Ch2 Concept

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

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


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.

AICPA FN: Reporting, Measurement LO: 3 Level: Easy
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.

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.

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.

AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard
15. The costs of lost sales arising from poor quality are always included in quality
cost reports.

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
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.

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.

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.

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.

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

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.

26. Factory supplies in a manufacturing plant are most likely:
A) sunk costs.
B) period costs.
C) variable costs.
D) excluded from product costs.

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.

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.

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

AICPA FN: Reporting LO: 2 Level: Medium Source: CPA, adapted
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.

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.

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.

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
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.

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

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

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.

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.

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.

AICPA FN: Reporting LO: 6 Level: Hard Source: CMA, adapted
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.

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
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.

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.

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.

AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium
Source: CPA, adapted
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.

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.

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.

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.

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.

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

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.

AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy
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.

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.

AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy
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

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

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

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
= Direct materials + Direct labor +
manufacturing costs Overhead
Manufacturing
$86,000 = $28,000 + $12,000 +
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
Direct labor = $22,667
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 $4,20
representatives................................................................. 0
$2,00
Fire insurance on factory building................................... 0
$3,70
Shipping costs on textbooks sold..................................... 0
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..............................................................................
‘
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

Solution:
Receiving and storing raw materials (5% × $8,000)........ $ 400

Production operations (70% × $8,000)............................ 5,600
$6,000
64. Consider the following costs:
$33,00
Direct materials.......................................... 0
$12,00
Depreciation on factory equipment........... 0
$23,00
Factory janitor’s salary.............................. 0
$28,00
Direct labor................................................ 0
Utilities for factory.................................... $9,000
$16,00
Selling expenses......................................... 0
$34,00
Production supervisor’s salary................... 0
$21,00
Administrative expenses............................ 0
What is the total amount of manufacturing overhead included above?

A) $78,000
B) $139,000
C) $44,000
D) $37,000

Solution:
$12,00
Factory janitor’s salary.............................. 23,000
Utilities for factory.................................... 9,000
Production supervisor’s salary................... 34,000
$78,00
Total........................................................... 0
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

$122,00
Direct labor cost......................................... 0
Selling costs (total).................................... $42,000
Administrative costs (total)........................ $56,000
$340,00
Manufacturing overhead costs (total)........ 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

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
66. Consider the following costs incurred in a recent period:
$33,00
$12,00
$23,00
Factory janitor’s salary.............................. 0
$28,00
Direct labor................................................ 0
Utilities for factory.................................... $9,000
$16,00
$34,00
Production supervisor’s salary................... 0
$21,00
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

Solution:
$16,00
21,00
$37,00
Total........................................................... 0
67. Using the following data for a recent period, calculate the beginning finished
goods inventory:
$40,00
Sales........................................................... 0
Beginning finished goods inventory.......... ?
$16,00
Cost of goods manufactured...................... 0
Ending finished goods inventory............... $5,000
Cost of goods sold..................................... ?
$17,00
Gross margin.............................................. 0
Administrative and selling expenses......... ?
$10,00
Net operating income................................. 0
The beginning finished goods inventory was:

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

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 Cost of goods Ending finished Cost of goods

+ − =
goods inventory manufactured goods inventory sold
Beginning finished
+ $16,000 − $5,000 = $23,000
goods inventory
Beginning finished goods inventory = $12,000
68. The following data are for a recent period's operations:
$150,47
Beginning finished goods inventory.......... 5
$145,75
Ending finished goods inventory............... 0
$400,00
Sales........................................................... 0
$120,00
Gross margin.............................................. 0
The cost of goods manufactured was:

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

Solution:
Sales − Cost of goods sold = Gross margin

$400,000 − Cost of goods sold = $120,000

+ − =
Cost of goods
$150,475 + − $145,750 = $280,000
manufactured
Cost of goods manufactured = $275,275
69. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory.......... $77,000

$593,00
Sales........................................................... 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

Solution:

$593,000 − Cost of goods sold = $67,000

+ − =
Cost of goods
$77,000 + − $72,000 = $526,000
manufactured
70. The following data pertain to a recent period's operations:
Sales........................................................... ?
Beginning finished goods inventory.......... $12,000
Cost of goods manufactured...................... $36,000
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

Solution:
Cost of Beginning finished Cost of goods Ending finished

= + −
goods sold goods inventory manufactured goods inventory
Cost of
= $12,000 + $36,000 − $6,000
goods sold

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

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

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
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:
$24,00
Decrease in raw materials inventory.......... 0
$17,00
Decrease in work in process inventory...... 0
$38,00
Increase in finished goods inventory......... 0
What was Toule's cost of goods sold for October?

A) $869,000
B) $886,000
C) $928,000
D) $945,000

Solution:
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

Solution:
Merchandise inventory, beginning............................. $ 19,000

Add: Merchandise purchased..................................... 87,000
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

AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Merchandise inventory, beginning............................. $11,000

Add: Merchandise purchased..................................... ?
Goods available for sale............................................. ?
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

Solution:
Finished goods inventory, beginning......................... $19,000

Add: Cost of goods manufactured.............................. 70,000
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.

Solution:
Finished goods inventory, beginning......................... $30,000

Add: Cost of goods manufactured............................. 326,000
Deduct: Finished goods inventory, ending................ 42,000
77. Given the following information, calculate the company's manufacturing
overhead:
Work in process, ending................ $8,000

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

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

AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
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.
78. The following data have been provided for the most recent month's operations:
Direct materials.......................................... $8,000

$25,00
Direct labor................................................ 0
Manufacturing overhead............................ $9,000
Total manufacturing costs.......................... ?
Beginning work in process inventory........ ?
Ending work in process inventory............. $8,000
$45,00
The beginning work in process inventory is:

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

Solution:
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*

statements.
79. Using the following data for July, calculate the cost of goods manufactured:
$31,00
$22,00
Direct labor................................................ 0
$29,00
Manufacturing overhead............................ 0
$14,00
Beginning work in process inventory........ 0
$15,00
Ending work in process inventory............. 0
The cost of goods manufactured was:

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

Solution:
Direct materials............................................................... $31,000

Direct labor..................................................................... 22,000
Total manufacturing costs............................................... 82,000
96,000
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

Solution:
First calculate raw materials used:

Beginning inventory Ending inventory Raw materials
+ Purchases − =
raw materials raw materials used
By rearranging:
Beginning Ending
Raw materials
Purchases +( inventory raw − inventory raw )=
used
materials materials
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 Manufacturing Total
+ Direct labor + =
used overhead manufacturing costs
$29,000 + $40,000 + $30,000 = $99,000
81. The following information relates to Mako Manufacturing Company for the
month of August:
$78,00
$82,00
Cost of goods sold..................................... 0
$90,00
Total manufacturing costs.......................... 0
$95,00
Cost of goods available for sale................. 0
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

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
Ending finished goods inventory = $13,000
82. The following inventory balances relate to Komiza Manufacturing Corporation at
the beginning and end of the year:
Beginnin
g Ending
$21,00
Raw materials.................... $10,000 0
Work in process................. $5,000 $3,000
$48,00
Finished goods................... $41,000 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

Solution:
Beginning finished Cost of goods Goods available

+ =
goods inventory manufactured for sale
Cost of goods
$41,000 + = $622,000
manufactured
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

Solution:
Beginning
Cost of goods finished Cost of goods
= +
available for sale goods manufactured
inventory
Cost of goods
= $25,000 + $600,000
available for sale
Cost of goods available for sale = $625,000
84. A company has provided the following cost data for its most recent accounting
period:
Direct labor.................................... $98,000

Manufacturing overhead................ $25,000
$200,00
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

Solution:
Direct labor.................................... $ 98,000

Manufacturing overhead................ 25,000
200,00
$323,00
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

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:
$86,40
Cost of raw materials used......................... 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

At 20,000 units, fixed cost per unit = $9,000 20,000 units = $0.45 per unit
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

Solution:
Indirect materials........................... $21,000

Production supervisors.................. 14,000
Total indirect costs......................... $35,000
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

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

Solution:
48 hours × $16 per hour = $768
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.

