PRACTICE QUESTIONS

1. Inventoriable product costs:

a) Include marketing costs and research and development costs
b) Include the costs of direct materials, direct labour, and manufacturing overhead used to produce a
product
c) Include only the costs of direct materials and direct labour used to produce a product
d) Both A and B are correct
2. Manufacturing overhead is a:
a) Product cost
b) Period cost
c) Indirect cost
d) Both A and C are correct
3. Which of the following statement is true:
A) Management accounting uses the cash basis to record transactions.
B) Period Costs are operating costs that are expensed in the period in which the goods are sold.
C) Product costs include direct labour and advertising expense
D) Inventoriable product costs are not expensed until the product is sold.
4. Direct materials:
a) Are used to determine total inventoriable product costs
b) Are used to determine total manufacturing overhead
c) Cannot be separately and conveniently traced through the manufacturing process to finished goods
inventory
d) Must not become part of the finished product
5. Which of the following is least accurate about a manufacturing setting?
a) Conversion costs refer to the costs applied to materials that convert it into a finished product. Direct
labour and manufacturing overheads makes up conversion costs.
b) When compared to the manufacturing setting, purchases and freight in are a part of inventoriable costs
for a merchandiser under US GAAP.
c) Inventoriable product costs are not recorded as assets until the product is sold.
d) When ending finished goods inventory is subtracted from the sum of beginning finished goods inventory
and cost of goods manufactured, the result is cost of goods sold
6. Which of the following best describes a fixed cost? A cost which:
a) represents a fixed proportion of total costs
b) remains at the same level up to a particular level of output
c) has a direct relationship with output
d) remains at the same level when output increases
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7. Compared to using the FIFO method to account for inventory, during periods of rising prices a company
that uses the LIFO method is most likely to report higher:
A) Net income
B) Cost of sales
C) Income taxes
D) Intangible assets
8. Like many technology companies, TechnoTools operates in an environment of declining prices. Its
reported profits will tend to be highest if it accounts for inventory using the:
A) FIFO method
B) LIFO method
C) Weighted average cost method
D) EOQ method
9. Cost of goods manufactured during 2006 is $240, WIP inventory on December 31, 2006 is $50. WIP
inventory during 2006 decreased 60%. Total manufacturing costs incurred during 2006 amount to:
a) $190
b) $165
c) $290
d) $315
10. You are given the following for the production of office chairs by the company Chairs and More :
Quantity produced Total Fixed Costs (JMD$)
100 10,000
200 10,000
300 10,000
400 10,000
500 10,000
600 10,000
Variable cost per unit is $150. The production of 15,000 chairs will cost:
a) $2,260,000
b) $1,500,000
c) $10,000
d) $25,000
11. Work in process inventory increased $20,000 during 2005. Cost of goods manufactured was $280,000,
Total manufacturing costs incurred in 2005 are:
a) $298,000
b) $262,000
c) $289,000
d) $300,000
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12. Wright Company reports production costs for 2006 as follows:

Direct materials used $375,000
Direct labour incurred $250,000
Manufacturing overhead incurred $400,000
Operating expenses $145,000
Wrights period costs and product costs respectively for 2006 are:
a) $145,000 and $1,025,000
b) $1,025,000 and $145,000
c) $545,000 and $975,000
d) $975,000 and $545,000
13. Which of the statements is generally true when prices are rising?
a) LIFO produces taxable income that exceeds taxable income of FIFO.
b) FIFO results in less tax than LIFO.
c) The use of LIFO will result in less tax than FIFO.
d) Managers will use LIFO if they want to maximize income reported to shareholders.
14. In a periodic inventory system, the quantity of ending inventory is determined by:
a) Subtracting units sold from units purchased
b) A physical inventory count
c) Looking at the balance in the inventory account
d) Subtracting COGS from the beginning inventory balance
15. Which of the following statements is true about a company making an accounting change in its financial
statements?
a) It is generally entitled to make one accounting change per year.
b) It must disclose the effect of the change on net income.
c) Companies can never make accounting changes because of the consistency principle.
d) It must petition the Financial Accounting Standards Board for permission to make the change.
16. The following data are for the Daisys Florist shop for the first seven months of its fiscal year:
Beginning inventory $53,500
Purchases $75,500
Net sales revenue $93,700
Normal gross profit percent 30%
What is the estimated inventory on hand as determined by the gross profit method?
a) $63,410
b) $65,590
c) $100,890
d) $28,110
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17. Two separate errors affected Computer Sales in 2005. The beginning inventory was understated by
$28,000 and the ending inventory was understated by $43,000. Net income in 2006 will be:
a) Overstated by $15,000
b) Overstated by $43,000
c) Understated by $43,000
d) Understated by $71,000
19. If a company uses a perpetual inventory system, which of the following entry or entries are required to
record the sale of merchandise on credit?
a) Dr. Accounts Receivable and Cr. Sales revenue
b) Dr. COGS and Cr. Purchases
c) Dr. COGS and Cr. Inventory
d) Both A and C are necessary entries
20. Which International Accounting Standard prescribes the treatment for inventories?
a) IAS 2
b) IAS 7
c) IAS 16
d) IAS 28
21. If the EOQ for laptops at Computer Boutique is 40 units and the annual demand is 2000 models with
an ordering cost per model of $5. What is the carrying cost per unit?
a) $1600
b) $12.50
c) $0.08
d) $20,000
22. LIFO tends to decrease taxes when:
a) Costs are declining
b) Costs are increasing
c) Costs are constant
d) LIFO will always yield the lowest possible taxes
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23. Overheads applied are calculated by:

a) OAR times the estimated cost driver activity
b) OAR times the actual cost driver activity
c) Budgeted production overheads divided by the budgeted cost driver activity
d) Cost driver divided by the OAR
24. The debit side of the manufacturing overhead control account has:
a) The actual overheads incurred
b) The over-applied variance amount
c) The overheads applied
d) A and B only
25. When overheads are under-applied, a debit is made to:
a) COGS
b) Manufacturing overhead account
c) WIP
d) The cost driver account
26. ______________ is a method of assigning manufacturing overhead and other indirect costs to cost
objects.
a) Cost driver
b) OAR
c) Cost allocation
d) Materials requisition
27. The predetermined manufacturing overhead rate is usually computed:
a) At the end of the financial year
b) At the beginning of the financial year
c) During the financial year
d) When overheads have been incurred
28. A business always absorbs its overheads on labour hours. In the 8 th period 18,000 hours were worked,
actual overheads were $279,000 and there was$36,000 over-absorption. The overhead absorption rate per
hour was:
a) $15.50
b) $17.50
c) $18.00
d) $13.50
29. A blanket overhead rate is:
a) a rate established for a manufacturing plant as whole instead of having separate rates
b) a rate that excludes all indirect costs from the calculation of overheads absorbed
c) used to shield manufacturers from the fluctuation in variances
d) computed as the overhead absorption rate times the cost driver activity of interest
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Refer to the following data to answer questions 8- 10.

The following cost data relates to Buncombe Company for the year 2007:
Estimated manufacturing overhead costs $240,000
Estimated direct labour cost 300,000
Estimated direct labour hours 30,000
Actual direct labour cost 315,000
Actual direct labour hours 33,000
Allocation base: Direct labour cost
Other expenses:
Factory depreciation on equipment $65,300
Factory rent 51,000
Factory utilities 28,900
Factory property taxes 26,000
Indirect labour 23,800
Indirect materials 32,000
Sales commissions 52,500
30. The predetermined manufacturing overhead rate for 2007 is:
a) 84% of direct labour cost
b) 80% of direct labour cost
c) 70% of direct labour cost
d) $1.25 per direct labour hour
31. Manufacturing overhead allocated for 2007 is:
a) $252,000
b) $450,450
c) $210,000
d) $220,500
32. The manufacturing overhead variance for
a) $25,000 under-applied
b) $25,000 over-applied
c) $17,000 under-applied
d) $6,500 under-applied
33. STUDY JOB COSTING JOURNAL ENTRIES.