" line are classi&ed as a ////////. A) direct !aterial cost #) direct !anufacturing labor cost ) !anufacturing overhead cost ') period cost Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) The following infor!ation pertains to Alleigh0s anne
$2-16>->>> 1->>> 29->> units sold for $;> per unit > units

What is the a!ount of gross !argin? A) $1-;;->>> #) $2-16>->>> ) $2-->>> ') $6>->>> Answer( ' 5%planation( 29->> P F$;> C F$2-16>->>> F$2-16>->>> B 1->>>))  $6>->>> 'i(  Objective(  AA*#( Anal"tical thin+ing 28 Copyright © 2018 Pearson Education, Inc.


6) Which of the following co!panies is part of the service sector of our econo!"? A) ac"0s #) H ) Apple Enc. ') A!a,on.co! Answer( # 'i( 1 Objective(  AA*#( Application of +nowledge

9) Which of the following co!panies is part of the !erchandising sector of our econo!"? A) Xaguar #) MewleL ac+ard ) Whole 7oods ar+et ') H Answer(  'i( 1 Objective(  AA*#( Application of +nowledge

;) Which of the following co!panies is part of the !anufacturing sector of our econo!"? A) Si+e Si+ e #) #arnes Y Soble ) orveLe 8aw 7ir! ') *ears- 3oebuc+- and o!pan" Answer( A 'i( 1 Objective(  AA*#( Application of +nowledge

1>) arrioL Enternational- would be classi&ed as aFn) ////////. A) !anufacturingCsector co!pan" #) !erchandisingCsector co!pan" ) serviceCsector co!pan" ') &nancial services &r! Answer(  'i( 1 Objective(  AA*#( Application of +nowledge

11) The balance sheet of a serviceCsector co!panies would show ////////. A) wor+CinCprocess inventor"- and &nished goods inventor" accounts #) onl" &nished goods inventor" ) direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts ') no inventor" accounts Answer( ' 'i( 1 Objective(  AA*#( Anal"tical thin+ing



12) The balance sheet of a !anufacturingCsector co!panies would report ////////. A) onl" !erchandise inventor" #) onl" &nished goods inventor" ) direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts ') direct !aterials inventor" and &nished goods inventor" accounts onl" Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) 7or a !anufacturing co!pan"- direct !aterial costs !a" be included in ////////. A) onl" the direct !aterials inventor" account #) onl" in the !erchandise inventor" account reJecting the inventor" on hand ) onl" in both wor+CinCprocess inventor" and &nished goods inventor" ') direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts Answer( ' 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) 7or a !anufacturing co!pan"- direct labor costs would be included in ////////. A) onl" the direct !aterials inventor" to reJect the cost of labor that has wor+ed using those !aterials #) onl" in the !erchandise inventor" to reJect the value added in the production process ) onl" in both wor+CinCprocess inventor" and &nished goods inventor" ') direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts Answer(  'i(  Objective(  AA*#( Anal"tical thin+ing

1) 7or a !anufacturing co!pan"- indirect !anufacturing costs would be included in ////////. A) direct !aterials inventor" onl" #) !erchandise inventor" onl" ) both wor+CinCprocess inventor" and &nished goods inventor" ') direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts Answer(  'i(  Objective(  AA*#( Anal"tical thin+ing

1) 7or a !anufacturingCsector co!pan"- the cost of factor" depreciation is classi&ed as a ////////. A) direct !aterial cost #) direct !anufacturing labor cost ) !anufacturing overhead cost ') period cost Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing



16) Which of the following cost is included in cost of goods sold? A) custo!er service cost #) !anufacturing labor cost ) distribution cost ') !ar+eting cost Answer( # 5%planation( This is a direct cost and is included in cost of goods sold along with direct !aterial and overhead costs Fin the case of a production facilit") 'i( 1 Objective(  AA*#( Application of +nowledge

19) anufacturing overhead costs in an auto!obile !anufacturing plant !ost li+el" include ////////. A) labor costs of the painting depart!ent #) indirect !aterial costs such as lubricants ) leather seat costs ') tire costs Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1;) anufacturing overhead costs are also referred to as ////////. A) indirect !anufacturing costs #) pri!e costs ) direct !anufacturing costs ') direct !aterial Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2>) The onl" t"pe of inventor" that ac"0s- a !ajor 4.*. depart!ent store chain would report on its balance sheet is( is( A) !erchandise inventor" #) &nished goods inventor" ) direct !aterials inventor"- wor+CinCprocess inventor"- and &nished goods inventor" accounts ') no inventor" accounts as ac"0s is a serviceCsector co!pan" Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing



21) 'irect !aterials inventor" costs would nor!all" include ////////. A) the cost of !aterials in in stoc+ are part of the cost object object Fproduct) and can be traced to that cost object object in an econo!icall" feasible wa" #) the cost of goods partiall" wor+ed on but not "et full" co!pleted ) the cost of goods full" co!pleted but not "et sold ') the cost of products in their original for! intended to be sold without changing their basic for! Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

22) Wor+CinCprocess inventor" would nor!all" include ////////. A) direct !aterials in stoc+ and awaiting use in the !anufacturing process #) goods partiall" wor+ed on but not "et full" co!pleted ) goods full" co!pleted but not "et sold ') goods returned after being sold to be reCwor+ed on further i!prove!ents and
2) 7inished goods inventor" would nor!all" include ////////. A) direct !aterials in stoc+ and awaiting use in the !anufacturing process #) goods partiall" wor+ed on but not "et full" co!pleted ) goods full" co!pleted but not "et sold ') goods returned after being sold to be reCwor+ed on further i!prove!ents and
2) Which of the following is a period cost? A) costs incurred to provide custo!er service such as the operation of a 9>> phone line to trouble shoot product proble!s and to answer


2) Which of the following is not an inventoriable cost of a !anufacturer? A) *ales co!!issions paid to sales representatives who sell the products !ade b" the !anufacturer #) Wages paid to asse!bl"Cline wor+ers ) lant depreciation incurred ') ropert" ta%es on plant Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2) Which of the following is a direct !anufacturing cost? A) plant !aintenance #) plant rent ) fringe bene&ts paid to !achine operators ') propert" ta%es on plant Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing

26) //////// are all !anufacturing costs that are related to the cost object but cannot be traced to that cost object in an econo!icall" feasible wa". A) Endirect !anufacturing costs #) ar+eting costs incurred ) Kariable !anufacturing costs ') usto! duties paid for the !aterials Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

29) Which of the following is not reported on the inco!e state!ent of a !anufacturing &r!? A) cost of o f goods sold #) ad!inistrative and selling e%penses ) wor+ in progress ') !ar+eting and distribution costs Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing

2;) The inco!e state!ent of a serviceCsector &r! reports ////////. A) period costs onl" #) cost of goods sold ) both period costs and cost of of goods sold ') direct labor costs Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing 33 Copyright © 2018 Pearson Education, Inc.