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

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
Total wages to be included in manufacturing overhead = $70 + $28 = $98
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

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

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

AICPA FN: Reporting LO: 1,2,5,6 Level: Medium
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

AICPA FN: Reporting LO: 1,2,5,6 Level: Hard
A partial listing of costs incurred at Archut Corporation during September appears below:
$113,00
Direct materials................................................... 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
$129,00
Direct labor......................................................... 0
$135,00
Advertising......................................................... 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
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:
$113,00
Direct materials................................................... 0
Utilities, factory.................................................. 5,000
Indirect labor....................................................... 25,000
Depreciation of production equipment............... 20,000
129,00
Direct labor......................................................... 0
$292,00
Total product costs.............................................. 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
135,00
Advertising......................................................... 0
$294,00
Total period costs................................................ 0
A partial listing of costs incurred during March at Febbo Corporation appears below:
Factory supplies............................................... $9,000

Administrative wages and salaries................... $85,000
$126,00
Direct materials................................................ 0
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

Solution:
Administrative wages and salaries................... $ 85,000

Sales staff salaries............................................ 30,000
Corporate headquarters building rent.............. 43,000
65,00
Marketing......................................................... 0
$223,00
Total period costs............................................. 0
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
99,00
Direct labor...................................................... 0
$293,00
Total product costs........................................... 0
The following data pertain to Graham Company's operations in May:
May 1 May 31
$12,00
Work in process inventory............. $7,000 0
$15,00
Raw materials inventory................ 0 ?
$20,00
Finished goods inventory............... ? 0
Other data:
Raw materials used........................ $40,000
$200,00
Sales............................................... 0
$135,00
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

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
Ending raw materials inventory = $5,000
104. The beginning finished goods inventory was:
A) $5,000
B) $15,000
C) $25,000
D) $30,000

AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Hard
Solution:
Cost of goods sold = Sales − Gross margin
Cost of goods sold = $200,000 − $60,000
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

statements.
105. The direct labor cost for May was:
A) $35,000
B) $40,000
C) $30,000
D) $25,000

AICPA FN: Reporting LO: 1,3,4 Level: Hard
Solution:
Graham Company
Direct materials...............................................................
$40,000
Direct labor.....................................................................
40,000*
Total manufacturing costs...............................................
140,000*
147,000*

statements.
Demeglio Corporation reported the following data for the month of September:
Beginnin
Inventories: g Ending
$34,00
Raw materials.................... $30,000 0
$22,00
Work in process................. $23,000 0
$35,00
Finished goods................... $32,000 0
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

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

Solution:
Beginning finished goods inventory.................... $ 32,000

Goods available for sale....................................... 254,000
Deduct: Ending finished inventory....................... 35,000
Boardman Company reported the following data for the month of January:
Inventories: 1/1 1/31

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

Solution:
Beginning raw materials inventory...................... $ 32,000

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
109. Boardman Company's total conversion cost for January would be:
A) $110,000
B) $170,000
C) $135,000
D) $130,000

Solution:
$ 40,00
Direct labor.................................... 0
$110,00
Total conversion costs................... 0
Fassino Corporation reported the following data for the month of November:
Beginnin
$30,00
Raw materials.................... $23,000 0
$20,00
Work in process................. $19,000 0
$29,00
Finished goods................... $55,000 0
Direct labor cost............................. $54,000
Selling expense.............................. $18,000
Administrative expense................. $42,000
110. The conversion cost for November was:
A) $187,000
B) $112,000
C) $136,000
D) $140,000

Solution:
$ 54,00
Direct labor.................................... 0
$136,00
Total conversion costs................... 0
111. The prime cost for November was:

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

Solution:

Direct labor........................................................... 54,000
Total prime cost.................................................... $105,000
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

Total conversion costs................... $87,000
113. The prime cost for November was:

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

Solution:

Direct labor........................................................... 25,000
Total prime cost.................................................... $67,000
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:
$350,00
Sales........................................................... 0
Manufacturing overhead costs................... $44,000
Direct labor................................................ $80,000
Purchase of raw materials.......................... $94,000
Administrative expenses............................ $40,000
$206,00
Raw materials used in production.............. $87,000
Selling expenses......................................... $15,000
114. The ending raw materials inventory was:
A) $3,000
B) $11,000
C) $15,000
D) $7,000

Solution:

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

Solution:

Raw materials used.............................................. $ 87,000

Direct labor........................................................... 80,000
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

statements.
116. The cost of goods sold was:
A) $196,000
B) $206,000
C) $211,000
D) $190,000

Solution:


Direct labor........................................................... 80,000
Add: Beginning work in process inventory......... 9,000 *
Subtotal................................................................ 220,000 *

statements.

The following data (in thousands of dollars) have been taken from the accounting records
of Karling Corporation for the just completed year.
$99
Sales........................................................... 0
Raw materials inventory, beginning.......... $40
Raw materials inventory, ending............... $70
$12
Purchases of raw materials........................ 0
$20
Direct labor................................................ 0
$23
Manufacturing overhead............................ 0
$15
$14
Work in process inventory, beginning....... $70
Work in process inventory, ending............ $50
$12
Finished goods inventory, beginning......... 0
$16
Finished goods inventory, ending.............. 0
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

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

Solution:
Beginning raw materials inventory...................... $ 40

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
119. The cost of goods sold for the year (in thousands of dollars) was:
A) $700
B) $500
C) $660
D) $580

Solution:


Direct labor........................................................... 200
Subtotal................................................................ 590
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
120. The net operating income for the year (in thousands of dollars) was:
A) $150
B) $200
C) $490
D) $250

Solution:


Direct labor........................................................... 200
Subtotal................................................................ 590
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
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

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

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

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

125. Property taxes on the building that will be purchased to house the manufacturing
facility are:
A) a product cost
B) a variable cost
C) an opportunity cost
D) a period cost

Vignana Corporation manufactures and sells hand-painted clay figurines of popular

sports heroes. Shown below are some of the costs incurred by Vignana for last year:
$65,00
Cost of clay used in production....................................... 0
$90,00
Wages paid to the workers who paint the figurines......... 0
$22,00
Wages paid to the sales manager’s secretary................... 0
$47,00
Cost of junk mail advertising........................................... 0
126. What is the total of the direct costs above?

A) $65,000
B) $112,000
C) $155,000
D) $202,000

Solution:
Cost of clay used in production....................................... $ 65,000

Wages paid to the workers who paint the figurines......... 90,000
Total direct costs.............................................................. $155,000
127. What is the total of the inventoriable (product) costs above?
A) $0
B) $69,000
C) $155,000
D) $159,000

Solution:
Cost of clay used in production....................................... $ 65,000

Wages paid to the workers who paint the figurines......... 90,000
Total product costs........................................................... $155,000
128. What is the total of the conversion costs above?

A) $65,000
B) $69,000
C) $90,000
D) $155,000

Solution:
Only the wages paid to the works who paint the figurines ($90,000) are
considered to be conversion costs.
Gaeddert Corporation reported the following data for the month of July:
Beginnin
$27,00
Raw materials.................... $36,000 0
$16,00
Work in process................. $13,000 0
$42,00
Finished goods................... $36,000 0
$250,00
Sales..................................................... 0
Raw materials purchases...................... $76,000
Direct labor cost................................... $33,000
Manufacturing overhead cost.............. $81,000
Selling expense.................................... $24,000
Administrative expense....................... $29,000
129. The total manufacturing cost for July was:

A) $190,000
B) $114,000
C) $199,000
D) $81,000

Solution:

Raw materials available for use............................ 112,000
Add: Direct labor costs......................................... 33,000
Add: Manufacturing overhead............................. 81,000
130. The cost of goods manufactured for July was:
A) $196,000
B) $190,000
C) $202,000
D) $199,000

AICPA FN: Reporting, Measurement Level: Medium
Solution:


Add: Beginning work in process inventory.......... 13,000
Subtotal................................................................ 212,000
131. The cost of goods sold for July was:
A) $244,000
B) $138,000
C) $190,000
D) $202,000

Solution:


Subtotal................................................................ 212,000

Cost of goods available for sale........................... 232,000
132. The net operating income for July was:
A) $7,000
B) $60,000
C) $83,000
D) $9,000

Solution:


Direct labor........................................................... 33,000
Add: Beginning work in process inventory......... 13,000
Subtotal................................................................ 212,000

Sales........................................................ $250,000
Cost of goods sold................................... 190,000
Gross margin........................................... 60,000
Administrative expenses......................$29,000
Selling expenses................................... 24,000 53,000
Net operating income.............................. $ 7,000
Management of Jarva Corporation has asked your help as an intern in preparing some key
reports for May. The company started the month with raw materials inventories of
$29,000. During the month, the company made raw materials purchases amounting to
$72,000. At the end of the month, raw materials inventories totaled $33,000. Direct labor
cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance
in the work in process account was $24,000 and the ending balance was $16,000. The
beginning balance in the finished goods account was $35,000 and the ending balance was
$46,000. Sales totaled $220,000. Selling expense was $14,000 and administrative
expense was $36,000.
133. The total manufacturing cost for May was:

A) $93,000
B) $57,000
C) $165,000
D) $161,000

Solution:

134. The cost of goods manufactured for May was:
A) $161,000
B) $165,000
C) $169,000
D) $153,000

Solution:


Subtotal................................................................ 185,000
135. The cost of goods sold for May was:
A) $107,000
B) $180,000
C) $158,000
D) $209,000

Solution:


Subtotal................................................................ 185,000

136. The net operating income for May was:
A) $77,000
B) $12,000
C) $62,000
D) $5,000

Solution:


Direct labor........................................................... 36,000
Subtotal................................................................ 185,000

Sales........................................................ $220,000
Gross margin........................................... 62,000
The following selected data for March were taken from Rubenstein Company's financial
statements:
Cost of goods available for sale.................... $65,000

Manufacturing overhead............................... $20,000
Cost of goods manufactured......................... $51,000
Finished goods inventory, ending................. $10,000
Direct materials used.................................... $15,000
$105,00
Sales.............................................................. 0
Selling and administrative expenses............. $30,000
Direct labor................................................... $20,000
Work in process inventory, beginning.......... $0
137. The gross margin was:

A) $55,000
B) $54,000
C) $50,000
D) $40,000

Solution:
Step #1:
Cost of goods available for sale........................... $65,000
Less: Finished goods inventory, ending............... 10,000
Step #2:
Sales..................................................................... $105,000
Cost of goods sold................................................ 55,000
Gross margin........................................................ $ 50,000
138. The beginning finished goods inventory was:
A) $24,000
B) $9,000
C) $10,000
D) $14,000

