Chapter 2 Basic Managerial

Chapter 2--Basic Managerial Accounting Concepts
Student: ___________________________________________________________________________
1. It is beneficial to assign indirect costs to cost objects.
True False

2. Price must be greater than cost in order for the firm to generate revenue.
True False

3. Accumulating costs is the way that costs are measured and recorded.
True False

. Assigning costs involves the way that a cost is lin!ed to some cost object.
True False

". Assigning costs tells the accountant who s#ent the money.
True False

$. A cost object is any item such as #roducts% customers% de#artments% regions% and so on% for which costs are
measured and assigned.
True False

&. 'osts are directly% not indirectly% associated with cost objects.
True False

(. )irect costs are those costs that cannot be easily and accurately traced to a cost object.
True False

*. Indirect costs are costs that are not easily and accurately traced to a cost object.
True False

1+. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient
method.
True False

11. A variable cost is one that does not increase in total as out#ut increase and does not decrease in total as
out#ut decreases.
True False

12. A fi,ed cost is a cost that does not increase in total as out#ut increases and does not decrease in total as
out#ut decreases.
True False

13. An o##ortunity cost is the benefit given u# or sacrificed when one alternative is chosen over another.
True False

1. 'ost is a dollar measure of the resources used to achieve a given benefit.
True False

1". A cost object is something for which a com#any wants to !now the cost.
True False

1$. The revenue #er unit is called cost.
True False

1&. As costs are used u# in the #roduction of revenues% they are said to e,#ire. -,#ired costs are called
e,#enses.
True False

1(. 'osts are incurred to #roduce future benefits.
True False

1*. -,#ired costs are called assets.
True False

2+. .educing the cost re/uired to achieve a given benefit means that a com#any is becoming less efficient.
True False

21. 'osts can be assigned to cost objects in only one way.
True False

22. Pro#erty ta,es on a factory building would normally be classified as a fi,ed cost.
True False

23. 0lue used in the manufacture of cabinets would be an e,am#le of a fi,ed cost.
True False

2. Industries that #rovide intangible services do not normally have direct contact with their customers.
True False

2". .esearch and develo#ment costs would be classified as #roduct cost.
True False

2$. Product costs include direct materials% direct labor% and selling costs.
True False

2&. All #roduct costs other than direct materials and indirect labor are called overhead.
True False

2(. )irect materials can be directly traced to the goods or services being #roduced.
True False

2*. Any costs associated with storing% selling% and delivering the #roduct are classified as #roduct costs.
True False

3+. Prime cost is the sum of direct materials cost and direct labor cost.
True False

31. Product costs are carried in inventory until the goods are finished.
True False

32. 1ar!eting costs would be classified as #eriod costs.
True False

33. The cost of janitorial services for a factory building would be classified as indirect labor.
True False

3. Period costs are all costs that are not #roduct costs% such as office su##lies.
True False

3". -m#loyees who convert direct materials into a #roduct or who #rovide a service to customers are classified
as indirect labor.
True False

3$. All manufacturing costs are classified as overhead.
True False

3&. For e,ternal re#orting #ur#oses% costs must be classified into only three categories.
True False

3(. 'ost of goods manufactured re#resents the cost of direct materials% direct labor% and overhead incurred
during the current accounting #eriod.
True False

3*. 'ost of goods sold is the total #roduct cost of the units sold during a #eriod.
True False

+. 2ales revenue e/uals the #roduct cost #er unit times the number of units sold.
True False

1. 0ross margin is the difference between sales revenue and cost of goods sold.
True False

2. Select the appropriate definition for each of the items listed below.
1. 3direct labor 4 overhead56units #roduced
#er7unit conversion
cost 8888
2. 3direct materials 4 direct labor56units #roduced
#er7unit cost of goods
manufactured 8888
3. 3total manufacturing costs 4 wor! in #rocess
beginning 7 wor! in #rocess ending56units
#roduced #er7unit #rime cost 8888

1. A cost that is not inventoried
o##ortunity
cost 8888
2. A cost that can be easily traced to a cost object fi,ed cost 8888
3. A benefit given u# when one alternative is chosen
over another indirect cost 8888
. A manufacturing cost #roduct cost 8888
". A cost that is difficult to trace to a cost object #eriod cost 8888
$. A cost that increases in total as out#ut increases direct cost 8888
&. A cost that stays the same in total regardless of
changes in out#ut variable cost 8888

. Select the appropriate definition for each of the items listed below.
1. 3direct materials 4 direct labor 4 overhead5 467 the
change in wor! in #rocess inventory from the
beginning to the end of the current #eriod
Finished goods
inventory 8888
2. )irect materials 4 direct labor 4 overhead
Total
manufacturing
costs 8888
3. 9eginning finished goods inventory 4 'ost of goods
manufactured 7 -nding finished goods inventory
:or! in #rocess
inventory 8888
. The cost of units unfinished at the end of the current
#eriod
'ost of goods
sold 8888
". The cost of units finished but not sold at the end of
the current #eriod
'ost of goods
manufactured 8888

". Select the appropriate item for each of the definitions listed below.
1. sales revenue 7 cost of goods sold
o#erating
income 8888
selling
e,#enses 8888
3. mar!eting and distributing costs sales revenue 8888
. gross margin 7 selling and administrative e,#enses gross margin 8888
". #rice , units sold
cost of goods
sold 8888

$. Select the appropriate definition of each of the items listed below.
1. The total cost of goods com#leted during the
current #eriod ;#erating income 8888
2. 'ost of #artially com#leted goods 0ross margin 8888
3. 0ross margin 7 selling and administrative
e,#enses
'ost of goods
manufactured 8888
. The difference between sales revenue and cost
of goods sold Income 2tatement 8888
". 'overs a #articular #eriod of time :or! in #rocess 8888

&. -,#ired costs are called 888888888888.
8888888888888888888888888888888888888888

(. 88888888888888is the amount of cash or cash e/uivalent sacrificed for goods and6or services that are
e,#ected to bring a current or future benefit to the organi<ation.
8888888888888888888888888888888888888888

*. 888888888888888888888 is the way that a cost is lin!ed to some cost object.
8888888888888888888888888888888888888888

"+. A 888888888888888888 is any item such as a #roduct% customer% de#artment% #roject% geogra#hic region%
#lan and so on% for which costs are measured and assigned.
8888888888888888888888888888888888888888

"1. 'osts that can be easily and accurately traced to a cost object are called 8888888888.
8888888888888888888888888888888888888888

"2. The #rocess of assigning an indirect cost to a cost object by using a reasonable and convenient method is
called 8888888888888.
8888888888888888888888888888888888888888

"3. A3n588888888888888888 is the benefit given u# or sacrificed when one alternative is chosen over another.
8888888888888888888888888888888888888888

". A3n5 8888888888888888 is a cost that does not increase in total as out#ut increase and does not decrease in
total as out#ut decreases.
8888888888888888888888888888888888888888

"". ;rgani<ations that #roduce #roducts are called 88888888888888888888888.
8888888888888888888888888888888888888888

"$. 8888888888888888 are those costs% both direct and indirect% of #roducing a #roduct in a manufacturing firm
or of ac/uiring a #roduct in a merchandising firm and #re#aring it for sale.
8888888888888888888888888888888888888888

"&. 1aterials that become #art of a #roduct usually are classified as 888888888888888.
8888888888888888888888888888888888888888

"(. Insurance coverage% medical care% and accounting are e,am#les of 88888888888888888 #erformed for
customers.
8888888888888888888888888888888888888888

"*. 88888888888888888 e/uals the sum of direct materials% direct labor% and manufacturing overhead.
8888888888888888888888888888888888888888

$+. All #roduct costs other than direct materials and direct labor are #ut into a category called
8888888888888888888888888.
8888888888888888888888888888888888888888

$1. 8888888888888888888888 is the sum of direct labor cost and manufacturing overhead cost.
8888888888888888888888888888888888888888

$2. 8888888888888888 and 88888888888888888 costs are considered #eriod costs.
8888888888888888888888888888888888888888

$3. -m#loyees who convert direct materials into a #roduct are classified as 8888888888888.
8888888888888888888888888888888888888888

$. 8888888888888888888 is the cost of the #artially com#leted goods that are still on the factory floor at the
end of a time #eriod.
8888888888888888888888888888888888888888

$". The difference between sales revenue and cost of goods sold is !nown as the 88888888888888.
8888888888888888888888888888888888888888

$$. The 8888888888888888888888888888 re#resents that total #roduct cost of goods com#leted during the
current #eriod and transferred to finished goods inventory.
8888888888888888888888888888888888888888

$&. -,#ired costs are called
A. fi,ed.
9. costs.
'. e,#enses.
). #rofit.

$(. Assigning costs to cost objects
A. #rovides information for decision ma!ing.
9. can be accom#lished in a number of ways.
'. can be a sim#le or com#le, #rocess.
). do all of these.

$*. An indirect cost
A. can be easily and accurately traced to a cost object.
9. is hard to trace.
'. should never be assigned to a cost object.
). do none of these.

&+. A variable cost in total
A. increases as out#ut increases and decreases as out#ut decreases.
9. increases as out#ut increases and6or decreases.
'. remains constant no matter the level of out#ut.
). increases as out#ut decreases and decreases as out#ut increases.

&1. 'ost is=
A. the difference between sales revenue and cost of goods sold.
9. the benefit given u# or sacrificed when on alternative is chosen over another.
'. the amount of cash or cash e/uivalent sacrificed for goods and6or services that are e,#ected to bring a current
or future benefit to the organi<ation.
). the revenue #er unit.

&2. Price is not=
A. the revenue #er unit.
9. greater than cost in order for the firm to earn income.
'. the same as cost.
). the same as cost #er unit #lus the income #er unit.

&3. Assigning costs
A. involves the way that a cost is lin!ed to some cost object.
9. tells the com#any why the money was s#ent.
'. to a cost object using a reasonable and convenient method is allocation.
). all of these.

&. An o##ortunity cost is=
A. the benefit given u# or sacrificed when one alternative is chosen over another.
9. the cost to mar!et% distribute% and service a #roduct or service.
'. the total #roduct cost of goods com#leted during the current #eriod and transferred to finished goods
inventory.
). the difference between sales revenue and cost of goods sold.

&". >on7manufacturing costs include
A. mar!eting and administration.
9. direct materials.
'. indirect materials.
). overhead.

&$. :hich of the following is an e,am#le of an intangible #roduct?
A. motorcycle
9. eye e,am
'. stereo
). television

&&. :hich of the following is an e,am#le of a tangible #roduct?
A. lawn care
9. accounting services
'. customer service
). com#uter

&(. 'osts are subdivided into what two major functional categories?
A. o##ortunity and allocation
9. fi,ed and variable
'. #roduct and non7#roduction
). direct and indirect

&*. Product costs
A. are costs that are included in the determining the value of the inventory.
9. are manufacturing costs.
'. include direct materials% direct labor% and overhead.
). are all of these.

(+. :hich of the following would not be a #eriod cost?
A. research and develo#ment
9. direct materials
'. advertising costs
). office su##lies

(1. :hich of the following would be an e,am#le of a direct materials cost?
A. engine on an air#lane
9. screws used to manufacture a lighting fi,ture
'. glue used to build cabinets
). nails used to manufacture a table

(2. Product costs consist of
A. #eriod costs.
9. indirect materials% indirect labor% and administrative costs.
'. direct materials% direct labor% and selling costs.
). direct materials% direct labor% and overhead.

(3. :hich of the following is not an e,am#le of a direct materials cost?
A. shelves on a boo!case
9. engine in a car
'. tires on a bicycle
). nail used to manufacture a des!

(. 1aterials in the raw materials account do not become direct materials
A. until they are withdrawn from inventory for use in #roduction.
9. until the finished #roduct is sold.
'. until they are #urchased from a vendor.
). none of these are correct.

(". :hich of the following is an e,am#le of direct labor?
A. vice #resident of mar!eting
9. assembly line wor!er for televisions
'. staff accountant
). su#ervisor at a manufacturing #lant

($. )irect labor is a3n5
A. #roduct cost.
9. o##ortunity cost.
'. administrative cost.
). fi,ed cost.

(&. ;verhead includes
A. indirect labor.
9. indirect materials.
'. su##lies.
). all of these.

((. :hich of the following would not be included in overhead?
A. mar!eting costs
9. #ro#erty ta,es on the factory
'. factory utility costs
). de#recation on factory machinery

(*. Indirect labor would include
A. salary of the vice7#resident of mar!eting.
9. salary of '-;.
'. salary of factory su#ervisor.

*+. The unit cost
A. is the total #roduct costs divided by the number of units #roduced.
9. includes #eriod costs.
'. is the total #rime costs divided by the number of units #roduced.
). is the total conversion costs divided by the number of units #roduced.

*1. Prime cost is
A. indirect materials cost and direct labor cost.
9. direct materials cost and direct labor cost.
'. direct labor cost and indirect labor cost.
). direct materials cost and indirect labor cost.

