Cost Acct Concepts PDF

Chapter 2
Cost Terms, Concepts, and Classifications
True/False
1. Allcostsincurredinamerchandisingfirmareconsideredtobe
F periodcosts.
Easy
2. Depreciationisalwaysconsideredaproductcostforexternal
F financialreportingpurposesinamanufacturingfirm.
Medium
3. Inexternalfinancialreports,factoryutilitiescostsmaybe
T includedinanassetaccountonthebalancesheetattheendof
Medium theperiod.
4. Advertisingcostsareconsideredproductcostsforexternal
F financialreportssincetheyareincurredinordertopromote
Medium specificproducts.
5. Propertytaxesandinsurancepremiumspaidonafactory
T buildingareexamplesofmanufacturingoverhead.
Easy
6. Manufacturingoverheadcombinedwithdirectmaterialsisknown
F asconversioncost.
Easy
7. Iftheendinginventoryoffinishedgoodsisunderstated,net
F incomewillbeoverstated.
Medium
8. Inamanufacturingcompany,goodsavailableforsaleequalsthe
T sumofthecostofgoodsmanufacturedandthebeginning
Medium finishedgoodsinventory.
9. Variablecostsarecostswhoseperunitcostsvaryasthe
F activitylevelrisesandfalls.
Easy
10. Onaperunitbasis,afixedcostvariesinverselywiththe
T levelofactivity.
Easy
ManagerialAccounting,9/e 11
11. Thefollowingwouldtypicallybeconsideredindirectcostsof
F manufacturingaparticularBoeing747tobedeliveredto
Easy SingaporeAirlines:electricitytorunproductionequipment,
thefactorymanager'ssalary,andthecostoftheGeneral
Electricjetenginesinstalledontheaircraft.
12. Thefollowingcostsshouldbeconsidereddirectcostsof
F providingdeliveryroomservicestoaparticularmotherandher
Hard baby:thecostsofdrugsadministeredintheoperatingroom,
theattendingphysician'sfees,andaportionoftheliability
insurancecarriedbythehospitaltocoverthedeliveryroom.
13. Thefollowingcostsshouldbeconsideredbyalawfirmtobe
T indirectcostsofdefendingaparticularclientincourt:rent
Hard onthelawfirm'soffices,thelawfirm'sreceptionist'swages,
thecostsofheatingthelawfirm'soffices,andthe
depreciationonthepersonalcomputerintheofficeofthe
attorneywhohasbeenassignedtheclient.
14. Acostthatdiffersfromonemonthtoanotherisknownasa
F differentialcost.
Easy
15. (Appendix)Somecompaniesclassifylaborfringebenefitsfor
T directlaborworkersaspartofthedirectlaborcostandsome
Easy classifythesecostsasmanufacturingoverhead.
Multiple Choice
16. Thecorporatecontrollerssalarywouldbeconsidereda(n):
C a.manufacturingcost.
Easy b.productcost.
c.administrativecost.
d.sellingexpense.
17. Thecostoffireinsuranceforamanufacturingplantis
A generallyconsideredtobea:
Medium a.productcost.
b.periodcost.
c.variablecost.
d.alloftheabove.
18. Thecostofrentforamanufacturingplantisgenerally
A consideredtobea:
Medium
CPA PrimecostProductcost
adapted a.NoYes
b.NoNo
c.YesNo
d.YesYes
19. Eachofthefollowingwouldbeaperiodcostexcept:
C a.thesalaryofthecompanypresident'ssecretary.
Easy b.thecostofageneralaccountingoffice.
c.depreciationofamachineusedinmanufacturing.
d.salescommissions.
20. Foramanufacturingcompany,whichofthefollowingisan
B exampleofaperiodratherthanaproductcost?
Easy a.Depreciationoffactoryequipment.
CPA b.Wagesofsalespersons.
adapted c.Wagesofmachineoperators.
d.Insuranceonfactoryequipment.
21. Whichofthefollowingwouldbeconsideredaproductcostfor
D externalfinancialreportingpurposes?
Medium a.Costofawarehouseusedtostorefinishedgoods.
b.Costofguidedpublictoursthroughthecompany's
facilities.
c.Costoftravelnecessarytosellthemanufacturedproduct.
d.Costofsandspreadonthefactoryfloortoabsorboilfrom
manufacturingmachines.
22. WhichofthefollowingwouldNOTbetreatedasaproductcost
D forexternalfinancialreportingpurposes?
Easy a.Depreciationonafactorybuilding.
b.Salariesoffactoryworkers.
c.Indirectlaborinthefactory.
d.Advertisingexpenses.
23. Transportationcostsincurredbyamanufacturingcompanytoship
C itsproducttoitscustomerswouldbeclassifiedaswhichofthe
Easy following?
a.Productcost
b.Manufacturingoverhead
c.Periodcost
d.Administrativecost
24. Thesalaryofthepresidentofamanufacturingcompanywouldbe
B classifiedaswhichofthefollowing?