Solution:
Finished goods inventory, beginning................... $14,000*

Cost of goods available for sale........................... $65,000

statements.
139. The ending work in process inventory was:

A) $4,000
B) $8,000
C) $10,000
D) $0

Solution:
Beginning work in process inventory.................. $ 0

Add: Direct materials........................................... 15,000
Add: Direct labor.................................................. 20,000
55,000
Deduct: Ending work in process inventory.......... 4,000 *

statements.
Dauenhauer Corporation reported the following data for the month of April:
Beginnin
$20,00
Raw materials.................... $27,000 0
$24,00
Work in process................. $10,000 0
$28,00
Finished goods................... $38,000 0
$230,00
Sales........................................................... 0
Raw materials purchases............................ $76,000
Direct labor cost......................................... $30,000
Manufacturing overhead cost.................... $61,000
Selling expense.......................................... $22,000
Administrative expense............................. $26,000
140. The total manufacturing cost for April was:

A) $61,000
B) $167,000
C) $91,000
D) $174,000

Solution:

141. The cost of goods manufactured for April was:
A) $160,000
B) $174,000
C) $167,000
D) $188,000

Solution:


Subtotal................................................................ 184,000
142. The cost of goods sold for April was:
A) $240,000
B) $170,000
C) $150,000
D) $113,000

Solution:


Subtotal................................................................ 184,000

143. The net operating income for April was:
A) $60,000
B) $15,000
C) $12,000
D) $91,000

Solution:


Direct labor........................................................... 30,000
Subtotal................................................................ 184,000

Sales........................................................ $230,000
Gross margin........................................... 60,000
Juart Corporation reported the following data for the month of December:
Beginnin
$38,00
Raw materials.................... $26,000 0
$21,00
Work in process................. $22,000 0
$56,00
Finished goods................... $54,000 0
$230,00
Sales............................................... 0
Selling expense.............................. $15,000
144. The cost of goods sold for December was:

A) $147,000
B) $97,000
C) $228,000
D) $151,000

Solution:


Subtotal................................................................ 170,000

145. The net operating income for December was:
A) $23,000
B) $83,000
C) $88,000
D) $10,000

Solution:


Subtotal................................................................ 170,000

Sales........................................................ $230,000
Gross margin........................................... 83,000
Steenbergen Corporation reported the following data for the month of June:
Beginnin
$32,00
Raw materials.................... $39,000 0
$23,00
Work in process................. $24,000 0
$30,00
Finished goods................... $28,000 0
$250,00
Sales............................................... 0
Selling expense.............................. $21,000
146. The total manufacturing cost for June was:

A) $165,000
B) $71,000
C) $115,000
D) $172,000

Solution:

147. The net operating income for June was:
A) $37,000
B) $87,000
C) $79,000
D) $31,000

Solution:


Subtotal................................................................ 196,000

Management of Thede Corporation has asked your help as an intern in preparing some
key reports for July. The beginning balance in the raw materials inventory account was
$29,000. During the month, the company made raw materials purchases amounting to
$55,000. At the end of the month, the balance in the raw materials inventory account was
$37,000. Direct labor cost was $41,000 and manufacturing overhead cost was $61,000.
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 $42,000
and the ending balance was $55,000. Sales totaled $230,000. Selling expense was
$13,000 and administrative expense was $32,000.

A) $157,000
B) $149,000
C) $61,000
D) $102,000

Solution:

A) $149,000
B) $150,000
C) $148,000
D) $157,000

Solution:


Subtotal................................................................ 171,000
150. The cost of goods sold for July was:
A) $217,000
B) $135,000
C) $161,000
D) $115,000

Solution:


Subtotal................................................................ 171,000

151. The net operating income for July was:
A) $28,000
B) $95,000
C) $50,000
D) $83,000

Solution:


Subtotal................................................................ 171,000

Sales........................................................ $230,000
Gross margin........................................... 95,000
The CFO of Claussen Corporation has provided the following data for June. The
beginning balance in the raw materials inventory account was $38,000. During the
month, the company made raw materials purchases amounting to $53,000. At the end of
the month, the balance in the raw materials inventory account was $27,000. Direct labor
cost was $33,000 and manufacturing overhead cost was $74,000. The beginning balance
in the work in process account was $24,000 and the ending balance was $23,000. The
beginning balance in the finished goods account was $57,000 and the ending balance was
$55,000. Sales totaled $290,000. Selling expense was $17,000 and administrative
expense was $43,000.
152. The cost of goods sold for June was:

A) $174,000
B) $170,000
C) $292,000
D) $124,000

Solution:


Subtotal................................................................ 195,000

A) $56,000
B) $123,000
C) $70,000
D) $116,000

Solution:


Subtotal................................................................ 195,000

Sales........................................................ $290,000
Gross margin........................................... 116,000
Downin Corporation has provided the following data for May. The beginning balance in
the raw materials inventory account was $34,000. During the month, the company made
raw materials purchases amounting to $65,000. At the end of the month, the balance in
the raw materials inventory account was $29,000. Direct labor cost was $30,000 and
manufacturing overhead cost was $56,000. The beginning balance in the work in process
account was $15,000 and the ending balance was $16,000. The beginning balance in the
finished goods account was $41,000 and the ending balance was $57,000. Sales totaled
$220,000. Selling expense was $21,000 and administrative expense was $42,000.
154. The total manufacturing cost for May was:

A) $156,000
B) $86,000
C) $151,000
D) $56,000

Solution:

155. The net operating income for May was:
A) $71,000
B) $81,000
C) $6,000
D) $18,000

Solution:


Subtotal................................................................ 171,000

Sales........................................................ $220,000
Gross margin........................................... 81,000
Yore Corporation has provided the following data for the month of June. The beginning
balance in the finished goods inventory account was $35,000 and the ending balance was
$26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling
expense was $15,000, and administrative expense was $46,000.

A) $99,000
B) $160,000
C) $90,000
D) $108,000

Solution:


A) $51,000
B) $60,000
C) $121,000
D) $130,000

Solution:

Sales........................................................ $220,000
Gross margin........................................... 112,000
Streif Inc., a local retailer, has provided the following data for the month of June:
Merchandise inventory, beginning balance..................... $46,000

Merchandise inventory, ending balance.......................... $52,000
$260,00
Sales................................................................................. 0
$128,00
Purchases of merchandise inventory............................... 0
Selling expense................................................................ $13,000
Administrative expense................................................... $40,000
A) $128,000
B) $181,000
C) $122,000
D) $134,000

Solution:


A) $132,000
B) $126,000
C) $85,000
D) $79,000

Solution:

Sales........................................................ $260,000
Gross margin........................................... 138,000
Mcclean Corporation reported the following data for the month of October:
Beginnin
$36,00
Raw materials.................... $29,000 0
$21,00
Work in process................. $19,000 0
$53,00
Finished goods................... $55,000 0
Selling expense.............................. $16,000
160. The total manufacturing cost for October was:

A) $177,000
B) $184,000
C) $64,000
D) $109,000

Solution:

161. The cost of goods manufactured for October was:
A) $177,000
B) $175,000
C) $184,000
D) $179,000

Solution:


Subtotal................................................................ 196,000
Vives Corporation reported the following data for the month of April:
Beginnin
$21,00
Raw materials.................... $27,000 0
$10,00
Work in process................. $21,000 0
$41,00
Finished goods................... $48,000 0
$79,00
Raw materials purchases................ 0
$27,00
Direct labor cost............................. 0
0
162. The cost of goods manufactured for April was:
A) $212,000
B) $190,000
C) $201,000
D) $195,000

Solution:


Subtotal................................................................ 222,000
163. The cost of goods sold for April was:

A) $267,000
B) $205,000
C) $219,000
D) $132,000

Solution:


Subtotal................................................................ 222,000

Server Corporation has provided the following data for July. The beginning balance in
the raw materials inventory account was $22,000. During the month, the company made
raw materials purchases amounting to $76,000. At the end of the month, the balance in
the raw materials inventory account was $36,000. Direct labor cost was $25,000 and
manufacturing overhead cost was $79,000. The beginning balance in the work in process
account was $11,000 and the ending balance was $20,000. The beginning balance in the
finished goods account was $43,000 and the ending balance was $39,000.
A) $166,000
B) $104,000
C) $79,000
D) $180,000

Solution:


A) $166,000
B) $157,000
C) $180,000
D) $175,000

Solution:


Subtotal................................................................ 177,000
At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is
variable with respect to sales volume) total $132,000.
166. To the nearest whole dollar, what should be the total sales commissions at a sales
volume of 18,400 units? (Assume that this sales volume is within the relevant
range.)
A) $126,720
B) $132,000
C) $121,440
D) $143,478

Solution:
$132,000 ÷ 20,000 = $6.60 per unit
18,400 units × $6.60 = $121,440
167. To the nearest whole cent, what should be the average sales commission per unit
at a sales volume of 18,500 units? (Assume that this sales volume is within the
relevant range.)
A) $6.60
B) $6.87
C) $7.17
D) $7.14

Solution:
$132,000 ÷ 20,000 = $6.60 per unit average cost
At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed
with respect to sales volume) total $733,400.
168. To the nearest whole dollar, what should be the total property taxes at a sales
volume of 37,200 units? (Assume that this sales volume is within the relevant
range.)
A) $725,680
B) $733,400
C) $749,172
D) $717,960