*2. 'onversion cost is the sum of
A. #roduct costs and #eriod costs.
9. selling cost and administrative costs.
'. direct labor cost and direct materials costs.
). direct labor cost and overhead costs.

*3. Period costs
A. are selling costs and administrative costs.
9. are used to com#ute #roduct cost.
'. can be included in overhead costs.
). are carried in inventory until the goods are sold.

*. :hich of the following is an e,am#le of a #eriod cost?
9. selling and mar!eting
'. general accounting
). all of these

*". 'ost of goods manufactured e/uals
A. the cost of indirect materials used in #roduction.
9. the #roduct cost of goods com#leted during the current #eriod.
'. the #eriod costs for the current #eriod.
). the cost of direct materials and direct labor used during the current #eriod.

*$. 'ost of goods manufactured e/uals
A. total #roduct costs incurred during the current #eriod 4 beginning wor! in #rocess 7 ending wor! in #rocess.
9. direct materials cost 4 direct labor cost 4 overhead cost.
'. sales 7 cost of goods sold.

*&. The cost of the #artially com#leted goods at the end of the #eriod would be
A. ending wor! in #rocess inventory.
9. cost of goods sold.
'. beginning finished goods inventory.
). beginning wor! in #rocess inventory.

*(. Product costs are e,#ensed
A. when the #roduct is finished.
9. when the #roduct unit cost is calculated.
'. when the #roduct is sold.
). all of these are correct.

**. .ancor Inc. had a #er7unit conversion cost of @2."+ during A#ril and incurred direct materials cost of
@1++%+++% direct labor costs of @&"%+++% and overhead costs of @"%+++ during the month. Aow many units did
they manufacture during the month?
A. &+%+++
9. 1(%+++
'. (%+++
). 3+%+++

1++. Ba!eland Inc. manufactured "%+++ units during the month of 1arch. They incurred direct materials cost of
@1++%+++ and overhead cost of @+%+++. If their #er7unit #rime cost was @2$.++ #er unit how much direct labor
cost did they incur during 1arch?
A. @2+%+++
9. @3"%+++
'. @*+%+++
). @3+%+++

1+1. )uring the month of Canuary% -nter#rise Inc. had total manufacturing costs of @11+%+++. They incurred
@+%+++ of direct labor cost and @3+%+++ of overhead cost during the month. If the materials inventory on
Canuary 1 was @3%+++ less that the materials inventory on Canuary 31% what was the cost of materials #urchased
during the month?
A. @3&%+++
9. @3%+++
'. @+%+++
). none of these

1+2. Production costs that are not attached to units that are sold are re#orted as=
A. selling e,#enses.
'. administrative costs.
). inventory.

1+3. Information from the records of 'ain 'or#oration for )ecember 2+11 are as follows=
2ales @1%23+%+++
2elling and administrative e,#enses 21+%+++
)irect materials used 2$%+++
)irect labor 3++%+++
Factory overhead +"%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
)irect materials @3$%+++ @2%+++
:or! in #rocess &"%+++ (%+++
Finished goods $*%+++ "&%+++
The conversion costs are=
A. @*$+%+++.
9. @1%1&*%+++.
'. @&+"%+++.
). @"$%+++.

1+. Information from the records of 'ain 'or#oration for )ecember 2+11 are as follows=
2ales @1%23+%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
:or! in #rocess &"%+++ (%+++
The #rime costs are=
A. @*$+%+++.
9. @"$%+++.
'. @&+"%+++.
). @*$*%+++.

1+". Figure 2-1.
'oncam Inc. manufactures television sets. Bast month direct materials 3electronic com#onents% etc.5 costing
@"++%+++ were #ut into #roduction. )irect labor of @(++%+++ was incurred% overhead e/ualed @"+%+++% and
selling and administrative costs totaled @3$+%+++. The com#any manufactured (%+++ television sets during the
month. Assume that there were no beginning or ending wor! in #rocess balances.
.efer to Figure 271. The #er7unit conversion cost was=
A. @21(.&"
9. @1"$.2"
'. @1$2."+
). @1++.++

1+$. Figure 2-1.
.efer to Figure 271. The total #roduct costs for last month were=
A. @1%&"+%+++
9. @2%11+%+++
'. @1%3++%+++
). @1%2"+%+++

1+&. Figure 2-1.
.efer to Figure 271. The total #er unit #rime cost was=
A. @2$3.&"
9. @$2."+
'. @1$2."+
). @1"$.2"

1+(. Figure 2-1.
.efer to Figure 271. :hat was the amount of cost of goods manufactured last month?
A. @1%&"+%+++
9. @1%2"+%+++
'. @1%3++%+++
). @2%11+%+++

1+*. Figure 2-5.
In Culy% -cono 'om#any #urchased materials costing @21%+++ and incurred direct labor cost of @1(%+++.
;verhead totaled @32%+++ for the month. Information on inventories was as follows=
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
Finished goods @3%3++ @2%&++
.efer to Figure 27". :hat was the cost of direct materials used in Culy?
A. @21%+++
9. @2+%1++
'. @21%*++
). @2+%"++

11+. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat were the total manufacturing costs in Culy?
A. @&1%+++
9. @"+%+++
'. @$*%$++
). @&+%1++

111. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat was the cost of goods manufactured for Culy?
A. @&+%"++
9. @&+%&++
'. @$*%$++
). @$*%1++

112. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat was the cost of goods sold for Culy?
A. @&+%2++
9. @$*%$++
'. @&1%3++
). @&1%1++

113. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". If -cono 'om#any sold 1+%+++ units during Culy and gross margin totaled @2*%(++% what was the sales #rice #er unit?
A. @*.*
9. @1+.++
'. @1+.+*
). @1+.11

11. Figure 2-7.
0ateway 'om#any #roduces a #roduct with the following #er7unit costs=
)irect materials @11
)irect labor (
;verhead 1"
Bast year% 0ateway #roduced and sold &"+ units at a sales #rice of @$( each. Total selling and administrative e,#ense was @22%+++.
.efer to Figure 27&. Prime cost #er7unit was?
A. @1*
9. @23
'. @3
). @11

11". Figure 2-7.
)irect labor (
;verhead 1"
.efer to Figure 27&. 'ost of goods sold last year was?
A. @&%"++
9. @2"%"++
'. @1%2"+
). @"1%+++

11$. Figure 2-7.
)irect labor (
;verhead 1"
.efer to Figure 27&. Total o#erating income last year was?
A. @2*%+++
9. @"1%+++
'. @2"%"++
). @3%"++

11&. Figure 2-8.
Bast year Duest 'om#any incurred the following costs=
)irect materials= @+%+++
)irect labor= $+%+++
;verhead *+%+++
2elling e,#enses 2%+++
Administrative e,#enses 22%+++
Duest #roduced and sold 2%+++ units at a sales #rice of @12" each. Assume that beginning and ending inventories of materials% wor! in #rocess% and
finished goods were <ero.
.efer to Figure 27(. Total #eriod e,#ense was?
A. @2%+++
9. @1*+%+++
'. @$%+++
). @2"+%+++

11(. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. 0ross margin #er7unit was?
A. @12"
9. @&
'. @*"
). @3+

11*. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. Total #roduct costs were?
A. @1*+%+++
9. @1++%+++
'. @1"+%+++
). @23$%+++

12+. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. 'onversion cost #er unit was?
A. @"+
9. @&"
'. @*"
). @12"

121. 'ost of goods sold
A. re#resents all costs associated with research% develo#ment% and general administration of the organi<ation.
9. is found on the 9alance 2heet.
'. is the cost of the #artially com#leted goods that are still on the factory floor at the end of the #eriod.
). is the total #roduct cost for the units sold during a #eriod.

122. :hich of the following would not be found on the income statement of a manufacturer?
A. cost of goods sold
9. wor! in #rocess
'. sales revenue
). o#erating income

123. :hich of the following would be found on the balance sheet of a manufacturer?
A. wor! in #rocess
9. raw materials
'. finished goods
). All of the these are correct

A. sales revenue
9. selling e,#enses
'. factory e/ui#ment
). all of these are correct

12". 0ross margin e/uals
A. cost of goods sold 7 selling and administrative e,#enses.
9. direct materials 4 direct labor 4 manufacturing overhead.
'. sales revenue 7 cost of goods sold.
). cost of goods manufactured 4 selling and administrative e,#enses.

12$. ;#erating income e/uals
A. sales revenue 7 cost of goods sold 7 selling and administrative e,#ense
9. gross margin 7 selling e,#enses
'. sales revenue 7 cost of goods sold
). sales revenue 7 selling and administrative e,#enses

12&. 0ross margin #ercent e/uals
A. gross margin6cost of goods sold.
9. o#erating income6sales revenue.
'. gross margin6sales revenue.
). sales revenue6gross margin.

12(. :hich of the following would not be found on an income statement of a service organi<ation?
A. selling e,#enses
9. cost of goods sold
'. o#erating income
). sales revenue

12*. :hich of the following can be found on the income statements of both a manufacturing and service
organi<ation?
A. revenues
9. o#erating income
'. administrative e,#enses
). all of these can be found on both.

13+. A manufacturer normally has
A. one inventory account.
9. four inventory accounts.
'. three inventory accounts.

131. An income statement of a manufacturer
A. will show the ending balance of wor! in #rocess.
9. contains only manufacturing costs.
'. will show the ending balance of materials inventory.
). covers a certain #eriod of time.

132. ;n a manufacturerEs income statement e,#enses are se#arated into the following three categories=
A. #roduction% #eriod% and indirect
9. materials% wor! in #rocess% and finished goods
'. #roduction% selling% and administrative
). variable% fi,ed% and direct

133. Figure 2-2.
Bonborg 'o. had the following beginning and ending inventory balances for the year ended )ecember 31% 2+11=
Canuary 1% 2+11 )ecember 31% 2+11
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
Finished 0oods @21%+++ @1$%"++
In addition% direct labor costs of @3+%+++ were incurred% overhead e/ualed @2%+++% materials #urchased were @2&%+++ and selling and administrative
costs were @22%+++. Bonborg 'o. sold 2"%+++ units of #roduct during the year at a sales #rice of @".++ #er unit.
.efer to Figure 272. :hat was the amount of cost of goods manufactured for the year?
A. @1+1%+++
9. @12%+++
'. @1++%+++
). @1+2%+++

13. Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat was the amount of cost of goods sold for the year?
A. @1+2%+++
9. @*&%"++
'. @1+$%"++
). @12(%"++

13". Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat were the total manufacturing costs for the year?
A. @1+1%+++
9. @1+2%+++
'. @123%+++
). @1+$%"++

13$. Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat was BonborgEs o#erating income FlossG for the year?
A. @1(%"++
9. @12"%+++
'. @F3%"++G
). @"%"++

13&. )uring the month of Cune% Telecom Inc. had cost of goods manufactured of @112%+++% direct materials cost
of @"2%+++% direct labor cost of @3&%+++ and overhead cost of @2$%+++. The wor! in #rocess balance at Cune 3+
e/ualed @1+%+++. :hat was the wor! in #rocess balance on Cune 1?
A. @&%+++
9. @13%+++
'. @1+%+++
). @11"%+++

13(. Talcum Inc. had materials inventory at Culy 1 of @12%+++. The materials inventory at Culy 31 was @1"%+++
and the cost of direct materials used in #roduction was @2+%+++. :hat was the cost of materials #urchased
during the month?
A. @23%+++
9. @1&%+++
'. @3"%+++
). @2+%+++

13*. Hutlow Inc. had cost of goods sold of @112%+++ for the year ended )ecember 31% 2+11. The finished goods
inventory on Canuary 1% 2+11 was @2(%+++ and the finished goods inventory on )ecember 31% 2+11 was
@1&%+++. :hat was the amount of cost of goods manufactured for the year?
A. @12*%+++
9. @1+1%+++
'. @$&%+++
). @113%+++

1+. Andover Inc. had a gross margin for the month of February totaling @2%+++. They sold "%+++ units during
the month at a sales #rice of @2+ #er unit. :hat was the amount of cost of goods sold for the month?
A. @1++%+++
9. @2%+++
'. @"(%+++
). none of these are correct

11. Figure 2-3.
9artlow% Inc. had the following income statement for the month of 1ay.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
2elling e,#enses (1%32+
Administrative e,#enses &2%&$+
;#erating income @ $(%(+
.efer to Figure 273. :hat was the sales revenue #ercent?
A. 1++I
9. (I
'. "2I
). 1$I

12. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the cost of goods sold #ercent?
A. 1++I
9. 1*I
'. "2I
). (I

13. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the gross margin #ercent?
A. "2I
9. (I
'. 1&I
). 1*I

1. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the selling e,#ense #ercent?
A. 1&I
9. 1*I
'. 1$I
). no correct answer

1". Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the administrative e,#ense #ercent?
A. 1&I
9. 1*I
'. 1$I
). 1"I