Easy a.Productcost
b.Periodcost
c.Manufacturingoverhead
d.Directlabor
25. MicroComputerCompanyhassetupatollfreetelephonelinefor
D customerinquiriesregardingcomputerhardwareproducedbythe
Easy company.Thecostofthistollfreelinewouldbeclassifiedas
whichofthefollowing?
a.Productcost
b.Manufacturingoverhead
c.Directlabor
d.Periodcost
26. Thewagesoffactorymaintenancepersonnelwouldusuallybe
C consideredtobe:
Medium
IndirectlaborManufacturingoverhead
a.NoYes
b.YesNo
c.YesYes
d.NoNo
27. Directmaterialsareapartof:
C
Medium ConversioncostManufacturingcostPrimecost
CPA a.YesYesNo
adapted b.YesYesYes
c.NoYesYes
d.NoNoNo
28. Manufacturingoverheadconsistsof:
B a.allmanufacturingcosts.
Medium b.allmanufacturingcosts,exceptdirectmaterialsanddirect
CPA labor.
adapted c.indirectmaterialsbutnotindirectlabor.
d.indirectlaborbutnotindirectmaterials.
29. WhichofthefollowingshouldNOTbeincludedaspartof
A manufacturingoverheadatacompanythatmakesoffice
Medium furniture?
a.sheetsteelinafilecabinetmadebythecompany.
b.manufacturingequipmentdepreciation.
c.idletimefordirectlabor.
d.taxesonafactorybuilding.
30. RossiterCompanyfailedtorecordacreditsaleattheendof
D theyear,althoughthereductioninfinishedgoodsinventories
Hard wascorrectlyrecordedwhenthegoodswereshippedtothe
CMA customer.Whichoneofthefollowingstatementsiscorrect?
adapted a.Accountsreceivablewasnotaffected,inventorywasnot
affected,saleswereunderstated,andcostofgoodssoldwas
understated.
b.Accountsreceivablewasunderstated,inventorywas
overstated,saleswereunderstated,andcostofgoodssold
wasoverstated.
c.Accountsreceivablewasnotaffected,inventorywas
understated,saleswereunderstated,andcostofgoodssold
wasunderstated.
d.Accountsreceivablewasunderstated,inventorywasnot
affected,saleswereunderstated,andcostofgoodssoldwas
notaffected.
31. Ifthecostofgoodssoldisgreaterthanthecostofgoods
D manufactured,then:
Hard a.workinprocessinventoryhasdecreasedduringtheperiod.
b.finishedgoodsinventoryhasincreasedduringtheperiod.
c.totalmanufacturingcostsmustbegreaterthancostofgoods
manufactured.
d.finishedgoodsinventoryhasdecreasedduringtheperiod.
32. Lastmonth,when10,000unitsofaproductweremanufactured,
D thecostperunitwas$60.Atthislevelofactivity,variable
Medium costsare50%oftotalunitcosts.If10,500unitsare
manufacturednextmonthandcostbehaviorpatternsremain
unchangedthe:
a.totalvariablecostwillremainunchanged.
b.fixedcostswillincreaseintotal.
c.variablecostperunitwillincrease.
d.totalcostperunitwilldecrease.
33. Variablecost:
B a.increasesonaperunitbasisasthenumberofunits
Easy producedincreases.
b.remainsconstantonaperunitbasisasthenumberofunits
producedincreases.
c.remainsthesameintotalasproductionincreases.
d.decreasesonaperunitbasisasthenumberofunits
producedincreases.
34. Withintherelevantrange,thedifferencebetweenvariable
B costsandfixedcostsis:
Medium a.variablecostsperunitfluctuateandfixedcostsperunit
remainconstant.
b.variablecostsperunitareconstantandfixedcostsper
unitfluctuate.
c.bothtotalvariablecostsandtotalfixedcostsare
constant.
d.bothtotalvariablecostsandtotalfixedcostsfluctuate.
35. Whichofthefollowingstatementsregardingfixedcostsis
A incorrect?
Medium a.Expressingfixedcostsonaperunitbasisusuallyisthebest
approachfordecisionmaking.
b.Fixedcostsexpressedonaperunitbasiswillreactinversely
withchangesinactivity.
c.Assumptionsbyaccountantsregardingthebehavioroffixed
costsrestheavilyontheconceptoftherelevantrange.
d.Fixedcostsfrequentlyrepresentlongterminvestmentsin
property,plant,andequipment.
36. Anopportunitycostis:
B a.thedifferenceintotalcostswhichresultsfromselecting
Easy onealternativeinsteadofanother.
b.thebenefitforgonebyselectingonealternativeinsteadof
another.
c.acostwhichmaybesavedbynotadoptinganalternative.
d.acostwhichmaybeshiftedtothefuturewithlittleorno
effectoncurrentoperations.