Solution:
Fixed costs do not change with changes in volume; therefore, fixed costs will total
$733,400 at a sales volume of 37,200 units.
169. To the nearest whole cent, what should be the average property tax per unit at a
sales volume of 37,300 units? (Assume that this sales volume is within the
relevant range.)
A) $19.30
B) $19.66
C) $19.72
D) $19.48

Solution:
$733,400 ÷ 37,300 units = $19.66 per unit (rounded)
Leas Corporation staffs a helpline to answer questions from customers. The costs of
operating the helpline are variable with respect to the number of calls in a month. At a
volume of 25,000 calls in a month, the costs of operating the helpline total $452,500.
170. To the nearest whole dollar, what should be the total cost of operating the helpline
costs at a volume of 23,900 calls in a month? (Assume that this call volume is
within the relevant range.)
A) $442,545
B) $452,500
C) $473,326
D) $432,590

Solution:
$452,500 ÷ 25,000 calls = $18.10 per call
$18.10 per call × 23,900 calls = $432,590
171. To the nearest whole cent, what should be the average cost of operating the
helpline per call at a volume of 25,300 calls in a month? (Assume that this call
volume is within the relevant range.)
A) $18.93
B) $18.00
C) $17.89
D) $18.10

Solution:
$452,500 ÷ 25,000 calls = $18.10 per call (average)
Batterson Corporation leases its corporate headquarters building. This lease cost is fixed
with respect to the company's sales volume. In a recent month in which the sales volume
was 28,000 units, the lease cost was $697,200.
172. To the nearest whole dollar, what should be the total lease cost at a sales volume
of 29,200 units in a month? (Assume that this sales volume is within the relevant
range.)
A) $712,140
B) $697,200
C) $727,080
D) $668,548

Solution:
Fixed costs do not change with changes in volume; therefore, fixed costs will total
$697,200 at all sales levels within the relevant range.
173. To the nearest whole cent, what should be the average lease cost per unit at a sales
volume of 26,400 units in a month? (Assume that this sales volume is within the
relevant range.)
A) $25.66
B) $24.90
C) $23.88
D) $26.41

Solution:
$697,200 ÷ 26,400 units = $26.41 (rounded)
The following cost data pertain to the operations of Ladwig Department Stores, Inc., for
the month of December.
Corporate legal office salaries.............................................. $68,000

Shoe Department cost of sales--Brentwood Store................ $66,000
Corporate headquarters building lease.................................. $86,000
Store manager’s salary--Brentwood Store............................ $10,000
Shoe Department sales commissions--Brentwood Store...... $5,000
Store utilities--Brentwood Store........................................... $11,000
Shoe Department manager’s salary--Brentwood Store........ $3,000
Central warehouse lease cost................................................ $3,000
Janitorial costs--Brentwood Store......................................... $11,000
The Brentwood Store is just one of many stores owned and operated by the company.
The Shoe Department is one of many departments at the Brentwood Store. The central
warehouse serves all of the company's stores.
174. What is the total amount of the costs listed above that are direct costs of the Shoe
Department?
A) $66,000
B) $74,000
C) $106,000
D) $71,000

Solution:
Shoe Department cost of sales–Brentwood Store................. $66,000

Shoe Department sales commissions–Brentwood Store....... 5,000
Shoe Department Manager’s Salary–Brentwood Store........ 3,000
Total direct costs................................................................... $74,000
175. What is the total amount of the costs listed above that are NOT direct costs of the
Brentwood Store?
A) $74,000
B) $32,000
C) $157,000
D) $86,000

Solution:
Corporate legal office salaries................... $ 68,000

Corporate headquarters building lease....... 86,000
Central warehouse lease cost..................... 3,000
Total........................................................... $157,000
The following cost data pertain to the operations of Quinonez Department Stores, Inc.,
for the month of September.
$77,00
Corporate headquarters building lease.............................................. 0
Cosmetics Department sales commissions–Northridge Store.......... $4,000
$59,00
Corporate legal office salaries.......................................................... 0
$11,00
Store manager’s salary–Northridge Store......................................... 0
$10,00
Heating–Northridge Store................................................................. 0
$37,00
Cosmetics Department cost of sales–Northridge Store.................... 0
$16,00
Central warehouse lease cost............................................................ 0
$12,00
Store security–Northridge Store....................................................... 0
Cosmetics Department manager’s salary–Northridge Store............. $4,000
The Northridge Store is just one of many stores owned and operated by the company. The
Cosmetics Department is one of many departments at the Northridge Store. The central
warehouse serves all of the company's stores.
176. What is the total amount of the costs listed above that are direct costs of the
Cosmetics Department?
A) $78,000
B) $45,000
C) $41,000
D) $37,000

Solution:
$ 4,00
Cosmetics Department sales commissions–Northridge Store.......... 0
Cosmetics Department cost of sales–Northridge Store.................... 37,000
Cosmetics Department manager’s salary–Northridge Store............. 4,000
$45,00
Total direct costs............................................................................... 0
177. What is the total amount of the costs listed above that are NOT direct costs of the
Northridge Store?
A) $152,000
B) $33,000
C) $45,000
D) $77,000

Solution:
Corporate headquarters building lease....... $ 77,000

Corporate legal office salaries................... 59,000
Central warehouse lease cost..................... 16,000
Total costs which are NOT direct.............. $152,000
A trucking business is considering whether to give up its local delivery routes or to

expand its long haul (over 100 miles) operations.
178. In this decision, the original cost of any of the trucks that it currently owns can
best be described as a(n):
A) opportunity cost
B) conversion cost
C) sunk cost
D) differential (incremental) cost

179. In this decision, the wage costs of the additional drivers that will have to be hired
for the long haul operations can best be described as a(n):
A) opportunity cost
B) administrative cost
C) sunk cost

180. In this decision, the lost income from the local delivery routes given up can best
be described as a(n):
A) opportunity cost
B) conversion cost
C) sunk cost

Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched
product M08Y. Unfortunately, this machine has broken down and cannot be repaired.
The machine could be replaced by a new model 310 machine costing $545,000 or by a
new model 240 machine costing $450,000. Management has decided to buy the model
240 machine. It has less capacity than the model 310 machine, but its capacity is
sufficient to continue making product M08Y. Management also considered, but rejected,
the alternative of dropping product M08Y and not replacing the old machine. If that were
done, the $450,000 invested in the new machine could instead have been invested in a
project that would have returned a total of $532,000.
181. In making the decision to buy the model 240 machine rather than the model 310
machine, the differential cost was:
A) $95,000
B) $5,000
C) $77,000
D) $18,000

Solution:
Model 310 cost.............................. $545,000

Model 240 cost.............................. 450,000
Differential cost............................. $ 95,000
machine, the sunk cost was:
A) $545,000
B) $450,000
C) $527,000
D) $532,000

Solution:
The original cost of $527,000 is a sunk cost.
183. In making the decision to invest in the model 240 machine, the opportunity cost
was:
A) $545,000
B) $450,000
C) $532,000
D) $527,000

Solution:
The opportunity cost is the proceeds from the project that would have yielded
$532,000.
Management of Plascencia Corporation is considering whether to purchase a new model

370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace
a machine that was purchased 7 years ago for $348,000. The old machine was used to
make product I43L until it broke down last week. Unfortunately, the old machine cannot
be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the
new model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product
I43L. If that were done, instead of investing $340,000 in the new machine, the money
could be invested in a project that would return a total of $411,000.
machine, the sunk cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000

Solution:
The original cost of the machine purchased 7 years ago for $348,000 is a sunk
cost.
machine, the differential cost was:
A) $20,000
B) $8,000
C) $12,000
D) $63,000

Solution:
Cost of model 370 machine....................... $360,000

Cost of model 220 machine....................... 340,000
Differential cost......................................... $ 20,000
186. In making the decision to invest in the model 220 machine, the opportunity cost
was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000

Solution:
The opportunity cost is the proceeds from the project that would have yielded
$411,000.
(Appendix 2A) Debra works on the assembly line of a manufacturing company where she
installs a component part for one of the company's products. She is paid $16 per hour for
regular time and time and a half for all work in excess of 40 hours per week.
187. Debra works 42 hours during a week in which there was no idle time. The
allocation of Debra's wages for the week between direct labor cost and
manufacturing overhead cost would be:
Direct Labor Manufacturing Overhead
A) $664 $24
B) $688 $0
C) $640 $48
D) $672 $16

Solution:
Total wages for the week:

Regular time: 40 hours × $16 per hour.................. $640
Overtime: 2 hours × $24 per hour.......................... 48
Total wages................................................................ $688
Allocation of total wages:
Direct labor: 42 hours × $16 per hour.................... $672
Manufacturing overhead: 2 hours × $8 per hour.... 16
Total wages................................................................ $688
188. Debra works 43 hours in a given week but is idle for 4 hours during the week due
to equipment breakdowns. The allocation of Debra's wages for the week between
direct labor cost and manufacturing overhead cost would be:
A) $712 $0
B) $688 $24
C) $624 $88
D) $640 $72

Solution:

