Ch2 Concept

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True/False Questions

1. The sum of all costs of manufacturing costs except direct materials is called manufacturing overhead.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

2. Conversion cost is the sum of direct labor and manufacturing overhead. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

3. Prime cost is the sum of direct labor and manufacturing overhead.

4. Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

5. Period costs are also known as inventoriable costs.

6. All costs in a merchandising company are period costs.

7. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

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8. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.

9. As activity increases within the relevant range, fixed costs remain constant on a per unit basis.

10. Direct costs are often difficult to trace to the specific cost object under consideration.

11. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium

12. The amount that was paid by a company for a building to house its operations is an example of a sunk cost.

13. The most effective way to minimize quality costs while maintaining high quality is to avoid having quality problems in the first place. This is the reason for incurring appraisal costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium

14. External failure costs are limited to the costs of repairing defective products that are under warranty.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard

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15. The costs of lost sales arising from poor quality are always included in quality cost reports.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium

Multiple Choice Questions

16. The cost of the cushions that are used to manufacture sofas is best described as a: A) manufacturing overhead cost.

B) period cost. C) variable cost. D) conversion cost.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5 Level: Medium

17. Chezpere Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the

machines are coated with grease. How should the cost of this grease be classified? Direct Material Cost Fixed Cost

A) Yes Yes

B) Yes No

C) No Yes

D) No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5,6 Level: Hard

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18. A security guard's wages at a factory would be an example of: Indirect labor Fixed manufacturing overhead

A) No No

B) Yes Yes

C) Yes No

D) No Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted 19. Manufacturing overhead includes:

A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor.

C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

20. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as:

A) direct materials. B) a period cost.

C) administrative expense. D) manufacturing overhead.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

21. The one cost that would be classified as part of both prime cost and conversion cost would be:

A) indirect material. B) direct labor. C) direct material. D) indirect labor.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

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22. Direct costs:

A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision.

C) can be easily traced to a particular cost object. D) are the variable costs of producing a product.

23. Prime costs consist of:

A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor.

C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted 24. Which of the following is NOT a period cost?

A) Monthly depreciation of the equipment in a fitness room used by factory workers.

B) Salary of a billing clerk.

C) Insurance on a company showroom, where current and potential customers can view new products.

D) Cost of a seminar concerning tax law updates that was attended by the company's controller.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

25. The annual insurance premium for the factory building would be a:

A) fixed cost, period cost, and indirect cost with regard to units of product. B) fixed cost, product cost, and direct cost with regard to units of product. C) variable cost, product cost, direct cost with regard to units of product. D) fixed cost, product cost, indirect cost with regard to units of product. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,6 Level: Medium

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26. Factory supplies in a manufacturing plant are most likely: A) sunk costs.

B) period costs. C) variable costs.

D) excluded from product costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,7 Level: Medium

27. All of the following are examples of product costs except: A) depreciation on the company's retail outlets.

B) salary of the plant manager.

C) insurance on the factory equipment. D) rental costs of the factory facility.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

28. Inventoriable (i.e., product) costs that have become expenses can be found in: A) period costs.

B) selling expenses. C) cost of goods sold. D) administrative expenses.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

29. The fixed portion of the cost of electricity for a manufacturing plant is a: Period cost Product cost

A) Yes No

B) Yes Yes

C) No Yes

D) No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA, adapted

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30. Which of the following statements about product costs is true?

A) Product costs are deducted from revenue when the production process is completed.

B) Product costs are deducted from revenue as expenditures are made. C) Product costs associated with unsold finished goods and work in process

appear on the balance sheet as assets.

D) Product costs appear on financial statements only when products are sold. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

31. Conversion costs consist of: A) direct and indirect labor.

B) direct labor and direct materials.

C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted 32. Which of the following is an example of a period cost?

A) Fabric used to produce men's pants.

B) Advertising cost for a new product campaign. C) Factory supervisor's salary.

D) Monthly depreciation of production equipment.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

33. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:

A) overstate period expenses on the income statement. B) overstate the cost of goods sold on the income statement. C) understate the cost of goods manufactured.

D) have no effect on the cost of goods manufactured.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard

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34. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of:

A) raw materials inventory. B) work in process inventory. C) finished goods inventory.

D) both raw materials inventory and work in process inventory. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy

35. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle?

Direct Cost Fixed Cost

A) Yes Yes

B) Yes No

C) No Yes

D) No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5,6 Level: Medium

36. Within the relevant range, as the number of units produced increases: A) the variable cost per unit remains the same.

B) fixed costs in total remain the same. C) variable costs increase in total. D) all of the above.

37. Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies?

A) Direct materials. B) Direct labor.

C) Fixed manufacturing overhead. D) Responses A and B are both correct.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

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38. When the level of activity decreases within the relevant range, the fixed cost per unit will:

A) decrease. B) increase.

C) remain the same.

D) The effect cannot be predicted.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

39. Which of the following is correct concerning reactions to INCREASES in activity?

Total Variable Cost Variable Cost Per Unit

A) Increases Decreases

B) Constant Decreases

C) Decreases Constant

D) Increases Constant

40. The distinction between indirect and direct costs depends on: A) whether a cost differs between alternatives.

B) whether a cost is variable or fixed.

C) whether a cost is a product or a period cost.

D) whether a cost can be easily traced to the cost object under consideration. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy

41. An example of a fixed cost that would be considered a direct cost is: A) a cost accountant's salary when the cost object is a unit of product.