>) Which of the following is an inventoriable cost? A) !anufacturing overhead cost #) custo!er service costs ) distribution costs ') !ar+eting costs Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) Enventoriable costs ////////. A) include ad!inistrative and !ar+eting costs #) are e%pensed in the accounting period in which the products are sold ) are e%pensed in the accounting period in which the products are !anufactured ') are also referred to as non!anufacturing costs Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

2) Enventoriable costs are e%pensed on the inco!e state!ent ////////. A) when direct !aterials for the product are purchased #) when the direct !aterials are used in production. ) when the products are sold ') when the goods !ove fro! wor+Cin process to &nished goods account Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing

) osts that are initiall" recorded as assets and e%pensed when goods so ld are called ////////. A) period costs #) inventoriable costs ) irrelevant costs ') research and develop!ent costs Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) 7or !erchandising co!panies- inventoriable costs include ////////. A) selling e%penses #) shipping Finco!ing) costs to ac


) 7or !anufacturing &r!s- inventoriable inventoriable costs include ////////. A) plant supervisor salaries #) advertising costs to pro!ote the sale of &nished goods ) costs of dealing with custo!er
) A plant !anufactures several dierent products. Ef a particular product is the cost object- then the wages of the plant supervisor can be classi&ed as aFn) ////////. A) direct cost because it occurs in the production facilit" #) indirect !anufacturing cost and therefore is an inventoriable cost ) variable cost as it will var" on a per unit basis depending on volu!e ') period cost Answer( # 'i( 1 Objective(  AA*#( Application of +nowledge

6) 3Y' costs are treated as period costs because ////////. A) these costs !a" increase revenues in the current period #) these costs !a" increase revenues in the future period ) these costs !a" decrease revenues in the current period ') these costs are e%pensed when the goods are sold Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

9) 7or an auto!obile !anufacturer- period costs include the cost of ////////. A) the dashboard #) labor used for asse!bl" ) advertising ') asse!bl"Cline e
;) eriod costs ////////. A) include onl" &%ed costs #) seldo! inJuence &nancial success or failure ) include the cost of selling- deliveringdelivering- and afterCsales support for custo!ers ') should be treated as an indirect cost rather than as a direct !anufacturing cost Answer(  'i( 1 Objective(  AA*#( Application of +nowledge 35 Copyright © 2018 Pearson Education, Inc.


>) eriod costs ////////. A) are treated as e%penses in the period the" are incurred #) are directl" traceable to products ) are treated as e%penses in the following period the" are incurred ') are also referred to as !anufacturing overhead costs Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) Enventoriable Enventoriable costs are costs of a product product that are considered ////////. A) assets in a co!pan"0s balance sheet when the costs are incurred and that are e%pensed as cost of goods sold onl" when the product is sold #) liabilities in a co!pan"0s balance sheet when the costs are incurred and that are e%pensed onl" when the product is sold ) assets in a co!pan"0s inco!e state!ent when the costs ar e capitali,ed and that are e%pensed as cost of goods sold onl" when the product is sold ') liabilities in a co!pan"0s inco!e state!ent when the costs are capitali,ed and that are e%pensed onl" when the product is sold Answer( A 'i(  Objective(  AA*#( Anal"tical thin+ing

2) osts e%pensed on the inco!e state!ent in the accounting period incurred are called ////////. A) direct costs #) indirect costs ) period costs ') inventoriable costs Answer(  'i( 1 Objective(  AA*#( Anal"tical thin+ing

) En the cost classi&cation s"ste! used b" !anufacturing &r!s- asse!bl" wor+ers0 wages would be included in ////////. A) irrelevant cost #) direct !anufacturing costs ) indirect !anufacturing costs ') period cost Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing



) Total !anufacturing costs are co!prised of ////////. A) direct !aterials costs and period costs #) direct !aterials costs- direct !anufacturing labor costs- and !anufacturing overhead costs ) indirect !aterials costs- indirect !anufacturing labor costs- and !anufacturing overhead costs ') pri!e costs and period costs Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) uritan Apparels is a clothing !anufacturer. 4nit costs associated with one of its products- roduct 7H*11 are as follows( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing overhead 7i%ed !anufacturing overhead *ales co!!issions F2N of sales) Ad!inistrative salaries Total

$9> >  1 6 2> $22

What are the inventoriable costs per unit associated with roduct 7H*11? A) $1; #) $1 ) $169 ') $1 Answer( A 5%planation( $9> Q $> Q $ Q $1  $1; 'i( 2 Objective(  AA*#( Application of +nowledge



) a!pus Apparels Apparels is a clothing !a+er. 4nit costs associated with one o ne of its products- roduct 'T121are as follows( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing overhead 7i%ed !anufacturing overhead *ales co!!issions F2N of sales) Ad!inistrative salaries Total

$1> >  2 1 16 $26

What are the period costs per unit associated with roduct 'T121? A) $ #) $16 ) $> ') $1>> Answer(  5%planation( $1 Q 16  $> $> 'i( 2 Objective(  AA*#( Application of +nowledge

6) The A!erican West West o!pan" !anufactures several dierent products. 4nit costs associated with roduct O3'21> are as follows( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing overhead 7i%ed !anufacturing overhead *ales co!!issions F2N of sales) Ad!inistrative salaries Total

$;> 2 2> 1> 19 9 $2>>

What are the inventoriable costs per unit associated with roduct O3'21>? A) $1 #) $12 ) $1 ') $11 Answer(  5%planation( $;> Q $2 Q $2> Q $1>  $1 'i( 2 Objective(  AA*#( Application of +nowledge



9) The A!erican West West o!pan" !anufactures several dierent products. 4nit costs associated with roduct O3'21> are as follows( 'irect !aterials 'irect !anufacturing labor Kariable !anufacturing overhead 7i%ed !anufacturing overhead *ales co!!issions F2N of sales) Ad!inistrative salaries Total

$;> 2 2> 1> 19 9 $2>>

What are the period costs per unit associated with roduct O3'21>? A) $19 #) $9 ) $ ') $ Answer(  5%planation( $19 Q 9  $ $ 'i( 2 Objective(  AA*#( Application of +nowledge