37. Thetermdifferentialcostrefersto:
A a.adifferenceincostwhichresultsfromselectingone
Medium alternativeinsteadofanother.
b.thebenefitforgonebyselectingonealternativeinsteadof
another.
c.acostwhichdoesnotentailanydollaroutlaybutwhichis
relevanttothedecisionmakingprocess.
d.acostwhichcontinuestobeincurredeventhoughthereis
noactivity.
38. Whichofthefollowingcostsisoftenimportantindecision
C making,butisomittedfromconventionalaccountingrecords?
Easy a.Fixedcost.
b.Sunkcost.
c.Opportunitycost.
d.Indirectcost.
39. Whenadecisionismadeamonganumberofalternatives,the
B benefitthatislostbychoosingonealternativeoveranother
Easy isthe:
CMA a.realizedcost.
adapted b.opportunitycost.
c.conversioncost.
d.accruedcost.
40. Conversioncostconsistsofwhichofthefollowing?
D a.Manufacturingoverheadcost.
Easy b.Directmaterialsanddirectlaborcost.
c.Directlaborcost.
d.Directlaborandmanufacturingoverheadcost.
41. Primecostconsistsofdirectmaterialscombinedwith:
A a.directlabor.
Easy b.manufacturingoverhead.
c.indirectmaterials.
d.costofgoodsmanufactured.
42. WhichoneofthefollowingcostsshouldNOTbeconsidereda
C directcostofservingaparticularcustomerwhoordersa
Hard customizedpersonalcomputerbyphonedirectlyfromthe
manufacturer?
a.thecostoftheharddiskdriveinstalledinthecomputer.
b.thecostofshippingthecomputertothecustomer.
c.thecostofleasingamachineonamonthlybasisthat
automaticallytestsharddiskdrivesbeforetheyare
installedincomputers.
d.thecostofpackagingthecomputerforshipment.
43. WhichoneofthefollowingcostsshouldNOTbeconsideredan
A indirectcostofservingaparticularcustomerataDairyQueen
Medium fastfoodoutlet?
a.thecostofthehamburgerpattyintheburgertheyordered.
b.thewagesoftheemployeewhotakesthecustomer'sorder.
c.thecostofheatingandlightingthekitchen.
d.thesalaryoftheoutlet'smanager.
44. GreenCompany'scostsforthemonthofAugustwereasfollows:
D directmaterials,$27,000;directlabor,$34,000;sales
Medium salaries,$14,000;indirectlabor,$10,000;indirectmaterials,
$15,000;generalcorporateadministrativecost,$12,000;taxes
onmanufacturingfacility,$2,000;andrentonfactory,
$17,000.Thebeginningworkinprocessinventorywas$16,000
andtheendingworkinprocessinventorywas$9,000.Whatwas
thecostofgoodsmanufacturedforthemonth?
a.$105,000
b.$132,000
c.$138,000
d.$112,000
45. Amanufacturingcompanyprepaysitsinsurancecoveragefora
D threeyearperiod.Thepremiumforthethreeyearsis$2,700and
Medium ispaidatthebeginningofthefirstyear.Eightypercentofthe
premiumappliestomanufacturingoperationsand20%appliesto
sellingandadministrativeactivities.Whatamountsshouldbe
consideredproductandperiodcostsrespectivelyforthefirst
yearofcoverage?
ProductPeriod
a.$2,700$0
b.$2,160$540
c.$1,440$360
d.$720$180
46. Usingthefollowingdata,calculatethebeginningworkin
D processinventory.
Hard
Costofgoodssold..........$70
Directlabor................$20
Directmaterials............$15
Costofgoodsmanufactured..$80
Workinprocessending......$10
Finishedgoodsending.......$15
Manufacturingoverhead......$30
Thebeginningworkinprocessinventoryis:
a.$20.
b.$15.
c.$55.
d.$25.
47. DuringthemonthofMay,BennettManufacturingCompany
A purchased$43,000ofrawmaterials.Themanufacturingoverhead
Hard totaled$27,000andthetotalmanufacturingcostswere
$106,000.Assumingabeginninginventoryofrawmaterialsof
$8,000andanendinginventoryofrawmaterialsof$6,000,
directlabormusthavetotaled:
a.$34,000.
b.$38,000.
c.$36,000.
d.$45,000.
48. UsingthefollowingdataforJanuary,calculatethecostof
B goodsmanufactured:
Medium
Directmaterials.......................$38,000
Directlabor...........................$24,000
Manufacturingoverhead.................$17,000
Beginningworkinprocessinventory....$10,000
Endingworkinprocessinventory.......$11,000
Thecostofgoodsmanufacturedwas:
a.$89,000.
b.$78,000.
c.$79,000.
d.$80,000.