B) the rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department.

C) a production supervisor's salary when the cost objective is the Production Department.

D) Board of Directors' fees when the cost object is the Marketing Department. Ans: C AACSB: Analytic AICPA BB: Critical Thinking

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42. Which of the following statements concerning direct and indirect costs is NOT true?

A) Whether a particular cost is classified as direct or indirect does not depend on the cost object.

B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager's salary would be classified as an indirect cost of

producing one unit of product.

D) A particular cost may be direct or indirect, depending on the cost object. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium

43. All of the cost categories listed below are usually found in a company's accounting records, except for:

A) sunk costs.

B) inventoriable costs. C) opportunity costs. D) marketing costs.

44. Cobra Mining Company spent $200 million five years ago to develop

underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is:

A) sunk cost. B) variable cost. C) differential cost. D) opportunity cost.

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Medium

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45. In a decision-making situation involving an asset, which of the following costs is generally NOT considered relevant to the decision and should be ignored? A) Incremental cost of selecting one alternative over another.

B) Opportunity cost of using the asset in an alternative. C) Differential cost between two alternatives.

D) The original cost of the asset.

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

Source: CMA, adapted 46. A sunk cost is:

A) a cost that is planned to be incurred in the near future. B) irrelevant for decision making.

C) a cost connected with drilling for oil. D) affected by changes in the level of activity.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

47. The potential benefit that is given up when one alternative is selected over another is called:

A) A sunk cost.

B) An opportunity cost.

C) Both a sunk cost and an opportunity cost. D) Neither a sunk cost nor an opportunity cost.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

48. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the:

A) increased overall level of activity in the factory.

B) customer's requirement for early completion of the job.

C) management's failure to include the job in the production schedule. D) management's requirement that the job be completed before the annual

factory closure due to vacation.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Source: CPA, adapted

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49. The idle time cost of assembly line workers in a manufacturing company is usually included as a part of:

A) selling cost. B) direct labor cost. C) administrative cost.

D) manufacturing overhead cost.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium

50. In preparing a quality cost report, the cost of employee's time spent in quality circles is part of:

A) prevention costs. B) appraisal costs. C) internal failure costs. D) external failure costs.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

51. Which of the following would be classified as a prevention cost on a quality cost report?

A) Net cost of spoilage.

B) Supervision of testing and inspection activities. C) Liability arising from defective products. D) Technical support provided to suppliers.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

52. Which of the following would be classified as an internal failure cost on a quality cost report?

A) Systems development.

B) Returns and allowances arising from quality problems. C) Net cost of scrap.

D) Final product testing and inspection.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

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53. Which of the following would be classified as an external failure cost on a quality cost report?

A) Depreciation of test equipment.

B) Repairs and replacements beyond the warranty period. C) Supplies used in testing and inspection.

D) Re-entering data because of keying errors.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium 54. An increase in appraisal costs in a quality improvement program would usually

have the following initial effects on internal and external failure costs: Internal failure costs External failure costs

A) Increase Increase

B) Increase Decrease

C) Decrease Increase

D) Decrease Decrease

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard 55. The cost of testing incoming materials received from suppliers would be

classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy

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56. In classifying the costs of quality at a company that manufactures sonar equipment, which of the following is considered an external failure cost? A) the net cost of scrap and spoilage incurred during production.

B) the cost of repairs and replacements made during the warranty period. C) the cost of debugging software errors found in the sonar equipment during

inspection at the plant. D) both B and C above. E) none of the above.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium 57. The four categories of quality costs in a quality cost report are:

A) external failure, product liability, prevention, and carrying. B) external failure, internal failure, prevention, and appraisal. C) warranty, product liability, prevention, and appraisal. D) warranty, product liability, training, and appraisal.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy

Source: CMA, adapted

58. The following costs were incurred in July: Direct materials... $35,000 Direct labor... $13,000 Manufacturing overhead... $15,000 Selling expenses... $14,000 Administrative expenses... $30,000 Prime costs during the month totaled:

A) $48,000 B) $28,000 C) $107,000 D) $63,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Medium

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Solution:

Direct materials... $35,000 Direct labor... 13,000 Total... $48,000

59. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is:

A) $152,000 B) $11,750 C) $21,250 D) $9,500

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard

Solution:

Conversion costs = Direct labor + Manufacturing overhead Conversion costs = $38,000 + Manufacturing overhead

0.20 × Conversion costs = Manufacturing overhead 0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead $7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead

$7,600 = 0.80 × Manufacturing overhead Manufacturing overhead = $9,500

60. During the month of July, direct labor cost totaled $12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were $86,000, the manufacturing overhead was:

A) $46,000 B) $40,000 C) $28,000 D) $74,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard

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Solution:

0.30 × Prime cost = Direct labor 0.30 × Prime cost = $12,000

Prime cost = $40,000

Prime cost = Direct materials + Direct labor $40,000 = Direct materials + $12,000 Direct materials = $28,000

Total

manufacturing costs = Direct materials + Direct labor + Manufacturing Overhead $86,000 = $28,000 + $12,000 + Manufacturing _Overhead Manufacturing overhead = $46,000

61. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost for the month was $34,000 and the direct materials cost was $23,000, the direct labor cost was:

A) $22,667 B) $15,333 C) $51,000 D) $34,500

Solution:

0.40 × Conversion costs = Direct labor

0.60 × Conversion costs = Manufacturing overhead 0.60 × Conversion costs = $34,000

Conversion costs = $56,667

Conversion costs = Direct labor + Manufacturing overhead $56,667 = Direct labor + $34,000

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62. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks:

Solvents and cleaners used by the custodians to clean

the textbook printing presses... $500 Depreciation on the automobiles used by sales

representatives...