;) 5%pert anufacturing reported the following( 3evenue #eginning inventor" of direct !aterials- Xanuar" 1- 2>1 urchases of direct !aterials 5nding inventor" of direct !aterials- 'ece!ber 1- 2>1 'irect !anufacturing labor Endirect !anufacturing costs #eginning inventor" of &nished goods- Xanuar" 1- 2>1 ost of goods !anufactured 5nding inventor" of &nished goods- 'ece!ber 1- 2>1 Operating costs

$>->>> 2->>> 11->>> 19->>> 26->>> >->>> ->>> 2->>> 9->>> 12->>>

Mow !uch of the above would be considered period costs for 5%pert anufacturing? A) $22;->>> #) $26;->>> ) $12->>> ') $29->>> Answer(  5%planation( $12->>> of operating operating costs are period period costs. 'i(  Objective(  AA*#( Application of +nowledge



>) #an+s provide services or what so!e !ight call =intangible products= to their custo!ers. Answer( T345 'i( 1 Objective(  AA*#( Application of +nowledge

1) 'epart!ent stores- such as ac"0s and hols- are e%a!ples of a !erchandising co!pan". Answer( T345 'i( 1 Objective(  AA*#( Application of +nowledge

2) erchandising co!panies purchase products and sell t he! to custo!ers without changing their basic for!. Answer( T345 'i( 1 Objective(  AA*#( Application of +nowledge

) anufacturing co!panies hold onl" one t"pe of inventor"( direct !aterial. Answer( 7A8*5 5%planation( anufacturing co!panies co!panies nor!all" hold three t"pes of inventor"( inventor"( aterials- WE- and 7inished Hoods. 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) anufacturing sector &r!s nor!all" hold three t"pes of inventor"( direct !aterials inventor"- wor+C inCprocess inventor"- and &nished goods inventor". Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) Wor+CinCprocess inventor" are goods partiall" wor+ed on but not "et co!pleted. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) 'irect !aterial costs are the ac


6) Ac
9) Endirect !anufacturing costs include the co!pensation of all !anufacturing labor that can be traced to the cost object in an econo!icall" feasible wa". Answer( 7A8*5 5%planation( 'irect !anufacturing labor costs include include the co!pensation of all !anufacturing !anufacturing labor that can be traced to the cost object. 'i( 2 Objective(  AA*#( Anal"tical thin+ing

;) 'irect !anufacturing cost labor includes plant rent and salaries paid to plant supervisors. Answer( 7A8*5 5%planation( lant rent and salaries salaries paid to plant supervisors are classi&ed classi&ed as indirect !anufacturing costs. 'i( 2 Objective(  AA*#( Application of +nowledge

>) Enventoriable costs are reported as a liabilit" on the balance sheet when incurred and e%pensed on the inco!e state!ent when the product is sold. Answer( 7A8*5 5%planation( Enventoriable costs costs are reported as an asset when incurred and e%pensed on the inco!e inco!e state!ent when the product is sold. 'i( 2 Objective(  AA*#( Application of +nowledge

1) All !anufacturing costs are period costs. Answer( 7A8*5 5%planation( anufacturing costs C !aterials- labor labor and !anufacturing overhead are initiall" initiall" part of inventor" cost and do not beco!e e%pensed until the product is sold Fcost of goods sold) 'i( 2 Objective(  AA*#( Anal"tical thin+ing

2) All costs reported on the inco!e state!ent of a serviceCsector co!pan" are inventoriable costs. Answer( 7A8*5 5%planation( Sone of the costs reported on the inco!e state!ent of a serviceCsector serviceCsector co!pan" are inventoriable costs. All costs shown on the inco!e state!ent for a service service business are period period costs. 'i( 1 Objective(  AA*#( Anal"tical thin+ing



) eriod costs are included in the cost of goods sold. Answer( 7A8*5 5%planation( eriod costs are e%pensed as incurred incurred and are not part of inventor" costs. Enventoriable costs beco!e e%pensed Fcost of goods sold) when goods are sold. 'i( 2 Objective(  AA*#( Anal"tical thin+ing

) Endirect !anufacturing costs are also referred to as !anufacturing overhead costs or factor" overhead costs. Answer( T345 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) Whippan" !anufacturing wants wants to esti!ate costs for each product the" produce at its Tro" plant. The Tro" plant produces three products at this plant- and runs two Je%ible asse!bl" lines. 5ach asse!bl" line can produce all three products. &e(uired: a. lassif" lassif" each each of the followi following ng costs as eithe eitherr direct direct or indirect indirect for each each product. product. b. lassif" each of the following costs as either either &%ed or variable variable with respect respect to the nu!ber of units produced of each product. %irect Asse!bl" line labor wages lant !anager0s wages 'epreciation on the asse!bl" line e
*ndirect

ied

ariable

//////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //////// //// ////// //// // //// ////// //// // /// /////// ////// /// /////// ////// //////// //////// //////// //////// %irect *ndirect ied ariable

Asse!bl" line labor wages I lant !anager0s wages 'epreciation on the asse!bl" line e
I I I

I I

I

'i( 2 Objective( 2- -  AA*#( Application of +nowledge


I I


) What are the three t"pes of !anufacturing cost? Answer( 'irect !aterials costs are the ac
6) 5%plain the dierence between an inventoriable cost and a period cost. What potential proble!s does an inaccurate classi&cation of product and period costs cause? Answer( Enventoriable costs are all costs of a product that are considered as assets in the balance sheet when the" are incurred and which beco!e cost of goods sold so ld onl" when the product is sold. eriod costs are treated as e%penses of the accounting period in which the" are incurred. Sote that the cost of goods sold includes all !anufacturing costs Fdirect !aterials- direct !anufacturing labor- and !anufacturing overhead costs) that are inventoriable costs incurred to produce the!. eriod costs are all costs in the inco!e state!ent other than cost of goods sold. An inaccurate classi&cation of inventoriable and period costs could lead to violations of the !atching principle- which states that costs used in producing revenue should be !atched on the inco!e state!ent when the revenue is recogni,ed. En e%tre!e cases- net inco!e for a given g iven period !ight be signi&cantl" !isstated. 'i( 2 Objective(  AA*#( Anal"tical thin+ing

2. Objective 2. 1) Which of the following for!ulas deter!ine cost of goods sold in a !erchandising entit"? A) #eginning inventor" Q urchases Q 5nding inventor"  ost of o f goods sold #) #eginning inventor" Q urchases C 5nding inventor"  osts of goods sold ) #eginning inventor" C urchases Q 5nding inventor"  ost of goods sold ') #eginning inventor" C 5nding inventor" C urchases  ost of goods sold Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing



2) Which of the following for!ulas deter!ine cost of goods sold in a !anufacturing entit"? A) #eginning wor+CinCprocess inventor" Q ost of goods !anufactured C 5nding wor+CinCprocess inventor"  ost of goods sold #) #eginning wor+CinCprocess inventor" Q ost of goods !anufactured Q 5nding wor+CinCprocess inventor"  ost of goods sold ) ost of goods !anufactured C #eginning &nished goods inventor" C 5nding &nished goods inventor"  ost of goods sold ') ost of goods !anufactured Q #eginning &nished goods inventor" C 5nding &nished goods inventor"  ost of goods sold Answer( ' 'i( 1 Objective(  AA*#( Anal"tical thin+ing

) A co!pan" reported revenues of $66->>>- cost of goods sold of $122->>>- selling e%penses of $12->>>and total operating costs of $62->>>. Hross !argin for the "ear is ////////. A) $2->>> #) $2->>> ) $161->>> ') $2;->>> Answer( A 5%planation( $66->>>  $122->>> $122->>>  $2->>> 'i( 2 Objective(  AA*#( Application of +nowledge

) All 3ite anufacturing reported the following( 3evenue #eginning inventor" of direct !aterials- Xanuar" 1- 2>1 urchases of direct !aterials 5nding inventor" of direct !aterials- 'ece!ber 1- 2>1 'irect !anufacturing labor Endirect !anufacturing costs #eginning inventor" of &nished goods- Xanuar" 1- 2>1 ost of goods !anufactured 5nding inventor" of &nished goods- 'ece!ber 1- 2>1 Operating costs What is 8eslie0s cost of goods sold? A) $;>->>> #) $2>->>> ) $2;->>> ') $9;->>> Answer( # 5%planation( $->>> Q $2;->>>  $->>>  $2>->>> 'i(  Objective(  AA*#( Application of +nowledge 44 Copyright © 2018 Pearson Education, Inc.

$>->>> 2->>> 1->>> 1->>> >->>> 1->>> ->>> 2;->>> ->>> 1>->>>


) All 3ite anufacturing reported the following( 3evenue #eginning inventor" of direct !aterials- Xanuar" 1- 2>1 urchases of direct !aterials 5nding inventor" of direct !aterials- 'ece!ber 1- 2>1 'irect !anufacturing labor Endirect !anufacturing costs #eginning inventor" of &nished goods- Xanuar" 1- 2>1 ost of goods !anufactured 5nding inventor" of &nished goods- 'ece!ber 1- 2>1 Operating costs

$>->>> >->>> 1->>> 19->>> 2->>> 2->>> 6->>> 2->>> 1->>> 16->>>

What is All 3ite0s gross !argin For gross pro&t)? A) $->>> #) $216->>> ) $211->>> ') $>->>> Answer(  5%planation( $>->>>  F$6->>> Q $2->>>  $1->>>)  $211->>> 'i(  Objective(  AA*#( Application of +nowledge

) ost of goods sold for a !anufacturer is calculated as follows( beginning beginning &nished goods Q cost of goods !anufacturered C ending &nished goods. Answer( T345 'i( 2 Objective(  AA*#( Anal"tical thin+ing

6) ost of goods sold refers to the products brought to co!pletion- whether the" were started before or during the current accounting period. Answer( 7A8*5 5%planation( ost of goods manufactured refers to the products brought products brought to co!pletion- whether the" were were started before or during the current accounting period. 'i( 2 Objective(  AA*#( Application of +nowledge



9) Worcester anufacturing produces electronic storage devices- and uses the following threeCpart classi&cation for its !anufacturing costs( direct !aterials- direct !anufacturing labor- and indirect !anufacturing costs. Total indirect !anufacturing costs for Xanuar" were $>> !illion- and were allocated to each product on the basis of direct !anufacturing labor costs o f each line. *u!!ar" data Fin !illions) for Xanuar" for the !ost popular electronic storage device- the #ig #rain- was(

'irect !anufacturing costs 'irect !a !anufacturin ring la labor cos costts Endirect !anufacturing costs 4nits produced

Big Brain $->>->>> $1-6>>->>> $-6>->>> >->>>

&e(uired: a. o!pute o!pute the !anufac !anufacturin turing g cost per unit unit for each each product product produce produced d in Xanuar". Xanuar". b. *uppose production will will be reduced reduced to >->>> units in 7ebruar". 7ebruar". *peculate *peculate as to whether the the unit costs in 7ebruar" will !ost li+el" be higher or lower than unit costs in Xanuar"G it is not necessar" to calculate the e%act 7ebruar" unit cost. #rieJ" #r ieJ" e%plain "our reasoning. Answer( a. 4nit 4nit cos costs ts for for Xanu Xanuar" ar" wer were( e( F$->>->>> Q $1-6>>->>> Q $-6>->>>) B >->>>  $26.2 per unit b. 4nit costs should be higher higher in 7ebruar" if onl" >->>> units are to be produced. Endirect Endirect !anufacturing costs !ost li+el" include both &%ed and variable co!ponents. *ince fewer units are e%pected to be produced in 7ebruar"- total &%ed costs will be spread over fewer units. This will result in an increase in total cost per unit since variable costs per unit will !ost li+el" not change with the decreased production. 'i( 2 Objective(  AA*#( Application of +nowledge



;) illwor+s o!pan" !anufactured 1>>->>> units in 2>19 and reported the following costs( *andpaper $ 2->>> aterials handling 2>->>> oolants Y lubricants 22->> Endirect !a !anufacturing la labor 26-2>> 'irec rect !a !anufactur turing la labor 2-16->>> 'irect !aterials- 1B1B19 9->>> 7inished goods- 1B1B19 62->>> 7inished goods- 12B1B19 1-29>->>> Wor+CinCprocess- 1B1B19 ;->>> Wor+CinCprocess- 12B1B19 ->>>

8easing costsCplant $ 9->>> 'epreciationCe>> ropert" ta%esCe>> 7ire in insuranceCe>> 'irec rect !aterial pu purch rchases -1>->>> 'irect !aterials- 12B1B19 29>->>> *ales revenue 12-9>>->>> *ales co!!issions >->>> *ales salaries 6->>> Advertising costs 9>->>> Ad!inistration costs 9>>->>>

&e(uired: a. What is the the a!ount a!ount of of direct direct !aterials !aterials used during during 2>19? 2>19? b. What !anufacturing costs were were added to WE during during 2>19? c. What What is cost cost of of goods goods !anu !anufac factur tured ed for for 2>19? 2>19? d. What What is cost cost of goods goods sold sold for 2>1 2>19? 9? Answer( a. $ $9-> 9->>> >> Q $-1 $-1>-> >->>> >> C $29>-> $29>->>> >>  $-2> $-2>9-> 9->>> >> b. $-2>9->>> Q $2-16->>> Q $2->>> Q $2>->>> Q $22->> Q $26-2>> Q $9->>> Q $22->>> Q $2->>> Q $1->>>  $-9;->> c. $--9 $--9;- ;->> >> Q $;$;->>> >>> C $$->>> >>>  $- $-2;2;->> >> d. $-2;->> $-2;->> Q $62->> $62->>>> C $1-29>->>> $1-29>->>>  $-;21$-;21->> >> 'i(  Objective(  AA*#( Application of +nowledge