Total wages................................................................ $712
Manufacturing overhead:
Idle time: 4 hours × $16 per hour....................... $64
Overtime premium: 3 hours × $8 per hour......... 24 88
Total wages................................................................ $712
189. Debra's employer offers fringe benefits that cost the company $3 for each hour of
employee time (both regular and overtime). During a given week, Debra works 42
hours but is idle for 3 hours due to material shortages. The company treats all
fringe benefits as part of manufacturing overhead. The allocation of Debra's
wages and fringe benefits for the week between direct labor cost and
manufacturing overhead would be:
A) $688 $126
B) $624 $190
C) $672 $142
D) $640 $174

Solution:
Total wages and fringe benefits for the week:

Fringe benefits: 42 hours × $3 per hour................. 126
Total wages and fringe benefits.......................... $814
Allocation of wages and fringe benefits:
Idle time: 3 hours × $16 per hour....................... $ 48
Overtime premium: 2 hours × $8 per hour......... 16
Fringe benefits: 42 hours × $3 per hour.............. 126 190
Total wages and fringe benefits................................. $814
190. Debra's employer offers fringe benefits that cost the company $3 for each hour of
employee time (both regular and overtime). During a given week, Debra works 42
fringe benefits relating to direct labor as added direct labor cost and the remainder
as part of manufacturing overhead. The allocation of Debra's wages and fringe
benefits for the week between direct labor cost and manufacturing overhead
would be:
A) $688 $126
B) $624 $190
C) $741 $73
D) $672 $142

Solution:

Direct labor:
Wage cost: 39 hours × $16 per hour................... $624
Fringe benefits: 39 hours × $3 per hour.............. 117 $741
Idle time: 3 hours × $16 per hour....................... 48
Fringe benefits: 3 hours × $3 per hour................ 9 73
Total wages and fringe benefits............................. $814
(Appendix 2A) Larry is a quality inspector on the assembly line of a manufacturing

company. He is paid $16 per hour for regular time and time and a half for all work in
excess of 40 hours per week. He is classified as a direct labor worker.
191. Larry works 44 hours during a week in which there was no idle time. The
allocation of Larry's wages for the week between direct labor cost and
manufacturing overhead cost would be:
A) $736 $0
B) $640 $96
C) $704 $32
D) $688 $48

Solution:

Total wages................................................................ $736
Manufacturing overhead: 4 hours × $8 per hour.... 32
Total wages................................................................ $736
192. Larry works 45 hours in a given week but is idle for 4 hours during the week due
to equipment breakdowns. The allocation of Larry's wages for the week between
direct labor cost and manufacturing overhead cost would be:
A) $656 $104
B) $760 $0
C) $720 $40
D) $640 $120

Solution:

Total wages................................................................ $760
Idle time: 4 hours × $16 per hour....................... $64
Overtime premium: 5 hours × $8 per hour......... 40 104
Total wages................................................................ $760
193. Larry's employer offers fringe benefits that cost the company $5 for each hour of
employee time (both regular and overtime). During a given week, Larry works 45
fringe benefits as part of manufacturing overhead. The allocation of Larry's wages
and fringe benefits for the week between direct labor cost and manufacturing
overhead would be:
A) $760 $225
B) $640 $345
C) $656 $329
D) $720 $265

Solution:
Total wages and fringe benefits for the week:

Fringe benefits: 45 hours × $5 per hour................. 225
Total wages and fringe benefits.......................... $985
Idle time: 4 hours × $16 per hour....................... $ 64
Fringe benefits: 45 hours × $5 per hour.............. 225 329
Total wages and fringe benefits................................. $985
194. Larry's employer offers fringe benefits that cost the company $5 for each hour of
employee time (both regular and overtime). During a given week, Larry works 45
fringe benefits relating to direct labor as added direct labor cost and the remainder
as part of manufacturing overhead. The allocation of Larry's wages and fringe
benefits for the week between direct labor cost and manufacturing overhead
would be:

A) $720 $265
B) $861 $124
C) $760 $225
D) $656 $329

Solution:

Direct labor:
Wage cost: 41 hours × $16 per hour................... $656
Fringe benefits: 41 hours × $5 per hour.............. 205 $861
Idle time: 4 hours × $16 per hour....................... 64
Fringe benefits: 4 hours × $5 per hour................ 20 124
Total wages and fringe benefits............................. $985
(Appendix 2B) Circle K Toys, Inc. manufactures toys and children's clothing and sells
these products to retail outlets. The following costs were incurred in performing quality
activities at Circle K during the year:
$370,00
Product recall activities.......................................... 0
$240,00
Quality training activities...................................... 0
$154,00
Quality improvement activities.............................. 0
$109,00
Warranty claim activities....................................... 0
Quality inspection and testing activities................ $61,000
Rework activities................................................... $38,000
Quality data collection and reporting activities..... $15,000
195. What is the total of the prevention costs for Circle K?

A) $394,000
B) $409,000
C) $455,000
D) $470,000

Solution:
$240,00
Quality training activities...................................... 0
Quality improvement activities.............................. 154,000
Quality data collection and reporting activities..... 15,000
$409,00
Total prevention costs............................................ 0
196. What is the total of the internal failure costs for Circle K?
A) $53,000
B) $99,000
C) $517,000
D) $38,000

Solution:
Rework activities. . . $38,000

(Appendix 2B) Ean Company's quality cost report is to be based on the following data:
Quality circles.................................................................. $57,000

Downtime caused by quality problems........................... $98,000
Debugging software errors.............................................. $98,000
Statistical process control activities................................. $68,000
Test and inspection of in-process goods.......................... $24,000
Final product testing and inspection................................ $66,000
Cost of field servicing and handling complaints............. $87,000
Product recalls................................................................. $72,000
Maintenance of test equipment........................................ $75,000
197. What would be the total prevention cost appearing on the quality cost report?
A) $143,000
B) $125,000
C) $81,000
D) $129,000

Solution:
$ 57,00
Quality circles........................................................ 0
Statistical process control activities....................... 68,000
$125,00
Total prevention costs............................................ 0
198. What would be the total appraisal cost appearing on the quality cost report?
A) $141,000
B) $165,000
C) $90,000
D) $164,000

Solution:
$ 24,00
Test and inspection of in-process goods................ 0
Final product testing and inspection...................... 66,000
Maintenance of test equipment.............................. 75,000
$165,00
Total appraisal cost................................................ 0
199. What would be the total internal failure cost appearing on the quality cost report?
A) $185,000
B) $196,000
C) $173,000
D) $170,000

Solution:
$ 98,00
Downtime caused by quality problems.................. 0
Debugging software errors.................................... 98,000
$196,00
Total internal failure cost....................................... 0
200. What would be the total external failure cost appearing on the quality cost report?
A) $170,000
B) $645,000
C) $159,000
D) $355,000

Solution:
$ 87,00
Cost of field servicing and handling complaints... 0
Product recalls....................................................... 72,000
$159,00
Total external failure cost...................................... 0
(Appendix 2B) Fagel Company's quality cost report is to be based on the following data:
Disposal of defective products........................................ $42,000

Supervision of testing and inspection activities.............. $73,000
Statistical process control activities................................. $78,000
Cost of field servicing and handling complaints............. $53,000
Re-entering data because of keying errors...................... $46,000
Warranty repairs and replacements................................. $87,000
Supplies used in testing and inspection........................... $89,000
Quality circles.................................................................. $27,000
Downtime caused by quality problems........................... $14,000
A) $105,000
B) $80,000
C) $151,000
D) $116,000

Solution:
Statistical process control activities................................. $ 78,000

Quality circles.................................................................. 27,000
Total prevention cost....................................................... $105,000
A) $115,000
B) $135,000
C) $267,000
D) $162,000

Solution:
Supervision of testing and inspection activities.............. $ 73,000

Supplies used in testing and inspection........................... 89,000
Total appraisal cost.......................................................... $162,000
A) $129,000
B) $67,000
C) $115,000
D) $102,000

Solution:
Disposal of defective products........................................ $ 42,000

Re-entering data because of keying errors...................... 46,000
Downtime caused by quality problems........................... 14,000
Total internal failure cost................................................. $102,000
A) $509,000
B) $242,000
C) $101,000
D) $140,000

Solution:
Cost of field servicing and handling complaints............. $ 53,000

Warranty repairs and replacements................................. 87,000
Total external failure cost................................................ $140,000
(Appendix 2B) Faust Company's quality cost report is to be based on the following data:
$68,00
Quality engineering......................................................... 0
$35,00
Quality circles.................................................................. 0
$72,00
Supervision of testing and inspection activities.............. 0
$76,00
Net cost of scrap.............................................................. 0
Test and inspection of in-process goods.......................... $6,000
Liability arising from defective products........................ $3,000
$56,00
Warranty repairs and replacements................................. 0
$68,00
Debugging software errors.............................................. 0
$19,00
Rework labor and overhead............................................. 0
A) $107,000
B) $41,000
C) $140,000
D) $103,000

Solution:
Quality engineering......................................................... $ 68,000

Quality circles.................................................................. 35,000
Total prevention cost....................................................... $103,000
A) $78,000
B) $181,000
C) $81,000
D) $74,000

Solution:
Supervision of testing and inspection activities.............. $72,000

Test and inspection of in-process goods.......................... 6,000
Total appraisal cost.......................................................... $78,000
A) $71,000
B) $163,000
C) $74,000
D) $132,000

Solution:
Net cost of scrap............................ $ 76,000

Debugging software errors............ 68,000
Rework labor and overhead........... 19,000
Total internal failure cost............... $163,000
A) $222,000
B) $403,000
C) $79,000
D) $59,000