49. DuringthemonthofJune,ReardonCompanyincurred$17,000of
C directlabor,$8,500ofmanufacturingoverheadandpurchased
Hard $15,000ofrawmaterials.Betweenthebeginningandtheendof
themonth,therawmaterialsinventoryincreasedby$2,000,the
finishedgoodsinventoryincreasedby$1,500,andtheworkin
processinventorydecreasedby$3,000.Thecostofgoods
manufacturedwouldbe:
a.$38,500.
b.$40,500.
c.$41,500.
d.$43,500.
50. MuellerCompanyreportedthefollowingdatafortheyearjust
B ended:
Hard
Rawmaterialsusedinproduction.........$800,000
Directlabor.............................700,000
Totaloverheadcosts.....................900,000
Endingworkinprocessinventory.........400,000
Costofgoodsmanufactured...............2,500,000
Thebeginningworkinprocessinventorywas:
a.$300,000.
b.$500,000.
c.$1,300,000.
d.$100,000.
51. WilliamsCompanysdirectlaborcostis25%ofitsconversion
A cost.IftheManufacturingoverheadcostforthelastperiodwas
Hard $45,000andthedirectmaterialscostwas$25,000,thedirect
laborcostwas:
a.$15,000.
b.$60,000.
c.$33,333.
d.$20,000.
52. TheLyonsCompany'scostofgoodsmanufacturedwas$120,000
B whenitssaleswere$360,000anditsgrossmarginwas$220,000.
Hard Iftheendinginventoryoffinishedgoodswas$30,000,the
beginninginventoryoffinishedgoodsmusthavebeen:
a.$20,000.
b.$50,000.
c.$110,000.
d.$150,000.
53. ThegrossmarginforCushingCompanyforthefirstquarterof
C lastyearwas$325,000whensaleswere$700,000.Thebeginning
Hard inventoryoffinishedgoodswas$60,000andtheending
inventoryoffinishedgoodswas$85,000.Thecostofgoods
manufacturedforthefirstquarterwouldhavebeen:
a.$375,000.
b.$350,000.
c.$400,000.
d.$385,000.
54. Lastmonthamanufacturingcompanyhadthefollowingoperating
B results:
Hard
Beginningfinishedgoodsinventory.....$74,000
Endingfinishedgoodsinventory........$73,000
Sales..................................$464,000
Grossmargin...........................$52,000
Whatwasthecostofgoodsmanufacturedforthemonth?
a.$413,000
b.$411,000
c.$412,000
d.$463,000
55. ThefollowinginformationwasprovidedbyWilsonCompanyforthe
A yearjustended:
Hard
Beginningfinishedgoodsinventory...$150,750
Endingfinishedgoodsinventory......140,475
Sales................................475,000
Grossmargin.........................150,000
Thecostofgoodsmanufacturedfortheyearwas:
a.$314,725.
b.$335,275.
c.$325,000.
d.$335,275.
56. ThefollowinginformationwasprovidedbyGrandCompanyforthe
A yearjustended:
Hard
Beginningfinishedgoodsinventory.....$130,425
Endingfinishedgoodsinventory........125,770
Sales..................................500,000
Grossmargin...........................100,000
Thecostofgoodsmanufacturedfortheyearwas:
a.$395,345.
b.$95,345.
c.$104,655.
d.$404,655.
57. Thefollowinginventoryvaluationerrorswerediscoveredby
B KnoxCorporation'snewcontrollerjustaftertheannual
Hard financialstatementswerepublishedattheendofYear3.
CMA
adapted >TheYear3endinginventorywasunderstatedby$17,000.
>TheYear2endinginventorywasunderstatedby$61,000.
>TheYear1endinginventorywasoverstatedby$23,000.
ThenetincomeforKnoxineachoftheseyearswas:
Year3Year2Year1
Netincome$168,000$254,000$138,000
Assumingtherewerenoincometaxes,thenetincomeineach
yearshouldbeadjustedto:
Year3Year2Year1
a.$212,000$170,000$161,000
b.$124,000$338,000$115,000
c.$90,000$338,000$161,000
d.$124,000$170,000$115,000
58. DeltaMerchandising,Inc.,hasprovidedthefollowinginformation
C fortheyearjustended:
Hard
Netsales..................$128,500
Beginninginventory........24,000
Purchases..................80,000
Grossmargin...............38,550
Theendinginventoryforthecompanyatyearendwas:
a.$65,450.
b.$24,500.
c.$14,050.
d.$9,950.
59. ThebeginningbalanceoftheRawMaterialsinventoryaccount
C forMaywas$27,500.TheendingbalanceforMaywas$28,750and
Medium $128,900ofrawmaterialswereusedduringthemonth.The
CMA materialspurchasedduringthemonthcost:
adapted a.$131,300.
b.$127,650.
c.$130,150.
d.$157,650.