$4,20 0 Fire insurance on factory building...

$2,00 0 Shipping costs on textbooks sold... $3,700 What is the total of the manufacturing overhead costs above? A) $500

B) $2,500 C) $6,200 D) $6,700

Solution:

Solvents and cleaners used by the custodians to clean the textbook printing presses... Fire insurance on factory building... Total...

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63. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows:

Receiving and storing raw materials... 5%

Production operations... 70%

Sales offices... 15%

Administrative offices... 10%

How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: Receiving and storing raw materials (5% × $8,000)... $ 400 Production operations (70% × $8,000)... 5,600 $6,000

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64. Consider the following costs:

Direct materials...

$33,00 0 Depreciation on factory equipment...

$12,00 0 Factory janitor’s salary... $23,000 Direct labor...

$28,00 0 Utilities for factory... $9,000 Selling expenses...

$16,00 0 Production supervisor’s salary... $34,000 Administrative expenses...

$21,00 0

What is the total amount of manufacturing overhead included above? A) $78,000

B) $139,000 C) $44,000 D) $37,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

Solution:

Depreciation on factory equipment... $12,000 Factory janitor’s salary... 23,000 Utilities for factory... 9,000 Production supervisor’s salary... 34,000 Total...

$78,00 0

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65. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume that all raw materials are direct materials.):

Purchases of raw materials... $91,000 Direct labor cost...

$122,00 0 Selling costs (total)... $42,000 Administrative costs (total)... $56,000 Manufacturing overhead costs (total)...

$340,00 0 Raw materials inventory, beginning... $22,000 Work in process inventory, beginning... $27,000 Finished goods inventory, beginning... $42,000 Raw materials inventory, ending... $7,000 Work in process inventory, ending... $35,000 Finished goods inventory, ending... $15,000 What was Derby's cost of goods manufactured for the month? A) $545,000

B) $560,000 C) $568,000 D) $587,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Hard

Solution:

Derby Manufacturing Company Schedule of Cost of Goods Manufactured Direct materials:

Beginning raw materials inventory... $ 22,000 Add: Purchases of raw materials... 91,000 Raw materials available for use... 113,000 Deduct: Ending raw materials inventory... 7,000

Raw materials used in production... $106,000 Direct labor... 122,000 Manufacturing overhead... 340,000 Total manufacturing costs... 568,000 Add: Beginning work in process inventory... 27,000 595,000 Deduct: Ending work in process inventory... 35,000 Cost of goods manufactured... $560,000

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66. Consider the following costs incurred in a recent period: Direct materials...

$33,00 0 Depreciation on factory equipment...

$12,00 0 Factory janitor’s salary... $23,000 Direct labor...

$28,00 0 Utilities for factory... $9,000 Selling expenses...

$16,00 0 Production supervisor’s salary... $34,000 Administrative expenses...

$21,00 0

What was the total amount of the period costs listed above for the period? A) $78,000

B) $71,000 C) $46,000 D) $37,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

Solution: Selling expenses... $16,000 Administrative expenses... 21,00 0 Total... $37,000

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67. Using the following data for a recent period, calculate the beginning finished goods inventory:

Sales... $40,000 Beginning finished goods inventory... ? Cost of goods manufactured... $16,000 Ending finished goods inventory... $5,000 Cost of goods sold... ? Gross margin...

$17,00 0 Administrative and selling expenses... ? Net operating income... $10,000 The beginning finished goods inventory was:

A) $24,000 B) $23,000 C) $7,000 D) $12,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution:

Cost of goods sold = Sales − Gross margin Cost of goods sold = $40,000 − $17,000 Cost of goods sold = $23,000

Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory = Cost of goods sold Beginning finished goods inventory + $16,000 − $5,000 = $23,000

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68. The following data are for a recent period's operations: Beginning finished goods inventory...

$150,47 5 Ending finished goods inventory...

$145,75 0 Sales... $400,000 Gross margin... $120,00 0 The cost of goods manufactured was:

A) $115,275 B) $284,725 C) $275,275 D) $124,725

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution:

Sales − Cost of goods sold = Gross margin $400,000 − Cost of goods sold = $120,000

Cost of goods sold = $280,000 Beginning finished

goods inventory + Cost of goods manufactured − goods inventoryEnding finished = Cost of goods sold $150,475 + Cost of goods

manufactured − $145,750 = $280,000 Cost of goods manufactured = $275,275

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69. Last month a manufacturing company had the following operating results: Beginning finished goods inventory... $77,000

Ending finished goods inventory... $72,000 Sales...