1$. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the o#erating income #ercent?
A. 1"I
9. 1*I
'. 1&I
). 1$I

1&. Figure 2-4.
Cun!o 'om#any ma!es financial calculators. )uring the year Cun!o manufactured *&%+++ financial calculators.
Finished goods inventory had the following units on hand=
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. Aow many financial calculators did Cun!o sell during the year?
A. *$%&(+
9. *&%22+
'. *&%+++
). *(%2$+

1(. Figure 2-4.
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. If each financial calculator had a #er7unit #roduct cost of @112% what was the cost of Finished goods inventory on )ecember
31?
A. @11$%(+
9. @11%12+
'. @2%$+

1*. Figure 2-4.
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. If each financial calculator has a #er7unit #roduct cost of @112% what was the cost of goods sold last year?
A. @1+%($%+++
9. @1+%(3*%3$+
'. @11%++"%12+
). @1+%(((%$+

1"+. Figure 2-6.
2eaview 'om#any too! the following data from their income statement at the end of the current year.
Per7unit #roduct cost= @3+
0ross margin #ercentage= +I
2elling and administrative e,#enses @3+%+++
;#erating income @1+%+++
.efer to Figure 27$. :hat was gross margin for the year?
A. @$+%+++
9. @1++%+++
'. @+%+++
). none of these

1"1. Figure 2-6.
.efer to Figure 27$. :hat was cost of goods sold for the year?
A. @$+%+++
9. @+%+++
'. @1++%+++
). none of these

1"2. Figure 2-6.
.efer to Figure 27$. Aow many units were sold during the year?
A. 3%333
9. 1%+++
'. 1%"++
). 2%+++

1"3. Figure 2-6.
.efer to Figure 27$. :hat was the sales #rice #er unit?
A. @"+
9. @3+
'. @2+
). @1+

1". If beginning wor!7in7#rocess inventory is @12+%+++% ending wor!7in7#rocess inventory is @1$+%+++% cost of
goods manufactured is @++%+++ and direct materials used are @1++%+++% what are the conversion costs?
A. @1+%+++
9. @2(+%+++
'. @3++%+++
). @3+%+++

1"". Information from the records of Place% Inc.% for )ecember 2+11 is as follows=
2ales @(2+%+++
)irect materials #urchases 1&$%+++
Factory overhead 2&+%+++
)irect materials% )ecember 1 2%+++
:or! in #rocess% )ecember 1 "+%+++
Finished goods% )ecember 1 $%+++
)irect materials% )ecember 31 2(%+++
:or! in #rocess% )ecember 31 "$%+++
Finished goods% )ecember 31 3(%+++
>et income for the month of )ecember is=
A. @$%+++.
9. @3$%+++.
'. @$3$%+++.
). @1(+%+++.

1"$. 2elected data concerning the #ast yearEs o#erations of the 9urner 'or#oration are as follows=
2elling and administrative e,#enses @22"%+++
)irect materials used 3*&%"++
)irect labor "+%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
:or! in #rocess &"%+++ (%+++
The cost of direct materials #urchased is=
A. @3*&%"++.
9. @+3%"++.
'. @3$&%"++.
). @+"%+++.

1"&. 2tone 'om#any% ma!er of com#uters% incurred the following costs during the year=
Reuire!" 'lassify each cost as either fi,ed or variable cost.
Fi#e! $aria%le
1. 2alary of the factory su#ervisor
2. 1aterials needed to assemble the com#uters
3. :ages #aid to an assembly line wor!er
. )e#reciation on the factory
". Jtility bill for the factory
$. 0rease used to lubricate the machine
&. .ent #aid for the factory
(. Pro#erty ta,es on the factory and cor#orate office
*. 9o,es used to #ac!age the com#leted com#uters
1+. Advertising in a news#a#er monthly

1"(. Ashland 'om#any% ma!er of !itchen cabinets% incurred the following costs during the current year=
Reuire!" 'lassify each cost as either a #roduct or #eriod cost.
Product Period

1. )e#reciation on automobiles used by the sales staff.

2. 2alary of AshlandEs chief e,ecutive officer

3. 0lue used in the #roduction #rocess

. 2u##lies for factory washroom

". .esearch and develo#ment costs

$. Pro#erty ta,es on factory building

&. 2alary of com#any controller

(. )e#reciation on furniture in factory lunchroom

*. 'ost of lubricating machinery

1+. :ood used in #roduction #rocess

1"*. Arcadia 'om#any manufactures recreational vehicles and incurred the following costs during the current
year.
Reuire!" 'lassify each cost using the table format given below=
Product 'ost Period 'ost
)irect
1aterials
)irect
Babor
;verhead
2elling
-,#ense
Administrative
-,#ense
1. :ages of general office #ersonnel

2. 'ost of tires

3. Factory su#ervisorEs salary

. 'onference for mar!eting #ersonnel

". Factory security guards

$. .esearch and develo#ment

&. Assembly line wor!ers

(. 'om#any rece#tionist

*. Advertising cost

1+. 'ost of shi##ing vehicles to customers

1$+. The 9ayou 'om#any ma!es crab #ots. )uring the current month% direct materials costing @12$%+++ were
#ut into #roduction. )irect labor of @&(%+++ was incurred and overhead e/ualed @(%+++. 2elling and
administrative e,#enses totaled @$$%+++ for the month and the com#any manufactured 3%+++ crab #ots. Assume
there was no beginning inventory and that 2%(++ crab #ots were sold.
Reuire!"
A. 'om#ute the #er7unit #roduct cost
9. 'om#ute the #er7unit #rime cost
'. 'om#ute the #er7unit conversion cost
). :hat is cost of goods sold for the month?
-. :hat is the cost of ending finished goods for the month?

1$1. .oss 'om#any ma!es handbags. Bast month direct materials 3leather% thread% <i##ers% decorative accents5
costing @&$%+++ were #ut into #roduction. .oss had 3+ wor!ers% each wor!ed 1$+ hours this month and each
are #aid @12 #er hour. ;verhead e/ualed @(+%+++ for the #eriod. .oss 'om#any #roduced +%+++ handbags as
of the end of the month.
Reuire!" 'alculate the total #roduct cost for the month and calculate the cost of one handbag that was
#roduced.

1$2. .oom :ith A Kiew 'om#any manufactures curtains. Bast wee!% direct materials costing @2%+++ were #ut
into #roduction. )irect labor of @22%+++ was incurred and overhead totaled @"+%+++. 9y the end of the wee!%
the com#any had #roduced 12%+++ curtains.
Reuire!"
1. 'alculate the total #rime cost for the wee!.
2. 'alculate the #er7unit #rime cost.
3. 'alculate the total conversion cost for the wee!.
. 'alculate the #er7unit conversion cost.

1$3. The 9lanchett 'om#any manufactures fishing rods. Bast year% direct materials costing @"1$%+++ were #ut
into #roduction. )irect labor of @3+%+++ was incurred and overhead e/ualed @$"%+++. The com#any had
o#erating income for the year of @"(%+++ and manufactured and sold ($%+++ fishing rods at a sales #rice of @21
#er unit. Assume that there were no beginning or ending inventory balances in the wor! in #rocess and finished
goods inventory accounts.
Reuire!"
). 'om#ute the gross margin for the year
-. 'om#ute the selling and administrative e,#enses for the year
F. Assume #roduction amounted to ($%+++ fishing rods and (+%+++ were sold. 'om#ute cost of goods sold.
0. Assume #roduction amounted to ($%+++ fishing rods and (+%+++ were sold. 'om#ute the balance in ending finished goods inventory.

1$. The 9utchart 'om#any manufactures microwave ovens. Bast year% the #er7unit #roduct cost was @"$% the
#er7unit #rime cost was @3% and the #er7unit conversion cost was @2. 'ost of goods sold for the year was
@"$+%+++ and the sale #rice #er unit was @1++. In addition% direct labor costs of @2++%+++ and selling and
administrative e,#enses of @2+%+++ were incurred.
Reuire!"
A. 'alculate how many units were sold last year
9. 'om#ute the cost of direct materials used
'. 'om#ute the cost of overhead
-. 'alculate o#erating income

1$". Picture It Inc. manufactures customi<ed wooden frames. The direct materials needed to construct the
frames are wood% glass and cardboard. Picture It has 22 em#loyees who wor! a + hour wor! wee! and are
each #aid @1& #er hour. The com#any #roduced and sold *++ frames in the month of 2e#tember.
)uring the month of 2e#tember the following #urchases were made to #roduce the *++ frames=
:ood7 +++ ft. at @1.2+6ft.
0lass7 ++ #ieces at @".$+6#iece
'ardboard7 "++ #ieces at @."+6#iece
Reuire!"
1. 'alculate the total #roduct cost for the month. Assume that all em#loyees wor!ed four full wee!s in
2e#tember and that the com#any incurred @""%+++ in overhead costs.
2. 'alculate the #er unit cost.
3. 'alculate the gross margin for the month of 2e#tember assuming that the com#any sells each frame for @2"+.

1$$. Tuc!er 'om#any% a manufacturing firm% has su##lied the following information from its accounting
records for the month of A#ril.
)irect labor cost @12%+++
Purchases of raw materials 1&%+++
Factory insurance %+++
.esearch and develo#ment &%"++
Factory #ro#erty ta,es 3%+++
2ales commissions #aid %"++
:or! in #rocess% A#ril 1 2%+++
:or! in #rocess% A#ril 3+ 2%(++
1aterials inventory% A#ril 1 1%&"
1aterials inventory% A#ril 3+ 1%2++
Finished goods inventory% A#ril 1 2%2"+
Finished goods inventory% A#ril 3+ &"+
Reuire!" Pre#are a 2tatement of 'ost of 0oods 1anufactured

1$&. In Cune% ;lym#ic 'om#any #urchased materials costing @3(%+++% and incurred direct labor cost of @2%+++.
;verhead totaled @2&%+++ for the month. Information on inventories was as follows.
Cune 1 Cune 3+
1aterials @3%+++ @2%&++
:or! in #rocess 1%+++ 1%2&"
Finished goods 2%"++ 1%&&"
Reuire!"
A. 'alculate the cost of direct materials used during Cune.
9. 'alculate the total manufacturing cost for Cune.
'. 'alculate the cost of goods manufactured for Cune.
). 'alculate cost of goods sold for Cune.

1$(. Tem#lar 'om#any% a manufacturing firm% has su##lied the following information from its accounting
records for the month of >ovember=
Factory su##lies used @1(%+++
)e#reciation on factory building 1&%+++
2alary of com#any controller $%+++
Factory janitorial costs "%+++
1ar!eting and #romotion %"++
)irect labor cost 22%+++
Purchases of raw materials 1+%+++
Finished goods inventory% >ov. 1 2%2"+
Finished goods inventory% >ov. 3+ 3%&"+
:or!7in7#rocess inventory% >ov. 1 %2++
:or!7in7#rocess inventory% >ov. 3+ 2%&"+
1aterials inventory% >ov. 1 3%"++
1aterials inventory% >ov. 3+ "%1++
Reuire!"
A. Pre#are a 2tatement of 'ost of 0oods 1anufactured
9. Pre#are a 2tatement of 'ost of 0oods 2old

1$*. Fidalgo 'om#any ma!es stereos. )uring the year% Fidalgo manufactured and sold &"%+++ stereos at a sales
#rice of @"&" #er unit. FidalgoEs #er7unit #roduct cost was @"+ and selling and administrative e,#enses totaled
@2%+++%+++.
Reuire!"
A. 'om#ute the total sales revenue
9. 'om#ute the gross margin
'. 'om#ute the o#erating income
). 'om#ute the o#erating income if &"%+++ stereos were #roduced and $*%+++ were sold.

1&+. 9aleen 'om#any su##lied the following data at the end of the current year=
2ales commissions @ 12%+++
2ales revenue 12+%+++
.esearch and develo#ment 1&%+++
Finished goods inventory% Can. 1 &%"++
:or! in #rocess inventory% Can 1 *%+++
Finished goods inventory% )ec. 31 $%+++
:or! in #rocess inventory% )ec. 31 11%+++
'ost of goods manufactured "2%+++
Reuire!" Pre#are an income statement for 9aleen 'om#any.

1&1. 1acon 'om#any su##lied the following data and information on inventories at the end of the current year.
Canuary 1% 2+11 )ecember 31%2+11
1aterials @21%+++ @23%"++
:or! in #rocess 1&%"++ (%"++
Finished goods 2$%+++ 2&%+++
)irect labor @ +%+++
2ales revenue ++%+++
Administrative e,#enses 1%"++
Purchases of raw materials $2%+++
Factory su#ervision "+%+++
Factory su##lies used 2"%+++
Reuire!" Pre#are an income statement of 1acon 'om#any for the current year.