Solution:
Liability arising from defective products........................ $ 3,000

Warranty repairs and replacements................................. 56,000
Total external failure cost................................................ $59,000
Essay Questions
209. The information below relates to Guzzardi Manufacturing Company. (Assume

that all raw materials are direct materials.):
$362,00
Purchases of raw materials........................ 0
$207,00
Direct labor cost......................................... 0
Selling costs (total).................................... $61,000
Administrative costs (total)........................ $84,000
$775,00
Manufacturing overhead costs (total)........ 0
Raw materials inventory, beginning.......... $37,000
Work in process inventory, beginning....... $19,000
Finished goods inventory, beginning......... $62,000
Raw materials inventory, ending............... $44,000
Work in process inventory, ending............ $3,000
Finished goods inventory, ending.............. $77,000
Required:
What is Guzzardi's cost of goods sold?
Ans:
$ 362,00
Purchases of raw materials.............................................. 0
37,00
Add: Raw materials inventory, beginning...................... 0
399,000
44,00
Deduct: Raw materials inventory, ending....................... 0
Raw materials used in production................................... 355,000
Direct labor cost.............................................................. 207,000
775,00
Manufacturing overhead costs (total)............................. 0
Total manufacturing cost................................................ 1,337,000
19,00
Add: Work in process inventory, beginning................... 0
1,356,000
3,00
Deduct: Work in process inventory, ending................... 0
$1,353,00
Cost of goods manufactured........................................... 0
Finished goods inventory, beginning.............................. $ 62,000
Add: Cost of goods manufactured.................................. 1,353,000
Goods available for sale.................................................. 1,415,000
Deduct: Finished goods inventory, ending..................... 77,000
$1,338,00
Cost of goods sold........................................................... 0
AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting, Measurement LO: 1,2,3,4 Level: Medium
210. Miyose Corporation, a manufacturing company, has provided the following data
for the month of June:
Beginnin
$21,00
Raw materials.................... $23,000 0
$37,00
Finished goods................... $32,000 0
Raw materials purchased during June totaled $67,000 and the cost of goods
manufactured totaled $124,000.
Required:
10. What was the cost of raw materials used in production during June? Show
your work.
11. What was the cost of goods sold for June? Show your work.
Ans:
a.
$23,00
Beginning materials inventory......................................... 0
Add: Purchases of raw materials..................................... 67,000
Raw materials available for use....................................... 90,000
Deduct: Ending raw materials inventory......................... 21,000
$69,00
Raw materials used in production................................... 0
b.
$124,00
Cost of goods manufactured............................................ 0
32,00
Add: Beginning finished goods inventory....................... 0
Goods available for sale.................................................. 156,000
37,00
Deduct: Ending finished goods inventory....................... 0
$119,00

211. During the month of May, Russnak Corporation, a manufacturing company,
purchased raw materials costing $73,000. The cost of goods manufactured for the
month was $102,000. The beginning balance in the raw materials account was
$26,000 and the ending balance was $39,000. The beginning balance in the
finished goods account was $42,000 and the ending balance was $46,000.
Required:
12. What was the cost of raw materials used in production during May? Show
your work.
13. What was the cost of goods sold for May? Show your work.
Ans:
a.
$26,00
Beginning materials inventory......................................... 0
Add: Purchases of raw materials..................................... 73,000
Raw materials available for use....................................... 99,000
Deduct: Ending raw materials inventory......................... 39,000
$60,00
Raw materials used in production................................... 0
b.
$102,00
Cost of goods manufactured............................................ 0
42,00
Add: Beginning finished goods inventory....................... 0
Goods available for sale.................................................. 144,000
46,00
Deduct: Ending finished goods inventory....................... 0
$ 98,00

212. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on
her desk a memo from her boss, Gary Resnick, to the controller of the company.
The memo appears below:
Galaxy Toys Internal Memo
Sept 15
To: Harry Wilson, Controller

Fm: Gary Resnick, Executive Vice President
As you know, we won't start recording many sales until October when stores start
accepting shipments from us for the Christmas season. Meanwhile, we are
producing flat-out and are building up our finished goods inventories so that we
will be ready to ship next month.
Unfortunately, we are in a bind right now since it looks like the net income for the
quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble
with the bank since they always review the quarterly financial reports and may
call in our loan if they don't like what they see. Is there any possibility that we
could change the classification of some of our period costs to product costs--such
as the rent on the finished goods warehouse?
Please let me know as soon as possible. The President is pushing for results.
Mary didn't know what to do about the memo. It wasn't intended for her, but its
contents were alarming.
Required:
14. Why has Gary Resnick suggested reclassifying some period costs as product
costs?
15. Why do you think Mary was alarmed about the memo?
Ans:
16. Gary Resnick has suggested reclassifying some period costs as product costs
since the company is building up large finished goods inventories in
anticipation of the Christmas selling season. Product costs are inventoried and
flow through to the income statement only when products are sold. Period
expenses, in contrast, flow directly to the income statement. Since most of the
finished goods inventories will be held over to the next quarter, reclassifying
period costs as product costs will effectively defer recognition of expenses
until next quarter and therefore will improve the current quarter's net
operating income.
17. Mary Tappin is probably alarmed by both the economic situation the company
finds itself in and by the apparent willingness of top management to bend the
rules. Improperly reclassifying costs is an indication that top management
does not feel like it has to play by the rules or be honest in its dealings with
the bank. With such loose ethical standards, Mary may wonder what other
things they are doing that are unethical and/or illegal.

AICPA FN: Decision Making LO: 2 Level: Medium
213. A partial listing of costs incurred at Boylen Corporation during March appears
below:
$181,00
Direct materials................................................................ 0
Utilities, factory............................................................... $10,000
Sales commissions........................................................... $69,000
Administrative salaries.................................................... $99,000
Indirect labor.................................................................... $32,000
Advertising...................................................................... $75,000
Depreciation of production equipment............................ $28,000
$120,00
Direct labor...................................................................... 0
Depreciation of administrative equipment...................... $49,000
Required:
18. What is the total amount of product cost listed above? Show your work.
19. What is the total amount of period cost listed above? Show your work.
Ans:
a. Product costs consist of direct materials, direct labor, and manufacturing

overhead:
$181,00
Direct materials...................................................... 0
Direct labor............................................................ 120,000
$10,00
Utilities, factory.................................................. 0
Indirect labor...................................................... 32,000
70,00
Depreciation of production equipment............... 28,000 0
$371,00
Total product cost.................................................. 0
b. Period costs consist of all costs other than product costs:

$ 99,00
Administrative salaries.......................................... 0
Sales commissions................................................. 69,000
Depreciation of administrative equipment............. 49,000
75,00
Advertising............................................................ 0
$292,00
Total period cost.................................................... 0
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 2 Level: Medium
214. Marquess Corporation has provided the following partial listing of costs incurred
during May:
Marketing salaries...................................... $39,000

Property taxes, factory............................... $8,000
$102,00
Administrative travel................................. 0
Sales commissions..................................... $73,000
Indirect labor.............................................. $31,000
$197,00
$145,00
Advertising................................................ 0
Depreciation of production equipment...... $39,000
Direct labor................................................ $78,000
Required:
20. What is the total amount of product cost listed above? Show your work.
21. What is the total amount of period cost listed above? Show your work.
Ans:
a. Product costs consist of direct materials, direct labor, and manufacturing

overhead:
$197,00
Direct materials...................................................... 0
Direct labor............................................................ 78,000
Property taxes, factory........................................ $ 8,000
Indirect labor...................................................... 31,000
78,00
Depreciation of production equipment............... 39,000 0
$353,00
Total product cost.................................................. 0
b. Period costs consist of all costs other than product costs:

$102,00
Administrative travel..................... 0
Sales commissions......................... 73,000
Marketing salaries.......................... 39,000
Advertising.................................... 145,000
$359,00
Total period cost............................ 0
LO: 2 Level: Medium
215. Classify the following costs for an auto manufacturer as either direct materials,
direct labor, manufacturing overhead, or period costs.
22. Steel used in automobiles

23. Assembly department employee wages
24. Utility costs used in executive building
25. Travel costs used by sales personnel
26. Cost of shipping goods to customers
27. Property taxes on assembly plant
28. Glass used in automobiles
29. Maintenance supplies
30. Depreciation on assembly plant
31. Plant manager's salary
32. CEO's salary
33. Depreciation on executive building
34. Salary of marketing executive
35. Tires installed on automobiles
36. Advertising
Required:
Complete the answer sheet above by placing an “X” under each heading that
identifies the cost involved.
Direct Materials Direct Labor Manufacturing Overhead Period Cost

a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
Ans:
Direct Materials Direct Labor Manufacturing Overhead Period Cost

a. X
b. X
c. X
d. X
e. X
f. X
g. X
h. X
i. X
j. X
k. X
l. X
m. X
n. X
o. X

LO: 2 Level: Medium
216. The following costs relate to one month's activity in Carr Company:
Indirect labor.................................. $400

