Cost Accounting

In comparing financial and management accounting, which of the following more accurately describes
management accounting information?

a. historical, precise, useful
b. required, estimated, internal
c. budgeted, informative, adaptable
d. comparable, verifiable, monetary
ANS: C DIF: Easy OBJ: 1-1
2. Management and financial accounting are used for which of the following purposes?
Management accounting Financial accounting
a. internal external
b. external internal
c. internal internal
d. external external
ANS: A DIF: Easy OBJ: 1-1
3. One major difference between financial and management accounting is that

a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange
Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.
ANS: D DIF: Easy OBJ: 1-1
4. Which of the following statements about management or financial accounting is false?

a. Financial accounting must follow GAAP.
b. Management accounting is not subject to regulatory reporting standards.
c. Both management and financial accounting are subject to mandatory recordkeeping
requirements.
d. Management accounting should be flexible.
5. Management accounting
a. is more concerned with the future than is financial accounting.
b. is less concerned with segments of a company than is financial accounting.
c. is more constrained by rules and regulations than is financial accounting.
d. all of the above are true.
6. Modern management accounting can be characterized by its

a. flexibility.
b. standardization.
c. complexity.
d. precision.
7. Which of the following is not a valid method for determining product cost?
a. arbitrary assignment
b. direct measurement
c. systematic allocation
d. cost-benefit measurement
ANS: D DIF: Moderate OBJ: 1-1
8. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a
company's internal operations.
c. internal reporting system that provides product costing and other information used by
managers in performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost
Accounting Standards Board pronouncements.
9. Cost accounting is directed toward the needs of

a. regulatory agencies.
b. external users.
c. internal users.
d. stockholders.
10. Cost accounting is necessitated by

a. the high degree of conversion found in certain businesses.
b. regulatory requirements for manufacturing companies.
c. management's need to be aware of all production activities.
d. management's need for information to be used for planning and controlling activities.
ANS: A DIF: Moderate OBJ: 1-1
11. The process of ___________ causes the need for cost accounting.
a. Conversion
b. Sales
c. Controlling
d. Allocating
12. Financial accounting

a. is primarily concerned with internal reporting.
b. is more concerned with verifiable, historical information than is cost accounting.
c. focuses on the parts of the organization rather than the whole.
d. is specifically directed at management decision-making needs.
ANS: B DIF: Easy OBJ: 1-1
13. Financial accounting and cost accounting are both highly concerned with
a. preparing budgets.
b. determining product cost.
c. providing managers with information necessary for control purposes.
d. determining performance standards.
14. Which of the following topics is of more concern to management accounting than to cost accounting?
a. generally accepted accounting principles
b. inventory valuation
c. cost of goods sold valuation
d. impact of economic conditions on company operations
15. Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.
b. focus solely on determining how much it costs to manufacture a product or provide a
service.
c. provide product/service cost information as well as information for internal decision
making.
d. are required for business recordkeeping as are financial and tax accounting.
16. Which of the following statements is true?

a. Management accounting is a subset of cost accounting.
b. Cost accounting is a subset of both management and financial accounting.
c. Management accounting is a subset of both cost and financial accounting.
d. Financial accounting is a subset of cost accounting.
ANS: B DIF: Moderate OBJ: 1-1
17. Which of the following statements is false?

a. A primary purpose of cost accounting is to determine valuations needed for external
financial statements.
b. A primary purpose of management accounting is to provide information to managers for
use in planning, controlling, and decision making.
c. The act of converting production inputs into finished products or services necessitates cost
accounting.
d. Two primary hallmarks of cost and management accounting are standardization of
procedures and use of generally accepted accounting principles.
1. The term "relevant range" as used in cost accounting means the range over which
a. costs may fluctuate.
b. cost relationships are valid.
c. production may vary.
d. relevant costs are incurred.
2. Which of the following defines variable cost behavior?
Total cost reaction Cost per unit reaction

to increase in activity to increase in activity
a. remains constant remains constant

b. remains constant increases
c. increases increases
d. increases remains constant
3. When cost relationships are linear, total variable prime costs will vary in proportion to changes in
a. direct labor hours.
b. total material cost.
c. total overhead cost.
d. production volume.
4. Which of the following would not generally be considered a fixed overhead cost?
Straight-line Factory Units-of-production

depreciation insurance Depreciation
a. no no no
b. yes no yes
c. yes yes no
d. no yes no
5. An example of a fixed cost is

a. total indirect material cost.
b. total hourly wages.
c. cost of electricity.
d. straight-line depreciation.
6. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n)
a. expired cost.
b. fixed cost.
c. variable cost.
d. mixed cost.
7. A(n) ________ cost increases or decreases in intervals as activity changes.

a. historical cost
b. fixed cost
c. step cost
d. budgeted cost
8. When the number of units manufactured increases, the most significant change in unit cost will be
reflected as a(n)
a. increase in the fixed element.
b. decrease in the variable element.
c. increase in the mixed element.
d. decrease in the fixed element.
9. Which of the following always has a direct cause-effect relationship to a cost?
Predictor Cost driver
a. yes yes
b. yes no
c. no yes
d. no no
ANS: C DIF: Moderate OBJ: 2-1
10. A cost driver

a. causes fixed costs to rise because of production changes.
b. has a direct cause-effect relationship to a cost.
c. can predict the cost behavior of a variable, but not a fixed, cost.
d. is an overhead cost that causes distribution costs to change in distinct increments with
changes in production volume.
11. Product costs are deducted from revenue

a. as expenditures are made.
b. when production is completed.
c. as goods are sold.
d. to minimize taxable income.
12. A selling cost is a(n)
product cost period cost inventoriable cost

a. yes yes no
b. yes no no
c. no yes no
d. no yes yes
13. Which of the following is not a product cost component?

a. rent on a factory building
b. indirect production labor wages
c. janitorial supplies used in a factory
d. commission on the sale of a product
14. Period costs

a. are generally expensed in the same period in which they are incurred.
b. are always variable costs.
c. remain unchanged over a given period of time.
d. are associated with the periodic inventory method.
15. Period costs include
distribution costs outside processing costs sales commissions
a. yes no yes
b. no yes yes
c. no no no
d. yes yes yes
16. The three primary inventory accounts in a manufacturing company are

a. Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory.
b. Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory.
c. Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory.
d. Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory.
17. Cost of Goods Sold is an

a. unexpired product cost.
b. expired product cost.
c. unexpired period cost.
d. expired period cost.
18. The indirect costs of converting raw material into finished goods are called
a. period costs.
b. prime costs.
c. overhead costs.
d. conversion costs.
19. Which of the following would need to be allocated to a cost object?

a. direct material
b. direct labor
c. direct production costs
d. indirect production costs
20. Conversion cost does not include

a. direct labor.
b. direct material.
c. factory depreciation.
d. supervisors' salaries.
21. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.
22. Broussard Company is a construction company that builds houses on special request. What is the proper
classification of the carpenters' wages?
Product Period Direct
a. yes yes no
b. yes no yes
c. no no no
d. no yes yes
classification of the cost of the cement building slab used?
Direct Fixed
a. no no
b. no yes
c. yes yes
d. yes no

classification of indirect material used?
Prime Conversion Variable
a. no no no
b. no yes yes
c. yes yes yes
d. yes no no
25. Which of the following costs would be considered overhead in the production of chocolate chip cookies?
a. flour
b. chocolate chips
c. sugar
d. oven electricity
26. All costs related to the manufacturing function in a company are

a. prime costs.
b. direct costs.
c. product costs.
d. conversion costs.
27. Prime cost consists of
direct material direct labor overhead
a. no yes no
b. yes yes no
c. yes no yes
d. no yes yes
28. Plastic used to manufacture dolls is a
prime cost product cost direct cost fixed cost
a. no yes yes yes

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

29. The term "prime cost" refers to
a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.
30. Conversion of inputs to outputs is recorded in the

a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.
31. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to
Cash and a credit to Sales. The other entry is a debit to
a. Work in Process Inventory and a credit to Finished Goods Inventory.
b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.
32. The formula to compute cost of goods manufactured is

a. beginning Work in Process Inventory plus purchases of raw material minus ending
Work in Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus
overhead incurred minus ending Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in
Process Inventory.
33. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.
34. The formula for cost of goods sold for a manufacturer is

a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending
Finished Goods Inventory.
b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending
Work in Process Inventory.
c. direct material plus direct labor plus applied overhead.
d. direct material plus direct labor plus overhead incurred plus beginning Work in Process
Inventory.
35. Which of the following replaces the retailing component "Purchases" in computing Cost of Goods Sold
for a manufacturing company?
a. direct material used
b. cost of goods manufactured
c. total prime cost
d. cost of goods available for sale
36. Costs that are incurred to preclude defects and improper processing are:
a. prevention costs c. appraisal costs
b. detection costs d. failure costs
37. Costs that are incurred for monitoring and inspecting are:
38. Costs that are incurred when customers complain are:

Wilson Company
The following information has been taken from the cost records of Wilson Company for the past year:
Raw material used in production $326

Total manufacturing costs charged to production during the year (includes direct 686
material, direct labor, and overhead equal to 60% of direct labor cost)
Cost of goods available for sale 826
Selling and Administrative expenses 25
Inventories Beginning Ending

Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110
39. Refer to Wilson Company. The cost of raw material purchased during the year was
a. $316.
b. $336.
c. $360.
d. $411.
ANS: B
Beginning Inventory 75
+Purchases 336
=Goods Available for Sale 411
-Ending Inventory (326)
Materials Used in Production 85
DIF: Moderate OBJ: 2-4
40. Refer to Wilson Company. Direct labor cost charged to production during the year was
a. $135.
b. $216.
c. $225.
d. $360.
ANS: C
Total production costs $686

- Raw materials $326
Conversion Costs $360
Let x = Direct Labor
Let .60x = Factory Overhead
x + .60x $360
x $225
DIF: Easy OBJ: 2-4
41. Refer to Wilson Company. Cost of Goods Manufactured was

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

42. Refer to Wilson Company. Cost of Goods Sold was
a. $691.
b. $716.
c. $736.
d. $801.
ANS: B
Beginning Finished Goods Inventory $ 90
Cost of Goods Manufactured 736
less: Ending Finished Goods (110)
Inventory
Cost of Goods Manufactured $716
====
Brandt Company.
Brandt Company manufactures wood file cabinets. The following information is available for June 2001:
Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300
43. Refer to Brandt Company. Direct labor is $9.60 per hour and overhead for the month was $9,600.
Compute total manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw
material was purchased.
a. $58,500
b. $46,500
c. $43,500
d. $43,100
ANS: C
Begin Inv Purch Ending Inv

Raw Materials $6,000.00 $21,000.00 $(7,500.00) $19,500.00
Rate Hours
Direct Labor $ 9.60 1,500 14,400.00
Overhead 9,600.00
$43,500.00

44. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600.
What are prime costs and conversion costs, respectively if there were 1,500 direct labor hours and
$21,000 of raw material was purchased?
a. $29,100 and $33,900
b. $33,900 and $24,000
c. $33,900 and $29,100
d. $24,000 and $33,900
ANS: B
Raw Materials $6,000.00 $21,000.00 $(7,500.00) $19,500.00
Rate Hours
Direct Labor $ 9.60 1,500 14,400.00
Overhead 9,600.00
Prime Costs = Raw Materials + Direct Labor-- $19,500 + 14,400 = $33,900

Conversion Costs = Direct Labor + Factory Overhead--$14,400 + 9,600 - $24,000
45. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If
there were 1,500 direct labor hours and $21,000 of raw material purchased, Cost of Goods Manufactured
is:
a. $49,100.
b. $45,000.
c. $51,000.
d. $49,500.
ANS: A
Beginning WIP Inventory $ 17,300
Raw Materials $ 19,500
Direct Labor 14,400
Factory Overhead 9,600 43,500
Ending WIP Inventory (11,700)
Cost of Goods Manufactured $ 49,100

46. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If
there were 1,500 direct labor hours and $21,000 of raw material purchased, how much is Cost of Goods
Sold?
a. $64,500.
b. $59,800.
c. $38,800.
d. $53,800.
ANS: D
Direct Labor 14,400
Cost of Goods Manufactured $ 49,100
Beginning Finished Goods Inventory 21,000
Ending Finished Goods Inventory (16,300)
$ 53,800
47. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw
material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on
hand. Raw material used during the month was
a. $26,400.
b. $34,100.
c. $37,300.
d. $29,600.
ANS: A
Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used
$4,500 + 29,600 - 7,700 = X
X = $26,400
DIF: Easy OBJ: 2-4
48. Urban Company manufacturers tables. If raw material used was $80,000 and Raw Material Inventory at
the beginning and end of the period, respectively, was $17,000 and $21,000, what was amount of raw
material was purchased?
a. $76,000
b. $118,000
c. $84,000
d. $101,000
ANS: C
Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used
$17,000 + X - 21,000 = $80,000
X = $84,000
DIF: Easy OBJ: 2-4

49. Putnam Company manufacturers computer stands. What is the beginning balance of Finished Goods
Inventory if Cost of Goods Sold is $107,000; the ending balance of Finished Goods Inventory is $20,000;
and Cost of Goods Manufactured is $50,000 less than Cost of Goods Sold?
a. $70,000
b. $77,000
c. $157,000
d. $127,000
ANS: A
Beg Fin Goods Invy + Cost of Goods Manufactured - Ending Fin Goods Invy = COGS
X + $57,000 - $20,000 = $107,000
X = $70,000
DIF: Easy OBJ: 2-5
Sharp Enterprises
Inventories: March 1 March 31

Raw material $18,000 $15,000
Work in process 9,000 6,000
Finished goods 27,000 36,000
Additional information for March:

Raw material purchased $42,000
Direct labor payroll 30,000
Direct labor rate per hour 7.50
Overhead rate per direct labor hour 10.00
50. Refer to Sharp Enterprises. For March, prime cost incurred was
a. $75,000.
b. $69,000.
c. $45,000.
d. $39,000.
ANS: A
Raw Materials $18,000.00 $42,000.00 $(15,000.00) $45,000.00
Rate Hours
Direct Labor $ 7.50 4,000 30,000.00
$75,000.00
DIF: Easy OBJ: 2-4

51. Refer to Sharp Enterprises. For March, conversion cost incurred was
a. $30,000.
b. $40,000.
c. $70,000.
d. $72,000.
ANS: C
Direct Labor $ 7.50 4,000 30,000.00
Rate Hours
Overhead $ 10.00 4,000 40,000.00
$70,000.00
DIF: Easy OBJ: 2-4
52. Refer to Sharp Enterprises. For March, Cost of Goods Manufactured was
a. $118,000.
b. $115,000.
c. $112,000.
d. $109,000.
ANS: A
Direct Labor 30,000
$ 118,000
DIF: Easy OBJ: 2-5

25.The estimated maximum potential activity for a specified time is:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity
26. The measure of activity that allows for routine variations in manufacturing activity is:
27. The measure of production that considers historical and estimated future production levels and cyclical
fluctuations is referred to as:
28. A short-run measure of activity that represents a firms anticipated activity level for an upcoming period
based upon expected demand is referred to as:
29.An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a
a. mixed cost.
b. predictor.
c. direct cost.
d. cost driver.
30. Furman Tailors has gathered information on utility costs for the past year. The controller has decided that
utilities are a function of the hours worked during the month. The following information is available and
representative of the companys utility costs:
Hours worked Utility cost incurred

Low point 1,300 $ 903
High point 1,680 1,074
If 1,425 hours are worked in a month, total utility cost (rounded to the nearest dollar) using the high-low
method should be
a. $947.
b. $954.
c. $959.
d. $976.
ANS: C
Variable portion:
Fixed Portion
903 - 0.45 ( 1,300) = $318
Y = $318 + $0.45(1,425) = $959
31. Reno Corporation uses a predetermined overhead application rate of $.30 per direct labor hour. During the
year it incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead. The
company applied $363,000 of overhead during the year. How many direct labor hours did the company
plan to incur?
a. 1,150,000
b. 1,190,000
c. 1,200,000
d. 1,210,000
ANS: C
$360,000 / .30 = 1,200,000 direct labor
hours
DIF: Easy OBJ: 3-4

32. Birmingham Machine Works had the following data regarding monthly power costs:
Month Machine hours Power cost

Jun 300 $680
Jul 600 720
Aug 400 695
Sept. 200 640
Assume that management expects 500 machine hours in October. Using the high-low method, calculate
Octobers power cost using machine hours as the basis for prediction.
a. $700
b. $705
c. $710
d. $1,320
ANS: A
Variable portion:
Fixed portion:
$640 - (200 *$0 .20) = $600
$600 + (500*$0.20) = $700
DIF: Easy OBJ: 3-4
33. Gary Corporation has developed the following flexible budget formula for monthly overhead:
For output of less than 200,000 units: $36,600 + $.80(units)

For output of 200,000 units or more: $43,000 + $.80(units)
How much overhead should Gary expect if the firm plans to produce 200,000 units?
a. $52,600
b. $59,000
c. $196,600
d. $203,000
ANS: D
$43,000 + $0.80(200,000) = $43,000 + $160,000 =
$203,000
DIF: Easy OBJ: 3-5

34. Walton Corporation wishes to develop a single predetermined overhead rate. The company's expected
annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2. The company's
relevant range is from 200,000 to 600,000 machine hours. Walton expects to operate at 425,000 machine
hours for the coming year. The plant's theoretical capacity is 850,000. The predetermined overhead rate
per machine hour should be
a. $2.40.
b. $2.57.
c. $2.80.
d. $2.85.
ANS: C
Fixed component:
Variable component = $2.00 per unit
Total predetermined overhead = $2.80 per unit
DIF: Easy OBJ: 3-4
Burke Corporation
Burke Corporation has the following data for use of its machinery
Month Usage Cost

Jun 600 $750
Jul 650 775
Aug 420 550
Sept 500 650
Oct 450 570
35. Refer to Burke Corporation. Using the high-low method, compute the variable cost element.
a. $1.02
b. $.98
c. $1.31
d. $1.19
ANS: B
DIF: Easy OBJ: 3-4

36. Refer to Burke Corporation. Using the high-low method, compute the fixed cost element (to the nearest
whole dollar).
a. $225
b. $138
c. $411
d. $364
ANS: B
$775 - 650(.98) = $775 - 637 = $138
DIF: Easy OBJ: 3-4
Zenith Corporation
The records of Zenith Corporation revealed the following data for the current year.
Work in Process $ 73,150

Finished Goods 115,000
Cost of Goods Sold 133,650
Direct Labor 111,600
Direct Material 84,200
37. Refer to Zenith Corporation. Assume, for this question only, actual overhead is $98,700 and applied
overhead is $93,250. Manufacturing overhead is:
a. overapplied by $12,900.
b. underapplied by $18,350.
c. overapplied by $5,450.
d. underapplied by $5,450.
ANS: D
$98,700 - $93,250 = $5,450 underapplied
DIF: Easy OBJ: 3-2
38. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200 and that this
amount is material. What journal entry is needed to close the overhead account? (Round decimals to
nearest whole percent.)
a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and
credit Overhead $37,200
b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294;
Cost of Goods Sold $15,450
c. Debit Work in Process $37,200 and credit Overhead $37,200
d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
ANS: A
WIP: 73,150/321,800 = $ 8,456
FG: 115,000/321,800 = $13,294
EI: 133,650/321,800 = $15,450

39. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $10,000 and that this
amount is immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is
closed?
a. $133,650
b. $123,650
c. $143,650
d. $137,803
ANS: C
COGS + Underapplied Overhead = Adjusted COGS
$133,650 + $ 10,000 = $143,650
DIF: Easy OBJ: 3-2
40. Refer to Zenith Corporation. Assume that Zenith has overapplied overhead of $25,000 and that this
amount is material. What is the balance in Cost of Goods Sold after the overapplied overhead is closed?
a. $123,267
b. $144,033
c. $158,650
d. $108,650
ANS: A
$133,650/$321,800 * $25,000 = $10,383
$133,650-$10,383 = $123,267
41. Aztec Company is relocating its facilities. The company estimates that it will take three trucks to move
office contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost to
move 800 miles?
a. $1,000
b. $1,200
c. $2,400
d. $3,600
ANS: D
3 trucks * ($1,000 + $0.25(800)) = 3 * $1,200 = $3,600
DIF: Easy OBJ: 3-2

42. Aquatic Motor Company is exploring different prediction models that can be used to forecast indirect
labor costs. One independent variable under consideration is machine hours. Following are matching
observations on indirect labor costs and machine hours for the past six months:
Month Machine hours Indirect labor costs

1 300 $20,000
2 400 $24,000
3 240 $17,000
4 370 $22,000
5 200 $13,000
6 225 $14,000
In a high-low model, which months' observations would be used to compute the model's parameters?
a. 2 and 5
b. 1 and 6
c. 2 and 6
d. 4 and 5
43. Consider the following three product costing alternatives: process costing, job order costing, and standard
costing. Which of these can be used in conjunction with absorption costing?
a. job order costing
b. standard costing
c. process costing
d. all of the above
44. Another name for absorption costing is

a. full costing.
b. direct costing.
c. job order costing.
d. fixed costing.
45. If a firm produces more units than it sells, absorption costing, relative to variable costing, will result in
a. higher income and assets.
b. higher income but lower assets.
c. lower income but higher assets.
d. lower income and assets.
46. Under absorption costing, fixed manufacturing overhead could be found in all of the following except the
a. work-in-process account.
b. finished goods inventory account.
c. Cost of Goods Sold.
d. period costs.
47. If a firm uses absorption costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
48. Under absorption costing, if sales remain constant from period 1 to period 2, the company will report a
larger income in period 2 when
a. period 2 production exceeds period 1 production.
b. period 1 production exceeds period 2 production.
c. variable production costs are larger in period 2 than period 1.
d. fixed production costs are larger in period 2 than period 1.
49. The FASB requires which of the following to be used in preparation of external financial statements?
a. variable costing
b. standard costing
c. activity-based costing
d. absorption costing
50. An ending inventory valuation on an absorption costing balance sheet would

a. sometimes be less than the ending inventory valuation under variable costing.
b. always be less than the ending inventory valuation under variable costing.
c. always be the same as the ending inventory valuation under variable costing.
d. always be greater than or equal to the ending inventory valuation under variable costing.
51. Absorption costing differs from variable costing in all of the following except
a. treatment of fixed manufacturing overhead.
b. treatment of variable production costs.
c. acceptability for external reporting.
d. arrangement of the income statement.
52. Which of the following is not associated with absorption costing?

a. functional format
b. gross margin
c. period costs
d. contribution margin
53. Unabsorbed fixed overhead costs in an absorption costing system are
a. fixed manufacturing costs not allocated to units produced.
b. variable overhead costs not allocated to units produced.
c. excess variable overhead costs.
d. costs that cannot be controlled.
54. Profit under absorption costing may differ from profit determined under variable costing. How is this
difference calculated?
a. Change in the quantity of all units in inventory times the relevant fixed costs per unit.
b. Change in the quantity of all units produced times the relevant fixed costs per unit.
c. Change in the quantity of all units in inventory times the relevant variable cost per unit.
d. Change in the quantity of all units produced times the relevant variable cost per unit.
55. What factor, related to manufacturing costs, causes the difference in net earnings computed using
absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas
variable costing considers fixed costs to be period costs.
b. Absorption costing allocates fixed overhead costs between cost of goods sold and
inventories, and variable costing considers all fixed costs to be period costs.
c. Absorption costing "inventories" all direct costs, but variable costing considers direct costs
to be period costs.
d. Absorption costing "inventories" all fixed costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
56. The costing system that classifies costs by functional group only is
a. standard costing.
b. job order costing.
c. variable costing.
d. absorption costing.
57. A functional classification of costs would classify "depreciation on office equipment"

as a
a. product cost.
b. general and administrative expense.
c. selling expense.
d. variable cost.
58. The costing system that classifies costs by both functional group and behavior is
a. process costing.
b. job order costing.
c. variable costing.
d. absorption costing.
59. Under variable costing, which of the following are costs that can be inventoried?
a. variable selling and administrative expense
b. variable manufacturing overhead
c. fixed manufacturing overhead
d. fixed selling and administrative expense
60. Consider the following three product costing alternatives: process costing, job order costing, and standard
costing. Which of these can be used in conjunction with variable costing?
a. job order costing
b. standard costing
c. process costing
d. all of them
61. Another name for variable costing is

a. full costing.
b. direct costing.
c. standard costing.
d. adjustable costing.
62. If a firm uses variable costing, fixed manufacturing overhead will be included
a. only on the balance sheet.
b. only on the income statement.
c. on both the balance sheet and income statement.
d. on neither the balance sheet nor income statement.
63. Under variable costing,

a. all product costs are variable.
b. all period costs are variable.
c. all product costs are fixed.
d. product costs are both fixed and variable.
64. How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable
a. reduce no effect
b. reduce increase
c. increase no effect
d. increase reduce
65. Variable costing considers which of the following to be product costs?
Fixed Fixed Variable Variable

Mfg. Costs Selling & Adm. Mfg. Costs Selling & Adm.
a. yes no yes no
b. yes no yes yes
c. no no yes yes
d. no no yes no
66. The variable costing format is often more useful to managers than the absorption costing format because
a. costs are classified by their behavior.
b. costs are always lower.
c. it is required for external reporting.
d. it justifies higher product prices.
67. The difference between the reported income under absorption and variable costing is attributable to the
difference in the
a. income statement formats.
b. treatment of fixed manufacturing overhead.
c. treatment of variable manufacturing overhead.
d. treatment of variable selling, general, and administrative expenses.
68. Which of the following costs will vary directly with the level of production?
a. total manufacturing costs
b. total period costs
c. variable period costs
d. variable product costs
69. On the variable costing income statement, the difference between the "contribution margin" and "income
before income taxes" is equal to
a. the total variable costs.
b. the Cost of Goods Sold.
c. total fixed costs.
d. the gross margin.
70. For financial reporting to the IRS and other external users, manufacturing overhead costs are
a. deducted in the period that they are incurred.
b. inventoried until the related products are sold.
c. treated like period costs.
d. inventoried until the related products have been completed.
71. In the application of "variable costing" as a cost-allocation process in manufacturing,

a. variable direct costs are treated as period costs.
b. nonvariable indirect manufacturing costs are treated as product costs.
c. variable indirect manufacturing costs are treated as product costs.
d. nonvariable direct costs are treated as product costs.
72. A basic tenet of variable costing is that period costs should be currently expensed. What is the rationale
behind this procedure?
a. Period costs are uncontrollable and should not be charged to a specific product.
b. Period costs are generally immaterial in amount and the cost of assigning the amounts to
specific products would outweigh the benefits.
c. Allocation of period costs is arbitrary at best and could lead to erroneous decision by
management.
d. Because period costs will occur whether production occurs, it is improper to allocate these
costs to production and defer a current cost of doing business.
73. Which of the following is a term more descriptive of the term "direct costing"?
a. out-of-pocket costing
b. variable costing
c. relevant costing
d. prime costing
74. What costs are treated as product costs under variable (direct) costing?
a. only direct costs
b. only variable production costs
c. all variable costs
d. all variable and fixed manufacturing costs
75. Which of the following must be known about a production process in order to institute a variable costing
system?
a. the variable and fixed components of all costs related to production
b. the controllable and non-controllable components of all costs related to production
c. standard production rates and times for all elements of production
d. contribution margin and break-even point for all goods in production
76. Why is variable costing not in accordance with generally accepted accounting principles?
a. Fixed manufacturing costs are treated as period costs under variable costing.
b. Variable costing procedures are not well known in industry.
c. Net earnings are always overstated when using variable costing procedures.
d. Variable costing ignores the concept of lower of cost or market when valuing inventory.
77. Which of the following is an argument against the use of direct (variable) costing?
a. Absorption costing overstates the balance sheet value of inventories.
b. Variable factory overhead is a period cost.
c. Fixed manufacturing overhead is difficult to allocate properly.
d. Fixed manufacturing overhead is necessary for the production of a product.
78. Which of the following statements is true for a firm that uses variable costing?
a. The cost of a unit of product changes because of changes in the number of units
manufactured.
b. Profits fluctuate with sales.
c. An idle facility variation is calculated.
d. None of the above.
79. An income statement is prepared as an internal report. Under which of the following methods would the
term contribution margin appear?
Absorption costing Variable costing
a. no no
b. no yes
c. yes no
d. yes yes
80. In an income statement prepared as an internal report using the variable costing method, fixed
manufacturing overhead would
a. not be used.
b. be used in the computation of operating income but not in the computation of the
contribution margin.
c. be used in the computation of the contribution margin.
d. be treated the same as variable manufacturing overhead.
81. Variable costing has an advantage over absorption costing for which of the following purposes?
a. analysis of profitability of products, territories, and other segments of a business
b. determining the CVP relationship among the major factors of selling price, sales mix, and
sales volume
c. minimizing the effects of inventory changes on net income
d. all of the above
82. In the variable costing income statement, which line separates the variable and fixed costs?
a. selling expenses
b. general and administrative expense
c. product contribution margin
d. total contribution margin
83. A firm presently has total sales of $100,000. If its sales rise, its
a. net income based on variable costing will go up more than its net income based on
absorption costing.
b. net income based on absorption costing will go up more than its net income based on
variable costing.
c. fixed costs will also rise.
d. per unit variable costs will rise.
Langley Corporation
Langley Corporation has the following standard costs associated with the manufacture and sale of one of
its products:
Direct material $3.00 per unit

Direct labor 2.50 per unit
Variable manufacturing overhead 1.80 per unit
Fixed manufacturing overhead 4.00 per unit (based on an estimate
of 50,000 units per year)
Variable selling expenses .25 per unit
Fixed SG&A expense $75,000 per year
During its first year of operations Langley manufactured 51,000 units and sold 48,000. The
selling price per unit was $25. All costs were equal to standard.
84. Refer to Langley Corporation. Under absorption costing, the standard production cost per unit for the
current year was
a. $11.30.
b. $ 7.30.
c. $11.55.
d. $13.05.
ANS: A
DM + DL + VFOH + FFOH = Standard Cost per Unit
$3.00 + $2.50 + $1.80 + $4.00 = $11.30
DIF: Easy OBJ: 3-7
85. Refer to Langley Corporation. The volume variance under absorption costing is
a. $8,000 F.
b. $4,000 F.
c. $4,000 U.
d. $8,000 U.
ANS: B
1,000 favorable units production variance * $4.00 fixed factory overhead = $4,000 F
86. Refer to Langley Corporation. Under variable costing, the standard production cost per unit for the
current year was
a. $11.30.
b. $7.30.
c. $7.55.
d. $11.55.
ANS: B
DM + DL + VOH = Standard Production Cost per Unit

$3.00 + $2.50 + $1.80 = $7.30
DIF: Easy OBJ: 3-7
87. Refer to Langley Corporation. Based on variable costing, the income before income taxes for the year
was
a. $570,600.
b. $560,000.
c. $562,600.
d. $547,500.
ANS: C
Sales: $1,200,000
Variable Expenses 362,400
Contribution Margin $ 837,600
Fixed Expenses
Overhead $ 200,000
75,000
Net Income $ 562,600
=========

Ford Company
The following information is available for Ford Company for its first year of operations:
Sales in units 5,000

Production in units 8,000
Manufacturing costs:
Direct labor $3 per unit
Direct material 5 per unit
Variable overhead 1 per unit
Fixed overhead $100,000
Net income (absorption method) $30,000
Sales price per unit $40
88. Refer to Ford Company. If Ford Company had used variable costing, what amount of income before
income taxes would it have reported?
a. $30,000
b. ($7,500)
c. $67,500
d. can't be determined from the information given
ANS: B
Net Income--Absorption Costing $ 30,000

Fixed OH in Ending Inventory:
$100,000 * (3,000/8,000) ($37,500)
Net Loss--Variable Costing ($ 7,500)
=======
89. Refer to Ford Company. What was the total amount of Selling,General and Administrative expense
incurred by Ford Company?
a. $30,000
b. $62,500
c. $6,000
ANS: B
Sales $200,000
COGS 107,500
Gross Profit 92,500
SG&A X
Net Income $ 30,000
X = $62,500
90. Refer to Ford Company. If Ford Company were using variable costing, what would it show as the value
of ending inventory?
a. $120,000
b. $64,500
c. $27,000
d. $24,000
ANS: C
3,000 units * $9.00/unit = $27,000
DIF: Easy OBJ: 3-7
Clinton Corporation
The following information has been extracted from the financial records of Clinton Corporation for its
first year of operations:
Units produced 10,000

Units sold 7,000
Variable costs per unit:
Direct material $8
Direct labor 9
Manufacturing overhead 3
SG&A 4
Fixed costs:
Manufacturing overhead $70,000
SG&A 30,000
91. Refer to Clinton Corporation. Based on absorption costing, Clinton Corporation's income in its first year
of operations will be
a. $21,000 higher than it would be under variable costing.
b. $70,000 higher than it would be under variable costing.
c. $30,000 higher than it would be under variable costing.
d. higher than it would be under variable costing, but the exact difference cannot be
determined from the information given.
ANS: A
3,000 unsold units * $7.00 fixed overhead/unit = $21,000 higher under absorption costing.

92. Refer to Clinton Corporation. Based on absorption costing, the Cost of Goods Manufactured for Clinton
Corporation's first year would be
a. $200,000.
b. $270,000.
c. $300,000.
d. $210,000.
ANS: B
COGM = Variable Overhead + Fixed Overhead
COGM = (100,000 units * $20/unit) + $70,000
COGM = $270,000
93. Refer to Clinton Corporation. Based on absorption costing, what amount of period costs will Clinton
Corporation deduct?
a. $70,000
b. $79,000
c. $30,000
d. $58,000
ANS: D
Period costs = Variable SG&A + Fixed SG&A
$58,000 = (7,000 * $4) + $30,000
94. For its most recent fiscal year, a firm reported that its contribution margin was equal to 40 percent of sales
and that its net income amounted to 10 percent of sales. If its fixed costs for the year were $60,000, how
much were sales?
a. $150,000
b. $200,000
c. $600,000
ANS: B
Let S = Sales
Let CM = .40S
Let NI = .10S
FC = .30S
$60,000 = .30S
S = $200,000

95. At its present level of operations, a small manufacturing firm has total variable costs equal to 75 percent
of sales and total fixed costs equal to 15 percent of sales. Based on variable costing, if sales change by
$1.00, income will change by
a. $0.25.
b. $0.10.
c. $0.75.
d. can't be determined from the information given.
ANS: A
Let S = 1.00
Let VC = .75S
Let CM = .25S
Under variable costing every dollar of sales will increase net income by $0.25.
DIF: Easy OBJ: 3-7
96. The following information regarding fixed production costs from a manufacturing firm is available for the
current year:
Fixed costs in the beginning inventory $ 16,000

Fixed costs incurred this period 100,000
Which of the following statements is not true?

a. The maximum amount of fixed production costs that this firm could deduct using
absorption costs in the current year is $116,000.
b. The maximum difference between this firm's the current year income based on absorption
costing and its income based on variable costing is $16,000.
c. Using variable costing, this firm will deduct no more than $16,000 for fixed production
costs.
d. If this firm produced substantially more units than it sold in the current year, variable
costing will probably yield a lower income than absorption costing.
Enigma Corporation
The following information was extracted from the first year absorption-based accounting records of
Enigma Corporation
Total fixed costs incurred $100,000

Total variable costs incurred 50,000
Total period costs incurred 70,000
Total variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price $12
97. Refer to Enigma Corporation. What is Cost of Goods Sold for Enigma Corporation's first year?
a. $80,000
b. $90,000
c. $48,000
ANS: C
Total variable manufacturing costs = $50,000 - 30,000 = $20,000
Total fixed period costs incurred = $70,000 - 30,000 = $40,000
Total fixed manufacturing costs = $100,000 - 40,000 = $60,000
Total manufacturing costs = $60,000 + $20,000 = $80,000
Percent of goods sold: 12,000/20,000 = 60%
$80,000 * 60% = $48,000
DIF: Difficult OBJ: 3-7
98. Refer to Enigma Corporation. If Enigma Corporation had used variable costing in its first year of
operations, how much income (loss) before income taxes would it have reported?
a. ($6,000)
b. $54,000
c. $26,000
d. $2,000
ANS: D
Sales $144,000
Less: Variable Costs
Manufacturing $20,000 * 60% 12,000
Period Costs $30,000 30.000
Contribution Margin $102,000
Fixed Costs 100,000
Variable Costing Net Income 2,000
======
99. Refer to Enigma Corporation. Based on variable costing, if Enigma had sold 12,001 units instead of
12,000, its income before income taxes would have been
a. $9.50 higher.
b. $11.00 higher.
c. $8.50 higher.
d. $8.33 higher.
ANS: C
Sales Price per Unit: $12.00
Variable Costs per Unit ($50,000 / 20,000) 2.50
Contribution Margin $ 8.50
======

King Corporation
King Corporation produces a single product. The following cost structure applied to its first year of
operations:
Variable costs:
SG&A $2 per unit
Production $4 per unit
Fixed costs (total cost incurred for the year):
SG&A $14,000
Production $20,000
100. Refer to King Corporation. Assume for this question only that during the current year King Corporation
manufactured 5,000 units and sold 3,800. There was no beginning or ending work-in-process inventory.
How much larger or smaller would King Corporation's income be if it uses absorption rather than variable
costing?
a. The absorption costing income would be $6,000 larger.
b. The absorption costing income would be $6,000 smaller.
c. The absorption costing income would be $4,800 larger.
d. The absorption costing income would be $4,000 smaller.
ANS: C
Add back fixed manufacturing portion of units unsold (1,200/5,000) * $20,000 = $4,800.
101. Refer to King Corporation. Assume for this question only that King Corporation manufactured and sold
5,000 units in the current year. At this level of activity it had an income of $30,000 using variable costing.
What was the sales price per unit?
a. $16.00
b. $18.80
c. $12.80
d. $14.80
ANS: B
Sales--5,000 units * $18.80/unit $94,000
Variable Costs:
Manufacturing 20,000
SG&A 10,000
Fixed Costs
SG&A 20,000
Net Income $30,000
=====

102. Refer to King Corporation. Assume for this question only that King Corporation produced 5,000 units and
sold 4,500 units in the current year. If King uses absorption costing, it would deduct period costs of
a. $24,000.
b. $34,000.
c. $27,000.
d. $23,000.
ANS: D
Variable SG&A Costs (4,500 units * $2/unit) $ 9,000
Fixed SG&A Costs 14,000
Total period costs to be deducted $23,000
======
103. Refer to King Corporation. Assume for this question only that King Corporation manufactured 5,000
units and sold 4,000 in the current year. If King employs a costing system based on variable costs, the
company would end the current year with a finished goods inventory of
a. $4,000.
b. $8,000.
c. $6,000.
d. $5,000.
ANS: A
1,000 units * $4.00 variable cost per unit = $4,000
Companies R, S, and T
Three new companies (R, S, and T) began operations on January 1 of the current year. Consider the
following operating costs that were incurred by these companies during the complete calendar year:
Company R Company S Company T

Production in units 10,000 10,000 10,000
Sales price per unit $10 $10 $10
Fixed production costs $10,000 $20,000 $30,000
Variable production costs $30,000 $20,000 $10,000
Variable SG&A $10,000 $20,000 $30,000
Fixed SG&A $30,000 $20,000 $10,000
104. Refer to Companies R, S, and T. Based on sales of 7,000 units, which company will report the greater
income before income taxes if absorption costing is used?
a. Company R
b. Company S
c. Company T
d. All of the companies will report the same income.
ANS: D
Under absorption costing, the net income for all three companies is the same.
income before income taxes if variable costing is used?
a. Company R
b. Company S
c. Company T
d. All of the companies will report the same income.
ANS: A
Since Company R has the largest variable manufacturing costs, income will increase by the
amount that was held in finished goods inventory.
income before income taxes if variable costing is used?
a. Company R
b. Company S
c. Company T
d. All of the companies will report the same income before income taxes.
ANS: D
Since all the companies have the same net income and all had the same amount of sales, all
three companies would have the same net income under variable costing.
107. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000 units in the
coming year. To realize a profit of $20,000, the firm must have a sales price per unit of at least
a. $11.00.
b. $11.50.
c. $10.00.
d. $10.50.
ANS: B
Sales--40,000 units * $11.50/unit $460,000
Variable Costs:
Fixed Costs 200,000
Net Income $ 20,000
=====

Bennett Corporation
Bennett Corporation produces a single product that sells for $7.00 per unit. Standard capacity is 100,000
units per year; 100,000 units were produced and 80,000 units were sold during the year. Manufacturing
costs and selling and administrative expenses are presented below.
There were no variances from the standard variable costs. Any under- or overapplied overhead is written
off directly at year-end as an adjustment to cost of goods sold.
Fixed costs Variable costs

Direct material $0 $1.50 per unit produced
Direct labor 0 1.00 per unit produced
Manufacturing overhead $150,000 0.50 per unit produced
Selling & Administration expense 80,000 0.50 per unit sold
Bennett Corporation had no inventory at the beginning of the year.
108. Refer to Bennett Corporation. In presenting inventory on the balance sheet at December 31, the unit cost
under absorption costing is
a. $2.50.
b. $3.00.
c. $3.50.
d. $4.50.
ANS: D
DM + DL + VOH + FOH = Absorption Cost per Unit

$1.50 + $1.00 + $0.50 + $(150,000/100,000) = $4.50 / Unit
109. Refer to Bennett Corporation. What is the net income under variable costing?
a. $50,000
b. $80,000
c. $90,000
d. $120,000
ANS: A
Sales $560,000
Variable Costs:
Materials $120,000
Labor 80,000
Overhead 40,000
Selling and Administrative 40,000
Fixed Costs
Overhead 150,000
Selling and Administrative 80,000
Net Income $ 50,000
=======
110. Refer to Bennett Corporation. What is the net income under absorption costing?
a. $50,000
b. $80,000
c. $90,000
d. $120,000
ANS: B
Sales $560,000
Cost of Goods Sold:
Materials $120,000
Labor 80,000
Overhead (Variable and Fixed) 160,000
Gross Profit $200,000
Fixed Costs:
Selling and Administrative $120,000
Net Income $ 80,000
=======

48.A unit that is rejected at a quality control inspection point, but that can be reworked and sold, is referred to as
a
a. spoiled unit.
b. scrap unit.
c. abnormal unit.
d. defective unit.
49.The cost of abnormal losses (net of disposal costs) should be written off as
Product cost Period cost
a. yes no
b. yes yes
c. no yes
d. no no
50. In a job order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.
51. If abnormal spoilage occurs in a job order costing system, has a material dollar value, and is related to a
specific job, the recovery value of the spoiled goods should be
debited to credited to
a. a scrap inventory account the specific job in process

b. the specific job in process overhead
c. a loss account the specific job in process
d. factory overhead sales
52. In a job order costing system, the net cost of normal spoilage is equal to
a. estimated disposal value plus the cost of spoiled work.
b. the cost of spoiled work minus estimated spoilage cost.
c. the units of spoiled work times the predetermined overhead rate.
d. the cost of spoiled work minus the estimated disposal value.
53. Shrinkage should be treated as

a. defective units.
b. spoiled units.
c. miscellaneous expense.
d. a reduction of overhead.
54. Spoiled units are

a. units that cannot be economically reworked to bring them up to standard.
b. units that can be economically reworked to bring them up to standard.
c. the same as defective units.
d. considered abnormal losses.
55. Abnormal spoilage is

a. spoilage that is forecasted or planned.
b. spoilage that is in excess of planned.
c. accounted for as a product cost.
d. debited to Cost of Goods Sold.
56. Normal spoilage is defined as unacceptable production that
a. arises because of a special job or process.
b. occurs in on-going operations.
c. is caused specifically by human error.
d. is in excess of that which is expected.
57. Which of the following would fall within the range of tolerance for a production cycle?
Abnormal loss Normal loss
a. yes yes
b. yes no
c. no no
d. no yes
58. The net cost of normal spoilage in a job order costing system in which spoilage is common to all jobs
should be
a. assigned directly to the jobs that caused the spoilage.
b. charged to manufacturing overhead during the period of the spoilage.
c. charged to a loss account during the period of the spoilage.
d. allocated only to jobs that are completed during the period.
Smithson Company
Smithson Company produces two products (A and B). Direct material and labor costs for Product A total
$35 (which reflects 4 direct labor hours); direct material and labor costs for Product B total $22 (which
reflects 1.5 direct labor hours). Three overhead functions are needed for each product. Product A uses 2
hours of Function 1 at $10 per hour, 1 hour of Function 2 at $7 per hour, and 6 hours of Function 3 at $18
per hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Smithson produces 800
units of A and 8,000 units of B each period.
70. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units produced,
Product A will have an overhead cost per unit of
a. $ 88.64.
b. $123.64.
c. $135.00.
d. None of the responses are correct.
ANS: A
Total Overhead
Product A Function Hourly Hours Total
Rate
1 $ 10 2 $ 20
2 $ 7 1 $ 7
3 $ 18 6 $ 108
Totals 9 $ 135
Product B Function Hourly Hours Total
Rate
1 $ 10 1 $ 10
2 $ 7 8 $ 56
3 $ 18 1 $ 18
Totals 10 $ 84
OH/Unit Units Total

Produced
$ 135 800$ 108,000
$ 84 8000$ 672,000
$ 780,000
Total OH Proportion Allocated Units OH per
OH Produced Unit
$ 780,000 0.090909091 $ 70,909.09 800 $ 88.64
(800/8800)

71. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units produced,
Product B will have an overhead cost per unit of
a. $84.00.
b. $88.64.
c. $110.64.
ANS: B
See #70 for Total Overhead Computations
OH Produced Unit
$ 780,000 0.909090909 $ 709,090.91 8000 $ 88.64
(8000/8800)
72. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor hours,
Product A will have an overhead cost per unit of
a. $51.32.
b. $205.28.
c. $461.88.
ANS: B
Product DL Hrs/Unit Units Produced Total DL

Hours
A 4 800 3200
B 1.5 8000 12000
15200

OH Produced Unit
$ 780,000 0.210526316 $ 164,210.53 800 $ 205.28
(3,200/15,200)

73. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct labor hours,
Product B will have an overhead cost per unit of
a. $51.32.
b. $76.98.
c. $510.32.
ANS: B
See #72 for Direct Labor Computations

OH Produced Unit
$ 780,000 0.789473684 $ 615,789.47 8000 $ 76.98
(12,000/15,200)
74. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity
hours used, the total product cost per unit assigned to Product A will be
a. $86.32.
b. $95.00.
c. $115.50.
ANS: C
Total OH Proportion Allocated Units OH per DM and Total

OH Produced Unit DL/Unit
$ 780,000 0.082568807 $ 64,403.67 800 $ 80.50 $ 35.00 $ 115.50
(7,200/87,200)
75. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity
hours used, the total product cost per unit assigned to Product B will be
a. $115.50.
b. $73.32.
c. $34.60.
ANS: D
Total OH Proportion Allocated Units OH per DM and Total

OH Produced Unit DL/Unit
$ 780,000 0.917431193 $ 715,596.33 8000 $ 89.44 $ 22.00 $ 111.44
(80,000/87,200)

Phelps Company
Phelps Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In that
period, four set-ups were required for color changes. All units of Product Q are black, which is the color
in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product Z; a set-
up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A set-
up was then made to return the process to its standard black coloration and the units of Product Q were
run. Each set-up costs $500.
76. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for Product Z?
a. $.010.
b. $.036.
c. $.040.
ANS: B
Total setup cost: $500 x 4 = $2,000
$2,000/56,000 = $0.0357
77. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for the red units of Product Z?
a. $.036.
b. $.111.
c. $.250.
ANS: A
Total setup cost: $500 x 4 = $2,000
$2,000/56,000 = $0.0357
78. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead costs using
levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product Z?
a. $.04.
b. $.25.
c. $.50.
ANS: C
Setup cost for blue units = $500.00
Number of blue units produced = 1,000
$500/1,000 = $.50
79. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead costs using
levels of cost drivers. What would be the approximate per-unit set-up cost for the green units of Product
Z?
a. $1.00.
b. $0.25.
c. $0.04.
ANS: A
Setup cost = $500.00

Units produced = 500
$500.00/500 = $1.00/unit
Lafayette Savings and Loan
Lafayette Savings and Loan had the following activities, traceable costs, and
physical flow of driver units:
Traceable Physical flow of

Activities Costs Driver Units
Open new accounts $50,000 1,000 accounts

Process deposits 36,000 400,000 deposits
Process withdrawals 15,000 200,000 withdrawals
Process loan applications 27,000 900 applications
The above activities are used by the Jennings branch and the Crowley branch:
Jennings Crowley
New accounts 200 400

Deposits 40,000 20,000
Withdrawals 15,000 18,000
Loan applications 100 160
80. Refer to Lafayette Savings and Loan. What is the cost per driver unit for new account activity?
a. $0.09 c. $30.00
b. $0.075 d. $50.00
ANS: D
$50,000 / 1,000 = $50.00 per account
DIF: Easy OBJ: 5-4

81. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the deposit activity?
a. $0.09 c. $30.00
b. $0.075 d. $50.00
ANS: A
$36,000/400,000 = $0.09
DIF: Easy OBJ: 5-4
82. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the withdrawal activity?
a. $0.09 c. $30.00
b. $0.075 d. $50.00
ANS: B
$15,000/200,000 = $0.075
DIF: Easy OBJ: 5-4
83. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the loan application activity?
a. $0.09 c. $30.00
b. $0.075 d. $50.00
ANS: C
$27,000/900 = $30.00
DIF: Easy OBJ: 5-4
84. Refer to Lafayette Savings and Loan. How much of the loan application cost will be assigned to the
Jennings branch?
a. $3,000 c. $ 7,800
b. $4,800 d. $27,000
ANS: A
$30.00 x 100 = $3,000
DIF: Easy OBJ: 5-4
85. Refer to Lafayette Savings and Loan. How much of the deposit cost will be assigned to the Crowley
branch?
a. $1,800 c. $ 5,400
b. $3,600 d. $36,000
ANS: A
$0.09 * 20,000 = $1,800
DIF: Easy OBJ: 5-4

86. Refer to Lafayette Savings and Loan. How much of the new account cost will be assigned to the Crowley
branch?
a. $10,000 c. $30,000
b. $20,000 d. $50,000
ANS: B
400 * $50 = $20,000
DIF: Easy OBJ: 5-4
Hazel Company uses activity-based costing. The company produces two products: coats and hats. The
annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are three
activity cost pools with the following expected activities and estimated total costs:
Activity Estimated Expected Expected

Cost Pool Cost Activity Activity
Coats Hats Total
Activity 1 $20,000 100 400 500
Activity 2 $37,000 800 200 1,000
Activity 3 $91,200 800 3,000 3,800
87. Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately:
a. $2.40 c. $ 6.60
b. $3.90 d. $10.59
ANS: C
Activity Cost Allocation Cost per Unit
1 $20,000 * 100/500 = $ 4,000 / 8,000 $0.50
2 $37,000 * 800/1,000 = $29,600 / 8,000 3.70
3 $91,200 * 800/3,800 = $19,200 / 8,000 2.40
Total Cost per Unit 6.60
88. Refer to Hazel Company. Using ABC, the cost per unit of hats is approximately:
a. $2.40 c. $12.00
b. $3.90 d. $15.90
ANS: D
Activity Cost Allocation Cost per Unit
1 $20,000 * 400/500 = $ 16,000 / 6,000 $2.67
2 $37,000 * 200/1,000 = $ 7,400/ 6,000 1.23
3 $91,200 * 3,000/3,800 = $72,000 / 6,000 12.00
Total Cost per Unit 15.90

1.Which cost accumulation procedure is most applicable in continuous mass-production manufacturing
environments?
a. standard
b. actual
c. process
d. job order
2. Process costing is used in companies that

a. engage in road and bridge construction.
b. produce sailboats made to customer specifications.
c. produce bricks for sale to the public.
d. construct houses according to customer plans.
3. A producer of ________ would not use a process costing system.

a. gasoline
b. potato chips
c. blank videotapes
d. stained glass windows
4. A process costing system is used by a company that

a. produces heterogeneous products.
b. produces items by special request of customers.
c. produces homogeneous products.
d. accumulates costs by job.
5. Which is the best cost accumulation procedure to use for continuous mass production of like units?
a. actual
b. standard
c. job order
d. process
6. Equivalent units of production are equal to the

a. units completed by a production department in the period.
b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the period had been
used to produce whole units.
d. identifiable units existing at the end of the period in a production department.
7. In a process costing system using the weighted average method, cost per equivalent unit for a given cost
component is found by dividing which of the following by EUP?
a. only current period cost
b. current period cost plus the cost of beginning inventory
c. current period cost less the cost of beginning inventory
d. current period cost plus the cost of ending inventory
8. The weighted average method is thought by some accountants to be inferior to the FIFO method because
it
a. is more difficult to apply.
b. only considers the last units worked on.
c. ignores work performed in subsequent periods.
d. commingles costs of two periods.
9. The first step in determining the cost per EUP per cost component under the weighted average method is
to
a. add the beginning Work in Process Inventory cost to the current period's production cost.
b. divide the current period's production cost by the equivalent units.
c. subtract the beginning Work in Process Inventory cost from the current period's production
cost.
d. divide the current period's production cost into the EUP.
10. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the
equivalent units
a. started and completed during the period.
b. residing in beginning Work in Process Inventory.
c. residing in ending Work in Process Inventory.
d. uncompleted in Work in Process Inventory.
ANS: B DIF: Moderate OBJ: 6-3,6-4
11. EUP calculations for standard process costing are the same as
a. the EUP calculations for weighted average process costing.
b. the EUP calculations for FIFO process costing.
c. LIFO inventory costing for merchandise.
d. the EUP calculations for LIFO process costing.
12. In a FIFO process costing system, which of the following are assumed to be completed first in the current
period?
a. units started this period
b. units started last period
c. units transferred out
d. units still in process
13. To compute equivalent units of production using the FIFO method of process costing, work for the
current period must be stated in units
a. completed during the period and units in ending inventory.
b. completed from beginning inventory, units started and completed during the period, and
units partially completed in ending inventory.
c. started during the period and units transferred out during the period.
d. processed during the period and units completed during the period.
14. The FIFO method of process costing will produce the same cost of goods transferred out amount as the
weighted average method when
a. the goods produced are homogeneous.
b. there is no beginning Work in Process Inventory.
c. there is no ending Work in Process Inventory.
d. beginning and ending Work in Process Inventories are each 50 percent complete.
15. The primary difference between the FIFO and weighted average methods of process costing is
a. in the treatment of beginning Work in Process Inventory.
b. in the treatment of current period production costs.
c. in the treatment of spoiled units.
d. none of the above.
ANS: A DIF: Easy OBJ: 6-3,6-4
16. Material is added at the beginning of a process in a process costing system. The beginning Work in
Process Inventory for the process was 30 percent complete as to conversion costs. Using the FIFO method
of costing, the number of equivalent units of material for the process during this period is equal to the
a. beginning inventory this period for the process.
b. units started this period in the process.
c. units started this period in the process plus the beginning Work in Process Inventory.
d. units started and completed this period plus the units in ending Work in Process Inventory.
ANS: D DIF: Moderate OBJ: 6-3,6-4
17. In a cost of production report using process costing, transferred-in costs are similar to the
a. cost of material added at the beginning of production.
b. conversion cost added during the period.
c. cost transferred out to the next department.
d. cost included in beginning inventory.
18. In a process costing system, the journal entry to record the transfer of goods from Department #2 to
Finished Goods Inventory is a
a. debit Work in Process Inventory #2, credit Finished Goods Inventory.
b. debit Finished Goods Inventory, credit Work in Process Inventory #1.
c. debit Finished Goods Inventory, credit Work in Process Inventory #2.
d. debit Cost of Goods Sold, credit Work in Process Inventory #2.
19. Transferred-in cost represents the cost from

a. the last department only.
b. the last production cycle.
c. all prior departments.
d. the current period only.
20. Which of the following is(are) the same between the weighted average and FIFO methods of calculating
EUPs?
Units to EUP Total cost to

account for calculations account for
a. no yes no
b. yes yes yes
c. yes no no
d. yes no yes
ANS: D DIF: Easy OBJ: 6-3,6-4
21. Process costing techniques should be used in assigning costs to products

a. if a product is manufactured on the basis of each order received.
b. when production is only partially completed during the accounting period.
c. if a product is composed of mass-produced homogeneous units.
d. whenever standard-costing techniques should not be used.
22. Averaging the total cost of completed beginning inventory and units started and completed over all units
transferred out is known as
a. strict FIFO.
b. modified FIFO.
c. weighted average costing.
d. normal costing.
23. A process costing system

a. cannot use standard costs.
b. restates Work in Process Inventory in terms of completed units.
c. accumulates costs by job rather than by department.
d. assigns direct labor and manufacturing overhead costs separately to units of production.
24. A process costing system does which of the following?
Calculates EUPs Assigns costs to inventories
a. no no
b. no yes
c. yes yes
d. yes no
25. A process costing system
Calculates average cost Determines total units to

per whole unit account for
a. yes yes
b. no no
c. yes no
d. no yes
26. A hybrid costing system combines characteristics of

a. job order and standard costing systems.
b. job order and process costing systems.
c. process and standard costing systems.
d. job order and normal costing systems.
27. When standard costs are used in process costing,
a. variances can be measured during the production period.
b. total costs rather than current production and current costs are used.
c. process costing calculations are made simpler.
d. the weighted average method of calculating EUPs makes computing transferred-out costs
easier.
28. Which of the following is subtracted from weighted average EUP to derive FIFO EUP?
a. beginning WIP EUP completed in current period
b. beginning WIP EUP produced in prior period
c. ending WIP EUP not completed
d. ending WIP EUP completed
ANS: B DIF: Easy OBJ: 6-2,6-4
29. The cost of abnormal continuous losses is

a. considered a product cost.
b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis.
c. written off as a loss on an equivalent unit basis.
d. absorbed by all units past the inspection point.
30. Abnormal spoilage can be
continuous discrete
a. yes no
b. no no
c. yes yes
d. no yes
31. When the cost of lost units must be assigned, and those same units must be included in an equivalent unit
schedule, these units are considered
a. normal and discrete.
b. normal and continuous.
c. abnormal and discrete.
d. abnormal and continuous.
32. A continuous loss

a. occurs unevenly throughout a process.
b. never occurs during the production process.
c. always occurs at the same place in a production process.
d. occurs evenly throughout the production process.
33. Which of the following would be considered a discrete loss in a production process?
a. adding the correct ingredients to make a bottle of ketchup
b. putting the appropriate components together for a stereo
c. adding the wrong components when assembling a stereo
d. putting the appropriate pieces for a bike in the box
34. The method of neglect handles spoilage that is

a. discrete and abnormal.
b. discrete and normal.
c. continuous and abnormal.
d. continuous and normal.
35. The cost of normal discrete losses is

a. absorbed by all units past the inspection point on an equivalent unit basis.
b. absorbed by all units in ending inventory.
c. considered a period cost.
d. written off as a loss on an equivalent unit basis.
36. The cost of abnormal continuous losses is

a. considered a product cost.
b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis.
c. written off as a loss on an equivalent unit basis.
d. absorbed by all units past the inspection point.
37. Normal spoilage units resulting from a continuous process

a. are extended to the EUP schedule.
b. result in a higher unit cost for the good units produced.
c. result in a loss being incurred.
d. cause estimated overhead to increase.
38. When the cost of lost units must be assigned, and those same units must be included in an equivalent unit
schedule, these units are considered
a. normal and discrete.
b. normal and continuous.
c. abnormal and discrete.
d. abnormal and continuous.
39. Which of the following accounts is credited when abnormal spoilage is written off in an actual cost
system?
a. Miscellaneous Revenue
b. Loss from Spoilage
c. Finished Goods
d. Work in Process
40. The cost of abnormal discrete units must be assigned to

good units lost units
a. yes yes
b. no no
c. yes no
d. no yes
41. Which of the following statements is false? The cost of rework on defective units, if
a. abnormal, should be assigned to a loss account.
b. normal and if actual costs are used, should be assigned to material, labor and overhead
costs of the good production.
c. normal and if standard costs are used, should be considered when developing the overhead
application rate.
d. abnormal, should be prorated among Work In Process, Finished Goods, and Cost of Goods
Sold.
42. If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost of
that spoilage should be
a. included with the cost of the units sold during the period.
b. included with the cost of the units completed in that department during the period.
c. allocated to ending work in process units and units transferred out based on their relative
values.
d. allocated to the good units that have passed the inspection point.
43. Taylor Co. has a production process in which the inspection point is at 65 percent of conversion. The
beginning inventory for July was 35 percent complete and ending inventory was 80 percent complete.
Normal spoilage costs would be assigned to which of the following groups of units, using FIFO costing?
Beginning Ending Units Started

Inventory Inventory & Completed
a. no yes yes
b. yes yes yes
c. no no yes
d. yes no no

44. Which of the following is not a question that needs to be answered with regard to quality control?
a. What happens to the spoiled units?
b. What is the actual cost of spoilage?
c. How can spoilage be controlled?
d. Why does spoilage happen?
45. Normal spoilage units resulting from a continuous process

a. are extended to the EUP schedule.
b. result in a higher unit cost for the good units produced.
c. result in a loss being incurred.
d. cause estimated overhead to increase.
46. The addition of material in a successor department that causes an increase in volume is called
a. accretion.
b. reworked units.
c. complex procedure.
d. undetected spoilage.
47. Long Company transferred 5,500 units to Finished Goods Inventory during September. On September 1,
the company had 300 units on hand (40 percent complete as to both material and conversion costs). On
June 30, the company had 800 units (10 percent complete as to material and 20 percent complete as to
conversion costs). The number of units started and completed during September was:
a. 5,200.
b. 5,380.
c. 5,500.
d. 6,300.
ANS: A
Units Transferred Out 5,500
Less: Units in Beginning Inventory (300)
Units Started and Completed 5,200
DIF: Easy OBJ: 6-2

48. Green Company started 9,000 units in February. The company transferred out 7,000 finished units and
ended the period with 3,500 units that were 40 percent complete as to both material and conversion costs.
Beginning Work in Process Inventory units were
a. 500.
b. 600.
c. 1,500.
d. 2,000.
ANS: C
Beginning Work in Process 1,500
Add: Units Started 9,000
Deduct: Units Transferred Out 7,000
Ending Work in Process 3,500
DIF: Easy OBJ: 6-2
49. Bush Company had beginning Work in Process Inventory of 5,000 units that were 40 percent complete as
to conversion costs. X started and completed 42,000 units this period and had ending Work in Process
Inventory of 12,000 units. How many units were started this period?
a. 42,000
b. 47,000
c. 54,000
d. 59,000
ANS: C

50. Dixie Company uses a weighted average process costing system. Material is added at the start of
production. Dixie Company started 13,000 units into production and had 4,500 units in process at the start
of the period that were 60 percent complete as to conversion costs. If Dixie transferred out 11,750 units,
how many units were in ending Work in Process Inventory?
a. 1,250
b. 3,000
c. 3,500
d. 5,750
ANS: D

DIF: Easy OBJ: 6-2

51. Taylor Company uses a weighted average process costing system and started 30,000 units this month.
Taylor had 12,000 units that were 20 percent complete as to conversion costs in beginning Work in
Process Inventory and 3,000 units that were 40 percent complete as to conversion costs in ending Work in
Process Inventory. What are equivalent units for conversion costs?
a. 37,800
b. 40,200
c. 40,800
d. 42,000
ANS: B
Beginning Work in Process 12,000 20% 2,400
+ Completion of Units in Process 12,000 80% 9,600
+ Units Started and Completed 27,000 100% 27,000
+ Ending Work in Process 3,000 40% 1,200
Equivalent Units of Production 40,200
DIF: Easy OBJ: 6-2,6-3
52. Kerry Company makes small metal containers. The company began December with 250 containers in
process that were 30 percent complete as to material and 40 percent complete as to conversion costs.
During the month, 5,000 containers were started. At month end, 1,700 containers were still in process (45
percent complete as to material and 80 percent complete as to conversion costs). Using the weighted
average method, what are the equivalent units for conversion costs?
a. 3,450
b. 4,560
c. 4,610
d. 4,910
ANS: D
Beginning Work in Process 250 40% 100

+ Completion of Units in Process 250 60% 150
DIF: Moderate OBJ: 6-2,6-3
53. Mehta Company Co. uses a FIFO process costing system. The company had 5,000 units that were 60
percent complete as to conversion costs at the beginning of the month. The company started 22,000 units
this period and had 7,000 units in ending Work in Process Inventory that were 35 percent complete as to
conversion costs. What are equivalent units for material, if material is added at the beginning of the
process?
a. 18,000
b. 22,000
c. 25,000
d. 27,000
ANS: B
The material is added at the beginning of the process; therefore there are 22,000 equivalent units of
material.
54. Julia Company makes fabric-covered hatboxes. The company began September with 500 boxes in process
that were 100 percent complete as to cardboard, 80 percent complete as to cloth, and 60 percent complete
as to conversion costs. During the month, 3,300 boxes were started. On September 30, 350 boxes were in
process (100 percent complete as to cardboard, 70 percent complete as to cloth, and 55 percent complete
as to conversion costs). Using the FIFO method, what are equivalent units for cloth?
a. 3,295
b. 3,395
c. 3,450
d. 3,595
ANS: A
Beginning Work in Process (Ignored for FIFO) 500 0% -

+ Completion of Units in Process 500 20% 100
+ Ending Work in Process 350 70% 245
Reed Company
Reed Company. has the following information for November:
Beginning Work in Process Inventory

(70% complete as to conversion) 6,000 units
Started 24,000 units
Ending Work in Process Inventory
Beginning WIP Inventory Costs:

Material $23,400
Conversion 50,607
Current Period Costs:

Material $31,500
Conversion 76,956
All material is added at the start of the process and all finished products are transferred out.
55. Refer to Reed Company. How many units were transferred out in November?
a. 15,500
b. 18,000
c. 21,500
d. 24,000
ANS: C

DIF: Easy OBJ: 6-2
56. Refer to Reed Company. Assume that weighted average process costing is used. What is the cost per
equivalent unit for material?
a. $0.55
b. $1.05
c. $1.31
d. $1.83
ANS: D
Material Costs:
Beginning $ 23,400
Current Period 31,500
54,900 30,000 = $ 1.83
units

57. Refer to Reed Company. Assume that FIFO process costing is used. What is the cost per equivalent unit
for conversion?
a. $3.44
b. $4.24
c. $5.71
d. $7.03
ANS: B
Conversion Costs:
Beginning (Ignored for FIFO) $ -
$ 76,956
Equivalent Units
Beginning Inventory (6,000 * 1,800
30%)
Started and Completed (15,500) 15,500
Ending Inventory (8,500 * 10%) 850
18,150 equivalent units
Cost per equivalent unit $ 4.24
Holiday Company
The Holiday Company makes wreaths in two departments: Forming and Decorating. Forming began the
month with 500 wreaths in process that were 100 percent complete as to material and 40 percent complete
as to conversion. During the month, 6,500 wreaths were started. At month end, Forming had 2,100
wreaths that were still in process that were 100 percent complete as to material and 50 percent complete
as to conversion. Assume Forming uses the weighted average method of process costing. Costs in the
Forming Department are as follows:
Beginning Work in Process Costs:

Material $1,000
Conversion 1,500
Current Costs:
Material $3,200
Conversion 5,045
The Decorating Department had 600 wreaths in process at the beginning of the month that were 80
percent complete as to material and 90 percent complete as to conversion. The department had 300 units
in ending Work in Process that were 50 percent complete as to material and 75 percent complete as to
conversion. Decorating uses the FIFO method of process costing, and costs associated with Decorating
are:
Beginning WIP Inventory:
Transferred In $1,170
Material 4,320
Conversion 6,210
Current Period:
Transferred In ?
Material $67,745
Conversion 95,820
58. Refer to Holiday Company. How many units were transferred to Decorating during the month?
a. 600
b. 4,900
c. 5,950
d. 7,000
ANS: B
Wreaths completed from BWIP 500

Wreaths started and completed 4400
4900
DIF: Easy OBJ: 6-2
59. Refer to Holiday Company. What was the cost transferred out of Forming during the month?
a. $5,341
b. $6,419
c. $8,245
d. $8,330
ANS: D
Units
Transferred Cost per
Out Eq. Unit Total
4,900 1.70 $8,330
60. Refer to Holiday Company. Assume 8,000 units were transferred to Decorating. Compute the number of
equivalent units as to costs in Decorating for the transferred-in cost component.
a. 7,400
b. 7,700
c. 8,000
d. 8,600
ANS: C
The transferred-in cost component is the 8,000 units that were transferred in.

equivalent units in Decorating for material.
a. 7,970
b. 8,000
c. 8,330
d. 8,450
ANS: A
Materials: Decorating: FIFO Units % Eqiv.

Complete Units
12
equivalent units in Decorating for conversion.
a. 7,925
b. 7,985
c. 8,360
d. 8,465
ANS: B
Conversion: Decorating: Units % Equiv.

FIFO Complete Units

Equivalent Units of
Production 7,985

63. Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of
$16,000. What is the material cost per equivalent unit in Decorating?
a. $8.50
b. $8.65
c. $8.80
d. $9.04
ANS: A
When FIFO is used, consider only current costs.
Current Equiv Cost/

Costs Units Equiv
Unit
$67,745 7,970 $8.50
64. Refer to Holiday Company. Assume that 8,000 units were transferred to Decorating at a total cost of
$16,000. What is the conversion cost per equivalent unit in Decorating?
a. $11.32
b. $11.46
c. $12.00
d. $12.78
ANS: C
When FIFO is used, consider only current costs.
Current Equiv Cost/

Costs Units Equiv
Unit
$95,820 7,985 $12.00
65. Refer to Holiday Company. Assume the material cost per EUP is $8.00 and the conversion cost per EUP
is $15 in Decorating. What is the cost of completing the units in beginning inventory?
a. $ 960
b. $ 1,380
c. $ 1,860
d. $11,940
ANS: C
Costs to Complete Percent to Cost per

Beg Inv Units Complete Unit Total
Materials 600 20% $8 $960
Conversion 600 10% $15 $900
Total Costs to Complete $1,860
Ryan Company
Ryan Company adds material at the start to its production process and has the following information
available for March:

Started this period 32,000 units
Transferred out ?
66. Refer to Ryan Company. Compute the number of units started and completed in March.
a. 29,500
b. 34,500
c. 36,500
d. 39,000
ANS: A
Units started this period 32,000

Less: Ending Work in Process 2,500
Units started and completed this period 29,500
67. Refer to Ryan Company. Calculate equivalent units of production for material using FIFO.
a. 32,000
b. 36,800
c. 37,125
d. 39,000
ANS: A
Materials are added at the beginning of the process. 32,000 units were started in the current period;
therefore there are 32,000 equivalent units for materials.
68. Refer to Ryan Company. Calculate equivalent units of production for conversion using FIFO.
a. 30,125
b. 34,325
c. 37,125
d. 39,000
ANS: B
Equivalent Units
Beginning Inventory (7,000 * 60%) 4,200
69. Refer to Ryan Company. Calculate equivalent units of production for material using weighted average.
a. 32,000
b. 34,325
c. 37,125
d. 39,000
ANS: D
Equivalent Units
Beginning Inventory (7,000 units) 7,000
Started this Period (32,000) 32,000
70. Refer to Ryan Company. Calculate equivalent units of production for conversion using weighted average.
a. 34,325
b. 37,125
c. 38,375
d. 39,925
ANS: B
Equivalent Units
Maxwell Company
Maxwell Company adds material at the start of production. The following production information is
available for June:

Started this period 120,000 units
Beginning Work in Process Inventory Costs:

Material $24,500
Conversion 68,905
Current Period Costs:
Material $ 75,600
Conversion 130,053
71. Refer to Maxwell Company. How many units must be accounted for?
a. 118,200
b. 128,200
c. 130,000
d. 138,200
ANS: C
Units Started 120,000
Total Units 130,000
DIF: Easy OBJ: 6-2
72. Refer to Maxwell Company. What is the total cost to account for?
a. $ 93,405
b. $205,653
c. $274,558
d. $299,058
ANS: D
BWIP: Materials $ 24,500

BWIP: Conversion 68,905
Current Period: Materials 75,600
Current Period: Conversion 130,053
Total Costs $299,058
DIF: Easy OBJ: 6-2
73. Refer to Maxwell Company. How many units were started and completed in the period?
a. 111,800
b. 120,000
c. 121,800
d. 130,000
ANS: A
Units started this period 120,000

Less: Ending Work in Process 8,200
Units started and completed this period 111,800
DIF: Easy OBJ: 6-2

74. Refer to Maxwell Company. What are the equivalent units for material using the weighted average
method?
a. 120,000
b. 123,860
c. 128,360
d. 130,000
ANS: D
Equivalent Units
Ending Inventory (8,200 * 25%) 8,200
DIF: Easy OBJ: 6-3
75. Refer to Maxwell Company. What are the equivalent units for material using the FIFO method?
a. 111,800
b. 120,000
c. 125,500
d. 130,000
ANS: B
Equivalent Units
Beginning Inventory (Ignored for FIFO) 0
Ending Inventory (8,200 * 25%) 8,200
DIF: Easy OBJ: 6-4
76. Refer to Maxwell Company. What are the equivalent units for conversion using the weighted average
method?
a. 120,000
b. 123,440
c. 128,360
d. 130,000
ANS: C


77. Refer to Maxwell Company. What are the equivalent units for conversion using the FIFO method?
a. 118,360
b. 122,860
c. 123,860
d. 128,360
ANS: C
Beginning Work in Process (ignored) 10,000 0% -

78. Refer to Maxwell Company. What is the material cost per equivalent unit using the weighted average
method?
a. $.58
b. $.62
c. $.77
d. $.82
ANS: C
Material Costs:
Beginning $ 24,500
100,100 130,000 = $ 0.77
units per unit
79. Refer to Maxwell Company. What is the conversion cost per equivalent unit using the weighted average
method?
a. $1.01
b. $1.05
c. $1.55
d. $1.61
ANS: B
Conversion Costs:
Beginning $ 68,905
198,958 128,360 = $ 1.55
units per unit

80. Refer to Maxwell Company. What is the cost of units completed using the weighted average?
a. $237,510
b. $266,742
c. $278,400
d. $282,576
ANS: D
Units Completed Costs per Equivalent Unit Total

121,800 (1.55 + .77) = $2.32 $282,576
81. Refer to Maxwell Company. What is the conversion cost per equivalent unit using the FIFO method?
a. $1.05
b. $.95
c. $1.61
d. $1.55
ANS: A
Conversion Costs:
Beginning (Ignored)
130,053 123,860 = $ 1.05
units per unit
82. Refer to Maxwell Company. What is the cost of all units transferred out using the FIFO method?
a. $204,624
b. $191,289
c. $287,004
d. $298,029
ANS: C
Units Completed Costs per Equivalent Unit Total

121,800 (1.05 + .63) = $1.68 $204,624

Cherub Co.
Beginning inventory (30% complete as to Material B 700 units
and 60% complete for conversion)
Started this cycle 2,000 units
Ending inventory (50% complete as to Material B and 500 units
80% complete for conversion)
Beginning inventory costs:

Material A $14,270
Material B 5,950
Conversion 5,640
Current Period costs:

Material A $40,000
Material B 70,000
Conversion 98,100
Material A is added at the start of production, while Material B is added uniformly throughout the
process.
83. Refer to Cherub Company. Assuming a weighted average method of process costing, compute EUP units
for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,240 and 2,700, respectively
ANS: B
Weighted Average Material A Material B

Beginning Work in Process 700 700
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2700 2450
84. Refer to Cherub Company Assuming a FIFO method of process costing, compute EUP units for Materials
A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,450 and 2,880, respectively
ANS: C
FIFO Material A Material B

Beginning Work in Process 0 490
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2000 2240
85. Refer to Cherub Company Assuming a weighted average method of process costing, compute EUP for
conversion.
a. 2,600
b. 2,180
c. 2,000
d. 2,700
ANS: A
Weighted Average
Beginning Work in Process 700
Units Started and Completed 1500
Ending Work in Process 400
2600
86. Refer to Cherub Company Assuming a FIFO method of process costing, compute EUP for conversion.
a. 2,240
b. 2,180
c. 2,280
d. 2,700
ANS: B
FIFO
Beginning Work in Process (700 * 40%) 280
Units Started and Completed 1500
Ending Work in Process (500 * 80%) 400
2180
87. Refer to Cherub Company Assuming a weighted average method of process costing, compute the average
cost per unit for Material A.
a. $20.10
b. $20.00
c. $31.25
d. $31.00
ANS: A
Weighted Average: Material A

Beginning $ 14,270
54,270 2,700 = $ 20.10
units per unit
88. Refer to Cherub Company Assuming a FIFO method of process costing, compute the average cost per
EUP for Material A.
a. $31.25
b. $20.10
c. $20.00
d. $31.00
ANS: C
Material A Costs Equivalent Average Cost

(Current Period) Units per EUP
$40,000 2,000 $20.00
EUP for Material B.
a. $20.10
b. $31.25
c. $20.00
d. $31.00
ANS: B
Material B Costs Equivalent Average Cost

$70,000 2,240 $31.25
cost per EUP for Material B.
a. $20.00
b. $31.25
c. $20.10
d. $31.00
ANS: D
Material B Costs Equivalent Average Cost

(Beginning Units per EUP
Inventory and
Current Period)
$75,950 2,450 $31.00

EUP for conversion.
a. $45.50
b. $45.00
c. $43.03
d. $47.59
ANS: B
Conversion Costs Equivalent Average Cost
$98,100 2,180 $45.00
cost per EUP for conversion.
a. $39.90
b. $45.00
c. $43.03
d. $47.59
ANS: A
Conversion Costs Equivalent Average Cost
(Beginning WIP and Units per EUP
Current Period)
$98,100 + $5,640 2,600 $39.90
Talmidge Company
The following information is available for Talmidge Company for the current year:
Beginning Work in Process Costs of Beginning Work in Process:

(75% complete) 14,500 units Material $25,100
Started 75,000 units Conversion 50,000
Ending Work in Process Current Costs:
(60% complete) 16,000 units Material $120,000
Abnormal spoilage 2,500 units Conversion 300,000
Normal spoilage 5,000 units
(continuous)
Transferred out 66,000 units
All materials are added at the start of production.

93. Refer to Talmidge Company. Using weighted average, what are equivalent units for material?
a. 82,000
b. 89,500
c. 84,500
d. 70,000
ANS: C
Materials: Weighted Average Units % Complete Eq. Units

+ Abnormal Spoilage 2,500 100% 2,500
DIF: Easy OBJ: 6-2,6-3,6-8
94. Refer to Talmidge Company. Using weighted average, what are equivalent units for conversion costs?
a. 80,600
b. 78,100
c. 83,100
d. 75,600
ANS: B
Conversion: Weighted Average Units % Complete Eq Units

DIF: Easy OBJ: 6-2,6-3,6-8
95. Refer to Talmidge Company. What is the cost per equivalent unit for material using weighted average?
a. $1.72
b. $1.62
c. $1.77
d. $2.07
ANS: A
Weighted Average: Materials

Beginning $ 25,100
145,100 84,500 = $ 1.72
units per unit

96. Refer to Talmidge Company. What is the cost per equivalent unit for conversion costs using weighted
average?
a. $4.62
b. $4.21
c. $4.48
d. $4.34
ANS: C
Weighted Average: Conversion

Beginning $ 50,000
350,000 78,100 = $ 4.48
units per unit
97. Refer to Talmidge Company. What is the cost assigned to normal spoilage using weighted average?
a. $31,000
b. $15,500
c. $30,850
d. None of the responses are correct
ANS: D
No costs are assigned to normal, continuous spoilage. Higher costs are assigned to good units
produced.
DIF: Easy OBJ: 6-8
98. Refer to Talmidge Company. Assume that the cost per EUP for material and conversion are $1.75 and
$4.55, respectively. What is the cost assigned to ending Work in Process?
a. $100,800
b. $87,430
c. $103,180
d. $71,680
ANS: D
Equivalent Cost per Total

Units Equivalent Unit
16,000 $1.75 $28,000
9,600 $4.55 $43,680
$71,680

99. Refer to Talmidge Company. Using FIFO, what are equivalent units for material?
a. 75,000
b. 72,500
c. 84,500
d. 70,000
ANS: D
Materials: FIFO
Beginning Work in Process - 0% -
DIF: Easy OBJ: 6-2,6-4,6-8
100. Refer to Talmidge Company. Using FIFO, what are equivalent units for conversion costs?
a. 72,225
b. 67,225
c. 69,725
d. 78,100
ANS: B
Conversion: FIFO
DIF: Easy OBJ: 6-2,6-3,6-8
101. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for material?
a. $1.42
b. $1.66
c. $1.71
d. $1.60
ANS: C
FIFO: Materials
Current Period $ 120,000

120,000 70,000 = $ 1.71
units per unit

102. Refer to Talmidge Company. Using FIFO, what is the cost per equivalent unit for conversion costs?
a. $4.46
b. $4.15
c. $4.30
d. $3.84
ANS: A
FIFO: Conversion

300,000 67,225 = $ 4.46
units per unit
103. Refer to Talmidge Company. Assume that the FIFO EUP cost for material and conversion are $1.50 and
$4.75, respectively. Using FIFO what is the total cost assigned to the units transferred out?
a. $414,194
b. $339,094
c. $445,444
d. $396,975
ANS: A
Transferred Out Units: FIFO Equiv Cost per Total

Units Equiv Unit
+ Completion of Beginning Inventory (14,500 * 25%) 3,625 4.75 17,219
+Units Started and Completed 51,500 6.25 321,875
DIF: Difficult OBJ: 6-2,6-4
Bowman Company
Bowman Company has the following information for July:
Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Material $15,000
Conversion 10,000
All materials are added at the start of the production process. Bowman Company inspects goods at 75
percent completion as to conversion.
104. Refer to Bowman Company. What are equivalent units of production for material, assuming FIFO?
a. 100,000
b. 96,500
c. 95,000
d. 120,000
ANS: A
Materials: FIFO
+ Normal Spoilage--Discrete 3,500 100% 3,500
DIF: Moderate OBJ: 6-2,6-4,6-8
105. Refer to Bowman Company. What are equivalent units of production for conversion costs, assuming
FIFO?
a. 108,900
b. 103,900
c. 108,650
d. 106,525
ANS: D
Conversion: FIFO
+Normal Spoilage--Discrete 3,500 75% 2,625
106. Refer to Bowman Company. Assume that the costs per EUP for material and conversion are $1.00 and
$1.50, respectively. What is the amount of the period cost for July using FIFO?
a. $0
b. $9,375
c. $10,625
d. $12,500
ANS: C
Abnormal spoilage is a period cost.
Materials 5,000 * $1.00/unit $5,000

Conversion Costs 3,750 * $1.50/unit 5,625
Total Abnormal Spoilage $10,625
$1.50, respectively. Using FIFO, what is the total cost assigned to the transferred-out units (rounded to the
nearest dollar)?
a. $245,750
b. $244,438
c. $237,000
d. $224,938
ANS: B
Transferred Out Units: FIFO
+ Completion of Beginning Inventory (20,000 * 65%) 13,000 1.50 19,500
+ Units Started and Completed 77,000 2.50 192,500
+Normal Spoilage--Discrete-Materials 3,500 1.00 3,500
+Normal Spoilage--Discrete-Conversion 2,625 1.50 3,938
DIF: Difficult OBJ: 6-2,6-4,6-8
108. Refer to Bowman Company. What are equivalent units of production for material assuming weighted
average is used?
a. 107,000
b. 116,500
c. 120,000
d. 115,000
ANS: C
Materials: Weighted Average
+ Normal Spoilage--Discrete 3,500 100% 3,500
DIF: Easy OBJ: 6-2,6-3,6-8
109. Refer to Bowman Company. What are equivalent units of production for conversion costs assuming
weighted average is used?
a. 113,525
b. 114,400
c. 114,775
d. 115,650
ANS: A
Conversion: Weighted Average

+Normal Spoilage--Discrete 3,500 75% 2,625
DIF: Easy OBJ: 6-2,6-3,6-8
$1.50, respectively. What is the cost assigned to normal spoilage, using weighted average, and where is it
assigned?
Value Assigned To
a. $7,437.50 Units transferred out and Ending Inventory

b. $7,437.50 Units transferred out
c. $8,750.00 Units transferred out and Ending Inventory
d. $8,750.00 Units transferred out
ANS: B
Equivalent Cost per Total
Units Equivalent Unit
3,500 $1.00 $3,500.00
2,625 $1.50 3,937.50
$7,437.50
This amount is transferred out.
DIF: Easy OBJ: 6-2,6-3,6-8
$1.50, respectively. Assuming that weighted average is used, what is the cost assigned to ending
inventory?
a. $29,725.00
b. $37,162.50
c. $38,475.00
d. $36,250.00
ANS: A
Ending Inventory: Weighted

Average
Materials 14,500 $1.00 $ 14,500.00
Conversion (14,500 * 70%) 10,150 1.50 15,225.00
Total $ 29,725.00

Jones Company
The following information is available for Jones Company for April:
Started this month 80,000 units

Beginning WIP
(40% complete) 7,500 units
Normal spoilage (discrete) 1,100 units
Abnormal spoilage 900 units
Ending WIP
(70% complete) 13,000 units

Material $10,400
Conversion 13,800
Current Costs:
Material $120,000
Conversion 350,000
All materials are added at the start of production and the inspection point is at the end of the process.
112. Refer to Jones Company. What are equivalent units of production for material using FIFO?
a. 80,000
b. 79,100
c. 78,900
d. 87,500
ANS: A
Materials: FIFO

65,
+ Units Started and Completed 000 100% 65,000
13,
+ Ending Work in Process 000 100% 13,000
1,
+ Normal Spoilage (discrete) 100 100% 1,100
+ Abnormal Spoilage 900 100% 900

113. Refer to Jones Company. What are equivalent units of production for conversion costs using FIFO?
a. 79,700
b. 79,500
c. 81,100
d. 80,600
ANS: D
Conversion: FIFO %
Units Complete EUP
7,
Beginning Work in Process 500 60% 4,500
65,
13,
1,

114. Refer to Jones Company. What are equivalent units of production for material using weighted average?
a. 86,600
b. 87,500
c. 86,400
d. 85,500
ANS: B
Materials: Weighted Average Units % EUP

Complete
7
Beginning Work in Process 7,500 100% ,500
65,
13,
1,

DIF: Easy OBJ: 6-2,6-3,6-8

115. Refer to Jones Company. What are equivalent units of production for conversion costs using weighted
average?
a. 83,600
b. 82,700
c. 82,500
d. 81,600
ANS: A
Conversion: FIFO %
Units Complete EUP
7,
Beginning Work in Process 500 100% 7,500
65,
13,
1,

DIF: Easy OBJ: 6-2,6-3,6-8
116. Refer to Jones Company. What is cost per equivalent unit for material using FIFO?
a. $1.63
b. $1.37
c. $1.50
d. $1.56
ANS: C
FIFO:
Materials

120,000 80,000 = $ 1.50
units per unit
117. Refer to Jones Company. What is cost per equivalent unit for conversion costs using FIFO?
a. $4.00
b. $4.19
c. $4.34
d. $4.38
ANS: C
FIFO: Conversion

350,000 80,600 = $ 4.34
units per unit
118. Refer to Jones Company. What is cost per equivalent unit for material using weighted average?
a. $1.49
b. $1.63
c. $1.56
d. $1.44
ANS: A
Weighted Average:
Materials
Beginning $ 10,400
130,400 87,500 = $ 1.49
units per unit
119. Refer to Jones Company. What is cost per equivalent unit for conversion costs using weighted average?
a. $4.19
b. $4.41
c. $4.55
d. $4.35
ANS: D
Weighted Average:
Conversion
Beginning $ 13,800
363,800 83,600 = $ 4.35
units per unit
120. Refer to Jones Company. What is the cost assigned to ending inventory using FIFO?
a. $75,920
b. $58,994
c. $56,420
d. $53,144
ANS: B
Ending Inventory: FIFO
Materials 13,000 $ 1.50 $ 19,500.00

9,1
Conversion (13,000 * 70%) 00 4.34 39,494.00
Total $ 58,994.00

121. Refer to Jones Company. What is the cost assigned to abnormal spoilage using FIFO?
a. $1,350
b. $3,906
c. $5,256
d. $6,424
ANS: C
Abnormal Price per

Spoiled Units Equivalent
Unit Total
900 $5.84 $5,256
122. Refer to Jones Company. What is the cost assigned to normal spoilage and how is it classified using
weighted average?
a. $6,193 allocated between WIP and Transferred Out
b. $6,424 allocated between WIP and Transferred Out
c. $6,193 assigned to loss account
d. $6,424 assigned to units Transferred Out
ANS: D
Normal Price per

Spoiled Equivalent
Units Unit Total
1,100 $5.84 $6,424
Transferred
Out
123. Refer to Jones Company. What is the total cost assigned to goods transferred out using weighted average?
a. $435,080
b. $429,824
c. $428,656
d. $423,400
ANS: B
Price per
Goods Equivalent
Transferred Out Unit Total
73,600 $5.84 $429,824
DIF: Difficult OBJ: 6-2,6-3

1.Which of the following is not an ordering cost?
a. cost of receiving inventory
b. cost of preparing the order
c. cost of the merchandise ordered
d. cost of storing the inventory
2. The cost of receiving inventory is regarded as

a. an ordering cost.
b. a carrying cost.
c. a purchasing cost.
d. a cost of not carrying goods in stock.
3. A _____________ system of production control is paced by product demand.

a. EOQ
b. ABC
c. push
d. pull
4. Which of the following statements is false concerning electronic data interchange?

a. Electronic data interchange (EDI) is essential in a pull system.
b. One of the benefits realized by EDI organizations is a faster processing of transactions.
c. Electronic data interchange is essential in a push system.
d. Electronic data interchange refers to computer-to-computer exchange of information.
5. _____________ is a "pull" system of production and inventory control.

a. EDI
b. EOQ
c. JIT
d. ABC
6. In a JIT system, the quality of each product begins with
a. a company's vendors.
b. employees.
c. inspection of finished goods inventory.
d. a good product warranty.
7. Reducing setup time is a major aspect of

a. all push inventory systems.
b. the determination of safety stock quantities.
c. a JIT system.
d. an EOQ system.
8. Reducing inventory to the lowest possible levels is a major focus of

a. JIT.
b. push inventory systems.
c. EOQ.
d. ABC.
9. JIT is a philosophy concerned with

a. when to do something.
b. how to do something.
c. where to do something.
d. how much of something should be done.
10. When JIT is implemented, which of the following changes in the accounting system would not be
expected?
a. fewer cost allocations
b. elimination of standard costs
c. combining labor and overhead into one product cost category
d. combing raw material and materials in work-in-process into one product cost category
11. Striving for flexibility in the number of products that can be produced in a short period of time is
characteristic of
a. EOQ systems.
b. push systems in general.
c. JIT.
d. pull systems in general.
12. Just-in-time (JIT) inventory systems
a. result in a greater number of suppliers for each production process.
b. focus on a "push" type of production system.
c. can only be used with automated production processes.
d. result in inventories being either greatly reduced or eliminated.
13. The JIT philosophy does not focus on

a. standardizing parts used in products.
b. eliminating waste in the production process.
c. finding the absolute lowest price for purchased parts.
d. improving quality of output.
14. In a JIT manufacturing environment, product costing information is least important for use in
a. work in process inventory valuation.
b. pricing decisions.
c. product profitability analysis.
d. make-or-buy decisions.
15. With JIT manufacturing, which of the following costs would be considered an indirect product cost?
a. cost of specific-purpose equipment
b. cost of equipment maintenance
c. property taxes on the plant
d. salary of a manufacturing cell worker
16. With JIT manufacturing, which of the following costs would be considered a direct product cost?
a. insurance on the plant
b. repair parts for machinery
c. janitors' salaries
d. salary of the plant supervisor
17. Which of the following statements is not true?

a. JIT manufacturing strives for zero inventories.
b. JIT manufacturing strives for zero defects.
c. JIT manufacturing uses manufacturing cells.
d. JIT manufacturing utilizes long lead time and few deliveries.
18. The JIT environment has caused a reassessment of product costing techniques. Which of the following
statements is true with respect to this reassessment?
a. Traditional cost allocations based on direct labor are being questioned and criticized.
b. The federal government, through the SEC, is responsible for the reassessment.
c. The reassessment is caused by the replacement of machine hours with labor hours.
d. None of the above is true.
19. When a firm adopts the just-in-time method of management,

a. employees are retrained on different equipment, but the plant layout generally remains
unchanged.
b. new machinery and equipment must be purchased from franchised JIT dealers.
c. machinery and equipment are moved into small autonomous production lines called
islands or cells.
d. new, more efficient machinery and equipment are purchased and installed in the original
plant layout.
20. Which of the following describes the effect on direct labor when management adopts the JIT philosophy?
a. Each direct labor person performs a single task, thereby allowing that person to reach his
or her theoretical potential.
b. Because each person runs a single machine in a JIT environment, there are more
employees classified as direct labor.
c. The environment becomes more labor-intensive.
d. Machine operators are expected to run several different types of machines, help set up for
production runs, and identify and repair machinery needing maintenance.
21. JIT concepts

a. can be effectively implemented in organizations that are only partially automated.
b. are only appropriate for use with CIM systems.
c. involve shifting from a capital-intensive to a labor-intensive process.
d. require full computerization of the JIT manufacturing process.
22. According to JIT philosophy,

a. inventories of finished goods always should be available to meet customer demand.
b. push-through manufacturing flows are the most efficient.
c. maintaining inventories wastes resources and frequently covers up poor work or other
problems.
d. long production runs and large production lot sizes take advantage of economies of scale.
23. Accounting for product costs in a JIT environment

a. uses a job order costing system.
b. classifies processing costs as raw (or direct) material, direct labor, and overhead.
c. is more complex than in other types of manufacturing environments.
d. follows process costing procedures whereby costs are accumulated by the process (cell)
and attached to units processed for the period.
24. An implication of the demand-pull nature of the JIT production process is that
a. finished goods inventories must be available to meet customer demand, although raw
material is delivered on an as-needed basis.
b. more storage space for inventories is necessary.
c. finished products are packaged and shipped to customers immediately, thus requiring
minimal finished goods inventories.
d. problem areas become less visible as inventories are reduced.
25. In accounting for JIT operations, the Raw Material Inventory account
a. is closely monitored to ensure that materials are always on hand in time.
b. can be expected to have a larger balance than with traditional manufacturing methods.
c. is combined with the Work In Process Inventory account.
d. is combined with the Finished Goods Inventory account.
26. A kanban plays an important role in

a. JIT.
b. EOQ.
c. ABC.
d. CPM.
27. ____________________ may involve relocation or plant modernization by a vendor.

a. Focused factory arrangements
b. Economic order quantity
c. Multiprocess handling
d. Activity-based management
28. The term "cell" is used to describe

a. a grouping of one or more automated machines within a company.
b. a storage bin for "C" type inventory in an ABC inventory system.
c. files in a CAD/CAM system.
d. a factory's area of conversion activity.
29. In a production cell,

a. an individual worker may be expected to operate several different machines, do setups,
and perform preventive maintenance on the equipment.
b. each worker becomes an expert in the operation of a single piece of equipment.
c. machines are arranged so that similar machines are grouped together.
d. clear separation is maintained between those workers who operate the machinery and
those workers who set up and maintain the machinery.
30. U-shaped groupings of workers and machines that improve materials handling and flow are known as
a. manufacturing cells.
b. efficiency stations.
c. multi-flow modules.
d. productivity islands.
31. For workers in a multiprocess handling situation, which of the following happens?
More flexibility Less process involvement
a. no no
b. no yes
c. yes yes
d. yes no
32. The process of _________ occurs when equipment is programmed to stop when a certain situation arises.
a. throughput
b. automation
c. backflushing
d. information sharing
33. The connection of two or more flexible manufacturing systems via a host computer and a networking
information system is known as
computer integrated electronic data

manufacturing interchange
a. yes yes
b. yes no
c. no no
d. no yes
34. A key element of Japan's success in world markets is

a. the elimination of waste in all operations.
b. automation of the billing function.
c. inefficient labor forces in competing countries.
d. the verification procedures incorporated into computer programs.
35. Backflush costing is concerned with which of the following?
Standard costs Minimal variances from standards
a. yes no
b. no no
c. yes yes
d. no yes
36. Which of the following areas offers an opportunity to eliminate waste?

a. raw material and labor
b. space and production time
c. recordkeeping and working capital
d. all of the above
37. Flexible manufacturing systems are

a. designed to provide more flexibility in a firm's manufacturing process by using computer-
aided machinery.
b. the same as computer-aided design systems.
c. commonly used by firms that need to make large quantities of one product.
d. are very complicated and cause increased defect rates in output.
38. Kaizen means

a. doing it the Japanese way.
b. continuous improvement.
c. employee empowerment.
d. implementation of a centralized organizational structure.
39. The process that determines an allowable product cost while setting market price and allowing for an
acceptable profit margin is known as
a. target costing.
b. product life cycle costing.
c. activity-based costing.
d. responsibility costing.
40. The peak level of unit sales will occur in which stage of the product life cycle?
a. growth
b. maturity
c. decline
d. introduction
41. For product life cycle costing, R&D costs are
a. expensed as incurred.
b. capitalized and allocated over the life cycle.
c. deducted as period costs.
d. charged to specific departments as incurred.
42. An important focus in product life cycle costing is

a. the activity base.
b. the target cost.
c. the cost driver.
d. variable costs.
43. Projected sales price minus a reasonable profit equals

a. the standard cost.
b. contribution margin.
c. projected Cost of Goods Sold.
d. target cost.
44. Approximately what percentage of future product costs is determined in the development stage of the
product life cycle?
a. 30%
b. 50%
c. 70%
d. 90%
45. Which of the following fluctuate over the product life cycle?
a. sales price per unit
b. the types of costs that are incurred
c. product profitability
d. all of the above
46. In which of the following stages of the product life cycle would operating losses not be expected?
a. growth
b. development
c. introduction
d. decline
47. During which stage of the product life cycle will a company witness the highest profit?
a. development
b. maturity
c. growth
d. decline
48. Cost tables are databases that provide information on which of the following?
a. design specifications
b. manufacturing processes
c. impact on product costs when different inputs resources are used
d. all of the above
49. Ongoing efforts to reduce costs, increase product quality, and/or improve production process once
manufacturing has begun is known as
a. cost management.
b. kaizen costing.
c. target costing.
d. life-cycle costing.
50. Kaizen costing is used for which of the following types of products?
New products Existing products
a. yes yes
b. no yes
c. no no
d. yes no
51. A mandate to reduce costs, increase product quality, and/or improve production processes through
continuous improvement is known as
a. kaizen costing.
b. activity-based costing.
c. the theory of constraints.
d. mass customization.
52. If life-cycle costs exceed the target cost of a product, managers will strive to reduce
a. the cost of special orders.
b. the level of activities that are non-value-added.
c. product variety.
d. period costs.
53. The projected sales price for a new product (which is still in the development stage of the product life
cycle) is $50. The company has estimated the life-cycle cost to be $30 and the first-year cost to be $60.
On this type of product, the company requires a $12 per unit profit. What is the target cost of the new
product?
a. $60
b. $30
c. $38
d. $42
54. The theory of constraints can

a. identify what limitations exist with raw material suppliers.
b. follows a methodology similar to linear programming.
c. be ignored since it assumes too many estimates in the production cycle.
d. show where bottlenecks exist and sets the limit of output to these bottlenecks.
55. Placing quality inspection points ahead of bottlenecks will reduce

a. product flow.
b. the number of defective products.
c. the influence of constraints on production flow.
d. the critical path time.
56. Quality inspection points should

a. precede bottlenecks.
b. follow bottlenecks.
c. be placed at the end of all production processes.
d. be placed at random points in the manufacturing process.
57. The flow of goods through a production process cannot be at a faster rate than the slowest bottleneck is
the definition for
a. mass customization.
b. business process reengineering.
c. the theory of constraints.
d. the Pareto principle.
58. Bottlenecks are

a. machine constraints in the production line.
b. machine constraints that restrict the production cycle so idle time at other processes
occurs.
c. useful for identifying any production spot slowdown.
d. restrictions on raw material sources but not the quantity of output.
59. In analyzing production flow, a bottleneck is
a. an intermediate inventory.
b. always off the critical path.
c. a capacity constraint.
d. related to a non-value-adding activity.
60. Product profit margins are typically judged on a
Period-by-period basis Life-cycle basis
a. yes yes
b. yes no
c. no yes
d. no no
61. Which approaches to costing should be associated with each of the following life-cycle stages?
Development Introduction Maturity
a. Kaizen Target Standard

b. Target Standard Kaizen
c. Target Kaizen Standard
d. Kaizen Standard Target
62. In the introduction stage of a product's life-cycle, which of the following type of costs typically may
create losses rather than profits?
a. advertising
b. assembly
c. design
d. overhead
63. Most studies have indicated that what percent of a product's total life-cycle costs are determined in the
development/design stage?
a. 60%-70%
b. 70%-80%
c. 80%-90%
d. 90%-95%
64. Which of the following costing methods is the most effective in controlling a product's total life-cycle
cost?
a. kaizen costing
b. target costing
c. standard costing
d. process costing
65. Which of the following formulas is the best representation of the concept of target costing?
a. target cost + profit margin = selling price
b. selling price - target cost = profit margin
c. selling price - profit margin = target cost
d. target cost - standard cost = profit margin
66. Successful product development should include

a. kaizen costing.
b. value engineering.
c. kanban implementation.
d. all of the above.
67. Value engineering seeks to obtain increased

a. product life-cycle and reduced direct labor inputs.
b. planning team membership and reduced time-to-market.
c. product performance ratio and reduced substitute goods.
d. product functionality and reduced costs.
ANS: D DIF: Difficult OBJ: 17-5
68. Target costing

a. can be applied to services if they are sufficiently uniform.
b. can be applied to services only if they are automated.
c. can be applied to services that are performed in a manufacturing environment.
d. cannot be applied to services.
69. Kaizen costing helps to

a. reduce product costs of products in the design and development stage.
b. keep the target cost as the primary focus after a product enters production.
c. keep profit margin relatively stable as product price declines over the product life cycle.
d. reduce the cost of engineering change orders during each stage of the product life cycle.
ANS: C DIF: Difficult OBJ: 17-5
70. In which life-cycle stage are product quality improvements and stable selling prices likely to occur?
a. introduction
b. growth
c. maturity
d. decline
71. From a cost management view, research and development cost represents
a. a life-cycle investment
b. a period expense.
c. an unearned revenue.
d. a risk reserve.
72. Life-cycle costing is especially important in which of the following types of companies?
Computers Furniture Textbooks Automobiles
a. yes yes yes yes

b. no yes yes no
c. yes no no yes
d. yes no yes yes
73. Kanban is the Japanese word for

a. production.
b. just-in-time.
c. card.
d. target costing.
74. JIT seeks to

a. reduce production cost while increasing quality.
b. radically redesign the production process for effectiveness.
c. modify all non-value-added activities.
d. all of the above.
ANS: A DIF: Difficult OBJ: 17-6
75. The JIT philosophy indicates that inventory, as well as which of the following, should be eliminated?
Business-Value-
Suppliers Storage Employees Added Activities
a. yes yes yes yes

b. yes yes no no
c. no no yes no
d. no yes no yes
76. Companies have often produced significant amounts of unwanted inventory because of
a. variable overhead allocation methodologies.
b. fixed overhead allocation methodologies.
c. variable and fixed overhead allocation methodologies.
d. the financial accounting requirement to expense research and development as incurred.
77. Goods will flow through a production process at the rate of the
a. slowest part of the process.
b. fastest part of the process.
c. average of all the parts of the process.
d. time standards set using externally calibrated benchmarks.
78. A machine constraint creates

a. an autonomation.
b. a bottleneck.
c. a push inventory system.
d. the need for third-party logistics.
79. In a production process with a machine constraint, if a quality control point is to be established, it should
be set up
a. within the machine's processes.
b. directly after the machine has performed its functions.
c. immediately before the machine.
d. at the end of the production process.
80. Managing constraints is a process of

a. backflush costing.
b. design for manufacturability.
c. just-in-time redesign.
d. continuous improvement.
81. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it
has estimated it will consume 500 ounces of gold. Its carrying costs for a year are $2 per ounce. No safety
stock is maintained. If the EOQ is 100 ounces, what is the cost per order?
a. $40
b. $20
c. $5
d. $25
ANS: B
EOQ = 100 =
10,000 = 500x
$20 = x
82. Precious Jewels Corporation produces quality jewelry items for various retailers. For the coming year, it
has estimated it will consume 500 ounces of gold. Its carrying costs for a year are $2 per ounce. No safety
stock is maintained. If the EOQ is 100 ounces, what would be the estimate for Precious Jewels total
carrying costs for the coming year?
a. $200
b. $250
c. $100
d. $1,000
ANS: C
500 oz/100 oz = 5 orders per year * $20 per order cost = $100
83. A firm estimates that its annual carrying cost for material X is $.30 per lb. If the firm requires 50,000 lbs.
per year, and ordering costs are $100 per order, what is the EOQ (rounded to the nearest pound)?
a. 5,774 lbs.
b. 4,082 lbs.
c. 1,732 lbs.
d. 1,225 lbs.
ANS: A
EOQ =
EOQ = 5,774 lbs.
Zedlar Corporation
Zedlar Corporation's EOQ for Material A is 500 units. This EOQ is based on:
Annual demand 5,000 units

Ordering costs $12.50
84. Refer to Zedlar Corporation. What is the annual carrying cost per unit for Material A?
a. $0.50
b. $2.00
c. $2.50
d. $5.00
ANS: A
EOQ = 500 units =

CC = $0.50

85. Refer to Zedlar Corporation. What are Zedlars Corp.'s total annual ordering costs for Material A?
a. $6,000
b. $600
c. $125
d. $1,000
ANS: C
# of orders per year = 5,000/500 = 10 orders per year
10 orders per year * $12.50 = $125.00
Clear Day Corporation
Clear Day Corporation manufactures various glass products including a car window. The setup cost to
produce the car window is $1,200. The cost to carry a window in inventory is $3 per year. Annual demand
for the car window is 12,000 units.
86. Refer to Clear Day Corporation. What is the most economical production run (rounded to the nearest
unit)?
a. 6,000 units
b. 3,000 units
c. 9,295 units
d. 3,098 units
ANS: D
EOQ =
EOQ = 3,098 units
87. Refer to Clear Day Corporation. If the annual demand for the car window was to increase to 15,000 units,
a. the number of setups would decrease.
b. the total carrying costs would increase.
c. the economic order quantity would decline.
d. all of the above would occur.
88. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If
ordering costs are $200 and carrying costs are $.50 per unit per year, what is the estimated total annual
usage?
a. 6,000 units
b. 28,800 units
c. 7,200 units
d. 2,400 units
ANS: C
EOQ = 2,400 units =

AU = 7,200 units
89. A company annually consumes 10,000 units of Part C. The carrying cost of this part is $2 per year and the
ordering costs are $100. The company uses an order quantity of 500 units. By how much could the
company reduce its total costs if it purchased the economic order quantity instead of 500 units?
a. $500
b. $2,000
c. $2,500
d. $0
ANS: A
EOQ =
EOQ = 1,000 units
At present, 20 orders are placed for a total annual cost of $2,000. If the EOQ is used, 10
orders will be placed at a cost of $1,000
Because an average of an additional 250 units will be on hand, carrying costs will increase by
$500. The net difference is a savings of $500.
90. A company annually consumes 10,000 units of Part C. The carrying cost of this part is $2 per year and the
ordering costs are $100. The company uses an order quantity of 500 units. If the company operates 200
days per year, and the lead time for ordering Part C is 5 days, what is the order point?
a. 250 units
b. 1,000 units
c. 500 units
d. 2,000 units
ANS: A
Order point = Daily use * Lead time
= (10,000/200) * 5
= 250 units

91. Which of the following tells management "when" to order?
a. safety stock level
b. order point
c. the economic order quantity
d. the Pareto inventory analysis
92. Which of the following affects the order point?

a. daily usage
b. lead time
c. safety stock
d. all of the above
93. A decrease in the lead time would reduce the

a. order point.
b. safety stock.
c. economic order quantity.
d. ordering costs.
94. The size of the safety stock is directly affected by all of the following, except the
a. cost of a stockout.
b. probability of a stockout.
c. carrying cost of stock.
d. economic order quantity.
95. If no safety stock is carried, the average inventory is equal to the

a. order point/2.
b. order point x 2.
c. economic order quantity/2.
d. economic order quantity x 2.
96. The role of safety stock in an organization is to

a. reduce the lead time for an order to be received.
b. reduce the probability of a stockout.
c. reduce the order point.
d. decrease the economic order quantity.
97. The optimal size of the safety stock is defined by the point where the
a. costs of carrying the safety stock equal stockout costs.
b. setup costs equal stockout costs.
c. ordering costs equal stockout costs.
d. reorder point equals safety stock.
98. If a company carries safety stock and its annual carrying costs per unit are $0.30, what formula yields the
total annual carrying costs?
a. $0.30 x [(EOQ/2) + Safety stock)]
b. $0.30 x (EOQ + Safety stock)
c. $0.30 x [(EOQ x 2) + Safety stock)]
d. $0.30 x (EOQ - Safety stock)
Douglas Corporation
Douglas Corporation operates its factory 300 days per year. Its annual consumption of Material Y is
1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y and its lead time is 12 business
days.
99. Refer to Douglas Corporation. What is the order point for Material Y?
a. 10,000 gallons
b. 38,000 gallons
c. 48,000 gallons
d. 58,000 gallons
ANS: D
Order point = (Daily use * Lead time) + Safety Stock
= (4,000 * 12) + 10,000
= 58,000 gallons
100. Refer to Douglas Corporation. If the EOQ for Material Y is 30,000 gallons, and the carrying cost per
gallon per year is $.25, what is the total annual carrying cost for Material Y?
a. $3,750
b. $7,500
c. $6,250
d. $10,000
ANS: C
Annual carrying cost = [(EOQ/2) + Safety stock] * per unit carrying cost
= (15,000 + 10,000) * $0.25
= $6,250

101. Atkins Corporation consumes 1,200,000 gallons of Material Y per year. Its order quantity is 30,000
gallons. It maintains a safety stock of 10,000 gallons and its annual carrying costs are $0.25 per gallon per
year. If the ordering cost is $20 per order, what are the total annual ordering costs?
a. $600
b. $800
c. $8,300
d. $1,200
ANS: B
Annual ordering costs = (1,200,000/30,000) * $20
= 40 orders * $20
= $800
Rawson Corporation
Rawson Corporations order quantity for Material T is 5,000 lbs. If the company maintains a safety stock
of T at 500 lbs., and its order point is 1,500 lbs.
102. Refer to Rawson Corporation. What is the lead time assuming daily usage is 50 lbs.?
a. 30 days
b. 100 days
c. 10 days
d. 20 days
ANS: D
Order point = (Daily use * Lead time) + Safety Stock
1,500 = (50 * LT) + 500
1,000 = (50 * LT)
20 = LT
103. Refer to Rawson Corporation. What would be the total annual carrying costs assuming the carrying cost
per unit is $0.20?
a. $1,000
b. $600
c. $100
d. $1,100
ANS: B
(5,000units/2) + 500 units = 3,000 units *$0.20/unit = $600

104. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking
into account the safety stock) is 8,000 pounds. What is the apparent order quantity?
a. 16,000 lbs.
b. 6,000 lbs.
c. 10,000 lbs.
d. 21,000 lbs.
ANS: B
(8,000 - 5,000) lbs * 2 = 6,000 lbs.
105. In an Pareto inventory analysis, the items that are most likely to be controlled with a red-line system are
the
a. A items.
b. B items.
c. C items.
d. items on a perpetual inventory.
106. Which of the following might be appropriate for items in the "C" category of an Pareto inventory
analysis?
a. a red-line system
b. a two-bin system
c. a periodic inventory system
d. all of the above
107. The __________________ would not affect the economic order quantity.
a. company's weighted average cost of capital
b. cost of purchase requisition forms
c. cost of insuring inventory
d. cost of a stockout
108. All other factors equal, a decrease in the order quantity will
a. decrease the annual carrying costs.
b. decrease the annual ordering costs.
c. increase the lead time.
d. reduce the safety stock.
109. The economic order quantity is not affected by the

a. estimate of the annual material consumption.
b. cost of insuring a unit of inventory for a year.
c. cost of purchase-order forms.
d. safety stock level.
110. A decrease in the price of a raw material could result in a(n)
a. increase in the lead time.
b. increase in the EOQ.
c. decrease in the order point.
d. increase in the setup costs.
111. The number of orders that will be submitted each year for raw material is given by which formula?
a. Economic order quantity x order point
b. Total annual material needs/economic order quantity
c. Order point/economic order quantity
d. Total annual material needs/safety stock
112. The economic production run quantity directly affects the

a. order point for raw material inventories.
b. safety stock for finished goods inventory.
c. level of finished goods inventory.
d. lead time for producing finished goods inventory.

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In comparing financial and management accounting, which of the following more accurately describes

management accounting information?

Management accounting Financial accounting

ANS: A DIF: Easy OBJ: 1-1

3. One major difference between financial and management accounting is that

4. Which of the following statements about management or financial accounting is false?

6. Modern management accounting can be characterized by its

8. Broadly speaking, cost accounting can be defined as a(n)

9. Cost accounting is directed toward the needs of

10. Cost accounting is necessitated by

12. Financial accounting

15. Cost and management accounting

16. Which of the following statements is true?

17. Which of the following statements is false?

2. Which of the following defines variable cost behavior?

Total cost reaction Cost per unit reaction

a. remains constant remains constant

Straight-line Factory Units-of-production

ANS: C DIF: Easy OBJ: 2-1

5. An example of a fixed cost is

7. A(n) ________ cost increases or decreases in intervals as activity changes.

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

Predictor Cost driver

ANS: C DIF: Moderate OBJ: 2-1

10. A cost driver

11. Product costs are deducted from revenue

12. A selling cost is a(n)

product cost period cost inventoriable cost

ANS: C DIF: Easy OBJ: 2-2

13. Which of the following is not a product cost component?

14. Period costs

15. Period costs include

distribution costs outside processing costs sales commissions

ANS: A DIF: Easy OBJ: 2-2

16. The three primary inventory accounts in a manufacturing company are

17. Cost of Goods Sold is an

19. Which of the following would need to be allocated to a cost object?

20. Conversion cost does not include

Product Period Direct

ANS: B DIF: Easy OBJ: 2-2

ANS: D DIF: Easy OBJ: 2-2

Prime Conversion Variable

ANS: B DIF: Easy OBJ: 2-2

26. All costs related to the manufacturing function in a company are

27. Prime cost consists of

direct material direct labor overhead

ANS: B DIF: Easy OBJ: 2-2

28. Plastic used to manufacture dolls is a

prime cost product cost direct cost fixed cost

a. no yes yes yes

ANS: D DIF: Easy OBJ: 2-2

30. Conversion of inputs to outputs is recorded in the

32. The formula to compute cost of goods manufactured is

34. The formula for cost of goods sold for a manufacturer is

38. Costs that are incurred when customers complain are:

Raw material used in production $326

Inventories Beginning Ending

DIF: Moderate OBJ: 2-4

Total production costs $686

DIF: Easy OBJ: 2-4

41. Refer to Wilson Company. Cost of Goods Manufactured was

DIF: Moderate OBJ: 2-5

DIF: Moderate OBJ: 2-5

Begin Inv Purch Ending Inv