$593,00 0 Gross margin... $67,000 What was the cost of goods manufactured for the month? A) $588,000

B) $526,000 C) $521,000 D) $531,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution:

Sales − Cost of goods sold = Gross margin $593,000 − Cost of goods sold = $67,000

Cost of goods sold = $526,000 Beginning finished

goods inventory + Cost of goods manufactured − goods inventoryEnding finished = Cost of goods sold $77,000 + Cost of goods

manufactured − $72,000 = $526,000 Cost of goods manufactured = $521,000

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70. The following data pertain to a recent period's operations: Sales... ? Beginning finished goods inventory... $12,000 Cost of goods manufactured... $36,000 Ending finished goods inventory... $6,000 Cost of goods sold... ? Gross margin... 40% of Sales Administrative and selling expenses... $10,000 Net operating income... ? Net operating income was:

A) $18,000 B) $10,000 C) $14,000 D) $46,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution: Cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory Cost of goods sold = $12,000 + $36,000 − $6,000

Cost of goods sold = $42,000

Sales − Cost of goods sold = Gross margin Sales − $42,000 = Gross margin Gross margin = 40% × Sales Sales − $42,000 = 40% × Sales

60% × Sales = $42,000 Sales = $70,000

Gross margin − Administrative and selling expenses = Net operating income Gross margin = 40% × Sales

Gross margin = $28,000 $28,000 − $10,000 = Net operating income

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71. The following inventory balances have been provided for the most recent year: Beginnin g Ending Raw materials... $21,000 $15,00 0 Work in process... $18,000 $29,000 Finished goods... $57,000 $33,00 0

The cost of goods manufactured was $714,000. What was the cost of goods sold? A) $738,000

B) $693,000 C) $714,000 D) $733,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium Solution:

Finished goods inventory, beginning... $ 57,000 Add: Cost of goods manufactured... 714,000 Goods available for sale... 771,000 Deduct: Finished goods inventory, ending... 33,000 Cost of goods sold... $738,000

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72. The cost of goods manufactured for October at Toule Manufacturing Corporation was $907,000. The following changes occurred in Toule inventory accounts during October:

Decrease in raw materials inventory...

$24,00 0 Decrease in work in process inventory... $17,000 Increase in finished goods inventory...

$38,00 0 What was Toule's cost of goods sold for October? A) $869,000

B) $886,000 C) $928,000 D) $945,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard Solution:

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73. Gabrio Inc. is a merchandising company. Last month the company's merchandise purchases totaled $87,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $11,000. What was the company's cost of goods sold for the month?

A) $79,000 B) $87,000 C) $95,000 D) $117,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution:

Merchandise inventory, beginning... $ 19,000 Add: Merchandise purchased... 87,000 Goods available for sale... 106,000 Deduct: Finished goods inventory, ending... 11,000 Cost of goods sold... $ 95,000

74. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month?

A) $96,000 B) $62,000 C) $68,000 D) $74,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium

(30)

Solution:

Merchandise inventory, beginning... $11,000 Add: Merchandise purchased... ? Goods available for sale... ? Deduct: Finished goods inventory, ending... 17,000 Cost of goods sold... $68,000 Goods available for sale = $68,000 + $17,000

Goods available for sale = $85,000

Merchandise purchased = $85,000 − Merchandise inventory, beginning Merchandise purchased = $85,000 − $11,000

Merchandise purchased = $74,000

75. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The beginning finished goods inventory was $19,000 and the ending finished goods inventory was $15,000. What was the cost of goods sold for the month? A) $104,000

B) $74,000 C) $70,000 D) $66,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution:

Finished goods inventory, beginning... $19,000 Add: Cost of goods manufactured... 70,000 Goods available for sale... 89,000 Deduct: Finished goods inventory, ending... 15,000 Cost of goods sold... $74,000

(31)

76. At the beginning of the most recent month's operations, finished goods inventory was $30,000. The cost of goods manufactured was $326,000 and ending finished goods inventory was $42,000. What was the cost of goods sold for the month? A) $320,000

B) $338,000 C) $314,000

D) Cannot be calculated.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy Solution:

Finished goods inventory, beginning... $30,000 Add: Cost of goods manufactured... 326,000 Goods available for sale... 356,000 Deduct: Finished goods inventory, ending... 42,000 Cost of goods sold... $314,000

(32)

77. Given the following information, calculate the company's manufacturing overhead:

Work in process, ending... $8,000 Work in process, beginning...

$11,00 0 Cost of goods manufactured... $70,000 Direct labor... $25,00 0 Direct materials... $20,00 0 The manufacturing overhead is:

A) $22,000 B) $25,000 C) $28,000 D) $36,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution:

Schedule of Cost of Goods Manufactured

Direct materials... $20,000 Direct labor... 25,000 Manufacturing overhead... 22,000* Total manufacturing costs... 67,000* Add: Work in process, beginning... 11,000 78,000* Deduct: Work in process, ending... 8,000 Cost of goods manufactured... $70,000

* These items must be calculated by working backwards upward through the statements.

(33)

78. The following data have been provided for the most recent month's operations: Direct materials... $8,000

Direct labor... $25,000 Manufacturing overhead... $9,000 Total manufacturing costs... ? Beginning work in process inventory... ? Ending work in process inventory... $8,000 Cost of goods manufactured... $45,000 The beginning work in process inventory is:

A) $11,000 B) $42,000 C) $53,000 D) $37,000

Direct materials... $ 8,000 Direct labor... 25,000 Manufacturing overhead... 9,000 Total manufacturing costs... 42,000 Add: Work in process, beginning... 11,000* 53,000* Deduct: Work in process, ending... 8,000 Cost of goods manufactured... $45,000

* These items must be calculated by working backwards upward through the statements.

(34)

79. Using the following data for July, calculate the cost of goods manufactured: Direct materials... $31,00 0 Direct labor... $22,00 0 Manufacturing overhead... $29,000 Beginning work in process inventory...

$14,00 0 Ending work in process inventory...