60. GabelInc.isamerchandisingcompany.Lastmonththecompany's
D merchandisepurchasestotaled$63,000.Thecompany'sbeginning
Easy merchandiseinventorywas$13,000anditsendingmerchandise
inventorywas$15,000.Whatwasthecompany'scostofgoods
soldforthemonth?
a.$91,000
b.$63,000
c.$65,000
d.$61,000
61. HaackInc.isamerchandisingcompany.Lastmonththecompany's
B costofgoodssoldwas$84,000.Thecompany'sbeginning
Medium merchandiseinventorywas$20,000anditsendingmerchandise
inventorywas$18,000.Whatwasthetotalamountofthe
company'smerchandisepurchasesforthemonth?
a.$86,000
b.$82,000
c.$84,000
d.$122,000
62. DuringJanuary,thecostofgoodsmanufacturedwas$93,000.The
B beginningfinishedgoodsinventorywas$16,000andtheending
Easy finishedgoodsinventorywas$20,000.Whatwasthecostof
goodssoldforthemonth?
a.$129,000
b.$89,000
c.$93,000
d.$97,000
63. (Appendix)SallySmithisemployedintheproductionofvarious
B electronicproducts,andearns$8perhour.Sheispaidtime
Medium andahalfforworkinexcessof40hoursperweek.Duringa
givenweeksheworked45hoursandhadnoidletime.Howmuch
ofherweek'swageswouldbechargedtomanufacturingoverhead?
a.$60
b.$20
c.$40
d.$0
64. (Appendix)DuringthefirstweekofApril,Gillianworkeda
C totalof50hoursassemblingproductsandhadnoidletime.
Medium Gillianispaid$15perhourforregulartime,andispaid
timeandahalfforallhoursinexcessofa40hourweek.The
amountofGillian'swagesthatshouldbechargedtodirect
laborfortheweekis:
a.$600.
b.$225.
c.$750.
d.$975.
65. (Appendix)RobertSmithearns$6perhourassemblingproducts.
C Foreachhourover40heworks,heispaidtimeandahalf.
Medium Duringagivenweekheworked45hoursandhadnoidletime.
Howmuchofhisweeklywageswouldbechargedtothe
manufacturingoverheadaccount?
a.$30
b.$45
c.$15
d.$0
Reference:21
NOTETOTHEINSTRUCTOR:Questions66to69,70to73,and74to77are
differentversionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentakenfromthe
accountingrecordsofKarlingCorporationforthejustcompletedyear.
Sales...................................$990
Rawmaterialsinventory,beginning......$40
Rawmaterialsinventory,ending.........$70
Purchasesofrawmaterials..............$120
Directlabor............................$200
Manufacturingoverhead..................$230
Administrativeexpenses.................$150
Sellingexpenses........................$140
Workinprocessinventory,beginning....$70
Workinprocessinventory,ending.......$50
Finishedgoodsinventory,beginning.....$120
Finishedgoodsinventory,ending........$160
Usethesedatatoanswerthefollowingseriesofquestions.
66. Thecostoftherawmaterialsusedinproductionduringthe
B year(inthousandsofdollars)was:
Medium a.$190.
ReferTo: b.$90.
21 c.$150.
d.$160.
67. Thecostofgoodsmanufactured(finished)fortheyear(in
A thousandsofdollars)was:
Medium a.$540.
ReferTo: b.$500.
21 c.$570.
d.$590.
68. Thecostofgoodssoldfortheyear(inthousandsofdollars)
B was:
Medium a.$700.
ReferTo: b.$500.
21 c.$660.
d.$580.
69. Thenetincomefortheyear(inthousandsofdollars)was:
B a.$150.
Medium b.$200.
ReferTo: c.$490.
21 d.$250.
Reference:22
accountingrecordsofKarlanaCorporationforthejustcompletedyear.
Sales...................................$910
Directlabor............................$130
D year(inthousandsofdollars)was:
Medium a.$180.
ReferTo: b.$40.
22 c.$120.
d.$160.
B thousandsofdollars)was:
Medium a.$530.
ReferTo: b.$520.
22 c.$500.
d.$460.
B was:
Medium a.$670.
ReferTo: b.$500.
22 c.$540.
d.$650.
B a.$410.
Medium b.$110.
ReferTo: c.$40.
22 d.$180.
Reference:23
accountingrecordsofKarlistCorporationforthejustcompletedyear.
Sales...................................$800
Directlabor............................$100
C year(inthousandsofdollars)was:
Medium a.$240.
ReferTo: b.$190.
23 c.$170.
d.$250.
A thousandsofdollars)was:
Medium a.$450.
ReferTo: b.$470.
23 c.$530.
d.$540.
B was:
Medium a.$610.