1&2. 9artlow 'om#any has su##lied the following information from its accounting records for the month of
1ay.
)irect labor cost @11%"++
Factory de#reciation &%"++
Advertising 1+%+++
Factory #ro#erty ta,es $%"++
1aterials inventory% "61 1%2"+
1aterials inventory% "631 2%"++
:or! in #rocess Inventory% "61 ?
:or! in #rocess Inventory% "631 1%"++
'ost of goods manufactured "%("+
2ales revenue ?
-,ecutive salary cost 2"%+++
Finished goods inventory% "61 "%"++
Finished goods inventory% "631 %2"+
;#erating income $&%*++
0ross margin ?
Reuire!" 2olve for the missing amounts 3?5

1&3. 2ee the following se#arate cases.
'ase L1 'ase L2
2ales @1%+++ @1%3++
'ost of goods manufactured A "++
Finished goods inventory 3beginning balance5 1++ )
Finished goods inventory 3ending balance5 1"+ 2++
'ost of goods sold 9 $++
0ross margin 3++ -
2elling e,#enses ' &"
Administrative e,#enses "+ +
;#erating income 2++ F
Reuire!" 2olve for the missing amounts 3A%9%'%)%-%F5

1&. 2ee the following se#arate cases.
'ase L1 'ase L2
Purchase of materials @ "%+++ '
1aterials inventory 3beginning balance5 A 22+
1aterials inventory 3ending balance5 1%+++ 3"+
)irect labor &%+++ %2"+
Factory su#ervision 1%"++ 1%1++
Factory su##lies 1%2"+ *++
Total manufacturing costs 1%"++ )
:or! in #rocess inventory 3beginning balance5 1%2++ 1%23+
:or! in #rocess inventory 3ending balance5 9 $"+
'ost of goods manufactured 1%$++ 1+%2++
Reuire!" 2olve for the missing amounts 3A%9%'%)5.

1&". .ancor 'om#anyEs accountant #re#ared the following income statement for the month of August.
.ancor 'om#any
Income 2tatement
For the 1onth of August
2ales revenue @*12%2++
'ost of goods sold $+1%*2+
0ross margin 31+%2(+
Bess=
2elling e,#ense 1$%1$+
Administrative e,#ense $3%(+
;#erating income @ (2%2(+
Reuire!"
A. 'alculate the sales revenue #ercent
9. 'alculate the cost of goods sold #ercent
'. 'alculate the gross margin #ercent
). 'alculate the selling e,#ense #ercent
-. 'alculate the administrative e,#ense #ercent
F. 'alculate the o#erating income #ercent

1&$. -,trema 'om#any su##lied the following data at the end of the current year.
Finished goods inventory% Can 1. @ 12%+++
Finished goods inventory% )ec. 31 &%"++
'ost of goods manufactured 1"2%3(+
2ales revenue 212%+++
2ales commissions 1*%+(+
.esearch and develo#ment costs 1"%*++
Reuire!"
A. 'alculate the cost of goods sold #ercent
9. 'alculate the gross margin #ercent
'. 'alculate the selling e,#ense #ercent
). 'alculate the administrative e,#ense #ercent
-. 'alculate the o#erating income #ercent

1&&. .i<<uto 'om#any su##lied the following information for the month of Canuary.
'ost of 0oods 2old #ercent $2I
2elling -,#ense #ercent $I
Administrative e,#ense 13I
Reuire!" .econstruct .i<<utoEs income statement for Canuary assuming that their total sales revenue for the month e/ualed @"++%+++.

1&(. 'ashman 'om#any su##lied the following information for the month of )ecember.
;#erating income #ercent 1+."I
0ross margin #ercent 3+I
Reuire!" 2olve for the following amounts assuming that 'ashman 'om#anyEs o#erating income in )ecember was @%1++.
A. 2ales revenue
9. 'ost of good sold
'. Total 2elling and administrative e,#enses

1&*. :a#ato 'om#any #roduces a #roduct with the following #er unit costs.
)irect materials @1&
)irect labor 11
;verhead 12
Bast year% :a#ato #roduced and sold 3%+++ units at a sales #rice of @(+ each. Total selling and administrative e,#enses were @2"%+++.
Reuire!" 2olve for the following=
A. Total cost of goods sold for last year
9. ;#erating income for last year
'. Total gross margin for last year
). Prime cost #er unit

1(+. Tesco 'om#any showed the following costs for last month=
)irect materials @+%+++
)irect labor 3"%+++
;verhead "2%+++
2elling e,#ense 1&%+++
Administrative e,#ense 12%+++
Bast month% Tesco #roduced and sold 2+%+++ units at a sales #rice #er unit of @1(. Assume no beginning or ending inventory balances for wor! in
#rocess and finished goods inventory.
Reuire!" 2olve for the following amounts.
A. Total #roduct cost for last month
9. Jnit #roduct cost for last month
'. Total #eriod costs
). 0ross margin for last month
-. ;#erating income for last month

1(1. 2tabler 'om#any% a manufacturing firm% has #rovided the following information for the month of 1ay=
Factory su##lies used 22%+++
)e#reciation on factory building 1+%+++
'ommissions for sales #ersonnel 32%+++
2alary of com#any 'F; *%+++
Factory janitorial costs 3%+++
.esearch and develo#ment "%+++
)e#reciation on cor#orate office (%"++
Advertising costs 2%"++
)irect labor cost +%+++
Purchases of raw materials 1"%+++
Finished goods inventory% 1ay 1 %+++
Finished goods inventory% 1ay 31 $%"++
:or! in #rocess inventory% 1ay 1 &%"++
:or! in #rocess inventory% 1ay 31 3%3++
1aterials inventory% 1ay 1 2%1++
1aterials inventory% 1ay 31 %2++
Reuire!"
A. Pre#are a 2tatement of 'ost of 0oods 1anufactured.
9. 'alculate the cost of one unit assuming 1+%+++ units were com#leted during 1ay.
'. Pre#are a 2tatement of 'ost of 0oods 2old.
). 'alculate the number of units that were sold during 1ay.
-. Pre#are an Income 2tatement assuming the sales #rice #er unit is @3".

1(2. :hat is the difference between a #eriod cost and a #roduct cost?

1(3. Bist and describe the three categories of manufacturing costs.

1(. -,#lain the difference between a cost that is included in valuing inventory and a cost that is not included in
valuing inventory.

1(". )escribe the #ur#ose of the three inventory accounts used by a manufacturer.

1($. :hat is the difference between total manufacturing costs and cost of goods manufactured?

1(&. Mou )ecide
Mou are the accounting manager at Falcon Inc. Mou just hired a new staff accountant to assist you in brea!ing
out costs into their a##ro#riate classifications. The staff accountant as!s you why cost classification is
im#ortant.
Aow would you res#ond?

'ha#ter 2779asic 1anagerial Accounting 'once#ts Hey

1. It is beneficial to assign indirect costs to cost objects.
&R'(

2. Price must be greater than cost in order for the firm to generate revenue.
FA)*(

3. Accumulating costs is the way that costs are measured and recorded.
&R'(

. Assigning costs involves the way that a cost is lin!ed to some cost object.
&R'(

". Assigning costs tells the accountant who s#ent the money.
FA)*(

$. A cost object is any item such as #roducts% customers% de#artments% regions% and so on% for which costs are
measured and assigned.
&R'(

&. 'osts are directly% not indirectly% associated with cost objects.
FA)*(

(. )irect costs are those costs that cannot be easily and accurately traced to a cost object.
FA)*(

*. Indirect costs are costs that are not easily and accurately traced to a cost object.
&R'(

1+. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient
method.
&R'(

11. A variable cost is one that does not increase in total as out#ut increase and does not decrease in total as
out#ut decreases.
FA)*(

12. A fi,ed cost is a cost that does not increase in total as out#ut increases and does not decrease in total as
out#ut decreases.
&R'(

13. An o##ortunity cost is the benefit given u# or sacrificed when one alternative is chosen over another.
&R'(

1. 'ost is a dollar measure of the resources used to achieve a given benefit.
&R'(

1". A cost object is something for which a com#any wants to !now the cost.
&R'(

1$. The revenue #er unit is called cost.
FA)*(

1&. As costs are used u# in the #roduction of revenues% they are said to e,#ire. -,#ired costs are called
e,#enses.
&R'(

1(. 'osts are incurred to #roduce future benefits.
&R'(

1*. -,#ired costs are called assets.
FA)*(

2+. .educing the cost re/uired to achieve a given benefit means that a com#any is becoming less efficient.
FA)*(

21. 'osts can be assigned to cost objects in only one way.
FA)*(

22. Pro#erty ta,es on a factory building would normally be classified as a fi,ed cost.
&R'(

23. 0lue used in the manufacture of cabinets would be an e,am#le of a fi,ed cost.
FA)*(

2. Industries that #rovide intangible services do not normally have direct contact with their customers.
FA)*(

2". .esearch and develo#ment costs would be classified as #roduct cost.
FA)*(

2$. Product costs include direct materials% direct labor% and selling costs.
FA)*(

2&. All #roduct costs other than direct materials and indirect labor are called overhead.
FA)*(

2(. )irect materials can be directly traced to the goods or services being #roduced.
&R'(

2*. Any costs associated with storing% selling% and delivering the #roduct are classified as #roduct costs.
FA)*(

3+. Prime cost is the sum of direct materials cost and direct labor cost.
&R'(

31. Product costs are carried in inventory until the goods are finished.
FA)*(

32. 1ar!eting costs would be classified as #eriod costs.
&R'(

33. The cost of janitorial services for a factory building would be classified as indirect labor.
&R'(

3. Period costs are all costs that are not #roduct costs% such as office su##lies.
&R'(

3". -m#loyees who convert direct materials into a #roduct or who #rovide a service to customers are classified
as indirect labor.
FA)*(

3$. All manufacturing costs are classified as overhead.
FA)*(

3&. For e,ternal re#orting #ur#oses% costs must be classified into only three categories.
&R'(

3(. 'ost of goods manufactured re#resents the cost of direct materials% direct labor% and overhead incurred
during the current accounting #eriod.
FA)*(

3*. 'ost of goods sold is the total #roduct cost of the units sold during a #eriod.
&R'(

+. 2ales revenue e/uals the #roduct cost #er unit times the number of units sold.
FA)*(

1. 0ross margin is the difference between sales revenue and cost of goods sold.
&R'(

1. 3direct labor 4 overhead56units #roduced
#er7unit conversion
cost 1
2. 3direct materials 4 direct labor56units #roduced
#er7unit cost of goods
manufactured 3
3. 3total manufacturing costs 4 wor! in #rocess
beginning 7 wor! in #rocess ending56units #roduced #er7unit #rime cost 2

1. A cost that is not inventoried
o##ortunity
cost 3
2. A cost that can be easily traced to a cost object fi,ed cost 7
3. A benefit given u# when one alternative is chosen over
another indirect cost 5
. A manufacturing cost #roduct cost 4
". A cost that is difficult to trace to a cost object #eriod cost 1
$. A cost that increases in total as out#ut increases direct cost 2
&. A cost that stays the same in total regardless of changes
in out#ut variable cost 6

. Select the appropriate definition for each of the items listed below.
1. 3direct materials 4 direct labor 4 overhead5 467 the
change in wor! in #rocess inventory from the beginning to
the end of the current #eriod
Finished goods
inventory 5
2. )irect materials 4 direct labor 4 overhead
Total
manufacturing costs 2
:or! in #rocess
inventory 4
. The cost of units unfinished at the end of the current
#eriod
'ost of goods
sold 3
". The cost of units finished but not sold at the end of the
current #eriod
'ost of goods
manufactured 1

". Select the appropriate item for each of the definitions listed below.
1. sales revenue 7 cost of goods sold
o#erating
income 4
selling
e,#enses 3
3. mar!eting and distributing costs sales revenue 5
. gross margin 7 selling and administrative e,#enses gross margin 1
". #rice , units sold
cost of goods
sold 2

$. Select the appropriate definition of each of the items listed below.
1. The total cost of goods com#leted during the
current #eriod ;#erating income 3
2. 'ost of #artially com#leted goods 0ross margin 4
3. 0ross margin 7 selling and administrative
e,#enses
'ost of goods
manufactured 1
. The difference between sales revenue and cost of
goods sold Income 2tatement 5
". 'overs a #articular #eriod of time :or! in #rocess 2

&. -,#ired costs are called 888888888888.
e#penses

(. 88888888888888is the amount of cash or cash e/uivalent sacrificed for goods and6or services that are
e,#ected to bring a current or future benefit to the organi<ation.
Cost

*. 888888888888888888888 is the way that a cost is lin!ed to some cost object.
Assigning costs

"+. A 888888888888888888 is any item such as a #roduct% customer% de#artment% #roject% geogra#hic region%
#lan and so on% for which costs are measured and assigned.
cost o%+ect

"1. 'osts that can be easily and accurately traced to a cost object are called 8888888888.
!irect costs

"2. The #rocess of assigning an indirect cost to a cost object by using a reasonable and convenient method is
called 8888888888888.
allocation.