$15,00 0 The cost of goods manufactured was:

A) $83,000 B) $96,000 C) $81,000 D) $82,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution:

Direct materials... $31,000 Direct labor... 22,000 Manufacturing overhead... 29,000 Total manufacturing costs... 82,000 Add: Work in process, beginning... 14,000 96,000 Deduct: Work in process, ending... 15,000 Cost of goods manufactured... $81,000

(35)

80. During the month of April, LTP Company incurred $30,000 of manufacturing overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and the end of the month, the raw materials and work in process inventories decreased by $4,000 and $3,000, respectively. The total manufacturing costs used in the computation of cost of goods manufactured during the month of April was:

A) $88,000 B) $91,000 C) $99,000 D) $102,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution:

First calculate raw materials used: Beginning inventory

raw materials + Purchases −

Ending inventory raw materials = Raw materials used By rearranging: Purchases + ( Beginning inventory raw materials − Ending inventory raw materials

) = Raw materials _used Since raw material inventory decreased by $4,000, we know that:

Beginning inventory raw materials − Ending inventory raw materials = $4,000 Substituting into equation:

$25,000 + $4,000 = Raw materials used $29,000 = Raw materials used Next, solve for total manufacturing costs:

Raw materials

used + Direct labor + Manufacturing overhead = manufacturing costsTotal

(36)

81. The following information relates to Mako Manufacturing Company for the month of August:

Cost of goods manufactured... $78,000 Cost of goods sold...

$82,00 0 Total manufacturing costs...

$90,00 0 Cost of goods available for sale... $95,000

What was the balance in Mako's Finished Goods Inventory account at the end of August?

A) $4,000 B) $5,000 C) $8,000 D) $13,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard Solution:

Goods available for sale - Ending finished goods inventory = Cost of goods sold Ending finished goods inventory = Goods available for sale - Cost of goods sold Ending finished goods inventory = $95,000 - $82,000

(37)

82. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and end of the year:

Beginnin g Ending Raw materials... $10,000 $21,00 0 Work in process... $5,000 $3,000 Finished goods... $41,000 $48,00 0

Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of goods manufactured?

A) $581,000 B) $615,000 C) $629,000 D) $663,000

Beginning finished

goods inventory + Cost of goods manufactured = Goods available for sale $41,000 + Cost of goods

manufactured = $622,000 Cost of goods manufactured = $581,000

(38)

83. Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, finished goods, which had a beginning balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled $600,000 during the year, the cost of goods available for sale must have been:

A) $585,000 B) $600,000 C) $610,000 D) $625,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution:

Cost of goods available for sale =

Beginning finished

goods inventory

+ Cost of goods _manufactured Cost of goods

available for sale = $25,000 + $600,000 Cost of goods available for sale = $625,000

(39)

84. A company has provided the following cost data for its most recent accounting period: Direct labor... $98,000 Administrative expenses... $15,000 Manufacturing overhead... $25,000 Direct materials... $200,000 Selling expenses... $22,000

What was the cost of goods manufactured for the period? Assume there were no beginning or ending inventories.

A) $303,000 B) $323,000 C) $338,000 D) $360,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Easy Source: CMA, adapted

Solution: Direct labor... $ 98,000 Manufacturing overhead... 25,000 Direct materials... 200,00 0 Cost of goods manufactured...

$323,00 0

(40)

85. Beginning work in process was $145,000. Manufacturing cost incurred for the month was $810,000. The ending work in process was $200,000. What was the cost of goods manufactured during the month?

A) $900,000 B) $810,000 C) $755,000 D) $1,155,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium Solution:

Beginning work in process inventory... $145,000 Add: Manufacturing costs... 810,000 Deduct: Ending work in process inventory... (200,000) Cost of goods manufactured... $755,000

86. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units:

Cost of raw materials used...

$86,40 0 Property taxes on factory building... $9,000

What should be the cost per unit for the above costs if 20,000 units of product are produced next year?

Raw materials Property taxes

A) $4.32 $0.45

B) $4.32 $0.50

C) $4.80 $0.45

D) $4.80 $0.50

Solution:

Variable manufacturing costs: $86,400 18,000 = $4.80

Property taxes are a fixed cost: $9,000

(41)

87. At a sales volume of 20,000 units, total costs are $55,000. The company's variable cost per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units, assuming that is within the relevant range.

A) $25,000 B) $30,000 C) $45,000

D) Cannot be determined.

Solution:

88. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs?

A) $21,000 B) $35,000 C) $89,000 D) $103,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy

Solution:

Indirect materials... $21,000 Production supervisors... 14,000 Total indirect costs... $35,000

(42)

89. How much sunk cost is represented in the following list?

Annual operating cost... $80,000 Fixed operating costs other than depreciation... $14,000 Resale value, if sold now... $25,000 Original cost of current machine... $68,000 A) $80,000

B) $14,000 C) $25,000 D) $68,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy

Solution:

Only the original cost of the current machine is a sunk cost in the above list. 90. John Adams, an operator of a manufacturing machine, receives time-and-a-half

for any time worked in excess of 40 hours per week. His rate of pay is $16 per hour. How much should be charged to direct labor if he worked 48 hours last week and had no idle time?