1>) Moward anufacturing o!pan" had the following account balances for the
$ 1>->> 161->>> >->>> 1>->>> 2>->>> 9->>> 9>->>> 19->>> 29-9 9-9>> 12->>> 2->>> 12->> 1->>> ;2->> >->> >->>>

&e(uired: a. repare repare a cost cost of goods goods !anufa !anufacture ctured d schedule schedule for the the
#oward 2anuacturing Compan+ Cost o 3oods 2anuactured 4chedule or (uarter ending 2arch 5

'irect !aterials used 'irect !anufacturing labor anufacturing overhead 'epr 'eprec ecia iati tion on of !a !anu nufa fact ctur urin ing g e
$ 2>->>> 9>->>> $2 $2-> ->>> >> 19->>> 9->>> 1->>> ;2->> 29-9>>

6;>-2>> $1-;>-2>> 1>->> $1-9>->> F161->>>) $1-;->>



b.

#oward 2anuacturing Compan+ Cost o 3oods 4old 4chedule or the (uarter ending 2arch 5 #eginning &nished goods inventor" ost of goods !anufactured ost of goods available for sale 5nding &nished goods inventor" ost of goods sold

$ >->>> 1-;->> 2-1;;->> F1>->>>) $1-9;->>

'i(  Objective(  AA*#( Application of +nowledge

11) 4sing the following infor!ation &nd the un+nown a!ounts. Assu!e each set of infor!ation is an independent case. a.

erchandise Enventor"

urchases ost of goods sold #eginning balance 5nding balance

$21>->>> 22->>> 1->>> ?

b. 'irect aterials

#eginning balance balance 5nding balance urchases 'irect !aterials used

c.

5nding balance ost of goods !anufactured #eginning balance urrent !anufacturing costs

$ 22->>> 21->>> 9->>> ?

ost of goods !anufactured 5nding balance ost of goods sold #eginning balance Answ Answer er(( a. 5ndi 5nding ng bala balanc ncee of !erc !ercha hand ndis isee inve invent ntor or"( "( $1->>> Q $21>->>> C $22->>>  29->>>

$2->>> 2>->>> 1->>> ?

Wor+CinCprocess Enventor"

d. 7inished Hoods Enventor"

b. 'irect !aterials used( used( $6->>> Q $9->>> C $1->>>  $1->>> c.

urr urren entt !anu !anufa fact ctur urin ing g costs costs(( $21->>> Q $22->>> C $9->>>  $->>>

d. #eginning #eginning balance balance of &nished &nished goods inventor inventor"( "( $2>->>> Q $1->>> C $2->>>  $1;->>> 'i(  Objective(  AA*#( Anal"tical thin+ing 4! Copyright © 2018 Pearson Education, Inc.

$ 6->>> 1->>> 9->>> ?


12) 5ach of the following ite!s pertains pertains to one of these co!panies( #edell 5lectronics Fa !anufacturing !anufacturing co!pan")- Hregor" 7ood 3etailers Fa !erchandising co!pan")- and 8arson 3eal 5state Fa service sector co!pan"). lassif" each ite! as either either inventoriable FE) costs or period F) F) costs. inventoriable FE) costs or period F) costs a. *alar" *alar" of of #edel #edelll 5lect 5lectron ronics ics pres preside ident nt b. 'epreciation on #edell #edell 5lectronics asse!bl" asse!bl" e
a. *alar" of #edell 5lectronics president b. 'epreciation on #edell #edell 5lectronics asse!bl" asse!bl" e
inventoriable FE) costs or period F) costs  E E E E    

'i(  Objective(  AA*#( Anal"tical thin+ing



1) 7or last "ear- Watson 8i!ited reported revenues revenues of $2>->>>- cost of goods sold of $119->>>- cost of goods !anufactured of $1>->>>- and total operating costs of $>->>>. Operating inco!e for that "ear was ////////. A) $1->>> #) $>2->>> ) $2->>> ') $22->>> Answer( ' 5%planation( $2>->>> C $119->>> C $>->>>  $22->>> 'i( 2 Objective(  AA*#( Application of +nowledge

1) ri!e costs include ////////. A) direct !aterials and direct !anufacturing labor costs #) direct !anufacturing labor and !anufacturing overhead costs ) direct !aterials and !anufacturing overhead costs ') onl" direct !aterials Answer( A 'i( 1 Objective(  AA*#( Anal"tical thin+ing

1) 5%pert anufacturing reported the following( 3evenue #eginning inventor" of direct !aterials- Xanuar" 1- 2>1 urchases of direct !aterials 5nding inventor" of direct !aterials- 'ece!ber 1- 2>1 'irect !anufacturing labor Endirect !anufacturing costs #eginning inventor" of &nished goods- Xanuar" 1- 2>1 ost of goods !anufactured 5nding inventor" of &nished goods- 'ece!ber 1- 2>1 Operating costs

$>->>> >->>> 1-9>> 1->>> 2->>> 2->>> ->>> ;6-9>> 1->>> 19->>>

What is 5%pert0s operating inco!e? A) $->> #) $219-2>> ) $2>-2>> ') $2>>-2>> Answer( ' 5%planation( $>->>>  F$->>> Q $;6-9>>  $1->>>)  $19->>> $19->>>  $2>>-2>> 'i(  Objective(  AA*#( Application of +nowledge



1) onversion costs include ////////. A) direct !aterials and direct !anufacturing labor costs #) direct !anufacturing labor and !anufacturing overhead costs ) direct !aterials and !anufacturing overhead costs ') onl" direct !aterials Answer( # 'i( 1 Objective(  AA*#( Anal"tical thin+ing

16) Total !anufacturing costs e
19) The following infor!ation pertains to the 3ub" orp( #eginning wor+CinCprocess inventor" 5nding wor+CinCprocess inventor" #eginning &nished goods inventor" 5nding &nished goods inventor" ost of goods !anufactured

$6->>> 92->>> 162->>> 2>;->>> 1-2>2->>>

What is cost of goods sold? A) $1-21>->>> #) $1-1->>> ) $1-16->>> ') $1-2;->>> Answer( # 5%planation( ost of goods sold  $162->>> Q $1-2>2->>>  $2>;->>>  $1-1->>> 'i( 2 Objective(  AA*#( Application of +nowledge