ReferTo: b.$410.
23 c.$490.
d.$570.
B a.$390.
Medium b.$130.
ReferTo: c.$70.
23 d.$190.
Reference:24
ThefollowingdatapertaintoHarrimanCompany'soperationsduringJuly:
July1July31
Rawmaterialsinventory.....0$5,000
Workinprocessinventory...?4,000
Finishedgoodsinventory....$12,000?
Otherdata:
Costofgoodsmanufactured........$105,000
Rawmaterialsused................40,000
Manufacturingoverheadcosts......20,000
Directlaborcosts................39,000
Grossprofit......................100,000
Sales.............................210,000
78. Thebeginningworkinprocessinventorywas:
A a.$10,000.
Hard b.$14,000.
ReferTo: c.$1,000.
24 d.$4,000.
79. Theendingfinishedgoodsinventorywas:
C a.$17,000.
Hard b.$12,000.
ReferTo: c.$7,000.
24 d.$2,000.
Reference:25
BergeronInc.reportedthefollowingdataforlastyear:
Workinprocessinventory,beginning..$100
Workinprocessinventory,ending.....$150
Finishedgoodsinventory,beginning...$180
Finishedgoodsinventory,ending......$200
Directlaborcost.....................$300
Directmaterialscost.................$500
Manufacturingoverheadcost...........$400
80. Theprimecostis:
B a.$900.
Easy b.$800.
ReferTo: c.$500.
25 d.$700.
81. Theconversioncostis:
A a.$700.
Easy b.$800.
ReferTo: c.$900.
25 d.$500.
82. Thecostofgoodsmanufacturedis:
D a.$1,250.
Medium b.$1,180.
ReferTo: c.$1,220.
25 d.$1,150.
Reference:26
GenevaSteelCorporationproduceslargesheetsofheavygaugesteel.The
companyshowedthefollowingamountsrelatingtoitsproductionfortheyear
justcompleted:
Directmaterialsusedinproduction...$110,000
Directlaborcostsfortheyear.......55,000
Workinprocess,beginning............22,000
Finishedgoods,beginning.............45,000
Costofgoodsavailableforsale......288,000
Costofgoodssold....................238,000
Workinprocess,ending...............16,000
83. Thebalanceofthefinishedgoodsinventoryattheendofthe
B yearwas:
Hard a.$95,000.
ReferTo: b.$50,000.
26 c.$193,000.
d.$45,000.
84. Manufacturingoverheadcostfortheyearwas:
D a.$84,000.
Hard b.$78,000.
ReferTo: c.$56,000.
26 d.$72,000.
85. Costofgoodsmanufacturedfortheyearwas:
C a.$171,000.
Hard b.$160,000.
ReferTo: c.$243,000.
26 d.$244,000.
Reference:27
BoardmanCompanyreportedthefollowingdataforthemonthofJanuary:
Inventories:1/11/31
Rawmaterials.................$32,000$31,000
Workinprocess...............$18,000$12,000
Finishedgoods................$30,000$35,000
Additionalinformation:
Salesrevenue.................$210,000
Directlaborcosts............40,000
Manufacturingoverheadcosts..70,000
Sellingexpenses..............25,000
Administrativeexpenses.......35,000
86. Ifrawmaterialscosting$35,000werepurchasedduringJanuary,
D thetotalmanufacturingcostsforthemonthwouldbe:
Medium a.$145,000.
ReferTo: b.$144,000.
27 c.$151,000.
d.$146,000.
87. AssumethatcostofgoodssoldforJanuarywas$124,000.Thenet
B incomeforJanuarywouldbe:
Medium a.$61,000.
ReferTo: b.$26,000.
27 c.$51,000.
d.$25,000.
88. BoardmanCompanystotalconversioncostforJanuarywouldbe:
A a.$110,000.
Medium b.$170,000.
ReferTo: c.$135,000.
27 d.$130,000.
89. AssumethatcostofgoodssoldforBoardmanCompanyforJanuary
C was$140,000.Whatwouldbethecostofgoodsmanufacturedfor
Medium themonth?
ReferTo: a.$140,000
27 b.$135,000
c.$145,000
d.$139,000
Reference:28
Atasalesvolumeof32,000units,CDCompanystotalfixedcostsare
$64,000andtotalvariablecostsare$60,000.Therelevantrangeis30,000
to55,000units.
90. IfCDCompanyweretosell43,000units,thetotalexpectedcost
C wouldbe:
Medium a.$146,000.
ReferTo: b.$166,625.
28 c.$144,625.
d.$124,000.
91. IfCDCompanyweretosell50,000units,thetotalexpectedcost
D perunit(roundedtothenearestcent)wouldbe:
Medium a.$3.20.
ReferTo: b.$2.48.
28 c.$3.88.
d.$3.16.