A) $768 B) $640 C) $832 D) $192

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Solution:

(43)

91. During the last week in October, Harvey worked a total of 45 hours and had no idle time. Harvey is paid $10 per hour for regular time, and is paid time-and-a-half for all hours in excess of 35 hours per week. Given this information: A) $350 should be charged to direct labor

B) $50 should be charged to manufacturing overhead C) $150 should be charged to manufacturing overhead D) $500 should be charged to direct labor.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Solution:

Overtime premium = $5 $10 × 1.5 = $15 overtime rate

$15 overtime rate − $10 regular rate = $5 overtime premium Total hours − Regular work week hours = Overtime hours 45 − 35 = 10

10 hours × $5 per hour = $50 amount to be charged to manufacturing overhead 92. Sandra Pietro installs mufflers at Dethtrapp Motorcycle Company. Sandra is paid

$14 per hour and an extra $7 per hour for every hour over 40 that is worked in a given week. Last week Sandra worked 50 hours with 2 of these hours correctly classified as idle time. How much of Sandra's wages last week should be included in manufacturing overhead cost?

A) $28 B) $70 C) $98 D) $168

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Hard Solution:

Overtime premium charged to manufacturing overhead:

(50 total hours − 40 regular hours) × $7 overtime premium = $70 2 hours of idle time × $14 per hour = $28

(44)

Use the following to answer questions 93-96:

Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor

enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers.

93. Which of the following terms could be used to correctly describe the cost of the aluminum sheets?

A) fixed cost B) period cost C) direct cost D) conversion cost

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium

94. Which of the following terms could be used to correctly describe the wages paid to the machine operator who operates the stamping machine?

A) direct labor cost B) administrative cost C) opportunity cost

D) manufacturing overhead cost

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Easy

95. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine?

A) variable cost B) indirect cost

C) manufacturing overhead cost D) all of the above

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium

(45)

96. Which of the following terms could be used to correctly describe the straight-line depreciation cost on the stamping machine?

A) period cost B) variable cost C) inventoriable cost D) both A and C above

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Hard

A partial listing of costs incurred at Archut Corporation during September appears below: Direct materials... $113,00 0 Utilities, factory... $5,000 Administrative salaries... $81,000 Indirect labor... $25,000 Sales commissions... $48,000 Depreciation of production equipment... $20,000 Depreciation of administrative equipment... $30,000 Direct labor... $129,00 0 Advertising... $135,00 0

97. The total of the manufacturing overhead costs listed above for September is: A) $586,000

B) $50,000 C) $292,000 D) $30,000

Solution:

Utilities, factory... $ 5,000 Indirect labor... 25,000 Depreciation of production equipment... 20,000 Total manufacturing overhead costs... $50,000

(46)

98. The total of the product costs listed above for September is: A) $292,000

B) $294,000 C) $50,000 D) $586,000

Solution: Direct materials... $113,00 0 Utilities, factory... 5,000 Indirect labor... 25,000 Depreciation of production equipment... 20,000 Direct labor... 129,000 Total product costs...

$292,00 0 99. The total of the period costs listed above for September is:

A) $294,000 B) $344,000 C) $292,000 D) $50,000

Solution:

Administrative salaries... $ 81,000 Sales commissions... 48,000 Depreciation of administrative equipment... 30,000 Advertising...

135,00 0 Total period costs...

$294,00 0

(47)

A partial listing of costs incurred during March at Febbo Corporation appears below: Factory supplies... $9,000

Administrative wages and salaries... $85,000 Direct materials... $126,000 Sales staff salaries... $30,000 Factory depreciation... $33,000 Corporate headquarters building rent... $43,000 Indirect labor... $26,000 Marketing... $65,000 Direct labor... $99,000 100. The total of the period costs listed above for March is:

A) $68,000 B) $293,000 C) $291,000 D) $223,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

Solution:

Administrative wages and salaries... $ 85,000 Sales staff salaries... 30,000 Corporate headquarters building rent... 43,000 Marketing... 65,000 Total period costs...

$223,00 0

(48)

101. The total of the manufacturing overhead costs listed above for March is: A) $68,000

B) $35,000 C) $516,000 D) $293,000

Solution:

Factory supplies... $ 9,000 Factory depreciation... 33,000 Indirect labor... 26,000 Total manufacturing overhead... $68,000 102. The total of the product costs listed above for March is:

A) $516,000 B) $68,000 C) $293,000 D) $223,000

Solution: Factory supplies... $ 9,000 Direct materials... 126,000 Factory depreciation... 33,000 Indirect labor... 26,000 Direct labor... 99,00 0 Total product costs... $293,000

(49)

The following data pertain to Graham Company's operations in May: May 1 May 31

Work in process inventory... $7,000

$12,00 0 Raw materials inventory...

$15,00

0 ?

Finished goods inventory... ? $20,000 Other data:

Raw materials used... $40,000 Sales...

$200,00 0 Cost of goods manufactured... $135,000 Manufacturing overhead cost... $60,000 Raw materials purchases... $30,000 Gross Margin... $60,000 103. The ending materials inventory was:

A) $5,000 B) $10,000 C) $15,000 D) $20,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Medium Solution:

Beginning raw materials inventory... $15,000 Add: Raw materials purchases... 30,000 Raw materials available for use... 45,000 Deduct: Ending raw materials inventory... 5,000 * Raw materials used... $40,000 *Calculate this item by working backwards, as shown:

Raw materials used = Raw materials available − Ending raw materials inventory $40,000 = $45,000 − Ending raw materials inventory

(50)

104. The beginning finished goods inventory was: A) $5,000

B) $15,000 C) $25,000 D) $30,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Hard Solution:

Sales − Cost of goods sold = Gross margin

Cost of goods sold = Sales − Gross margin Cost of goods sold = $200,000 − $60,000 Cost of goods sold = $140,000

Next, solve backwards for beginning finished goods inventory: Beginning raw materials inventory... $ 25,000 * Add: Cost of goods manufactured... 135,000 Cost of goods available for sale... 160,000 * Deduct: Ending finished goods inventory... 20,000 Cost of goods sold... $140,000

* These items must be calculated by working backwards upward through the statements.

