True/False

Indicate whether the statement is true orfalse.

1.

Direct costs can be conveniently traced to a cost object.

2.

All product costs are expensed in the period in which they are paid in cash.

3.

Direct labor cannot be traced to products as it is invisible.

4.

Some period costs can be found in inventory accounts on the balance sheet.

5.

The standard costing method uses the sum of actual direct materials, actual direct labor, and actual overhead to determine the product unit cost.

6.

Managers use managerial accounting principles to guide their actions and decisions in the management process.

7.

Management accounting complements each stage of the management process.

8.

Management accountants who alter reports to meet targeted levels of performance are not acting unethically, because their job is to provide information that will aid in communicating the goals of the business.

9.

Although the purpose of the confidentiality standard is to encourage management accountants to remain loyal to their company, failure to disclose knowledge of internal illegal acts to outside authorities can result in the accountants being charged as an accessory to the crime.

10.

To prepare financial statements at the end of the accounting period, the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in a job order costing system.

11.

In a service organization using a job order costing system, actual overhead will be the same as applied overhead.

12.

The ending balance of Work in Process account is compared with the total costs shown on the job order cost cards to ensure correctness.

13.

Process cost reports are prepared for each of the processes or work cells.

14.

The number of equivalent units for direct materials is the same as the number for conversion costs.

15.

In a process costing system, the average costing method assumes that cost flows mirror the logical physical flow of production.

16.A manufacturing chain is a path that leads from the suppliers of the materials from which a product is made to the final customer.

17.Reports and analyses prepared in traditional management settings will match the requirement of the new manufacturing environment.

18.Just-in-time operating environments encourage continuous improvement of the work environment.

19.In the JIT environment, direct materials and conversion costs will vary significantly for each product in a work cell.

20.Many indirect costs in a traditional system become direct costs in a JIT system.

21.The ending balance of the Cost of Goods Sold account will differ in traditional and backflush costing.

22.Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

23.Unit fixed costs will be the same regardless of how many units are produced .

24.Unit variable costs vary with changes in productive output, whereas total variable costs remain constant.

25.The relevant range of activity is the range in which actual operations of a company are likely to occur.

26.Regression analysis takes into consideration only the highest and the lowest level of activities to predict cost behavior.

27.In a breakeven scatter diagram, the loss area continues till the total costs line is below total revenues line.

28.Breakeven sales in dollars can be obtained without knowing the dollar value of contribution margin per unit.

29.Revising the budgets to include all planning decisions will improve the quality of the budgets.

30.Successful budget implementation depends on two factors-clear communication and the support of top management.

31.Participative budgeting results in setting unattainable standards.

32.Standard costing can be used only with a process costing system.

33.The standard overhead cost is the sum of the estimates of variable and fixed overhead costs in the next accounting period.

34.Variance analysis involves computing the difference between standard and actual costs.

35.The direct labor rate variance is the difference between the standard hours allowed and the actual hours multiplied by the actual labor rate.

Multiple Choice

identify the choice that best completes the statement or answers the question.

1.Which of the following accounts contain only one type of product cost?

a.Work in Process Inventory

b.Materials Inventory

c.Finished Goods Inventory

d.Cost of Goods Sold

2.The presentation of merchandise inventory on the balance sheet of a merchandising company most nearly resembles the presentation of inventory on the balance sheet of a manufacturing company.

a.materials

b.finished goods

c.manufacturing supplies

d.work in process

3.Consider the following information: direct materials used totaled $124,700; direct labor amounted to

$412,000; overhead was computed to be $789,600; Work in Process Inventory on March 1, 2014, was

$482,500; and Work in Process Inventory on March 31, 2014, was $597,100. What was the cost of goods manufactured?

a.

$1,211,700

b.

$729,200

C.

$1,440,900

d.

$422,100

4.Which of the following questions do not dictate a managerial report's format?

a.Who should write the report?

b.To whom should the report be distributed?

c.What is the purpose of the report?

d.What information is needed?

5.The type of product costing system used by a company is dictated by the

a.cost flow assumptions made by the company.

b.production process of the product.

c.inventory system used by the company.

d.selling price of the product.