Rent on factory building................ $300
Maintenance of equipment............ $100
$1,20
Direct material used....................... 0
Utilities on factory......................... $200
$1,50
Direct labor.................................... 0
Selling expense.............................. $500
Administrative expense................. $300
Work in process, beginning........... $800
Work in process, ending................ $600
Finished goods, beginning............. $500
Finished goods, ending.................. $250
Required:
37. Prepare a schedule of Cost of Goods Manufactured in good form.
38. Determine the Cost of Goods Sold for the month.
Ans:
a.
$1,20
Direct labor.................................... 1,500
$40
Indirect labor.............................. 0
Rent............................................. 300
Maintenance................................ 100
Utilities....................................... 200 1,000
Total manufacturing cost............... 3,700
Add: WIP, beginning..................... 800
4,500
Deduct: WIP, ending..................... 600
$3,90
b.
Finished goods, beginning......................... $ 500
Add: Cost of goods manufactured............. 3,900
Goods available for sale............................. 4,400
25
Finished goods, ending.............................. 0
$4,15
Cost of goods sold..................................... 0

217. Nish Corporation has provided the following data for the month of April:
$220,00
Sales............................................... 0
Selling expense.............................. $18,000
Beginnin
$35,00
Raw materials........ $26,000 0
$22,00
Work in process..... $18,000 0
$29,00
Finished goods....... $42,000 0
Required:
39. Prepare a Schedule of Cost of Goods Manufactured in good form for April.
40. Prepare an Income Statement in good form for April.
Ans:
a. Schedule of Cost of Goods Manufactured

Direct materials:
$26,00
Beginning materials inventory............................ 0
Add: Purchases of raw materials........................ 50,000
Raw materials available for use.......................... 76,000
Deduct: Ending raw materials inventory............ 35,000
$ 41,00
Raw materials used in production.......................... 0
Direct labor............................................................ 23,000
59,00
Manufacturing overhead........................................ 0
Total manufacturing costs...................................... 123,000
18,00
Add: Beginning work in process inventory........... 0
141,000
22,00
Deduct: Ending work in process inventory........... 0
$119,00
Cost of goods manufactured.................................. 0
b. Income Statement
$220,00
Sales....................................................................... 0
Cost of goods sold:
$ 42,00
Beginning finished goods inventory................... 0
119,00
Add: Cost of goods manufactured...................... 0
Goods available for sale..................................... 161,000
Deduct: Ending finished goods inventory.......... 29,000 132,000
Gross margin.......................................................... 88,000
Selling expenses................................................. 18,000
Administrative expenses..................................... 43,000 61,000
Net operating income............................................. $ 27,000

218. The following data have been provided the Monster Manufacturing Company for
the most recent period:
$16,80
Sales................................................................................. 0
Raw materials inventory, beginning................................ $900
Raw materials inventory, ending..................................... $750
Purchases of raw materials.............................................. $8,400
Direct labor...................................................................... $1,240
Manufacturing overhead.................................................. $2,070
Administrative expenses.................................................. $1,890
Selling expenses.............................................................. $1,000
Work in process inventory, beginning............................. $700
Work in process inventory, ending.................................. $1,050
Finished goods inventory, beginning............................... $970
Finished goods inventory, ending.................................... $1,120
Required:
Calculate the cost of goods manufactured and prepare an income statement.
Ans:
Cost of goods manufactured:

Direct materials = $900+$8,400-$750 = $8,550
Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860
Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510
$16,80
Sales....................................................................... 0
Cost of goods sold:
Beginning finished goods inventory................... $ 970
Plus cost of goods manufactured........................ 11,510
Cost of goods available for sale.......................... 12,480
Less ending finished goods inventory................ 1,120
11,36
Cost of goods sold................................................. 0
Gross margin.......................................................... 5,440
Administrative expenses..................................... 1,890
Selling expenses................................................. 1,000
Total selling and administrative expense............... 2,890
Net operating income............................................. $ 2,550

219. In December, Vollick Corporation had sales of $245,000, selling expenses of
$23,000, and administrative expenses of $26,000. The cost of goods manufactured
was $190,000. The beginning balance in the finished goods inventory account
was $59,000 and the ending balance was $56,000.
Required:
Prepare an Income Statement in good form for December.
Ans:
Income Statement
$245,00
Sales.................................................................... 0
Cost of goods sold:.............................................
$ 59,00
Beginning finished goods inventory................ 0
190,00
Add: Cost of goods manufactured................... 0
Goods available for sale.................................. 249,000
56,00 193,00
Deduct: Ending finished goods inventory....... 0 0
Gross margin....................................................... 52,000
Selling expenses.................................................. 23,000
26,00
Administrative expenses..................................... 0 49,000
Net operating income.......................................... $ 3,000

220. In April, Holderness Inc., a merchandising company, had sales of $221,000,

selling expenses of $14,000, and administrative expenses of $25,000. The cost of
merchandise purchased during the month was $155,000. The beginning balance in
the merchandise inventory account was $34,000 and the ending balance was
$48,000.
Required:
Prepare an Income Statement in good form for April.
Ans:
Income Statement
Sales................................................................. $221,000
Cost of goods sold:
Beginning merchandise inventory................ $ 34,000
Add: Purchases............................................. 155,000
Goods available for sale............................... 189,000
Deduct: Ending merchandise inventory....... 48,000 141,000
Gross margin.................................................... 80,000
Selling expenses........................................... 14,000
Administrative expenses............................... 25,000 39,000
Net operating income....................................... $ 41,000

221. The following data were taken from the cost records of Morrey Company for last
year:
Depreciation, factory..................... $60,000

$100,00
Indirect labor.................................. 0
Utilities, factory............................. $40,000
Insurance, factory.......................... $10,000
Lubricants for machines................ $15,000
$200,00
Direct labor.................................... 0
$150,00
Purchases of raw materials............ 0
Inventories at the beginning and at the end of the year were as follows:
Beginnin
g Ending
$20,00
Raw materials.................... $10,000 0
Work in process................. $25,000 $5,000
$50,00
Finished goods................... $30,000 0
Required:
Prepare a schedule of cost of goods manufactured in good form.
Ans:
Morrey Company
Direct materials:
Raw materials inventory, beginning................ $ 10,000
Add: Purchases of raw materials..................... 150,000
Raw materials available for use....................... 160,000
Deduct: Raw materials inventory, ending....... 20,000
Raw materials used in production................... $140,000
Direct labor......................................................... 200,000
Depreciation, factory....................................... 60,000
Indirect labor................................................... 100,000
Utilities, factory............................................... 40,000
Insurance, factory............................................ 10,000
Lubricants for machines.................................. 15,000
Total manufacturing overhead cost.................... 225,000
Total manufacturing costs................................... 565,000
Add: Work in process inventory, beginning....... 25,000
590,000
Deduct: Work in process inventory, ending....... 5,000
Cost of Goods Manufactured.............................. $585,000

222. Pamer Corporation has provided the following data for the month of September:
$60,00
Raw materials purchases................ 0
$27,00
Direct labor cost............................. 0
$76,00
Manufacturing overhead cost........ 0
Beginnin
$23,00
Raw materials.................... $20,000 0
$18,00
Work in process................. $24,000 0
$32,00
Finished goods................... $43,000 0
Required:
Prepare a Schedule of Cost of Goods Manufactured in good form for September.
Ans:
Direct materials:
$20,00
Beginning materials inventory............................ 0
Add: Purchases of raw materials........................ 60,000
Raw materials available for use.......................... 80,000
Deduct: Ending raw materials inventory............ 23,000
Raw materials used in production.......................... $ 57,000
Direct labor............................................................ 27,000
Manufacturing overhead........................................ 76,000
Total manufacturing costs...................................... 160,000
Add: Beginning work in process inventory........... 24,000
184,000
Deduct: Ending work in process inventory........... 18,000
$166,00
Cost of goods manufactured.................................. 0

223. A number of costs and measures of activity are listed below.
Possible Measure of
Cost Description Activity
1. Cost of vaccine used at a clinic Vaccines administered
2. Building rent at a taco shop Dollar sales
3. Salary of production manager at a snowboard manufacturer Snowboards produced
4. Cost of electricity for production equipment at a snowboard
manufacturer Snowboards produced
5. Ferry captain’s salary on a regularly scheduled passenger
ferry Number of passengers
6. Cost of glue used in furniture production Units produced
7. Janitorial wages at a snowboard manufacturer Snowboards produced
8. Depreciation on factory building at a snowboard
manufacturer Snowboards produced
9. Cost of advertising at a snowboard company Snowboards sold
10 Cost of shipping bags of fertilizer to a customer at a
. chemical plant Bags shipped
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with
respect to the possible measure of activity listed next to it.
Ans:
1. Cost of vaccine used at a clinic; Vaccines administered; Variable

2. Building rent at a taco shop; Dollar sales; Fixed
3. Salary of production manager at a snowboard manufacturer; Snowboards
produced; Fixed
4. Cost of electricity for production equipment at a snowboard manufacturer;
Snowboards produced; Variable
5. Ferry captain's salary on a regularly scheduled passenger ferry; Number of
passengers; Fixed
6. Cost of glue used in furniture production; Units produced; Variable
7. Janitorial wages at a snowboard manufacturer; Snowboards produced; Fixed
8. Depreciation on factory building at a snowboard manufacturer; Snowboards
produced; Fixed
9. Cost of advertising at a snowboard company; Snowboards sold; Fixed
10. Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags
shipped; Variable

LO: 5 Level: Easy
224. A number of costs are listed below.
Cost Description Cost Object