"3. A3n588888888888888888 is the benefit given u# or sacrificed when one alternative is chosen over another.
opportunit, cost

". A3n5 8888888888888888 is a cost that does not increase in total as out#ut increase and does not decrease in
total as out#ut decreases.
-i#e! cost

"". ;rgani<ations that #roduce #roducts are called 88888888888888888888888.
.anu-acturing organi/ations

"$. 8888888888888888 are those costs% both direct and indirect% of #roducing a #roduct in a manufacturing firm
or of ac/uiring a #roduct in a merchandising firm and #re#aring it for sale.
0ro!uct costs

"&. 1aterials that become #art of a #roduct usually are classified as 888888888888888.
!irect .aterials.

"(. Insurance coverage% medical care% and accounting are e,am#les of 88888888888888888 #erformed for
customers.
ser1ice acti1ities

"*. 88888888888888888 e/uals the sum of direct materials% direct labor% and manufacturing overhead.
&otal pro!uct cost

$+. All #roduct costs other than direct materials and direct labor are #ut into a category called
8888888888888888888888888.
.anu-acturing o1erhea!.

$1. 8888888888888888888888 is the sum of direct labor cost and manufacturing overhead cost.
Con1ersion cost

$2. 8888888888888888 and 88888888888888888 costs are considered #eriod costs.
*elling an! a!.inistrati1e

$3. -m#loyees who convert direct materials into a #roduct are classified as 8888888888888.
!irect la%or.

$. 8888888888888888888 is the cost of the #artially com#leted goods that are still on the factory floor at the
end of a time #eriod.
2or3 in process

$". The difference between sales revenue and cost of goods sold is !nown as the 88888888888888.
gross .argin

$$. The 8888888888888888888888888888 re#resents that total #roduct cost of goods com#leted during the
current #eriod and transferred to finished goods inventory.
cost o- goo!s .anu-acture!

$&. -,#ired costs are called
A. fi,ed.
9. costs.
C. e,#enses.
). #rofit.

$(. Assigning costs to cost objects
A. #rovides information for decision ma!ing.
9. can be accom#lished in a number of ways.
'. can be a sim#le or com#le, #rocess.
4. do all of these.

$*. An indirect cost
A. can be easily and accurately traced to a cost object.
B. is hard to trace.
'. should never be assigned to a cost object.
). do none of these.

&+. A variable cost in total
A. increases as out#ut increases and decreases as out#ut decreases.
9. increases as out#ut increases and6or decreases.
'. remains constant no matter the level of out#ut.
). increases as out#ut decreases and decreases as out#ut increases.

&1. 'ost is=
A. the difference between sales revenue and cost of goods sold.
9. the benefit given u# or sacrificed when on alternative is chosen over another.
C. the amount of cash or cash e/uivalent sacrificed for goods and6or services that are e,#ected to bring a current
or future benefit to the organi<ation.
). the revenue #er unit.

&2. Price is not=
A. the revenue #er unit.
9. greater than cost in order for the firm to earn income.
C. the same as cost.
). the same as cost #er unit #lus the income #er unit.

&3. Assigning costs
A. involves the way that a cost is lin!ed to some cost object.
9. tells the com#any why the money was s#ent.
'. to a cost object using a reasonable and convenient method is allocation.
4. all of these.

&. An o##ortunity cost is=
A. the benefit given u# or sacrificed when one alternative is chosen over another.
9. the cost to mar!et% distribute% and service a #roduct or service.
'. the total #roduct cost of goods com#leted during the current #eriod and transferred to finished goods
inventory.
). the difference between sales revenue and cost of goods sold.

&". >on7manufacturing costs include
A. mar!eting and administration.
9. direct materials.
'. indirect materials.
). overhead.

&$. :hich of the following is an e,am#le of an intangible #roduct?
A. motorcycle
B. eye e,am
'. stereo
). television

&&. :hich of the following is an e,am#le of a tangible #roduct?
A. lawn care
9. accounting services
'. customer service
4. com#uter

&(. 'osts are subdivided into what two major functional categories?
A. o##ortunity and allocation
9. fi,ed and variable
C. #roduct and non7#roduction
). direct and indirect

&*. Product costs
A. are costs that are included in the determining the value of the inventory.
9. are manufacturing costs.
'. include direct materials% direct labor% and overhead.
4. are all of these.

(+. :hich of the following would not be a #eriod cost?
B. direct materials
'. advertising costs
). office su##lies

(1. :hich of the following would be an e,am#le of a direct materials cost?
A. engine on an air#lane
9. screws used to manufacture a lighting fi,ture
'. glue used to build cabinets
). nails used to manufacture a table

(2. Product costs consist of
A. #eriod costs.
9. indirect materials% indirect labor% and administrative costs.
'. direct materials% direct labor% and selling costs.
4. direct materials% direct labor% and overhead.

(3. :hich of the following is not an e,am#le of a direct materials cost?
A. shelves on a boo!case
9. engine in a car
'. tires on a bicycle
4. nail used to manufacture a des!

(. 1aterials in the raw materials account do not become direct materials
A. until they are withdrawn from inventory for use in #roduction.
9. until the finished #roduct is sold.
'. until they are #urchased from a vendor.

(". :hich of the following is an e,am#le of direct labor?
A. vice #resident of mar!eting
B. assembly line wor!er for televisions
'. staff accountant
). su#ervisor at a manufacturing #lant

($. )irect labor is a3n5
A. #roduct cost.
9. o##ortunity cost.
'. administrative cost.
). fi,ed cost.

(&. ;verhead includes
A. indirect labor.
9. indirect materials.
'. su##lies.
4. all of these.

((. :hich of the following would not be included in overhead?
A. mar!eting costs
9. #ro#erty ta,es on the factory
'. factory utility costs
). de#recation on factory machinery

(*. Indirect labor would include
A. salary of the vice7#resident of mar!eting.
9. salary of '-;.
C. salary of factory su#ervisor.

*+. The unit cost
A. is the total #roduct costs divided by the number of units #roduced.
9. includes #eriod costs.
'. is the total #rime costs divided by the number of units #roduced.
). is the total conversion costs divided by the number of units #roduced.

*1. Prime cost is
A. indirect materials cost and direct labor cost.
B. direct materials cost and direct labor cost.
'. direct labor cost and indirect labor cost.
). direct materials cost and indirect labor cost.

*2. 'onversion cost is the sum of
A. #roduct costs and #eriod costs.
9. selling cost and administrative costs.
'. direct labor cost and direct materials costs.
4. direct labor cost and overhead costs.

*3. Period costs
A. are selling costs and administrative costs.
9. are used to com#ute #roduct cost.
'. can be included in overhead costs.
). are carried in inventory until the goods are sold.

*. :hich of the following is an e,am#le of a #eriod cost?
9. selling and mar!eting
'. general accounting
4. all of these

*". 'ost of goods manufactured e/uals
A. the cost of indirect materials used in #roduction.
B. the #roduct cost of goods com#leted during the current #eriod.
'. the #eriod costs for the current #eriod.
). the cost of direct materials and direct labor used during the current #eriod.

*$. 'ost of goods manufactured e/uals
A. total #roduct costs incurred during the current #eriod 4 beginning wor! in #rocess 7 ending wor! in #rocess.
9. direct materials cost 4 direct labor cost 4 overhead cost.
'. sales 7 cost of goods sold.

*&. The cost of the #artially com#leted goods at the end of the #eriod would be
A. ending wor! in #rocess inventory.
'. beginning finished goods inventory.
). beginning wor! in #rocess inventory.

*(. Product costs are e,#ensed
A. when the #roduct is finished.
9. when the #roduct unit cost is calculated.
C. when the #roduct is sold.
). all of these are correct.

**. .ancor Inc. had a #er7unit conversion cost of @2."+ during A#ril and incurred direct materials cost of
@1++%+++% direct labor costs of @&"%+++% and overhead costs of @"%+++ during the month. Aow many units did
they manufacture during the month?
A. &+%+++
9. 1(%+++
C. (%+++
). 3+%+++

1++. Ba!eland Inc. manufactured "%+++ units during the month of 1arch. They incurred direct materials cost of
@1++%+++ and overhead cost of @+%+++. If their #er7unit #rime cost was @2$.++ #er unit how much direct labor
cost did they incur during 1arch?
A. @2+%+++
9. @3"%+++
'. @*+%+++
4. @3+%+++

1+1. )uring the month of Canuary% -nter#rise Inc. had total manufacturing costs of @11+%+++. They incurred
@+%+++ of direct labor cost and @3+%+++ of overhead cost during the month. If the materials inventory on
Canuary 1 was @3%+++ less that the materials inventory on Canuary 31% what was the cost of materials #urchased
during the month?
A. @3&%+++
B. @3%+++
'. @+%+++
). none of these

1+2. Production costs that are not attached to units that are sold are re#orted as=
A. selling e,#enses.
'. administrative costs.
4. inventory.

1+3. Information from the records of 'ain 'or#oration for )ecember 2+11 are as follows=
2ales @1%23+%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
:or! in #rocess &"%+++ (%+++
The conversion costs are=
A. @*$+%+++.
9. @1%1&*%+++.
C. @&+"%+++.
). @"$%+++.

1+. Information from the records of 'ain 'or#oration for )ecember 2+11 are as follows=
2ales @1%23+%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
:or! in #rocess &"%+++ (%+++
The #rime costs are=
A. @*$+%+++.
B. @"$%+++.
'. @&+"%+++.
). @*$*%+++.

1+". Figure 2-1.
.efer to Figure 271. The #er7unit conversion cost was=
A. @21(.&"
B. @1"$.2"
'. @1$2."+
). @1++.++

1+$. Figure 2-1.
.efer to Figure 271. The total #roduct costs for last month were=
A. @1%&"+%+++
9. @2%11+%+++
'. @1%3++%+++
). @1%2"+%+++

1+&. Figure 2-1.
.efer to Figure 271. The total #er unit #rime cost was=
A. @2$3.&"
9. @$2."+
C. @1$2."+
). @1"$.2"

1+(. Figure 2-1.
.efer to Figure 271. :hat was the amount of cost of goods manufactured last month?
A. @1%&"+%+++
9. @1%2"+%+++
'. @1%3++%+++
). @2%11+%+++

1+*. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat was the cost of direct materials used in Culy?
A. @21%+++
B. @2+%1++
'. @21%*++
). @2+%"++

11+. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat were the total manufacturing costs in Culy?
A. @&1%+++
9. @"+%+++
'. @$*%$++
4. @&+%1++

111. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat was the cost of goods manufactured for Culy?
A. @&+%"++
9. @&+%&++
C. @$*%$++
). @$*%1++

112. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". :hat was the cost of goods sold for Culy?
A. @&+%2++
9. @$*%$++
'. @&1%3++
). @&1%1++

113. Figure 2-5.
Culy 1 Culy 31
1aterials @$%2++ @&%1++
:or! in #rocess @ &++ @1%2++
.efer to Figure 27". If -cono 'om#any sold 1+%+++ units during Culy and gross margin totaled @2*%(++% what was the sales #rice #er unit?
A. @*.*
B. @1+.++
'. @1+.+*
). @1+.11

11. Figure 2-7.
)irect labor (
;verhead 1"
.efer to Figure 27&. Prime cost #er7unit was?
A. @1*
9. @23
'. @3
). @11

11". Figure 2-7.
)irect labor (
;verhead 1"
.efer to Figure 27&. 'ost of goods sold last year was?
A. @&%"++
B. @2"%"++
'. @1%2"+
). @"1%+++

11$. Figure 2-7.
)irect labor (
;verhead 1"
.efer to Figure 27&. Total o#erating income last year was?
A. @2*%+++
9. @"1%+++
'. @2"%"++
4. @3%"++

11&. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. Total #eriod e,#ense was?
A. @2%+++
9. @1*+%+++
C. @$%+++
). @2"+%+++

11(. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. 0ross margin #er7unit was?
A. @12"
9. @&
'. @*"
4. @3+

11*. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. Total #roduct costs were?
A. @1*+%+++
9. @1++%+++
'. @1"+%+++
). @23$%+++

12+. Figure 2-8.
;verhead *+%+++
.efer to Figure 27(. 'onversion cost #er unit was?
A. @"+
B. @&"
'. @*"
). @12"

121. 'ost of goods sold
A. re#resents all costs associated with research% develo#ment% and general administration of the organi<ation.
9. is found on the 9alance 2heet.
'. is the cost of the #artially com#leted goods that are still on the factory floor at the end of the #eriod.
4. is the total #roduct cost for the units sold during a #eriod.

122. :hich of the following would not be found on the income statement of a manufacturer?
A. cost of goods sold
B. wor! in #rocess
'. sales revenue
). o#erating income

A. wor! in #rocess
9. raw materials
'. finished goods
4. All of the these are correct

A. sales revenue
9. selling e,#enses
C. factory e/ui#ment
). all of these are correct

12". 0ross margin e/uals
A. cost of goods sold 7 selling and administrative e,#enses.
9. direct materials 4 direct labor 4 manufacturing overhead.
C. sales revenue 7 cost of goods sold.
). cost of goods manufactured 4 selling and administrative e,#enses.