6.Process costing is applicable to production operations that

a.utilize several processes, departments , or work cells in a series.

b.do not assign overhead costs to operations.

c.produce products that are made to order.

d.produce unique products.

Cardsheet Company

The following partially completed T accounts summarize the transactions of Cardsheet Company for last year:

Materials Inventory

Beg Bal

1,000

18,000

(2)

(1)

17,000

Work in Process Inventory

Beg Bal

9,000

62,300

(7)

(2)

11,000

(4)

15,000

(6)

30,000

Overhead

(2)

7,000

30,000

(6)

(3)

14,000

(4)

7,000

(5)

3,000

Cost of Goods Sold

I

Accounts Payable

17,000

I3,000

(1)

(5)

Beg Bal

(7)

End Bal

Finished Goods Inventory 16,000

62,300

13,000

Payroll Payable

5,000

I31,000

Beg Bal

(4)

Office Salaries Expense

(4)9,ooo I

Accumulated Depreciation (Factory)

80,000Beg Bal

I14,000(3)

7.The cost of goods sold (after adjusting for under- or overapplied overhead) is a.$92,300.

b.$60,300.

C.$34,300.

d

.

$66

,

300

.

8.If a company uses a process costing system to account for costs in its three production departments, how many Work in Process accounts will it use?

a.

5

b.

3

C.

1

d.

4

9.Lopez Company uses the FIFO process costing method to determine the product unit cost. The company began the period with 1,800 units in beginning inventory. During the period, 32,000 units were started and completed. There were 4,000 units in ending inventory at the end of the period. If all direct materials are added at the beginning of the process, the number of equivalent units for direct materials for the period is

a.

29,800.

b.

28,000.

C.

32,000 .

d.

36,000.

10.

Information for the current month for the Polishing Department is shown below.

eginning work in process inventory

Direct Materials

$ 8,100

Conversion Costs

$10,525

urrent month's costs

$31,240

$56,24

quivalent units based on the FIFO costing

71,000

74,00

ethod

nits completed-69,000

nits in ending work in process inven tory-

6,000

Direct materials are added at the beginning of the process. Beginning work in process is 30 percent complete as to conversion costs; ending work in process inventory is 80 percent complete. Determine the cost of ending work in process inventory.

a.

$7,200

b.

$3,552

C.

$5,760

d.

$6,288

11.From the four selections below, identify which are necessary to develop the value chain of a product or service.

1.Processes

2.Departments

a.1 and 3

b.2 and 4

c.1 and 4

d.1 and 2

3.Nonvalue-adding activities

4.Value-adding activities

12.Which of the following activities would be part of the value chain of a manufacturer?

a.Inventory control

b.Product design

c.Cost accounting

d.Materials storage

13.In a just-in-time setting, the time spent reworking defective units is called time.

a.storage

b.inspection

C.queue

d.throughput

14.Speed Zone Inc., dealers in automobiles, pays its employees a commission of 5 percent on each sale. What is the proper classification of the cost of sales commissions?

a.Scattered cost

b.Variable cost

c.Mixed cost

d.Fixed cost

15.Using the high-low method and the information below, compute the monthly total fixed costs for Coral Corporation.

Month

Telephone Hours Used

Telephone Expenses

$4,400

October

110

November

120

4,700

December

160

5,300

a.

$8,000

b.

$2,420

C.

$5,500

d.

$5,580

16.Given the following cost and activity observations for Levo Enterprises' utilities, use the high-low method to calculate Levo's variable utilities cost per machine hour. Round your answer to two decimal places.

Month

Cost

Machine Hours

September

$4,100

22,000

October

3,700

16,000

November

4,000

20,000

December

4,500

25,000

a.

$0.09

b.

$4.32

C.

$0.25

d.

$12.50

17.In a graph of cost-volume-profit analysis, the

a.total revenue line typically begins at a required minimum level.

b.slope of the total cost line is dependent on the variable cost per unit.

c.total cost line normally begins at zero.

d.sales level at which total cost and total revenue lines intersect is also equal to fixed costs.

18.How many total dollars of sales must Windblow Company sell to break even, if the selling price per unit is

$10, variable costs are $5.00 per unit, and fixed costs are $10,000?

a.

$20,000

b.

$6,667

C.

$10,000

d.

$12,000

19.Threshold Inc. has provided the following data:

Product A

Unit Sales Price

$34.00

Unit Variable Costs

$20.00

Unit Sales

35,000

Product B

26.00

14.50

7,000

Product C

18.00

10.50

14,000

The sales mix for Products A, B, and C is

a.62.5 percent, 12.5 percent, and 25 percent, respectively .

b.40 percent, 20 percent, and 40 percent, respectively.

c.100 percent, 25 percent, and 50 percent, respectively.

d.44 percent, 33 percent, and 23 percent, respectively .

20.Which of the following is not an assumption underlying cost-volume-profit analysis?

a.Product sales mix will not change during the period.

b.The breakeven point will be reached and surpassed during the period.

c.Cost behavior can be determined accurately.

d.Productivity is constant within the relevant range.

21.If the contribution margin on a new product line is $15, fixed costs are $165,000, and the total market for the product is 22,000 units, then the breakeven analysis would recommend that the company

a.abandon the new product line.

b.decrease the sales price per unit.

c.increase fixed costs (such as advertising) to lower the breakeven units.

d.adopt the new product line.

22.Breakeven analysis adjusted for a targeted profit

a.is a difficult computation that is not normally employed.

b.decreases the number of units required to breakeven.

c.is excellent for performing "what-if' analysis.

d.is a poor basis for evaluating the profitability of a venture.

23.Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000, a variable cost per unit of $36, a selling price of $60 , and a sales level of $125,000. The targeted level of profit must be

a.

$20,000.

b.

$50,000.

C.

$95,000.

d.

$75 ,000.

24.The process of developing a master budget differs among manufacturing, retail, and service organizations in terms of preparation of

a.cash budget.

b.capital expenditures budget.

c.income statement.

d.operating budgets.

25.Which of the following budgets would be prepared immediately after the preparation of the overhead budget?

a.Cash budget

b.Production budget

c.Cost of goods sold budget

d.Cost of goods manufactured budget

26.The last step in a master budget is to prepare a

a.cost of goods manufactured budget.

b.budgeted balance sheet.

c.cash budget.

d.sales budget.

27.For which of the following can a standard cost accounting system be used?

a.Direct materials

b.Overhead

c.Direct labor

d.All of these

28.Service organizations do not develop standard rates for which of the following?

a.Any service costs

b.Overhead

c.Direct materials

d.Labor

29.Which of the following yields the standard direct material cost?

a.Multiplying the standard price of direct materials by the standard quantity for direct materials

b.Adding the standard price of direct materials to the standard quantity for direct materials

c.Multiplying the actual price of direct materials by the actual quantity for direct materials

d.Adding the actual price of direct materials to the actual quantity for direct materials

30.A flexible budget is most useful

a.when company has only fixed costs.

b.when actual output equals budgeted output.

c.as a cost control tool to help evaluate performance.

d.when a product's cost structure includes variable costs only.

Matching

Identify the document needed to support each of the following activities in a manufacturing organization:

a.Receiving direct materials at the dock

b.Billing a customer for a completed order

c.Recording the costs of a specific job requiring direct materials, direct labor, and overhead

d.Issuing direct materials into production

e.Recording direct labor time at the beginning and end of each work shift

f.Placing an order for direct materials with a supplier

1.Purchase order

2. Time card

3. Materials requisition

4.Job order cost card

5.Sales invoice

6.Receiving report

Identify the following activities, for an automobile manufacturer as

a.Value adding

b.Nonvalue adding

7.Moving product

8.Storing parts

9.Research and development

10.Inventory control

11.Production

12.Customer service

13.Cost accounting

14.Receiving

15.Storing raw materials

16.Moving materials

17.Working on product

18.Painting product

19.Packing and shipping

20.Engineering design of product

21.Storing finished goods

Listed below are the activities of Kids Joy Toys Stores. Identify the level at which each activity would be classified in the cost hierarchy used with ABC.

a.Unit level

b.Batch level

c.Product level

d.Facility level

22.Designing a new product

23.Using direct materials

24.Setting up equipment

25.Maintaining a building

26.Assembling the product

27.Receiving raw materials

28.Handling materials

29.Cleaning up processing area

Match the following sentences with their related terminology .

a.Is prepared after the production budget has been completed and the desired ending direct materials inventory amount is known

b.Can be determined as soon as the unit production budget has been completed and the labor rates are known

c.The starting point of the budgeting process

d.Can be prepared as soon as the sales budget has been completed and is made up of period expenses that are both fixed and variable with sales

e.Has two purposes, one of which is computing the overhead rates for the forthcoming accounting period

f.Is determined from the unit sales forecast and unit selling prices

g.Influences the cash budget as well as the interest expense on the forecasted income statement and the Plant and Equipment account on the budgeted balance sheet

h.Is determined from the unit sales forecast and the desired change in the ending finished goods inventory

30.Selling and administrative expense budget

31.Capital expenditures budget

32.Unit sales forecast

33.Production budget

34.Direct materials purchases budget

35.Direct labor budget

True/False

Indicate whether the statement is true orfalse.

1.

Direct costs can be conveniently traced to a cost object.

2.

All product costs are expensed in the period in which they are paid in cash.

3.

Direct labor cannot be traced to products as it is invisible.

4.

Some period costs can be found in inventory accounts on the balance sheet.

5.

The standard costing method uses the sum of actual direct materials, actual direct labor, and actual overhead to determine the product unit cost.

6.

Managers use managerial accounting principles to guide their actions and decisions in the management process.

7.

Management accounting complements each stage of the management process.

8.

Management accountants who alter reports to meet targeted levels of performance are not acting unethically, because their job is to provide information that will aid in communicating the goals of the business.

9.

Although the purpose of the confidentiality standard is to encourage management accountants to remain loyal to their company, failure to disclose knowledge of internal illegal acts to outside authorities can result in the accountants being charged as an accessory to the crime.

10.

To prepare financial statements at the end of the accounting period, the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in a job order costing system.

11.

In a service organization using a job order costing system, actual overhead will be the same as applied overhead.

12.

The ending balance of Work in Process account is compared with the total costs shown on the job order cost cards to ensure correctness.

13.

Process cost reports are prepared for each of the processes or work cells.

14.

The number of equivalent units for direct materials is the same as the number for conversion costs.

15.

In a process costing system, the average costing method assumes that cost flows mirror the logical physical flow of production.

16.A manufacturing chain is a path that leads from the suppliers of the materials from which a product is made to the final customer.

17.Reports and analyses prepared in traditional management settings will match the requirement of the new manufacturing environment.

18.Just-in-time operating environments encourage continuous improvement of the work environment.

19.In the JIT environment, direct materials and conversion costs will vary significantly for each product in a work cell.

20.Many indirect costs in a traditional system become direct costs in a JIT system.

21.The ending balance of the Cost of Goods Sold account will differ in traditional and backflush costing.

22.Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

23.Unit fixed costs will be the same regardless of how many units are produced .

24.Unit variable costs vary with changes in productive output, whereas total variable costs remain constant.

25.The relevant range of activity is the range in which actual operations of a company are likely to occur.

26.Regression analysis takes into consideration only the highest and the lowest level of activities to predict cost behavior.

27.In a breakeven scatter diagram, the loss area continues till the total costs line is below total revenues line.

29.Revising the budgets to include all planning decisions will improve the quality of the budgets.

30.Successful budget implementation depends on two factors-clear communication and the support of top management.

31.Participative budgeting results in setting unattainable standards.

32.Standard costing can be used only with a process costing system.

33.The standard overhead cost is the sum of the estimates of variable and fixed overhead costs in the next accounting period.

34.Variance analysis involves computing the difference between standard and actual costs.

35.The direct labor rate variance is the difference between the standard hours allowed and the actual hours multiplied by the actual labor rate.

Multiple Choice

identify the choice that best completes the statement or answers the question.

1.Which of the following accounts contain only one type of product cost?

a.Work in Process Inventory

b.Materials Inventory

c.Finished Goods Inventory

d.Cost of Goods Sold

2.The presentation of merchandise inventory on the balance sheet of a merchandising company most nearly resembles the presentation of inventory on the balance sheet of a manufacturing company.

a.materials

b.finished goods

c.manufacturing supplies

d.work in process

3.Consider the following information: direct materials used totaled