File: ch14, Chapter 14: Managerial Accounting

Multiple Choice

1. Managerial accounting: a) is governed by generally accepted accounting principles. b) places emphasis on special-purpose information. c) pertains to the entity as a whole and is highly aggregated. d) is limited to cost data. Ans: b Response A: Financial accounting, not managerial accounting is governed by generally accepted accounting principles. Response B: Correct! This is an accurate statement about managerial accounting. Response C: Financial accounting, not managerial accounting pertains to the entity as a whole and is highly aggregated. Response D: Cost accounting and cost data are a subset of management accounting.

2. The management of an organization performs several broad functions. They are: a) planning, directing, and selling. b) planning, directing, and controlling. c) planning, manufacturing, and controlling. d) directing, manufacturing, and controlling. Ans: b Response A: Planning and directing are two of the functions performed by management, but selling is performed by the selling group in the organization, not by management. Response B: Correct! These are the broad functions performed by the management of an organization. Response C: Planning and controlling are two of the functions performed by management, but manufacturing is performed by the manufacturing group in the organization, not by management. Response D: Directing and controlling are two of the functions performed by management, but manufacturing is performed by the manufacturing group in the organization, not by management.

3. Direct materials are a: Product Cost Yes Yes Yes No Manufacturing Overhead Yes No Yes No Period Cost No No Yes No

a) b) c) d)

Ans: b Response A: Direct materials are a product cost but not manufacturing overhead or a period cost. Response B: Correct! Direct materials are a product cost but not manufacturing overhead or a period cost. Response C: Direct materials are not manufacturing overhead or a period cost but are a product cost. Response D: If B is correct than this answer is not correct.

4. Indirect labor is a: a) nonmanufacturing cost. b) raw material cost. c) product cost. d) period cost. Ans: c Response A: Indirect labor is not a nonmanufacturing cost because it is part of the effort required to produce a product. Response B: Indirect labor is not a raw material cost because raw material costs only include direct materials and indirect materials. Response C: Correct! Indirect labor is a product cost because it is part of the effort required to produce a product. Response D: Indirect labor is not a period cost because it is part of the effort required to produce a product.

5. Which of the following costs would be included in manufacturing overhead of a computer manufacturer? a) The cost of the disk drives. b) The wages earned by computer assemblers. c) The cost of the memory chips. d) Depreciation on testing equipment. Ans: d Response A: The cost of the disk drives would be included as direct materials, not manufacturing overhead of a computer company. Response B: The wages earned by computer assemblers would be included as direct labor, not manufacturing overhead of a computer company. Response C: The cost of the memory chips would be included as direct materials, not manufacturing overhead of a computer company. Response D: Correct! Depreciation on testing equipment would be included in manufacturing overhead because it is indirectly associated with the finished product.

6. Which of the following is not an element of manufacturing overhead? a) Sales managers salary. b) Plant managers salary.

c) Factory repairmans wages. d) Product inspectors salary. Ans: a Response A: Correct! The sales manager's salary is considered a period cost, not a product cost. Response B: The plant managers salary is considered an element of manufacturing overhead. Response C: The factory repairmans wages are considered an element of manufacturing overhead. Response D: The product inspectors salary is considered an element of manufacturing overhead.

7. For the year, Redder Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The cost of goods sold is: a) $450,000. b) $500,000. c) $550,000. d) $600,000. Ans: c Response A: Cost of goods sold is computed as follows: Beginning finished goods inventory ($200,000) plus cost of goods manufactured ($600,000) minus ending finished goods inventory ($250,000), or $200,000 + $600,000 - $250,000 = $550,000. Response B: Cost of goods sold is computed as follows: Beginning finished goods inventory ($200,000) plus cost of goods manufactured ($600,000) minus ending finished goods inventory ($250,000), or $200,000 + $600,000 - $250,000 = $550,000. Response C: Correct! Cost of goods sold is computed as follows: Beginning finished goods inventory ($200,000) plus cost of goods manufactured ($600,000) minus ending finished goods inventory ($250,000), or $200,000 + $600,000 - $250,000 = $550,000. Response D: Cost of goods sold is computed as follows: Beginning finished goods inventory ($200,000) plus cost of goods manufactured ($600,000) minus ending finished goods inventory ($250,000), or $200,000 + $600,000 - $250,000 = $550,000.

8. A cost of goods manufactured schedule shows beginning and ending inventories for: a) raw materials and work in process only. b) work in process only. c) raw materials only. d) raw materials, work in process, and finished goods. Ans: a Response A: Correct! A cost of goods manufactured schedule shows beginning and ending inventories for raw materials and work in process only. Response B: A cost of goods manufactured schedule shows beginning and ending inventories for raw materials and work in process, not work in process only. Response C: A cost of goods manufactured schedule shows beginning and ending inventories for raw materials and work in process, not raw materials only. Response D: A cost of goods manufactured schedule shows beginning and ending inventories for raw materials and work in process only, not raw materials, work in process, and finished goods.

9. In a manufacturers balance sheet, three inventories may be reported: (1) raw materials, (2) work in process, and (3) finished goods. Indicate in what sequence these inventories generally appear on a balance sheet. a) (1), (2), (3) b) (2), (3), (1) c) (3), (1), (2) d) (3), (2), (1) Ans: d Response A: On the balance sheet of a manufacturer, inventories are reported with (3) finished goods first, (2) work in process second and (1) raw materials third. Response B: On the balance sheet of a manufacturer, inventories are reported with (3) finished goods first, (2) work in process second and (1) raw materials third. Response C: On the balance sheet of a manufacturer, inventories are reported with (3) finished goods first, (2) work in process second and (1) raw materials third. Response D: Correct! On the balance sheet of a manufacturer, inventories are reported with (3) finished goods first, (2) work in process second and (1) raw materials third.

10. Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful fashion? a) Just-in-time inventory. b) Total-quality management. c) Theory of constraints. d) Activity-based costing. Ans: d Response A: Activity-based costing, not just-in-time inventory, attempts to allocate manufacturing overhead in a more meaningful fashion. Response B: Activity-based costing, not total quality management, attempts to allocate manufacturing overhead in a more meaningful fashion. Response C: Activity-based costing, not theory of constraints, attempts to allocate manufacturing overhead in a more meaningful fashion. Response D: Correct! Activity-based costing attempts to allocate manufacturing overhead in a more meaningful fashion.