12$. ;#erating income e/uals
A. sales revenue 7 cost of goods sold 7 selling and administrative e,#ense
9. gross margin 7 selling e,#enses
'. sales revenue 7 cost of goods sold
). sales revenue 7 selling and administrative e,#enses

12&. 0ross margin #ercent e/uals
A. gross margin6cost of goods sold.
9. o#erating income6sales revenue.
C. gross margin6sales revenue.
). sales revenue6gross margin.

12(. :hich of the following would not be found on an income statement of a service organi<ation?
A. selling e,#enses
B. cost of goods sold
'. o#erating income
). sales revenue

12*. :hich of the following can be found on the income statements of both a manufacturing and service
organi<ation?
A. revenues
9. o#erating income
'. administrative e,#enses
4. all of these can be found on both.

13+. A manufacturer normally has
A. one inventory account.
9. four inventory accounts.
C. three inventory accounts.

131. An income statement of a manufacturer
A. will show the ending balance of wor! in #rocess.
9. contains only manufacturing costs.
'. will show the ending balance of materials inventory.
4. covers a certain #eriod of time.

132. ;n a manufacturerEs income statement e,#enses are se#arated into the following three categories=
A. #roduction% #eriod% and indirect
9. materials% wor! in #rocess% and finished goods
C. #roduction% selling% and administrative
). variable% fi,ed% and direct

133. Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat was the amount of cost of goods manufactured for the year?
A. @1+1%+++
9. @12%+++
'. @1++%+++
4. @1+2%+++

13. Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat was the amount of cost of goods sold for the year?
A. @1+2%+++
9. @*&%"++
C. @1+$%"++
). @12(%"++

13". Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat were the total manufacturing costs for the year?
A. @1+1%+++
9. @1+2%+++
'. @123%+++
). @1+$%"++

13$. Figure 2-2.
1aterials @1+%+++ @ (%+++
:or! in Process @1(%+++ @1&%+++
.efer to Figure 272. :hat was BonborgEs o#erating income FlossG for the year?
A. @1(%"++
9. @12"%+++
C. @F3%"++G
). @"%"++

13&. )uring the month of Cune% Telecom Inc. had cost of goods manufactured of @112%+++% direct materials cost
of @"2%+++% direct labor cost of @3&%+++ and overhead cost of @2$%+++. The wor! in #rocess balance at Cune 3+
e/ualed @1+%+++. :hat was the wor! in #rocess balance on Cune 1?
A. @&%+++
9. @13%+++
'. @1+%+++
). @11"%+++

13(. Talcum Inc. had materials inventory at Culy 1 of @12%+++. The materials inventory at Culy 31 was @1"%+++
and the cost of direct materials used in #roduction was @2+%+++. :hat was the cost of materials #urchased
during the month?
A. @23%+++
9. @1&%+++
'. @3"%+++
). @2+%+++

13*. Hutlow Inc. had cost of goods sold of @112%+++ for the year ended )ecember 31% 2+11. The finished goods
inventory on Canuary 1% 2+11 was @2(%+++ and the finished goods inventory on )ecember 31% 2+11 was
@1&%+++. :hat was the amount of cost of goods manufactured for the year?
A. @12*%+++
B. @1+1%+++
'. @$&%+++
). @113%+++

1+. Andover Inc. had a gross margin for the month of February totaling @2%+++. They sold "%+++ units during
the month at a sales #rice of @2+ #er unit. :hat was the amount of cost of goods sold for the month?
A. @1++%+++
9. @2%+++
C. @"(%+++

11. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the sales revenue #ercent?
A. 1++I
9. (I
'. "2I
). 1$I

12. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the cost of goods sold #ercent?
A. 1++I
9. 1*I
'. "2I
4. (I

13. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the gross margin #ercent?
A. "2I
9. (I
'. 1&I
). 1*I

1. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the selling e,#ense #ercent?
A. 1&I
B. 1*I
'. 1$I
). no correct answer

1". Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the administrative e,#ense #ercent?
A. 1&I
9. 1*I
'. 1$I
). 1"I

1$. Figure 2-3.
2ales
revenue
@2(%+++
'ost of
goods
sold
2+"%+
0ross
margin
222%"$+
Bess=
.efer to Figure 273. :hat was the o#erating income #ercent?
A. 1"I
9. 1*I
'. 1&I
4. 1$I

1&. Figure 2-4.
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. Aow many financial calculators did Cun!o sell during the year?
A. *$%&(+
B. *&%22+
'. *&%+++
). *(%2$+

1(. Figure 2-4.
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. If each financial calculator had a #er7unit #roduct cost of @112% what was the cost of Finished goods inventory on )ecember
31?
A. @11$%(+
9. @11%12+
'. @2%$+

1*. Figure 2-4.
Canuary 1 1%2$+
)ecember 31 1%++
.efer to Figure 27. If each financial calculator has a #er7unit #roduct cost of @112% what was the cost of goods sold last year?
A. @1+%($%+++
9. @1+%(3*%3$+
'. @11%++"%12+
4. @1+%(((%$+

1"+. Figure 2-6.
.efer to Figure 27$. :hat was gross margin for the year?
A. @$+%+++
9. @1++%+++
C. @+%+++
). none of these

1"1. Figure 2-6.
.efer to Figure 27$. :hat was cost of goods sold for the year?
A. @$+%+++
9. @+%+++
'. @1++%+++
). none of these

1"2. Figure 2-6.
.efer to Figure 27$. Aow many units were sold during the year?
A. 3%333
9. 1%+++
'. 1%"++
4. 2%+++

1"3. Figure 2-6.
.efer to Figure 27$. :hat was the sales #rice #er unit?
A. @"+
9. @3+
'. @2+
). @1+

1". If beginning wor!7in7#rocess inventory is @12+%+++% ending wor!7in7#rocess inventory is @1$+%+++% cost of
goods manufactured is @++%+++ and direct materials used are @1++%+++% what are the conversion costs?
A. @1+%+++
9. @2(+%+++
'. @3++%+++
4. @3+%+++

1"". Information from the records of Place% Inc.% for )ecember 2+11 is as follows=
2ales @(2+%+++
)irect materials #urchases 1&$%+++
Factory overhead 2&+%+++
)irect materials% )ecember 1 2%+++
:or! in #rocess% )ecember 1 "+%+++
Finished goods% )ecember 1 $%+++
)irect materials% )ecember 31 2(%+++
:or! in #rocess% )ecember 31 "$%+++
Finished goods% )ecember 31 3(%+++
>et income for the month of )ecember is=
A. @$%+++.
B. @3$%+++.
'. @$3$%+++.
). @1(+%+++.

1"$. 2elected data concerning the #ast yearEs o#erations of the 9urner 'or#oration are as follows=
2elling and administrative e,#enses @22"%+++
)irect materials used 3*&%"++
)irect labor "+%+++
Inventories
)ec. 1% 2+11 )ec. 31% 2+11
:or! in #rocess &"%+++ (%+++
The cost of direct materials #urchased is=
A. @3*&%"++.
B. @+3%"++.
'. @3$&%"++.
). @+"%+++.

1"&. 2tone 'om#any% ma!er of com#uters% incurred the following costs during the year=
Reuire!" 'lassify each cost as either fi,ed or variable cost.
Fi#e! $aria%le
1. 2alary of the factory su#ervisor
2. 1aterials needed to assemble the com#uters
3. :ages #aid to an assembly line wor!er
. )e#reciation on the factory
". Jtility bill for the factory
$. 0rease used to lubricate the machine
&. .ent #aid for the factory
(. Pro#erty ta,es on the factory and cor#orate office
*. 9o,es used to #ac!age the com#leted com#uters
1+. Advertising in a news#a#er monthly

1. Fi,ed
2. Kariable
3. Kariable
. Fi,ed
". Kariable
$. Kariable
&. Fi,ed
(. Fi,ed
*. Kariable
1+. Fi,ed

1"(. Ashland 'om#any% ma!er of !itchen cabinets% incurred the following costs during the current year=
Reuire!" 'lassify each cost as either a #roduct or #eriod cost.
Product Period

1. )e#reciation on automobiles used by the sales staff.

2. 2alary of AshlandEs chief e,ecutive officer

3. 0lue used in the #roduction #rocess

. 2u##lies for factory washroom

". .esearch and develo#ment costs

$. Pro#erty ta,es on factory building

&. 2alary of com#any controller

(. )e#reciation on furniture in factory lunchroom

*. 'ost of lubricating machinery

1+. :ood used in #roduction #rocess

Product Period

1. )e#reciation on automobiles used by the sales staff. N

2. 2alary of AshlandEs chief e,ecutive officer N

3. 0lue used in the #roduction #rocess N

. 2u##lies for factory washroom N

". .esearch and develo#ment costs N

$. Pro#erty ta,es on factory building N

&. 2alary of com#any controller N

(. )e#reciation on furniture in factory lunchroom N

*. 'ost of lubricating machinery N

1+. :ood used in #roduction #rocess N

1"*. Arcadia 'om#any manufactures recreational vehicles and incurred the following costs during the current
year.
Reuire!" 'lassify each cost using the table format given below=
)irect
1aterials
)irect
Babor
;verhead
2elling
-,#ense
Administrative
-,#ense
1. :ages of general office #ersonnel

2. 'ost of tires

3. Factory su#ervisorEs salary

. 'onference for mar!eting #ersonnel

". Factory security guards

$. .esearch and develo#ment

&. Assembly line wor!ers

(. 'om#any rece#tionist

*. Advertising cost

1+. 'ost of shi##ing vehicles to customers

)irect
1aterials
)irect
Babor
;verhead
2elling
-,#ense
Administrative
-,#ense
1. :ages of general office #ersonnel N

2. 'ost of tires N

3. Factory su#ervisorEs salary N

. 'onference for mar!eting #ersonnel N

". Factory security guards N

$. .esearch and develo#ment N

&. Assembly line wor!ers N

(. 'om#any rece#tionist N

*. Advertising cost N

1+. 'ost of shi##ing vehicles to customers N

1$+. The 9ayou 'om#any ma!es crab #ots. )uring the current month% direct materials costing @12$%+++ were
#ut into #roduction. )irect labor of @&(%+++ was incurred and overhead e/ualed @(%+++. 2elling and
administrative e,#enses totaled @$$%+++ for the month and the com#any manufactured 3%+++ crab #ots. Assume
there was no beginning inventory and that 2%(++ crab #ots were sold.
Reuire!"
). :hat is cost of goods sold for the month?
-. :hat is the cost of ending finished goods for the month?

A. 3@12$%+++ 4 @&(%+++ 4 @(%+++563%+++ O @*$

9. 3@12$%+++ 4 @&(%+++563%+++ O @$(

'. 3@&(%+++ 4 @(%+++563%+++ O @"

). 3@*$ P 2%(++5 O @2$(%(++

-. 3@*$ P 2++5 O @1*%2++

1$1. .oss 'om#any ma!es handbags. Bast month direct materials 3leather% thread% <i##ers% decorative accents5
costing @&$%+++ were #ut into #roduction. .oss had 3+ wor!ers% each wor!ed 1$+ hours this month and each
are #aid @12 #er hour. ;verhead e/ualed @(+%+++ for the #eriod. .oss 'om#any #roduced +%+++ handbags as
of the end of the month.
Reuire!" 'alculate the total #roduct cost for the month and calculate the cost of one handbag that was
#roduced.
)irect materials O &$%+++
)irect labor O "&%$++ 33+ em#loyees , 1$+ hrs. , @12 #er hour5
;verhead O (+%+++
Total cost 213%$++
'ost of one handbag= 213%$++6+%+++ O @".3

1$2. .oom :ith A Kiew 'om#any manufactures curtains. Bast wee!% direct materials costing @2%+++ were #ut
into #roduction. )irect labor of @22%+++ was incurred and overhead totaled @"+%+++. 9y the end of the wee!%
the com#any had #roduced 12%+++ curtains.
Reuire!"
1. 'alculate the total #rime cost for the wee!.
2. 'alculate the #er7unit #rime cost.
3. 'alculate the total conversion cost for the wee!.
. 'alculate the #er7unit conversion cost.
1. @$%+++ 32%+++ 4 22%+++5
2. @".33 3$%+++612%+++5
3. @&2%+++ 322%+++ 4 "+%+++5
. @$.++ 3&2%+++612%+++5

1$3. The 9lanchett 'om#any manufactures fishing rods. Bast year% direct materials costing @"1$%+++ were #ut
into #roduction. )irect labor of @3+%+++ was incurred and overhead e/ualed @$"%+++. The com#any had
o#erating income for the year of @"(%+++ and manufactured and sold ($%+++ fishing rods at a sales #rice of @21
#er unit. Assume that there were no beginning or ending inventory balances in the wor! in #rocess and finished
goods inventory accounts.
Reuire!"
-. 'om#ute the selling and administrative e,#enses for the year
F. Assume #roduction amounted to ($%+++ fishing rods and (+%+++ were sold. 'om#ute cost of goods sold.
0. Assume #roduction amounted to ($%+++ fishing rods and (+%+++ were sold. 'om#ute the balance in ending finished goods inventory.

A. 3@"1
$%++
+ 4
@3+
%+++
4
@$"
%+++5
6($%+
++ O
@1(.
"+

9. 3@"1
$%++
+ 4
@3+
%+++5
6($%+
++ O
@11.
++

'. 3@3
+%++
+ 4
@$"
%+++5
6($%+
++ O
@12.
"+

). 2
a
l
e
s

3
(
$
%
+
+
+

P

@
2
1
5
@1%(+$%+++
'
;
0
2

3
(
$
%
+
+
+

P

@
1
(
.
"
+
5
1%"*1%+++
0
r
o
s
s

1
a
r
g
i
n
21"%+++

-. 0
r
o
s
s

1
a
r
g
i
n
@ 21"%+++
B
e
s
s
=

2
e
l
l
.
a
n
d

a
d
m
i
n
.
1"&%+++
;
#
e
r
a
t
i
n
g

I
n
c
o
m
e
"(%+++

F. 3(+%+++ P @1(."+5 O @1%(+%+++

0. 3$%+++ P @1(."+5 O @111%+++

1$. The 9utchart 'om#any manufactures microwave ovens. Bast year% the #er7unit #roduct cost was @"$% the
#er7unit #rime cost was @3% and the #er7unit conversion cost was @2. 'ost of goods sold for the year was
@"$+%+++ and the sale #rice #er unit was @1++. In addition% direct labor costs of @2++%+++ and selling and
administrative e,#enses of @2+%+++ were incurred.
Reuire!"
A. 'alculate how many units were sold last year
9. 'om#ute the cost of direct materials used
'. 'om#ute the cost of overhead
-. 'alculate o#erating income

A. 'ost of goods sold @"$+%+++6@"$ O 1+%+++ units

9. 1+%+++ P @3 7 3@2++%+++ of direct labor cost5 O @1+%+++

'. 1+%+++ P @2 7 3@2++%+++ of direct labor cost5 O @22+%+++

). 2ales revenue 31+%+++ P @1++5 @1%+++%+++
'ost of goods sold "$+%+++
0ross margin +%+++

-. 0ross margin @ +%+++
Bess= 2ell. and admin. 2+%+++
;#erating income 2++%+++

1$". Picture It Inc. manufactures customi<ed wooden frames. The direct materials needed to construct the
frames are wood% glass and cardboard. Picture It has 22 em#loyees who wor! a + hour wor! wee! and are
each #aid @1& #er hour. The com#any #roduced and sold *++ frames in the month of 2e#tember.
)uring the month of 2e#tember the following #urchases were made to #roduce the *++ frames=
:ood7 +++ ft. at @1.2+6ft.
0lass7 ++ #ieces at @".$+6#iece
'ardboard7 "++ #ieces at @."+6#iece
Reuire!"
1. 'alculate the total #roduct cost for the month. Assume that all em#loyees wor!ed four full wee!s in
2e#tember and that the com#any incurred @""%+++ in overhead costs.
2. 'alculate the #er unit cost.
3. 'alculate the gross margin for the month of 2e#tember assuming that the com#any sells each frame for @2"+.
1. )irect materials=
:ood O @%(++ 3%+++ , 1.2+5
0lass O 2%2+ 3++ , ".$"5
'ardboard O 2"+ 3"++ , ."+5
@&%2*+
)irect labor= "*%(+ 322 , 1$+ , 1&5
;verhead ""%+++
Total cost 122%13+
2. 122%13+6*++ O @13".&+
3. 0ross margin O sales revenue7cost of goods sold
0ross margin O 22"%+++ 32"+ , *++5 7 122%13+ O @1+2%(&+

1$$. Tuc!er 'om#any% a manufacturing firm% has su##lied the following information from its accounting
records for the month of A#ril.
)irect labor cost @12%+++
Purchases of raw materials 1&%+++
Factory insurance %+++
.esearch and develo#ment &%"++
Factory #ro#erty ta,es 3%+++
2ales commissions #aid %"++
:or! in #rocess% A#ril 3+ 2%(++
1aterials inventory% A#ril 1 1%&"
Finished goods inventory% A#ril 1 2%2"+
Finished goods inventory% A#ril 3+ &"+
Reuire!" Pre#are a 2tatement of 'ost of 0oods 1anufactured
Tuc!er 'om#any
2tatement of 'ost of 0oods 1anufactured
For the 1onth of A#ril
1aterials inventory% A#ril 1 @ 1%&"
1aterials #urchased 1&%+++
1aterials available for use 1(%&"
1aterials used @1&%2&"
)irect labor 12%+++
;verhead &%+++
Total manufacturing costs 3$%2&"
:or! in #rocess% A#ril 3+ 32%(++5
'ost of goods manufactured @3"%&"

1$&. In Cune% ;lym#ic 'om#any #urchased materials costing @3(%+++% and incurred direct labor cost of @2%+++.
;verhead totaled @2&%+++ for the month. Information on inventories was as follows.
Cune 1 Cune 3+
1aterials @3%+++ @2%&++
:or! in #rocess 1%+++ 1%2&"
Finished goods 2%"++ 1%&&"
Reuire!"
A. 'alculate the cost of direct materials used during Cune.
9. 'alculate the total manufacturing cost for Cune.
'. 'alculate the cost of goods manufactured for Cune.
). 'alculate cost of goods sold for Cune.

A. 1aterials% $61 @ 3%+++
Purchases 3(%+++
1aterials% $63+ 32%&++5
1aterials used @ 3(%3++

9. 3@3(%3++ 4 @2%+++ 4 @2&%+++5 O @1+&%3++

'. Total manufacturing costs @1+&%3++
:or! in #rocess% $61 1%+++
:or! in #rocess% $63+ 31%2&"5
'ost of goods manufactured @1+&%+2"

). 'ost of goods manufactured @1+&%+2"
Finished goods% $61 2%"++
Finished goods% $63+ 31%&&"5
'ost of goods sold @1+&%&"+

1$(. Tem#lar 'om#any% a manufacturing firm% has su##lied the following information from its accounting
records for the month of >ovember=
Factory su##lies used @1(%+++
)e#reciation on factory building 1&%+++
2alary of com#any controller $%+++
Factory janitorial costs "%+++
1ar!eting and #romotion %"++
)irect labor cost 22%+++
Finished goods inventory% >ov. 3+ 3%&"+
:or!7in7#rocess inventory% >ov. 3+ 2%&"+
1aterials inventory% >ov. 1 3%"++
1aterials inventory% >ov. 3+ "%1++
Reuire!"
A. Pre#are a 2tatement of 'ost of 0oods 1anufactured
9. Pre#are a 2tatement of 'ost of 0oods 2old

Tem#lar 'om#any
For the 1onth of >ovember
1aterials inventory% >ov. 1 @ 3%"++
Purchases of materials 1+%+++
1aterials inventory% >ov. 3+ 3"%1++5
1aterials used @ (%++
)irect labor 22%+++
;verhead +%+++
Total manufacturing costs &+%++
:or!7in7#rocess inventory% >ov. 3+ 32%&"+5
'ost of goods manufactured @&1%("+
Tem#lar 'om#any
2tatement of 'ost of 0oods 2old
For the 1onth of >ovember
'ost of goods manufactured @&1%("+
Finished goods inventory% >ov. 3+ 33%&"+5
'ost of goods sold @&+%3"+

1$*. Fidalgo 'om#any ma!es stereos. )uring the year% Fidalgo manufactured and sold &"%+++ stereos at a sales
#rice of @"&" #er unit. FidalgoEs #er7unit #roduct cost was @"+ and selling and administrative e,#enses totaled
@2%+++%+++.
Reuire!"
A. 'om#ute the total sales revenue
9. 'om#ute the gross margin
'. 'om#ute the o#erating income
). 'om#ute the o#erating income if &"%+++ stereos were #roduced and $*%+++ were sold.

A. &"%+++ P @"&" O @3%12"%+++

9. 2ales revenue @3%12"%+++
'ost of goods sold
3&"%+++ P @"+5 +%"++%+++
0ross margin 2%$2"%+++

'. 0ross margin @ 2%$2"%+++
2elling and admin. e,#enses 2%+++%+++
;#erating income $2"%+++

). 2ales revenue @3*%$&"%+++
'ost of goods sold
3$*%+++ P @"+5 3&%2$+%+++
0ross margin 2%1"%+++
2elling and admin. e,#enses 2%+++%+++
;#erating income 1"%+++

1&+. 9aleen 'om#any su##lied the following data at the end of the current year=
2ales commissions @ 12%+++
2ales revenue 12+%+++
.esearch and develo#ment 1&%+++
:or! in #rocess inventory% Can 1 *%+++
Finished goods inventory% )ec. 31 $%+++
:or! in #rocess inventory% )ec. 31 11%+++
'ost of goods manufactured "2%+++
Reuire!" Pre#are an income statement for 9aleen 'om#any.
9aleen 'om#any
Income 2tatement
For the Mear -nded )ecember 31% 2+11
2ales revenue @12+%+++
'ost of goods soldQ "3%"++
0ross margin $$%"++
Bess=
2elling e,#ense 12%+++
Administrative e,#ense 1&%+++
;#erating income @ 3&%"++

Q'ost of goods manufactured @ "2%+++
Finished goods inventory% )ec. 31 3$%+++5

1&1. 1acon 'om#any su##lied the following data and information on inventories at the end of the current year.
Canuary 1% 2+11 )ecember 31%2+11
1aterials @21%+++ @23%"++
:or! in #rocess 1&%"++ (%"++
Finished goods 2$%+++ 2&%+++
)irect labor @ +%+++
2ales revenue ++%+++
Purchases of raw materials $2%+++
Factory su#ervision "+%+++
Factory su##lies used 2"%+++
Reuire!" Pre#are an income statement of 1acon 'om#any for the current year.
1acon 'om#any
Income 2tatement
For the Mear -nded )ecember 31% 2+11
2ales revenue @ ++%+++
'ost of goods soldQ 1(2%"++
0ross margin 21&%"++
Bess=
;#erating income @1&2%+++

Q'ost of goods manufacturedQQ @1(3%"++
Finished goods inventory% Can. 1 2$%+++
Finished goods inventory% )ec. 31 32&%+++5
'ost of goods sold 1(2%"++

QQPurchases of raw materials @ $2%+++
1aterials inventory% 161 21%+++
1aterials inventory% 12631 323%"++5
1aterials used "*%"++
)irect labor +%+++
;verhead 3@"+%+++ 4 @2"%+++5 &"%+++
Total manufacturing costs 1&%"++
:or! in #rocess inventory% Can. 1 1&%"++
:or! in #rocess inventory% )ec. 31 3(%"++5
'ost of goods manufactured @1(3%"++

1&2. 9artlow 'om#any has su##lied the following information from its accounting records for the month of
1ay.
)irect labor cost @11%"++
Factory de#reciation &%"++
Advertising 1+%+++
Factory #ro#erty ta,es $%"++
1aterials inventory% "61 1%2"+
1aterials inventory% "631 2%"++
:or! in #rocess Inventory% "61 ?
:or! in #rocess Inventory% "631 1%"++
'ost of goods manufactured "%("+
2ales revenue ?
-,ecutive salary cost 2"%+++
Finished goods inventory% "631 %2"+
;#erating income $&%*++
0ross margin ?
Reuire!" 2olve for the missing amounts 3?5
9artlow 'om#any
2chedule of 'ost of 0oods 1anufactured
For the 1onth of 1ay
1aterials inventory% "61 @ 1%2"+
Purchases of materials 2+%+++
1aterials inventory% "631 32%"++5
1aterials used @1(%&"+
)irect labor 11%"++
;verhead 3&%"++ 4 $%"++5 1%+++
Total manufacturing costs %2"+
:or! in #rocess% "61 3%1++
:or! in #rocess% "631 31%"++5
'ost of goods manufactured @"%("+
9artlow 'om#any
Income 2tatement
2ales revenue @1"+%+++
'ost of goods soldQ &%1++
0ross margin 1+2%*++
Bess=
2elling e,#ense 1+%+++
Administrative e,#ense 2"%+++
;#erating income @ $&%*++

Q'ost of goods manufactured @ "%("+
Finished goods inventory% "631 3%2"+5
'ost of goods sold @ &%1++

1&3. 2ee the following se#arate cases.
'ase L1 'ase L2
2ales @1%+++ @1%3++
'ost of goods manufactured A "++
Finished goods inventory 3beginning balance5 1++ )
Finished goods inventory 3ending balance5 1"+ 2++
'ost of goods sold 9 $++
0ross margin 3++ -
2elling e,#enses ' &"
;#erating income 2++ F
Reuire!" 2olve for the missing amounts 3A%9%'%)%-%F5
'ase L1 'ase L2
2ales @1%+++ @1%3++
'ost of goods manufactured &"+ "++
Finished goods inventory 3beginning balance5 1++ 3++
Finished goods inventory 3ending balance5 31"+5 32++5
'ost of goods sold &++ $++
0ross margin 3++ &++
2elling e,#enses "+ &"
;#erating income 2++ "("

1&. 2ee the following se#arate cases.
'ase L1 'ase L2
Purchase of materials @ "%+++ '
1aterials inventory 3beginning balance5 A 22+
1aterials inventory 3ending balance5 1%+++ 3"+
Factory su#ervision 1%"++ 1%1++
Factory su##lies 1%2"+ *++
Total manufacturing costs 1%"++ )
:or! in #rocess inventory 3beginning balance5 1%2++ 1%23+
:or! in #rocess inventory 3ending balance5 9 $"+
'ost of goods manufactured 1%$++ 1+%2++
Reuire!" 2olve for the missing amounts 3A%9%'%)5.
'ase L1 'ase L2
Purchases of materials @ "%+++ @ 3%"++
1aterials inventory 3beginning balance5 &"+ 22+
1aterials inventory 3ending balance5 31%+++5 33"+5
1aterials used %&"+ 3%3&+
;verhead 2%&"+ 2%+++
Total manufacturing costs 1%"++ *%$2+
:or! in #rocess inventory% 3beginning balance5 1%2++ 1%23+
:or! in #rocess inventory% 3ending balance5 31%1++5 3$"+5
'ost of goods manufactured @1%$++ @1+%2++

1&". .ancor 'om#anyEs accountant #re#ared the following income statement for the month of August.
.ancor 'om#any
Income 2tatement
For the 1onth of August
2ales revenue @*12%2++
'ost of goods sold $+1%*2+
0ross margin 31+%2(+
Bess=
2elling e,#ense 1$%1$+
Administrative e,#ense $3%(+
;#erating income @ (2%2(+
Reuire!"
A. 'alculate the sales revenue #ercent
9. 'alculate the cost of goods sold #ercent
'. 'alculate the gross margin #ercent
). 'alculate the selling e,#ense #ercent
-. 'alculate the administrative e,#ense #ercent
F. 'alculate the o#erating income #ercent

A. *12%+++6*12%+++ O 1++I
9. $+1%*2+6*12%+++ O $$I
'. 31+%2(+6*12%+++ O 3I
). 1$%1$+6*12%+++ O 1(I
-. $3%(+6*12%+++ O &I
F. (2%2(+6*12%+++ O *I

1&$. -,trema 'om#any su##lied the following data at the end of the current year.
Finished goods inventory% Can 1. @ 12%+++
Finished goods inventory% )ec. 31 &%"++
'ost of goods manufactured 1"2%3(+
2ales revenue 212%+++
2ales commissions 1*%+(+
.esearch and develo#ment costs 1"%*++
Reuire!"
A. 'alculate the cost of goods sold #ercent
9. 'alculate the gross margin #ercent
'. 'alculate the selling e,#ense #ercent
). 'alculate the administrative e,#ense #ercent
-. 'alculate the o#erating income #ercent

A. 'ost of goods manufactured @1"2%3(+
Finished goods inventory% 161 12%+++
Finished goods inventory% 12631 3&%"++5
'ost of goods sold 1"$%((+

2ales revenue @212%+++
'ost of goods sold 1"$%((+
0ross margin ""%12+
Bess=
2elling e,#ense 1*%+(+
Administrative e,#ense 1"%*++
;#erating income @ 2+%1+
A. 1"$%((+6212%+++ O &I
9. ""%12+6212%+++ O 2$I
'. 1*%+(+6212%+++ O *I
). 1"%*++6212%+++ O &."I
-. 2+%1+6212%+++ O *."I

1&&. .i<<uto 'om#any su##lied the following information for the month of Canuary.
'ost of 0oods 2old #ercent $2I
2elling -,#ense #ercent $I
Administrative e,#ense 13I
Reuire!" .econstruct .i<<utoEs income statement for Canuary assuming that their total sales revenue for the month e/ualed @"++%+++.
.i<<uto 'om#any
Income 2tatement
For the 1onth of Canuary
2ales revenue @"++%+++
'ost of goods sold 3"++%+++ P $2I5 31+%+++
0ross margin 3"++%+++ P 3(I5 1*+%+++
Bess=
2elling e,#ense 3"++%+++ P $I5 3+%+++
Administrative e,#ense 3"++%+++ P 13I5 $"%+++
;#erating income *".+++

1&(. 'ashman 'om#any su##lied the following information for the month of )ecember.
;#erating income #ercent 1+."I
0ross margin #ercent 3+I
Reuire!" 2olve for the following amounts assuming that 'ashman 'om#anyEs o#erating income in )ecember was @%1++.
A. 2ales revenue
9. 'ost of good sold
'. Total 2elling and administrative e,#enses

A. 2ales .evenue O @%1++6.1+" O 2+%+++
9. 'ost of goods sold O 2+%+++ P .&+ O @2*%+++
'. 0ross margin 32+%+++ P .3+5 12$%+++
Bess= 2elling and administrative e,#ense (1%*++
;#erating income %1++

1&*. :a#ato 'om#any #roduces a #roduct with the following #er unit costs.
)irect materials @1&
)irect labor 11
;verhead 12
Bast year% :a#ato #roduced and sold 3%+++ units at a sales #rice of @(+ each. Total selling and administrative e,#enses were @2"%+++.
Reuire!" 2olve for the following=
A. Total cost of goods sold for last year
9. ;#erating income for last year
'. Total gross margin for last year
). Prime cost #er unit

A. 31& 4 11 4 125 P 3%+++ O @12+%+++

9. R '. 2ales revenue 33%+++ P (+5 @2+%+++
'ost of goods sold 12+%+++
0ross margin 12+%+++
Bess=
2elling and administrative e,#enses 2"%+++
;#erating income @ *"%+++

). 1& 4 11 O @2(

1(+. Tesco 'om#any showed the following costs for last month=
)irect materials @+%+++
)irect labor 3"%+++
;verhead "2%+++
Bast month% Tesco #roduced and sold 2+%+++ units at a sales #rice #er unit of @1(. Assume no beginning or ending inventory balances for wor! in
#rocess and finished goods inventory.
Reuire!" 2olve for the following amounts.
A. Total #roduct cost for last month
9. Jnit #roduct cost for last month
'. Total #eriod costs
). 0ross margin for last month
-. ;#erating income for last month

A. +%+++ 4 3"%+++ 4 "2%+++ O @12&%+++

9. 12&%+++62+%+++ O @$.3"

'. 1&%+++ 4 12%+++ O @2*%+++

) R -. 2ales revenue 32+%+++ P @1(5 3$+%+++
'ost of goods sold 12&%+++
0ross margin 233%+++
Bess=

1(1. 2tabler 'om#any% a manufacturing firm% has #rovided the following information for the month of 1ay=
Factory su##lies used 22%+++
)e#reciation on factory building 1+%+++
'ommissions for sales #ersonnel 32%+++
2alary of com#any 'F; *%+++
Factory janitorial costs 3%+++
)e#reciation on cor#orate office (%"++
Advertising costs 2%"++
)irect labor cost +%+++
Purchases of raw materials 1"%+++
Finished goods inventory% 1ay 31 $%"++
:or! in #rocess inventory% 1ay 1 &%"++
:or! in #rocess inventory% 1ay 31 3%3++
1aterials inventory% 1ay 1 2%1++
1aterials inventory% 1ay 31 %2++
Reuire!"
A. Pre#are a 2tatement of 'ost of 0oods 1anufactured.
9. 'alculate the cost of one unit assuming 1+%+++ units were com#leted during 1ay.
'. Pre#are a 2tatement of 'ost of 0oods 2old.
). 'alculate the number of units that were sold during 1ay.
-. Pre#are an Income 2tatement assuming the sales #rice #er unit is @3".

A.
2tabler 'om#any
1aterials Inventory% 1ay 1 @ 2%1++
Purchases of materials 1"%+++
1aterials Inventory% 1ay 31 3%2++5
1aterials used @ 12%*++
)irect Babor +%+++
;verhead 3"%+++
Total manufacturing costs (&%*++
:or! in Process Inventory% 1ay 1 &%"++
:or! in Process Inventory% 1ay 31 33%3++5
'ost of 0oods 1anufactured @*2%1++
9. *2%1++61+%+++ O @*.21
'.
2tabler 'om#any
2tatement of 'ost of 0oods 2old
'ost of 0oods 1anufactured @*2%1++
Finished 0oods Inventory% 1ay 1 %+++
Finished 0oods Inventory% 1ay 31 3$%"++5
'ost of 0oods 2old @(*%$++
). >umber of units sold=
Jnits finished during 1ay 1+%+++
Finished goods inventory% 1ay 31 3$%"++5
Jnits sold during 1ay &%"++
-.
2tabler 'om#any
Income 2tatement
2ales revenue 3&%"++ , 3"5 2$2%"++
'ost of goods sold (*%$++
0ross margin 1&2%*++
Bess=
2elling e,#ense
'ommissions 32%+++
Advertising 2%"++ 3%"++
Administrative e,#ense
2alary of 'F; *%+++
)e#reciation on cor#orate office (%"++ 22%"++
;#erating income 11"%*++

1(2. :hat is the difference between a #eriod cost and a #roduct cost?
A #eriod cost is a cost that is not a #roduct cost. It is e,#ensed during the current #eriod rather than inventoried.
-,am#les of #eriod costs are selling and administrative costs. A #roduct cost is a manufacturing cost that is
inventoried and e,#ensed as 'ost of 0oods 2old only when the goods have been sold. Product costs are
classified as direct materials% direct labor% or overhead.

1(3. Bist and describe the three categories of manufacturing costs.
)irect materials consists of the cost of materials re/uisitioned and used in #roduction during the current #eriod.
)irect materials are materials that can be accurately and conveniently traced to the #roduct. )irect labor
consists of labor costs of wor!ers directly involved in the manufacture of the #roduct. ;verhead consists of all
the manufacturing costs that do not fall into the direct material or direct labor category. -,am#les of overhead
costs includeS insurance on the factory% machinery de#recation% indirect labor% indirect materials% factory
su##lies% etc.

1(. -,#lain the difference between a cost that is included in valuing inventory and a cost that is not included in
valuing inventory.
A cost that is included in valuing inventory is a cost of manufacturing the #roduct. These costs are also referred
to as #roduct costs and manufacturing costs. They include direct materials% direct labor% and overhead. These
costs are not e,#ensed until the goods are sold. A cost that is not included in valuing inventory is a selling or
administrative cost that is e,#ensed immediately in the accounting #eriod that it is incurred. These costs are also
referred to as #eriod costs or non7manufacturing costs.

1(". )escribe the #ur#ose of the three inventory accounts used by a manufacturer.
The materials inventory is used to !ee# trac! of materials that have not yet been used in #roduction. The wor!
in #rocess inventory is used to account for the costs of goods that were #artially com#leted at the end of the
accounting #eriod and is used to accumulate current #roduction costs. The finished goods inventory is used to
account for the cost of goods that were finished at the end of the current #eriod but have not yet been sold.

1($. :hat is the difference between total manufacturing costs and cost of goods manufactured?
Total manufacturing costs would consist of the cost of materials used% the direct labor costs incurred and the
overhead costs incurred during the current #eriod. 'ost of goods manufactured would be com#uted by adding
the beginning balance of wor! in #rocess to and subtracting the ending balance of wor! in #rocess from the total
manufacturing costs.

1(&. Mou )ecide
Mou are the accounting manager at Falcon Inc. Mou just hired a new staff accountant to assist you in brea!ing
out costs into their a##ro#riate classifications. The staff accountant as!s you why cost classification is
im#ortant.
Aow would you res#ond?
'ost classification is im#ortant for a variety of reasons. Probably the two most im#ortant are decision ma!ing
and #ro#er #resentation on the financial statements. For e,am#le% by determining if a cost is fi,ed or variable it
can hel# a com#any determine if each cost has a direct relationshi# to the level of out#ut. If the com#any feels
that their costs are becoming too high% then this ty#e of classification can give them im#ortant information.
1aybe the cost of the direct materials has increased significantly and they may need to loo! for a new su##lier.
;r when reviewing their fi,ed costs% they determine that the rent for their factory is causing the rise in costs and
they should consider moving locations. The brea! out of #roduct cost and #eriod cost in also vital to a
com#any. A com#any wants to !now how much they are s#ending to actually #roduce the #roduct 3direct
materials% direct labor% overhead5 so that they can ma!e such decisions as to the a##ro#riate #rice to charge a
customer. The allocation of #roduct and #eriod costs is also essential to #ro#erly generate the income statement%
which is also used by e,ternal users to ma!e decisions.

Chapter 2 Basic Managerial

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Chapter 2--Basic Managerial Accounting Concepts

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