(51)

105. The direct labor cost for May was: A) $35,000

B) $40,000 C) $30,000 D) $25,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,3,4 Level: Hard

Solution:

Graham Company

Direct materials... $40,000 Direct labor... 40,000* Manufacturing overhead... 60,000 Total manufacturing costs... 140,000* Add: Work in process, beginning... 7,000 147,000* Deduct: Work in process, ending... 12,000 Cost of goods manufactured... $135,000

Demeglio Corporation reported the following data for the month of September:

Inventories: Beginnin g Ending Raw materials... $30,000 $34,000 Work in process... $23,000 $22,00 0 Finished goods... $32,000 $35,00 0

(52)

106. If the raw materials purchased during September totaled $63,000, what was the cost of the raw materials used in production for the month?

A) $67,000 B) $63,000 C) $59,000 D) $64,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy Solution:

Beginning raw materials inventory... $30,000 Add: Raw materials purchased... 63,000 Raw materials available for use... 93,000 Deduct: Ending raw material inventory... 34,000 Raw materials used in production... $59,000

107. If the company transferred $222,000 of completed goods from work in process to finished goods inventory during September, what was the cost of goods sold for the month?

A) $219,000 B) $225,000 C) $222,000 D) $221,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy Solution:

Beginning finished goods inventory... $ 32,000 Add: Cost of goods manufactured... 222,000 Goods available for sale... 254,000 Deduct: Ending finished inventory... 35,000 Cost of goods sold... $219,000

(53)

Boardman Company reported the following data for the month of January:

Inventories: 1/1 1/31 Raw materials... $32,00 0 $31,00 0 Work in process... $18,00 0 $12,00 0 Finished goods... $30,000 $35,000 Additional information: Sales revenue... $210,000 Direct labor costs... $40,000 Manufacturing overhead costs... $70,000 Selling expenses... $25,000 Administrative expenses... $35,000

108. If raw materials costing $35,000 were purchased during January, the total manufacturing costs for the month would be:

A) $145,000 B) $144,000 C) $151,000 D) $146,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1 Level: Medium Solution:

Beginning raw materials inventory... $ 32,000 Add: Raw materials purchased... 35,000 Raw materials available for use... 67,000 Deduct: Ending raw materials inventory... 31,000 Raw materials used... 36,000 Direct labor... 40,000 Manufacturing overhead... 70,000 Total manufacturing costs... $146,000

(54)

109. Boardman Company's total conversion cost for January would be: A) $110,000

B) $170,000 C) $135,000 D) $130,000

Solution:

Direct labor...

$ 40,00 0 Manufacturing overhead... 70,000 Total conversion costs...

$110,00 0 Use the following to answer questions 110-111:

Fassino Corporation reported the following data for the month of November:

Inventories: Beginnin g Ending Raw materials... $23,000 $30,000 Work in process... $19,000 $20,00 0 Finished goods... $55,000 $29,000 Additional information:

Raw materials purchases... $58,000 Direct labor cost... $54,000 Manufacturing overhead cost... $82,000 Selling expense... $18,000 Administrative expense... $42,000

(55)

110. The conversion cost for November was: A) $187,000

B) $112,000 C) $136,000 D) $140,000

Solution:

Direct labor...

$ 54,00 0 Manufacturing overhead... 82,000 Total conversion costs...

$136,00 0 111. The prime cost for November was:

A) $136,000 B) $60,000 C) $105,000 D) $112,000

Solution:

Beginning raw materials inventory... $ 23,000 Add: Raw materials purchased... 58,000 Raw materials available for use... 81,000 Deduct: Ending raw materials inventory... 30,000 Raw materials used... 51,000 Direct labor... 54,000 Total prime cost... $105,000

(56)

Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. The beginning balance in the raw materials inventory account was $25,000. During the month, the company made raw materials purchases amounting to $54,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $44,000 and the ending balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000.

112. The conversion cost for November was: A) $116,000

B) $79,000 C) $87,000 D) $129,000

Solution:

Direct labor... $25,000 Manufacturing overhead... 62,000 Total conversion costs... $87,000 113. The prime cost for November was:

A) $79,000 B) $59,000 C) $67,000 D) $87,000

(57)

Solution:

Beginning raw materials inventory... $25,000 Add: Raw materials purchased... 54,000 Raw materials available for use... 79,000 Deduct: Ending raw materials inventory... 37,000 Raw materials used... 42,000 Direct labor... 25,000 Total prime cost... $67,000 Use the following to answer questions 114-116:

Yokum Company has provided the following data for the month of August:

August 1 August 31

Raw materials inventory... $8,000 ? Work in process inventory... ? $14,000 Finished goods inventory... $25,000 $35,000 Other Data:

Sales... $350,000 Manufacturing overhead costs... $44,000 Direct labor... $80,000 Purchase of raw materials... $94,000 Administrative expenses... $40,000 Cost of goods manufactured...