1. Wages of carpenters on a home building site A particular home
2. Cost of wiring used in making a personal computer A particular personal
computer
3. Manager’s salary at a hotel run by a chain of hotels A particular hotel guest
4. Manager’s salary at a hotel run by a chain of hotels The particular hotel
5. Cost of aluminum mast installed in a yacht at a yacht
manufacturer A particular yacht
6. Monthly lease cost of X-ray equipment at a hospital The Radiology (X-Ray)
Department
7. Cost of screws used to secure wood trim in a yacht at a
yacht manufacturer A particular yacht
8. Cost of electronic navigation system installed in a yacht at a
yacht manufacturer A particular yacht
9. Cost of a replacement battery installed in a car at the auto
repair shop of an automobile dealer The auto repair shop
10 Cost of a measles vaccine administered at an outpatient
. clinic at a hospital A particular patient
Required:
For each item above, indicate whether the cost is direct or indirect with respect to
the cost object listed next to it.
Ans:
41. Wages of carpenters on a home building site; A particular home; Direct

42. Cost of wiring used in making a personal computer; A particular personal
computer; Indirect
43. Manager's salary at a hotel run by a chain of hotels; A particular hotel guest;
Indirect
44. Manager's salary at a hotel run by a chain of hotels; The particular hotel;
Direct
45. Cost of aluminum mast installed in a yacht at a yacht manufacturer; A
particular yacht; Direct
46. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray)
Department; Direct
47. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A
particular yacht; Indirect
48. Cost of electronic navigation system installed in a yacht at a yacht
manufacturer; A particular yacht; Direct
49. Cost of a replacement battery installed in a car at the auto repair shop of an
automobile dealer; The auto repair shop; Direct
50. Cost of a measles vaccine administered at an outpatient clinic at a hospital; A
particular patient; Direct

LO: 6 Level: Easy
225. A direct labor worker at Ude Corporation is paid $24 per hour for regular time
and time and a half for all work in excess of 40 hours per week. This employee
works 44 hours during a week in which there was no idle time.
Required:
Determine how much of the worker's wages for the week would be classified as
direct labor cost and how much would be classified as manufacturing overhead
cost. Show your work.
Ans:
Direct labor: $24 per hour × 44 hour = $1,056

Overtime premium: $12 per hour × 4 hours = $48

Appendix: 2A LO: 8 Level: Easy
226. A direct labor worker at Bodreau Corporation is paid $14 per hour for regular
time and time and a half for all work in excess of 40 hours per week. This
employee works 48 hours in a given week but is idle for 4 hours during the week
due to equipment breakdowns.
Required:
Ans:
Direct labor:
$61
$14 per hour × 44 hours...................................... 6
$ 5
Idle time: $14 per hour × 4 hours....................... 6
Overtime premium: $7 per hour × 8 hours......... 56

$11
Total manufacturing overhead............................... 2

Appendix: 2A LO: 8 Level: Easy
227. A direct labor worker at Chiarini Corporation is paid $14 per hour for regular time
and time and a half for all work in excess of 40 hours per week. The company's
fringe benefits cost $4 for each hour of employee time (both regular and
overtime). Last week this employee worked 45 hours but was idle for 3 hours due
to material shortages. The company treats all fringe benefits as part of
Required:
Ans:
Direct labor:
$58
$14 per hour × 42 hours...................................... 8
Idle time: $14 per hour × 3 hours....................... $ 42
Fringe benefits: $4 per hour × 45 hours............. 180
$25

Appendix: 2A LO: 8 Level: Medium
228. A direct labor worker at Kimmer Corporation is paid $18 per hour for regular
time and time and a half for all work in excess of 40 hours per week. The
company's fringe benefits cost $4 for each hour of employee time (both regular
and overtime). Last week this employee worked 42 hours but was idle for 4 hours
due to material shortages. The company treats all fringe benefits relating to direct
labor as added direct labor cost and the remainder as part of manufacturing
overhead.
Required:
Ans:
Direct labor:
$68
Wages: $18 per hour × 38 hours......................... 4
Fringe benefits: $4 per hour ×38 hours.............. 152
$83
Total direct labor.................................................... 6
Idle time: $18 per hour ×4 hours........................ $ 72
Fringe benefits: $4 per hour × 4 hours............... 16
$10

Appendix: 2A LO: 8 Level: Medium
229. Toole Manufacturing Company manufactures and sells ceiling fans. Toole
incurred the following costs related to quality for the year:
$35,00
Cost of warranty repairs............................. 0
$27,00
Cost of employee quality training.............. 0
$18,00
Cost incurred to rework fans...................... 0
$15,00
Spoilage cost (net)..................................... 0
$11,00
Cost of handling customer complaints...... 0
Depreciation cost of test equipment.......... $6,000
Cost of quality circles................................ $5,000
Maintenance cost of test equipment.......... $3,000
Cost of retesting reworked fans................. $2,000
Cost of final testing of fans........................ $1,000
Required:
Prepare a Quality Cost Report for Toole Manufacturing Company showing both
dollars and percents. Assume that sales were $2,000,000.
Ans:
Amount Percent
Prevention costs:
$ 27,00
Cost of employee quality training.......... 0 1.35
5,00
Cost of quality circles............................. 0 0.25
32,00
Total prevention cost................................. 0 1.60
Appraisal costs:
Depreciation cost of test equipment....... 6,000 0.30
Maintenance cost of test equipment....... 3,000 0.15
1,00
Cost of final testing of fans.................... 0 0.05
10,00
Total appraisal cost.................................... 0 0.50
Internal failure costs:
Cost incurred to rework fans.................. 18,000 0.90
Spoilage cost (net).................................. 15,000 0.75
2,00
Cost of retesting reworked fans.............. 0 0.10
35,00
Total internal failure cost........................... 0 1.75
External failure costs:
Cost of warranty repairs......................... 35,000 1.75
11,00
Cost of handling customer complaints... 0 0.55
46,00
Total external failure cost.......................... 0 2.30
$123,00
Total quality cost....................................... 0 6.15

AICPA FN: Reporting, Measurement Appendix: 2B LO: 9,10
Level: Easy
230. Gad Company's quality cost report is to be based on the following data:
$17,00
Re-entering data because of keying errors............. 0
$88,00
Net cost of spoilage............................................... 0
$78,00
Supervision of testing and inspection activities..... 0
$17,00
Lost sales due to poor quality................................ 0
$92,00
Warranty repairs and replacements....................... 0
$12,00
Depreciation of test equipment.............................. 0
$75,00
Maintenance of test equipment.............................. 0
$79,00
Systems development............................................ 0
$19,00
Quality training...................................................... 0
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Ans:
Prevention costs
$ 19,00
Quality training............................................................. 0
Systems development................................................... 79,000
Total prevention cost....................................................... 98,000
Appraisal costs
Depreciation of test equipment..................................... 12,000
Supervision of testing and inspection activities........... 78,000
Maintenance of test equipment..................................... 75,000
Total appraisal cost.......................................................... 165,000
Internal failure costs
Re-entering data because of keying errors................... 17,000
Net cost of spoilage...................................................... 88,000
Total internal failure cost................................................. 105,000
External failure costs
Lost sales due to poor quality....................................... 17,000
Warranty repairs and replacements.............................. 92,000
Total external failure cost................................................ 109,000
$477,00
Total quality cost............................................................. 0

Level: Medium
231. Hartz Company's quality cost report is to be based on the following data:
Lost sales due to poor quality.......................................... $86,000

Net cost of spoilage......................................................... $35,000
Final product testing and inspection................................ $19,000
Net cost of scrap.............................................................. $88,000
Systems development...................................................... $83,000
Supplies used in testing and inspection........................... $94,000
Rework labor and overhead............................................. $72,000
Quality data gathering, analysis, and reporting............... $43,000
Product recalls................................................................. $53,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Ans:
Prevention costs
Systems development................................................... $ 83,000
Quality data gathering, analysis, and reporting............ 43,000
Total prevention cost....................................................... 126,000
Appraisal costs
Final product testing and inspection............................. 19,000
Supplies used in testing and inspection........................ 94,000
Total appraisal cost.......................................................... 113,000
Internal failure costs
Rework labor and overhead.......................................... 72,000
Net cost of scrap........................................................... 88,000
Net cost of spoilage...................................................... 35,000
Total internal failure cost................................................. 195,000
External failure costs
Lost sales due to poor quality....................................... 86,000
Product recalls.............................................................. 53,000
Total external failure cost................................................ 139,000
$573,00
Total quality cost............................................................. 0

Level: Medium

Ch2 Concept

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ch2 Concept

Uploaded by

Copyright:

Available Formats

True/False Questions

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

2. Conversion cost is the sum of direct labor and manufacturing overhead.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

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

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

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

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

5. Period costs are also known as inventoriable costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

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

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

7. The cost of goods sold of a manufacturing company equals beginning finished

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Multiple Choice Questions

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Direct Material Cost Fixed Cost

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Indirect labor Fixed manufacturing overhead

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking

19. Manufacturing overhead includes:

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

23. Prime costs consist of:

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

24. Which of the following is NOT a period cost?

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

27. All of the following are examples of product costs except:

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Period cost Product cost

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

31. Conversion costs consist of:

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

32. Which of the following is an example of a period cost?

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Direct Cost Fixed Cost

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

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

Total Variable Cost Variable Cost Per Unit

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking