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STANDARD COSTING

16. Which of the following statements concerning ideal standards is incorrect?

A. Ideal standards generally do not provide the best motivation for workers.
B. Ideal standards do not make allowances for waste, spoilage, and machine breakdowns.
C. Ideal standards are better suited for cash budgeting than practical standards.
D. Ideal standards may be better than practical standards when managers seek continual
improvement.

1. A primary purpose of using a standard cost system is


A. To make things easier for managers in the production facility.
B. To provide a distinct measure of cost control.
C. To minimize the cost per unit of production.
D. b and c are correct

18. In analyzing manufacturing overhead variances, the volume variance is the difference between
the:
A. Amount shown in the flexible budget and the amount shown in the debit side of the overhead
control account
B. Predetermined overhead application rate and the flexible budget application rate times actual
hours worked
C. Budget allowance based on standard hours allowed for actual production for the period and
the amount budgeted to be applied during the period
D. Actual amount spent for overhead items during the period and the overhead amount applied to
production during the period

27. Which of the following is the most probable reason with a company would experience an
unfavorable labor rate variance and a favorable labor efficiency variance?
A. The mix of workers assigned to the particular job was heavily weighted toward the use of
higherly paid, experienced individuals.
B. The mix of workers assigned to the particular job was heavily weighted toward the use of new,
relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other production areas were assigned to
assist in this particular process.
D. Defective materials caused more labor to be used in order to produce a standard unit.

The Dresden Company uses standard costing for the single product the company makes and sells.
The following data are for the month of April:

Actual cost of direct material purchased and used: $62,400


Material price variance: $4,800 unfavorable
Total materials variance: $14,400 unfavorable
Standard cost per pound of material: $6
Standard cost per direct labor hour: $8
Actual direct labor hours: 3,800 hours
Labor efficiency variance: $1,600 favorable
Standard number of direct labor hour per unit of product: 2
Total labor variance: $680 unfavorable

82. The actual material cost per pound was:


A) $6.50 B) $6.00 C) $5.00 D) $7.20

81. The standard quantity of material allowed to produce one unit of product was:

A) 1 pound B) 4 pounds C) 6 pounds D) 2 pounds

80. The total number of units produced during April was:

A) 8,000 B) 12,000 C) 2,000 D) 3,800

83. The actual direct labor rate per hour was:

A) $16.00 B) $6.50 C) $8.00 D) $8.60

84. The labor rate variance was:

A) $2,280 favorable B) $2,280 unfavorable C) $920 favorable D) $920 unfavorable

JOB ORDER COSTING

24. Which of the following statements is true?

I. Overhead application may be made slowly as a job is worked on. II. Overhead application may be
made in a single application at the time of completion of the job. III. Overhead application should be
made to any job not completed at year-end in order to properly value the work in process inventory.

A) Only statement I is true. B) Only statement II is true. C) Both statements I and II are true. D)
Statements I, II, and III are all true.

29. A job order cost system uses a predetermined overhead rate based on estimated activity and
estimated manufacturing overhead cost. At the end of the year, underapplied overhead might be
explained by which of the following situations?

Actual activity Actual manufacturing overhead costs


A) Greater than estimated Greater than estimated
B) Greater than estimated Less than estimated
C) Less than estimated Greater than estimated
D) Less than estimated Less than estimated

48. The following information relates to Spock Manufacturing Company:

Total estimated manufacturing overhead at beginning of year .. $620,000


Total manufacturing overhead applied to production during the year $625,000 Total
manufacturing overhead incurred during the year ............ $618,000

The company closes out the balance in the Manufacturing Overhead to Cost of Goods Sold at the
end of the year. In the journal entry to close out the balance, the company would:

A) debit cost of goods sold for $2,000


B) credit cost of goods sold for $2,000
C) credit cost of goods sold for $7,000
D) debit cost of goods sold for $7,000

The following partially completed T-accounts summarize transactions for Western Company during
the year:

85. The Cost of Goods Manufactured is: A) $20,000 B) $34,000 C) $22,500 D) $25,000

86. The direct labor cost was: A) $9,000 B) $12,000 C) $10,000 D) $14,000

87. The direct materials cost was: A) $8,000 B) $6,500 C) $9,000 D) $6,000
88. The manufacturing overhead applied was: A) $9,000 B) $3,000 C) $500 D) $7,000

89. The manufacturing overhead was: A) $250 overapplied B) $750 underapplied C) $250
underapplied D) $750 overapplied

PROCESS COSTING

Use the following to answer questions 92-94: Esty Corporation uses the weighted-average method in
its process costing system. This month, the beginning inventory in the first processing department
consisted of 800 units. The costs and percentage completion of these units in beginning inventory
were:

Cost Percent Complete Materials costs ................... $5,800 50% Conversion costs ...............
$6,500 30%

A total of 7,700 units were started and 6,600 units were transferred to the second processing
department during the month. The following costs were incurred in the first processing department
during the month:

Materials costs ................... $85,300 Conversion costs ............... $168,000

The ending inventory was 70% complete with respect to materials and 10% complete with respect to
conversion costs.

Note: Your answers may differ from those offered below due to rounding error. In all cases, select the
answer that is the closest to the answer you computed. To reduce rounding error, carry out all
computations to at least three decimal places.

92. What are the equivalent units for conversion costs for the month in the first processing
department? A) 6,790 B) 8,500 C) 6,600 D) 190

Answer: A Level: Medium LO: 2,3

93. The cost per equivalent unit for materials for the month in the first processing department is
closest to: A) $10.76 B) $10.04 C) $10.72 D) $11.49

Answer: D Level: Medium LO: 4


Chapter 4 Systems Design: Process Costing

164 Garrison, Managerial Accounting, 12th Edition

94. The total cost transferred from the first processing department to the next processing department
during the month is closest to: A) $253,300 B) $245,441 C) $316,098 D) $265,600

Answer: B Level: Medium LO: 4


ACTIVITY-BASED COSTING

21. Of the following, which is the best reason for using activity-based costing?
A. to keep better track of overhead costs
B. to more accurately assign overhead costs to cost pools so that these costs are better
controlled
C. to better assign overhead costs to products
D. to assign indirect service overhead costs to direct overhead cost pools

11. As compared to a high-volume product, a low-volume product


A. usually requires less special handling.
B. is usually responsible for more overhead costs per unit.
C. requires relatively fewer machine setups.
D. requires use of direct labor hours as the primary cost driver to ensure proper allocation of
overhead.

31. A cost pool is


A. all of the costs of a particular department.
B. all costs in a group such as variable costs or discretionary fixed costs.
C. all costs related to a product or product line.
D. all costs that have the same driver.

35. Which of the following best describes the flow of overhead costs in an activity-based costing
system?
A. Overhead costs => direct labor cost or hours => products
B. Overhead costs => products
C. Overhead costs => activity cost pools => cost drivers => products
D. Overhead costs => machine hours => products

TRADITONAL COSTING

10. Controllable costs are:


A. Costs that management decides to incur in the current period to enable the company to
achieve operating objectives other than the filling of orders placed by customers.
B. Costs that are governed mainly by past decisions that established the present levels of
operating and organizational capacity and that only change slowly in response to small
changes in capacity.
C. Costs that will unaffected by current managerial decisions.
D. Costs that are likely to respond to the amount of attention devoted to them by a specified
manager.

COST TERMS, BEHAVIOR, CONCEPTS

38. The controller of the recently organized Crandall Company is considering the two methods listed
below for accounting for labor fringe benefits. Which of the two methods is considered acceptable?
Method A: Treat all labor fringe benefits as indirect labor by adding them in total to manufacturing
overhead. Method B: Treat labor fringe benefits that relate to direct labor as additional direct labor
cost and fringe benefits relating to indirect labor as part of manufacturing overhead.

A) Only Method A is acceptable. B) Only Method B is acceptable. C) Both Method A and Method B
are acceptable. D) Neither Method A nor Method B is acceptable; labor fringe benefits should be
treated as period expenses and should be charged off as incurred.

Answer: C Level: Medium LO: 8 Appendix: 2A

62. The following costs were incurred in March: Direct materials ............................. $39,000 Direct
labor .................................... $24,000 Manufacturing overhead ................ $14,000 Selling
expenses ............................ $11,000 Administrative expenses ................ $19,000

Prime costs during the month totaled: A) $63,000 B) $107,000 C) $38,000 D) $77,000

75. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the following salaries
and wages: Loom operators .......................... $120,000 Factory foremen ........................ $45,000
Machinery repairmen ................ $30,000

What is the amount of direct labor included in this list? A) $195,000 B) $165,000 C) $150,000
D) $120,000

Answer: D Level: Medium LO: 1 Source: CPA, adapted

88. Jacobs is employed as a machinist for an aircraft manufacturer. She is paid $15 per hour for
regular time and time and a half for all work in excess of 40 hours per week. During the past week,
Jacobs was idle for two hours due to machine breakdowns and was idle four hours due to materials
shortages. Jacobs worked 40 hours last week with no overtime. The allocation of Jacobs' wages for
the past week between direct labor cost and manufacturing overhead cost would be:
Direct Labor Manufacturing Overhead A) $600 $0 B) $570 $30 C) $540 $60 D) $510 $90

Answer: D Level: Medium LO: 8 Appendix: 2A

The following data (in thousands of dollars) have been taken from the accounting records of Karsen
Corporation for the just completed year.

Sales ...................................................................... $930


Raw materials inventory, beginning ..................... $70
Raw materials inventory, ending ........................... $40
Purchases of raw materials .................................... $190
Direct labor ............................................................ $150
Manufacturing overhead ....................................... $210

Administrative expenses ....................................... $90


Selling expenses .................................................... $120
Work in process inventory, beginning .................. $80
Work in process inventory, ending ....................... $70
Finished goods inventory, beginning .................... $90
Finished goods inventory, ending ......................... $140
Use these data to answer the following series of questions.

92. The cost of the raw materials used in production during the year (in thousands of dollars) was:
A) $230 B) $220 C) $160 D) $260

Answer: B Level: Medium LO: 2,3,4

93. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $590
B) $650 C) $660 D) $570

Answer: A Level: Medium LO: 2,3,4

94. The cost of goods sold for the year (in thousands of dollars) was: A) $680 B) $540 C) $640
D) $730

Answer: B Level: Medium LO: 2,3,4

95. The net operating income for the year (in thousands of dollars) was: A) $180 B) $170 C) $390
D) $190

Answer: A Level: Medium LO: 2,3,4

VARIABLE COSTING

31. Gyro Gear Company produces a single product, a special gear used in automatic transmissions.
Each gear sells for $28, and the company sells 500,000 gears each year. Unit cost data are
presented below: Variable Fixed Direct material ........................... $6.00 Direct
labor ................................ $5.00 Manufacturing overhead ............ $2.00 $7.00 Selling &
administrative ............ $4.00 $3.00

The unit product cost of gears under variable costing is: A) $13 B) $20 C) $17 D) $27

Answer: A Level: Easy LO: 1 Source: CPA, adapted

44. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations: Selling price ............................................... $86
Units in beginning inventory ..................... 0 Units produced .......................................... 3,500 Units
sold ................................................... 3,400 Units in ending inventory .......................... 100 Variable
costs per unit: Direct materials ...................................... $37 Direct labor .............................................
$15 Variable manufacturing overhead .......... $5 Variable selling and administrative ........ $10 Fixed
costs: Fixed manufacturing overhead ............... $24,500 Fixed selling and administrative ............
$27,200

The total gross margin for the month under the absorption costing approach is: A) $81,200 B)
$74,800 C) $64,600 D) $13,600

Answer: B Level: Easy LO: 2

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