1;) The following infor!ation pertains to 5%pert *"ste! orporation( #eginning wor+CinCprocess inventor" 5nding wor+CinCprocess inventor" #eginning &nished goods inventor" 5nding &nished goods inventor" ost of goods !anufactured *ales

$19->>> 2->>> ->>> 1->>> 21->>> >2->>>

What is the gross pro&t !argin earned b" the co!pan"? A) $->>> #) $->>> ) $9->>> ') $->>> Answer( A 5%planation( $->>> Q $21->>>  $1->>>  $2->>> *ales  $>2->>> ro&t  $>2->>> C 2->>>  $->>> 'i( 2 Objective(  AA*#( Application of +nowledge

2>) What is the cost of goods goo ds !anufactured for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $>->>> #) $;;->>> ) $>1->>> ') $11->>> Answer(  5%planation( $>->>> Q $6;->>>  $9->>>  $>1->>>

$9->>> 6;->>> >->>> >->>> ;9->>>

'i( 2 Objective(  AA*#( Application of +nowledge



21) What is the gross !argin for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $1->>> #) $->>> ) $1->>> ') $1;->>> Answer( ' 5%planation( $;->>>  $1>->>> $1>->>>  $1;->>>

$;1->>> 66->>> 1>->>> ;->>> 1>->>>


22) What is the operating inco!e for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $6->>> #) $;->>> ) $->>> ') $2->>> Answer( # 5%planation( $->>>  $>->>>  $1>1->>>  $;->>>

$;>->>> 66->>> >->>> ->>> 1>1->>>




2) What is the cost of goods goo ds !anufactured for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $29->>> #) $;->>> ) $26>->>> ') $2;->>> Answer( A 5%planation( $2;->>> Q $->>>  $6->>>  $29->>>

$6->>> ->>> 2;->>> 99->>> 11>->>>


2) What is gross !argin for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $212->>> #) $229->>> ) $2->>> ') $122->>> Answer( # 5%planation( $9->>>  $2->>> $2->>>  $229->>>

$->>> 6->>> 2->>> 9->>> 1>->>>




2) What is operating inco!e for 2>19? #eginning &nished good- 1B1B2>19 5nding &nished goods- 12B1B2>19 ost of goods sold *ales revenue Operating e%penses A) $1;;->>> #) $11>->>> ) $12->>> ') $1>->>> Answer(  5%planation( $9->>>  $21->>>  $1>;->>>  $12->>>

$>->>> ->>> 21->>> 9->>> 1>;->>>


2) A co!pan" reported revenues of $92->>>- cost of o f goods sold of $12->>>- selling e%penses of $1->>>and total operating costs of $6->>>. Hross !argin for the "ear is ////////. A) $26->>> #) $21->>> ) $16->>> ') $2;2->>> Answer( A 5%planation( $92->>>  $12->>> $12->>>  $26->>> 'i( 2 Objective(  AA*#( Application of +nowledge

26) Operating inco!e is sales revenue !inus operating e%penses. Answer( 7A8*5 5%planation( Operating inco!e  sales revenue revenue C cost of goods sold C operating e%penses 'i( 1 Objective(  AA*#( Anal"tical thin+ing

29) onversion costs include all direct !anufacturing costs and so!e of the period costs including research and develop!ent costs and custo!er service. Answer( 7A8*5 5%planation( onversion costs are production costs necessar" necessar" to convert !aterials to &nished goods which include direct labor and !anufacturing overhead Findirect production costs.) 'i( 1 Objective(  AA*#( Anal"tical thin+ing



2;) 'esigning- !ar+eting- custo!er services- research and develop!ent develop!ent e%penses are all e%a!ples of operating costs. Answer( T345 'i( 2 Objective(  AA*#( Application of +nowledge

>) *ince costs that are inventoried are not e%pensed until the units associated with the! are sold- a !anager can produce !ore units than are e%pected to be sold in a period without reducing a &r!0s net inco!e. Answer( T345 'i(  Objective(  AA*#( Anal"tical thin+ing

1) Endirect !anufacturing costs such as rent- factor" supervisor salar"- and depreciation on production e
2.6 Objective 2.6 1) Which of the following is a !anufacturing overhead cost? A) the use of direct !aterials in the !a+ing of a &nished good #) labor cost of plant wor+ers that can be traced accuratel" and easil" to a particular product ) cost of !aterials that can be traced to individual products in an econo!icall" feasible !anner ') overti!e pre!iu!s paid to plant wor+ers Answer( ' 'i( 1 Objective(  AA*#( Application of +nowledge



2) 4.*. *"ste!s Enc.- had the following activities during 2>19( 'irect !aterials( #eginning inventor" urchases 5nding inventor" 'irect !anufacturing labor anufacturing overhead #eginning wor+CinCprocess inventor" 5nding wor+CinCprocess inventor" #eginning &nished goods inventor" 5nding &nished goods inventor"

$ 2->>> 1->> 11->>> 19->>> 11->> 1->>> ->> 2->>> 1;->>>

&e(uired: a. What is the the cost cost of direct direct !aterial !aterialss used used during during 2>19? 2>19? b. What is cost of goods !anufactured !anufactured for 2>19? c. What What is is cost cost of of good goodss sold sold for 2>1 2>19? 9? d. What a!ount a!ount of pri!e pri!e costs was was added added to producti production on during during 2>19? 2>19? e. What a!ount a!ount of conversio conversion n costs was was added added to producti production on during during 2>19? 2>19? Answer( a. ost of direct direct !aterial !aterialss  $2->>> $2->>> Q $1->> $1->>  $11->> $11->>>>  $6->> $6->> b. ost of goods !anufactured  $6->> Q $19->>> Q $11->> $11->> Q $1->>>  $->> $->>  $1>1->> c. ost ost of goods goods sold sold  $1>1- $1>1->> >> Q $2-> $2->>> >>  $1;-> $1;->>> >>  $1>6$1>6->> >> d. A!ount A!ount of pri!e pri!e costs added to production production  $62-9>> $62-9>> Q $19->>> $19->>>  $;2->> $;2->> e. A!ount A!ount of conversio conversion n costs was was added added to producti production on  $19->>> $19->>> Q $11->> $11->>  $2;->> $2;->> 'i( 2 Objective( 6 AA*#( Application of +nowledge

) an" govern!ent agenc" contracts e%clude all but which of the following costs fro! rei!burse!ent under costCplus agree!ents? A) !ar+eting costs #) design costs ) production costs ') part of the research and develop!ent costs Answer( ' 'i( 1 Objective( 6 AA*#( Application of +nowledge



) On the asse!bl" Joor- Xennifer is paid a regular rate of $2 an hour for straightCti!e assu!ing 9 wor+ing hours a da" and &ve wor+ing da"s in a wee+. *he is paid 1. ti!es her regular rate for overti!e hours. One wee+ she wor+ed 9 hours. &e(uired: a. What is Xenni Xennifer0s fer0s total co!pensati co!pensation on for for the the wee+? wee+? b. What a!ount of co!pensation would be reported as direct !anufacturing !anufacturing labor? c. What a!ount a!ount of co!pensati co!pensation on would would be reporte reported d as !anufac !anufacturin turing g overhead? overhead? Answer( a. Total co!pensa co!pensation tion  'irect 'irect labor labor F> hours hours P $2) Q Overti! Overti!ee pre!iu! pre!iu! F9 hrs P $6.>) $6.>)  $1->> $1->> b. 'irect !anufacturing labor labor F9 hours P $2)  $1-2>> c. anufactu anufacturing ring overhe overhead ad costs  Overti!e Overti!e pre!iu! pre!iu! F9 hrs hrs P $12.>) $12.>)  $1>> $1>> 'i(  Objective( 6 AA*#( Application of +nowledge

) En the !anufacturing plant- Ale% is paid $> an hour for straightCti!e and $> an hour for overti!e. One wee+ she wor+ed  hours- which included 9 hours of overti!e- and  hours of idle ti!e caused b" !aterial shortages. &e(uired: a. What What is Ale%0 Ale%0ss total total co!pens co!pensati ation on for the the wee+? wee+? b. What a!ount of co!pensation would be reported as direct !anufacturing !anufacturing labor? c. What a!ount a!ount of co!pensati co!pensation on would would be reporte reported d as !anufac !anufacturin turing g overhead? overhead? Answer( a. Total co!pensa co!pensation tion F9 F9 hours P $>) $>) Q Edle ti!e ti!e F hrs P $>) $>) Q Overti!e Overti!e pre!iu pre!iu! ! F9 hrs P $2>)  $2-2> b. 'irect !anufacturing labor labor F9 hours P $>)  $1-;2> c. anuf anufact acturi uring ng overhe overhead ad costs costs  Edle Edle ti!e ti!e F hrs hrs P $> $>)) Q Overt Overti!e i!e pre!iu pre!iu! ! F9 hrs P $2>) $2>)  $>> $>> 'i(  Objective( 6 AA*#( Application of +nowledge



) 5%ceptional anufacturing o. wants to classif" costs for the product produced at its facilit". The co!pan" produces onl" one product at the facilit" facilit" and operates continuall". The cost categories are( roduct cost ri!e cost onversion cost eriod cost The following costs are found in the accounting records( a. b. c. d. e.

Zualit Zualit" " cont control rol inspec inspectio tion nw wage agess 3aw !aterial purchases purchases *ale ales co!! co!!iissi ssions ons 7act 7actor" or" depr deprec ecia iati tion on Asse Asse!b !bll" wage ages

&e(uired: Assign each of the above costs to the !ost appropriate cost categories. Answer( roduct cost includes aa- b- d- e. ri!e cost includes a- b- e. onversion cost includes a- d- e. eriod cost includes c. 'i(  Objective( 6 AA*#( Anal"tical thin+ing

6) Which of the following is included in product cost for pricing and productC!i% decisions? A) !ar+eting costs #) sun+ costs ) opportunit" costs ') cost of capital Answer( A 'i( 2 Objective( 6 AA*#( Application of +nowledge

9) 4nder HAA- onl" //////// can be assigned to inventories in the &nancial state!ents. A) !anufacturing costs #) period costs ) cost of goods sold ') historical costs Answer( A 'i( 2 Objective( 6 AA*#( Application of +nowledge

;) roduct costs for &nancial state!ents are( 60 Copyright © 2018 Pearson Education, Inc.


A) inventoriable costs for e%ternal reporting purposes #) e%change costs incurred during transportation ) onl" the costs incurred along the suppl" chain ') opportunit" costs incurred for the decisions forgone Answer( A 'i( 2 Objective( 6 AA*#( Anal"tical thin+ing

1>) 4nder HAA- for the purposes of calculating inventor" costs- product costs include ////////. A) all costs incurred along the value chain #) design costs ) onl" inventoriable costs ') onl" research and develop!ent develop!ent costs Answer(  'i( 2 Objective( 6 AA*#( Anal"tical thin+ing

11) roduct costs used for govern!ent contracts generall" include ////////. A) !ar+eting costs- and custo!er service costs #) design costs and production costs ) all the costs for pricing and productC!i% decisions ') production costs- distribution costs- !ar+eting costs- and custo!er service costs Answer( # 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

12) A co!!on classi&cation classi&cation of costs is b" business function. Which of the following classi&cations classi&cations is not b" business function? function? A) cost object #) research and develop!ent develop!ent ) distribution ') production Answer( A 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing



1) Which of the following !ight e%plain wh" one !anager !ight assign certain costs to a cost object while a dierent !anager !ight assign so!e dierent costs to that sa!e cost object? A) one !anager !ight classif" one cost as direct while another !ight classif" that sa!e cost as indirect #) 7or &nancial state!ent purposes- one !anager !ight include all the costs of the value chain while the other !ight onl" onl" include HAA cost ) one !anager !ight value an inventor" ite! for the balance sheet as the su! of all the value chain costs while another !anager !ight choose to onl" recogni,e variable costs as inventoribale costs for HAA purposes. ') one !anager !ight be pricing a cost object while the other !anager !ight be see+ing the inventoriable cost Answer( ' 'i( 2 Objective( 6 AA*#( Anal"tical thin+ing

1) 7or e%ternal reporting ////////. A) costs are classi&ed as either inventoriable or period costs #) costs reJect current values ) there are no prescribed rules since no one is e%actl" sure how investors and creditors will use these nu!bers ') costs include a!ounts that reJect both current and future bene&ts Answer( A 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

1) Which of the following following state!ents is true? A) roduct costs and design costs are interchangeable ter!s. #) Enventoriable costs are assigned to inventories under HAA. ) anufacturing costs are a special case of period costs. ') Entangible costs refer to a particular cost of a product. Answer( # 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

1) One possible ite! that so!e co!panies include as direct !anufacturing labor include ////////. A) fringe bene&ts #) overti!e ) idle ti!e ') plant supervisor0s salar" Answer( A 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing



16) 7rancis enne" is paid $2 an hour for straightCti!e st raightCti!e and $1 an hour for overti!e. One wee+ she wor+ed  hours- which included  hours of overti!e. What is the overti!e pre!iu! incurred to the co!pan"? A) $19 #) $62 ) $1 ') $2 Answer( A 'i( 2 Objective( 6 AA*#( Anal"tical thin+ing

19) 3alph Xohnson is paid $> an hour for straightCti!e and $> an hour for overti!e. One wee+ he wor+ed ; hours- which included ; hours of overti!e- and  hours of idle ti!e caused b" !aterial shortages. What is the direct labor cost incurred to the co!pan"? A) $1->> #) $1-2> ) $1-1> ') $1-1>> Answer( A 5%planation( 'irect labor F; C    hours P $>)  $1->> 'i(  Objective( 6 AA*#( Anal"tical thin+ing

1;) And" wor+ed > hours last wee+ for #read Wor+s anufacturing. Of the > hours 1> hours were considered overti!e- and also Ton" was idle for 9 of the > hours due to an e per hour and is paid $1 an hour Fti!e and a half) half ) for overti!e. And"0s total co!pensation for that wee+ would be ////////- and assu!ing #read Wor+s charges overti!e pre!iu! and idle ti!e to indirect labor- the a!ount of this co!pensation credited to indirect labor would be ////////. A) $-9>G $1-16> #) $->>G $2->6> ) $-1>G $2-> ') $->>G $1-2> Answer( A 5%planation( total co!pensation F> P $;>) Q F1> P $1)  $-9>G indirect labor F9 P $;>) Q F1> P $)  $1-16> 'i(  Objective( 6 AA*#( Anal"tical thin+ing



2>) Edle ti!e wages consists of the wages paid to all wor+ers Ffor both direct labor and indirect labor ) in e%cess of their straightCti!e wage rates. Answer( 7A8*5 5%planation( Overti!e pre!iu! pre!iu! consists of the wages paid to all wor+ers Ffor Ffor both direct labor and indirect labor) in e%cess of their straightCti!e wage rates. Edle ti!e wages wages refers to the wages paid for unproductive ti!e caused b" lac+ of orders- !achine or co!puter brea+downs- wor+ dela"s- etc. 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

21) 3ewor+ labor ti!e is considered an overhead cost and not a direct labor cost. Answer( T345 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

22) 7or e%ternal reporting purposes- indirect !anufacturing costs !ust be allocated to individual units. Answer( T345 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

2) Overti!e pre!iu! is nor!all" considered as a co!ponent of direct labor. Answer( 7A8*5 5%planation( Overti!e pre!iu! pre!iu! is nor!all" considered as part of indirect labor since since it is usuall" not associated with a particular job. 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

2) Ef a wor+er is paid for > hours- but is idle for  of those > hours- the  hour of idle ti!e would be considered a co!ponent of direct labor. Answer( 7A8*5 5%planation( Edle ti!e is nor!all" considered a co!ponent co!ponent of indirect labor since it is usuall" usuall" not associated with a particular job. 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

2) When should an overti!e pre!iu! of direct !anufacturing labor be considered an indirect !anufacturing cost? A direct !anufacturing cost? Answer( The overti!e pre!iu! pre!iu! of direct !anufacturing labor should be considered considered an indirect !anufacturing cost when it is aLributable to the overall volu!e of wor+- and a direct !anufacturing cost when a =rush job= is the sole source of the overti!e. 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing



2) En deter!ining product cost- what concerns does a !anufacturing &r! have when contracting with a govern!ent agenc"? Answer( Hovern!ent contracts often rei!burse rei!burse on the basis of =cost of a product= plus a pre speci&ed pro&t !argin. Hovern!ent agencies agencies provide detailed guidelines guidelines on the cost ite!s the" allow and disallow when calculating calculating the cost of a product. 7or e%a!ple- e%penses e%penses such as !ar+eting- distributionand custo!er service costs !a" be prohibited but research and develop!ent costs are so!eti!es partiall" allowed allowed as part of the t he cost. 'i( 1 Objective( 6 AA*#( Anal"tical thin+ing

2.9 Objective 2.9 1) Which of the following inJuences the !a+e or bu" decision to the co!pan"? A) opportunit" cost #) sun+ cost ) historical cost ') plant depreciation Answer( A 'i( 2 Objective( 9 AA*#( Anal"tical thin+ing

2) *ince budgeting is a &nancial function and !ostl" an anal"tical and
) ost accounting and cost !anage!ent include calculating various costs- obtaining &nancial and non&nancial infor!ation- and anal",ing relevant infor!ation for decision !a+ing. Answer( T345 'i( 1 Objective( 9 AA*#( Anal"tical thin+ing

) ost accounting helps to aids !anagers in for!ulating strategies- seLing prices for products and services and !a+ing decisions about the !i% of products and services to be oered to custo!ers. Answer( T345 'i( 2 Objective( 9 AA*#( Anal"tical thin+ing



) anage!ent accountants help !anagers identif" what infor!ation is relevant and what infor!ation is irrelevant that help in decision !a+ing. Answer( T345 'i( 1 Objective( 9 AA*#( Anal"tical thin+ing

) The cost s"ste! of harlton 7rabricators indicates that a product cost $> to !a+e in house. house. Of that $> cost- $6 consists of plant costs that have alread" been paid for. A supplier supplier proposes to !a+e the sa!e product for $2 but harlton0s plant will have have idle ti!e and because of budgetar" constraints- will will not be retooled to ta+e advantage of that idle idle ti!e. *hould the product be outsourced to the supplier? supplier? A) So because the relevant cost for !a+ing the product is onl" $2 . #) [es because the *upplier *upplier can produce the product for $.>> less per unit than harlton can. ) [es because because the *upplier can produce the product for $11.>> less per unit than harlton can. ') So because the plant can be utili,ed for other purposes and either save the co!pan" even !ore !one" or produce additional revenue. Answer( A 5%planation( The relevant cost of !a+ing the product product is $2 because the $6 is a sun+ cost. 'i( 2 Objective( 9 AA*#( Anal"tical thin+ing

6) A co!pan" is considering bu"ing a product at $1 per unit- the inChouse !anufacturing of the sa!e product is $16. The &%ed cost per unit is $ is included in the $16 inChouse product !anufacturing cost. What should the co!pan" do in this scenario? Answer( Ef the co!pan" purchases the product fro! fro! the vendor it will incur a cost of $1 Q $  $19whereas it !anufactures the product inChouse for $16. Thus- the co!pan" saves $1 per unit b" !anufacturing inChouse. Mence- it should !anufacture the product inChouse. 'i( 2 Objective( 9 AA*#( Application of +nowledge


Test Bank for Cost Accounting 16th Edition Horngren, Datar, Rajan

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