$206,00 0 Raw materials used in production... $87,000 Selling expenses... $15,000

(58)

114. The ending raw materials inventory was: A) $3,000

B) $11,000 C) $15,000 D) $7,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard Solution:

Beginning raw materials inventory... $ 8,000 Add: Raw materials purchased... 94,000 Raw materials available for use... 102,000 Deduct: Ending raw materials inventory... 15,000 * Raw materials used... $87,000

* This item must be calculated by working backwards upward through the statements.

115. The beginning work in process inventory was: A) $6,000

B) $9,000 C) $15,000 D) $2,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard

(59)

Solution:

Beginning raw materials inventory... $ 8,000 Add: Raw materials purchased... 94,000 Raw materials available for use... 102,000 Deduct: Ending raw materials inventory... 15,000 * Raw materials used... $87,000 Raw materials used... $ 87,000 Direct labor... 80,000 Manufacturing overhead... 44,000 Total manufacturing costs... 211,000 Add: Beginning work in process inventory... 9,000 * Subtotal... 220,000 * Deduct: Ending work in process inventory... 14,000 Cost of goods manufactured... $206,000

(60)

116. The cost of goods sold was: A) $196,000

B) $206,000 C) $211,000 D) $190,000

Beginning raw materials inventory... $ 8,000 Add: Raw materials purchased... 94,000 Raw materials available for use... 102,000 Deduct: Ending raw materials inventory... 15,000 * Raw materials used... $ 87,000 Raw materials used... $ 87,000 Direct labor... 80,000 Manufacturing overhead... 44,000 Total manufacturing costs... 211,000 Add: Beginning work in process inventory... 9,000 * Subtotal... 220,000 * Deduct: Ending work in process inventory... 14,000 Cost of goods manufactured... $206,000

Beginning finished goods inventory... $ 25,000 Add: Cost of goods manufactured... 206,000 Goods available for sale... 231,000 Deduct: Ending finished goods inventory... 35,000 Cost of goods sold... $196,000

(61)

The following data (in thousands of dollars) have been taken from the accounting records of Karling Corporation for the just completed year.

Sales...

$99 0 Raw materials inventory, beginning... $40 Raw materials inventory, ending... $70 Purchases of raw materials... $120 Direct labor... $20 0 Manufacturing overhead... $230 Administrative expenses... $15 0 Selling expenses... $14 0 Work in process inventory, beginning... $70 Work in process inventory, ending... $50 Finished goods inventory, beginning...

$12 0 Finished goods inventory, ending... $160

117. The cost of the raw materials used in production during the year (in thousands of dollars) was:

A) $190 B) $90 C) $150 D) $160

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium Solution:

Beginning raw materials inventory...

$ 40 Add: Raw materials purchased... 120 Raw materials available for use... 160 Deduct: Ending raw materials inventory... 70 Raw materials used... $90

(62)

118. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $540 B) $500 C) $570 D) $590

Beginning raw materials inventory... $ 40 Add: Raw materials purchased... 120 Raw materials available for use... 160 Deduct: Ending raw materials inventory... 70 Raw materials used... $ 90 Raw materials used... $ 90 Direct labor... 200 Manufacturing overhead... 230 Total manufacturing costs... 520 Add: Beginning work in process inventory... 70 Subtotal... 590 Deduct: Ending work in process inventory... 50 Cost of goods manufactured... $540

(63)

119. The cost of goods sold for the year (in thousands of dollars) was: A) $700

B) $500 C) $660 D) $580

Beginning raw materials inventory... $ 40 Add: Raw materials purchased... 120 Raw materials available for use... 160 Deduct: Ending raw materials inventory... 70 Raw materials used... $90 Raw materials used... $ 90 Direct labor... 200 Manufacturing overhead... 230 Total manufacturing costs... 520 Add: Beginning work in process inventory... 70 Subtotal... 590 Deduct: Ending work in process inventory... 50 Cost of goods manufactured... $540 Beginning finished goods inventory... $120 Add: Cost of goods manufactured... 540 Goods available for sale... 660 Deduct: Ending finished goods inventory... 160 Cost of goods sold... $500

(64)

120. The net operating income for the year (in thousands of dollars) was: A) $150

B) $200 C) $490 D) $250

Beginning raw materials inventory... $ 40 Add: Raw materials purchased... 120 Raw materials available for use... 160 Deduct: Ending raw materials inventory... 70 Raw materials used... $90 Raw materials used... $ 90 Direct labor... 200 Manufacturing overhead... 230 Total manufacturing costs... 520 Add: Beginning work in process inventory... 70 Subtotal... 590 Deduct: Ending work in process inventory... 50 Cost of goods manufactured... $540 Beginning finished goods inventory... $120 Add: Cost of goods manufactured... 540 Goods available for sale... 660 Deduct: Ending finished goods inventory... 160 Cost of goods sold... $500 Sales... $990 Cost of goods sold... 500 Gross margin... 490 Selling and administrative expenses:

Administrative expense...$150

Selling expense... 140 290 Net operating income... $200

(65)

Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.

121. The salary that Mark earns at his present employ is: A) a variable cost

B) a fixed cost C) a product cost D) an opportunity cost

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy

122. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: A) an opportunity cost

B) a sunk cost C) a differential cost D) a period cost

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy

123. The cost of the raw materials that will be used in manufacturing the computer board is:

A) a sunk cost B) a fixed cost C) a period cost D) a variable cost

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy

124. Rent on the administrative office space is: A) a variable cost

B) an opportunity cost C) a period cost D) a product cost

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy