Cost Accounting Exam Chapters 1 3 1 The branch of accounting that serves as a bridge betwe by pmy18725


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									                                                     Cost Accounting
                                                    Exam Chapters 1-3

1. The branch of accounting that serves as a bridge between financial and managerial accounting is __________

       ANS: cost

2. Costs that can be conveniently traced to a cost object are referred to as ____________ costs.

       ANS: direct

3. The assumed range of activity that reflects the company’s normal operating range is referred to as the

       ANS: relevant range

4. Another name for inventoriable costs is ______________ costs.

       ANS: product

5. The three stages of production for a manufacturing firm are ______________, ________________, and

       ANS: raw materials, work in process, finished goods

6. In a(n) _________ cost system, factory overhead is assigned to an overhead control account and then allocated to
       products and services.

       ANS: normal

7. If actual overhead exceeds applied overhead, factory overhead is said to be ______________.

       ANS: underapplied

8. If underapplied or overapplied factory overhead is material, it is prorated among ______________________,
       _________________________, and _______________________.

       ANS: Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold

9. A performance measure that assumes all production factors are operating perfectly is referred to as
      ___________________ capacity.

      ANS: theoretical
10. Consider the regression equation y = a + bX. The portion of the equation that represents the variable rate is

       ANS: b

11. A __________________________ is a planning document that presents expected variable and fixed overhead costs
      at different activity levels.

       ANS: flexible budget
12. The costing technique that treats all manufacturing costs as inventoriable is referred to as _________________

       ANS: absorption or full

13. In comparing financial and management accounting, which of the following more accurately describes management
       accounting information?
       a. historical, precise, useful
       b. required, estimated, internal
       c. budgeted, informative, adaptable
       d. comparable, verifiable, monetary
       ANS: C

14. Management and financial accounting are used for which of the following purposes?

       Management accounting        Financial accounting

       a.   internal                    external
       b.   external                    internal
       c.   internal                    internal
       d.   external                    external

       ANS: A

15. Cost accounting is directed toward the needs of
      a. regulatory agencies.
      b. external users.
      c. internal users.
      d. stockholders.
       ANS: C

16. Cost and management accounting
      a. require an entirely separate group of accounts than financial accounting uses.
      b. focus solely on determining how much it costs to manufacture a product or provide a
      c. provide product/service cost information as well as information for internal decision
      d. are required for business recordkeeping as are financial and tax accounting.
       ANS: C

17. Which of the following statements is true?
     a. Management accounting is a subset of cost accounting.
     b. Cost accounting is a subset of both management and financial accounting.
     c. Management accounting is a subset of both cost and financial accounting.
     d. Financial accounting is a subset of cost accounting.
       ANS: B

18. The ethical standards established for management accountants are in the areas of
      a. competence, licensing, reporting, and education.
      b. budgeting, cost allocation, product costing, and insider trading.
      c. competence, confidentiality, integrity, and objectivity.
      d. disclosure, communication, decision making, and planning.
       ANS: C

19. Which of the following defines variable cost behavior?

                Total cost reaction       Cost per unit reaction
              to increase in activity     to increase in activity

       a.   remains constant             remains constant
       b.   remains constant             increases
       c.   increases                    increases
       d.   increases                    remains constant
       ANS: D

20. Which of the following always has a direct cause-effect relationship to a cost?

            Predictor    Cost driver

       a.   yes             yes
       b.   yes             no
       c.   no              yes
       d.   no              no

       ANS: C

21. The indirect costs of converting raw material into finished goods are called
      a. period costs.
      b. prime costs.
      c. overhead costs.
      d. conversion costs.
       ANS: C

22. The distinction between direct and indirect costs depends on whether a cost
      a. is controllable or non-controllable.
      b. is variable or fixed.
      c. can be conveniently and physically traced to a cost object under consideration.
      d. will increase with changes in levels of activity.
       ANS: C

23. The formula to compute cost of goods manufactured is
      a. beginning Work in Process Inventory plus purchases of raw material minus ending
                  Work in Process Inventory.
      b. beginning Work in Process Inventory plus direct labor plus direct material used plus
          overhead incurred minus ending Work in Process Inventory.
      c. direct material used plus direct labor plus overhead incurred.
      d. direct material used plus direct labor plus overhead incurred plus beginning Work in
          Process Inventory.
       ANS: B

       Wilson Company

       The following information has been taken from the cost records of Wilson Company for the past year:
      Raw material used in production                                                      $326
      Total manufacturing costs charged to production during the year (includes direct      686
      material, direct labor, and overhead equal to 60% of direct labor cost)
      Cost of goods available for sale                                                      826
      Selling and Administrative expenses                                                    25

      Inventories                       Beginning     Ending
      Raw Material                              $75     $ 85
      Work in Process                            80       30
      Finished Goods                             90      110

24. Refer to Wilson Company. The cost of raw material purchased during the year was
      a. $316.
      b. $336.
      c. $360.
      d. $411.
      ANS: B
      Beginning Inventory                       75
      +Purchases                               336
      =Goods Available for Sale                411
      -Ending Inventory                      (326)
      Materials Used in Production              85

25. Refer to Wilson Company. Direct labor cost charged to production during the year was
      a. $135.
      b. $216.
      c. $225.
      d. $360.
      ANS: C

      Total production costs              $686
      - Raw materials                     $326
      Conversion Costs                    $360
      Let x = Direct Labor
      Let .60x = Factory Overhead
      x + .60x                            $360
      x                                   $225

 26. Refer to Wilson Company. Cost of Goods Manufactured was
     a. $636.
     b. $716.
     c. $736.
     d. $766.
      ANS: C
      Beginning WIP Inventory        $ 80
      Costs of Production             686
      less: Ending WIP Inventory      (30)
      Cost of Goods Manufactured     $736

27.Refer to Wilson Company. Cost of Goods Sold was
      a. $691.
      b. $716.
      c. $736.
      d. $801.
       ANS: B
       Beginning Finished Goods Inventory         $ 90
       Cost of Goods Manufactured                  736
       less: Ending Finished Goods                (110)
       Cost of Goods Manufactured                 $716

28. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw material
      purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw
      material used during the month was
      a. $26,400.
      b. $34,100.
      c. $37,300.
      d. $29,600.
       ANS: A
       Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used
           $4,500 + 29,600 - 7,700 = X
       X = $26,400

29. An actual cost system differs from a normal cost system in that an actual cost system
      a. assigns overhead as it occurs during the manufacturing cycle.
      b. assigns overhead at the end of the manufacturing process.
      c. does not assign overhead at all.
      d. does not use an Overhead Control account.
       ANS: B

30. If the level of activity increases,
        a. variable cost per unit and total fixed costs increase.
        b. fixed cost per unit and total variable cost increase.
        c. total cost will increase and fixed cost per unit will decrease.
        d. variable cost per unit and total cost increase.
       ANS: C

31. All other things being equal, if actual cost per unit is greater than budgeted cost per unit, variable overhead will be
      a. overapplied.
      b. the same as fixed overhead.
      c. underapplied.
      d. applied to Finished Goods.
       ANS: C
32. Walton Corporation wishes to develop a single predetermined overhead rate. The company's expected annual fixed
     overhead is $340,000 and its variable overhead cost per machine hour is $2. The company's relevant range is from
     200,000 to 600,000 machine hours. Walton expects to operate at 425,000 machine hours for the coming year. The
     plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be
     a. $2.40.
     b. $2.57.
     c. $2.80.
     d. $2.85.
       ANS: C

       Fixed component:

       Variable component = $2.00 per unit

       Total predetermined overhead = $2.80 per unit

       The records of Zenith Corporation revealed the following data for the current year.

      Work in Process                        $ 73,150
      Finished Goods                          115,000
      Cost of Goods Sold                      133,650
      Direct Labor                            111,600
      Direct Material                          84,200

33. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200 and that this amount is
      material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.)
      a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and
           credit Overhead $37,200
      b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294;
           Cost of Goods Sold $15,450
      c. Debit Work in Process $37,200 and credit Overhead $37,200
      d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
       ANS: A
       WIP: 73,150/321,800 = $ 8,456
        FG: 115,000/321,800 = $13,294
        EI: 133,650/321,800 = $15,450

34. Another name for absorption costing is
      a. full costing.
      b. direct costing.
      c. job order costing.
      d. fixed costing.
      ANS: A
35. Under variable costing, which of the following are costs that can be inventoried?
      a. variable selling and administrative expense
      b. variable manufacturing overhead
      c. fixed manufacturing overhead
      d. fixed selling and administrative expense
       ANS: B
36. Why is variable costing not in accordance with generally accepted accounting principles?
     a. Fixed manufacturing costs are treated as period costs under variable costing.
     b. Variable costing procedures are not well known in industry.
     c. Net earnings are always overstated when using variable costing procedures.
     d. Variable costing ignores the concept of lower of cost or market when valuing inventory.
       ANS: A

37. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000 units in the coming
      year. To realize a profit of $20,000, the firm must have a sales price per unit of at least
      a. $11.00.
      b. $11.50.
      c. $10.00.
      d. $10.50.
       ANS: B
       Sales--40,000 units * $11.50/unit                $460,000
       Variable Costs:
           Manufacturing                                 240,000
       Contribution Margin                              $220,000
       Fixed Costs                                        200,000
       Net Income                                       $ 20,000

38. On what needs do (1) management accounting and (2) financial accounting focus?

       ANS: Management accounting focuses on the needs of users inside an organization. Managers need information
       related to planning, controlling, decision making, and performance evaluation. Their needs are satisfied through
       the providing of information designed for their particular uses. Financial accounting focuses on the needs of users
       outside the organization, such as stockholders, creditors, and regulatory agencies. These users require information
       that is in conformity with generally accepted accounting principles and, thus, is standardized in the form of
       general purpose financial statements.

39. What is the difference between a product cost and a period cost? Give three examples of each. What is the difference
     between a direct cost and indirect cost? Give two examples of each.

       A product cost is one that is associated with making or acquiring inventory. A period cost is any cost other than
       those associated with making or acquiring products and is not considered inventory. Students will have a variety
       of examples, but direct material, direct labor, and overhead are product costs. Selling and administrative expenses
       are considered period costs. A direct cost is one that is physically and conveniently traceable to a cost object.
       Direct material and direct labor are direct costs. An indirect cost is one that cannot be conveniently traced to a
       cost object. Any type of overhead cost is considered indirect.

40. Why should predetermined overhead rates be used?

       Predetermined overhead rates should be used for three reasons: (1) to assign overhead to Work in Process during
       the production cycle instead of at the end of the period; (2) to compensate for fluctuations in actual overhead costs
       that have no bearing on activity levels; and (3) to overcome problems of fluctuations in activity levels that have
       no impact on actual fixed overhead costs.
41. Discuss underapplied and overapplied overhead and its disposition at the end of the period.

       During the course of the production cycle, actual overhead costs are incurred. When overhead is applied to Work
       in Process, it is commonly applied using a predetermined rate. Overhead application at a predetermined rate may
       cause overhead to be under- or overapplied. If actual overhead is greater than applied overhead, then underapplied
       overhead results and a debit balance exists in the overhead account. If applied overhead is greater than actual
       overhead, then overapplied overhead results and a credit balance exists in the overhead account. If the amount of
       under- or overapplied overhead is immaterial, it is closed directly to Cost of Goods Sold. If the amount is
       material, it must be allocated among Work in Process, Finished Goods, and Cost of Goods Sold

42. Given the following information for McCurley Corporation, prepare the necessary journal entries, assuming that the
      Raw Material Inventory account contains both direct and indirect material.

       a.   Purchased raw material on account $28,500.
       b.   Put material into production: $15,000 of direct material and $3,000 of indirect material.
       c.   Accrued payroll of $90,000, of which 70 percent was direct and the remainder was indirect.
       d.   Incurred and paid other overhead items of $36,000.
       e.   Transferred items costing $86,500 to finished goods.
       f.   Sold goods costing $71,300 on account for $124,700.


       a.   RM Inventory                                       28,500
                     A/P                                                        28,500
       b.   WIP Inventory                                      15,000
            Manufacturing OH                                                     3,000
                     RM Inventory                                               18,000
       c.   WIP Inventory                                      63,000
            Manufacturing OH                                                    27,000
                     Salaries/Wages Payable                                     90,000
       d.   Manufacturing OH                                   36,000
                     Cash                                                       36,000
       e.   FG Inventory                                       86,500
                     WIP Inventory                                             86,500
       f.   A/R                                                               124,700
                     Sales                                                    124,700
            CGS                                                                71,300
                     FG Inventory                                              71,300

43. Hume Corporation has the following data for the current year:

       Direct Labor                                          $220,000
       Direct Material                                        137,800
       Actual Overhead                                        320,000
       Applied Overhead                                       395,000
       Raw Material                                            51,394
       Work in Process                                        101,926
       Finished Goods                                         111,192
       Cost of Goods Sold                                     250,182

       What is the amount of under- or overapplied overhead? Prepare the necessary journal entry to dispose of under- or
       overapplied overhead.

      Applied Overhead                                    $395,000
      Actual Overhead                                      320,000
                                                          $ 75,000      overapplied

      WIP $101,926/$463,300=.22             x      $75,000 = $16,500
      FG $111,192/$463,300=.24              x      $75,000 = $18,000
      CGS $250,182/$463,300=.54             x      $75,000 = $40,500

      Manufacturing Overhead                         $75,000
              Work in Process                        $16,500
              Finished Goods                          18,000
              Cost of Goods Sold                      40,500

44. The McAlister Co. has the following information available regarding costs and revenues for two recent months.
      Selling price is $20.

                                                             March            April
      Sales revenue                                           $60,000        $100,000
      Cost of goods sold                                      -36,000        - 60,000
      Gross profit                                            $24,000        $ 40,000
      Less other expenses:
      Advertising                                             $   600        $       600
      Utilities                                                 4,200              5,600
      Salaries and commissions                                  3,200              4,000
      Supplies (bags, cleaning supplies etc.)                     320                400
      Depreciation                                              2,300              2,300
      Administrative costs                                      1,900              1,900
      Total                                                   -12,520            -14,800
      Net income                                              $11,480            $25,200


      a.    Identify each of the company's expenses (including cost of goods sold) as being either
            variable, fixed, or mixed.
      b.    What is the total cost equation?
      c.    Estimate total cost if sales = $75,000.


      a.   Cost                        April                      May                        Behavior
           COGS                         36,000/60,000=60%         60,000/100,000=60%                 V
           Advertising                          600                       600                        F
           Utilities                     4,200/60,000= 7%         5,600/100,000=5.6%                 M
           Salaries, Etc.                4,000/100,000=4%                  M
           Supplies                      320/60,000 .53%             400/100,000=.4%                 M
           Depreciation                       2,300                       2,300                      F
           Administration                     1,900                       1,900                      F

      b.    Total FC = $600 + $2,300 + $1,900 + $2,100 + $2,000 + $200 = $9,100
            Total VC = 60% + 3.5% + 2% + .2% = 65.7% sales
     TC = $9,100 + 65.7% sales

c.   TC = $9100 + (65.7% x $75,000) = $58,375

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