Essay
92. StonyElectronicsCorporationmanufacturesaportableradio
Easy designedformountingonthewallofthebathroom.Thefollowing
listrepresentssomeofthedifferenttypesofcostsincurredin
themanufactureoftheseradios:
1.Theplantmanagerssalary.
2.Thecostofheatingtheplant.
3.Thecostofheatingexecutiveoffices.
4.Thecostofprintedcircuitboardsusedintheradios.
5.Salariesandcommissionsofcompanysalespersons.
6.Depreciationonofficeequipmentusedintheexecutive
offices.
7.Depreciationonproductionequipmentusedintheplant.
8.Wagesofjanitorialpersonnelwhocleantheplant.
9.Thecostofinsuranceontheplantbuilding.
10.Thecostofelectricitytolighttheplant.
11.Thecostofelectricitytopowerplantequipment.
12.Thecostofmaintainingandrepairingequipmentintheplant.
13.Thecostofprintingpromotionalmaterialsfortradeshows.
14.Thecostofsolderusedinassemblingtheradios.
15.Thecostoftelephoneservicefortheexecutiveoffices.
Required:
Classifyeachoftheitemsaboveasproduct(inventoriable)cost
orperiod(noninventoriable)costsforthepurposeofpreparing
externalfinancialstatements.
Answer:
1.Product.
2.Product.
3.Period.
4.Product.
5.Period.
6.Period.
7.Product.
8.Product.
9.Product.
10.Product.
11.Product.
12.Product.
13.Period.
14.Product.
15.Period.
93. BillPopehasdevelopedanewdevicethatissoexcitingheis
Medium consideringquittinghisjobinordertoproduceandmarketit
onalargescalebasis.Billwillrentagaragefor$300per
monthforproductionpurposes.Utilitieswillcost$40per
month.Billhasalreadytakenanindustrialdesigncourseat
thelocalcommunitycollegetohelppreparehimselfforthis
venture.Thecoursecost$300.Billwillrentproduction
equipmentatamonthlycostof$800.Heestimatesthematerial
costperunitwillbe$5,andthelaborcostwillbe$3.He
willhireworkersandspendhistimepromotingtheproduct.To
dothishewillquithisjobwhichpays$3,000permonth.
Advertisingandpromotionwillcost$900permonth.
Required:
CompletethechartbelowbyplacinganXundereachheading
thathelpstoidentifythecostinvolved.TherecanbeXs
placedundermorethanoneheadingforasinglecost,e.g.,a
costmightbeasunkcost,anoverheadcostandaproductcost;
therewouldbeanXplacedundereachoftheseheadings
oppositethecost.
Oppor Vari Mfg. Differ

tunity Sunk able Fixed Over Product Selling ential
Cost Cost Cost Cost Head Cost Cost Cost*
Garagerent
Utilities
Costofthe
industrial
design
course
Equipment
rented
Material
cost
Laborcost
Present
salary
Advertising
*Betweenthealternativesofgoingintobusinesstomakethedeviceornot
goingintobusinesstomakethedevice.
Answer:
Oppor Vari Mfg. Differ

tunity Sunk able Fixed Over Product Selling ential
Cost Cost Cost Cost Head Cost Cost Cost*
Garagerent X X X X
Utilities X X X X
Costofthe X
industrial
design
course
Equipment X X X X
rented
Material X X X
cost
Laborcost X X X
Present X X
salary
Advertising X X X
94. LoganProducts,asmallmanufacturer,hassubmittedtheitems
Hard belowconcerninglastyear'soperations.Thepresident's
secretary,tryingtobehelpful,hasalphabetizedthelist.
Administrativesalaries................$2,400
Advertisingexpense....................1,200
Depreciationfactorybuilding.......800
Depreciationfactoryequipment......1,600
Depreciationofficeequipment.......180
Directlaborcost......................21,900
Rawmaterialsinventory,beginning.....2,100
Rawmaterialsinventory,ending........3,200
Finishedgoodsinventory,beginning....46,980
Finishedgoodsinventory,ending.......44,410
Generalliabilityinsuranceexpense....240
Indirectlaborcost....................11,800
Insuranceonfactory...................1,400
Purchasesofrawmaterials.............14,600
Repairsandmaintenanceoffactory.....900
Salessalaries.........................2,000
Taxesonfactory.......................450
Travelandentertainmentexpense.......1,410
Workinprocessinventory,beginning...1,670
Workinprocessinventory,ending......1,110
Required:
a.PrepareascheduleofCostofGoodsManufacturedingood
formfortheyear.
b.DeterminetheCostofGoodsSoldfortheyear.
Answer:
a.
LOGANCOMPANY
ScheduleofCostofGoodsManufactured
Rawmaterialsused:
Beginninginventory...................$2,100
Purchases.............................14,600
Available...........................16,700
Lessendinginventory.................3,200$13,500
Directlabor............................21,900
Manufacturingoverhead:
Depreciationfactorybuilding......800
Depreciationfactoryequipment.....1,600
Indirectlaborcost...................11,800
Insuranceonfactory..................1,400
Repairsandmaintenance...............900
Taxesonfactory......................45016,950
Totalmanufacturingcost..........52,350
Addworkinprocessinventory,beginning1,670
54,020
Lessworkinprocessinventory,ending..1,110
Costofgoodsmanufactured..............$52,910
b.
Finishedgoodsinventory,beginning.....$46,980
Costofgoodsmanufactured(above)......52,910
Availableforsale....................99,890
Lessfinishedgoodsinventory,ending..44,410
Costofgoodssold......................$55,480
95. LacoCompanyacquireditsfactorybuildingabout20yearsago.
Medium Foranumberofyearsthecompanyhasrentedoutasmall,
unusedpartofthebuilding.Therenter'sleasewillexpire
soon.Ratherthanrenewingthelease,LacoCompanyis
consideringusingthespaceitselftomanufactureanew
product.Underthisoption,theunusedspacewillcontinueto
bedepreciatedonastraightlinebasis,asinpastyears.
Directmaterialsanddirectlaborcostforthenewproduct
wouldbe$50perunit.Inordertohaveaplacetostore
finishedunitsofthenewproduct,thecompanywouldhaveto
rentasmallwarehousenearby.Therentalcostwouldbe$2,000
permonth.Itwouldcostthecompanyanadditional$4,000each
monthtoadvertisethenewproduct.Anewproductionsupervisor
wouldbehiredtooverseeproductionofthenewproductwho
wouldbepaid$3,000permonth.Thecompanywouldpayasales
commissionof$10foreachunitofproductthatissold.
Required:
Completethechartbelowbyplacingan"X"undereachcolumn
headingthathelpstoidentifythecostslistedtotheleft.
Therecanbe"Xs"placedundermorethanoneheadingfora
singlecost.Forexample,acostmightbeaproductcost,an
opportunitycost,andasunkcost;therewouldbean"X"placed
undereachoftheseheadingsontheanswersheetoppositethe
cost.
Oppor Vari Selling Differ

tunity Sunk able Fixed Product &Admin ential
Cost Cost Cost Cost Cost Cost Cost*
Renton
unused
factory
space
Depreciation
onthe
factory
space
Direct
material
anddirect
labor
Rentalcost
ofthesmall
warehouse
Advertising
cost
Production
supervisors
salary
Sales
commissions
*Betweenthealternativesof(1)rentingthespaceoutagainor(2)using
thespacetoproducethenewproduct.
Answer:
Oppor Vari Selling Differ

tunity Sunk able Fixed Product &Admin ential
Cost Cost Cost Cost Cost Cost Cost*
Renton X
unused
factory
space
Depreciation X X X
onthe
factory
space
Direct X X X
material
anddirect
labor
Rentalcost X X X
ofthesmall
warehouse
Advertising X X X
cost
Production X X X
supervisors
salary
Sales X X X
commissions
Wesuggestyoualloweitheranswer(ablankoranX)inthiscell.Some
expertswouldconsideranopportunitycosttobeadifferentialcostand
otherswouldnot.Itisallamatterofdefinitionandthedefinitionsgiven
inthetextdonotreallycoverthiscontingency.
96. Alistofaccountsforamanufacturingcompanyforanaccounting
Hard periodisgivenbelow.Findtheunknownamountsindicatedby
questionmarks.
Sales.....................................$39,000
Costofgoodssold........................?
Purchasesofdirectmaterials.............11,000
Directlabor..............................5,000
Finishedgoodsinventory,beginning.......5,000
Workinprocess,beginning................800
Workinprocess,ending...................3,000
Grossmargin..............................11,700
Finishedgoodsinventory,ending..........?
Accountspayable,beginning...............4,000
Accountspayable,ending..................2,800
Directmaterialsinventory,beginning.....1,000
Directmaterialsinventory,ending........3,000
Indirectlabor............................2,000
Indirectmaterialsused...................4,000
Utilitiesexpense,factory................3,000
Depreciationonfactoryequipment.........7,000
Answer:
Costofgoodssold=39,00011,700=27,300.
Directmaterialsused=1,000+11,0003,000=9,000.
Costofgoodsmanufactured=9,000+5,000+(2,000+4,000+
3,000+7,000)+8003,000=
27,800.
Finishedgoodsinventory,ending=5,000+27,80027,300=
5,500.
97. Usethefollowinginformationtodeterminethegrossmarginfor
Hard PacificStatesManufacturingfortheyearjustended(allamounts
areinthousands($000)ofdollars:
Sales.....................................$31,800
Purchasesofdirectmaterials.............7,000
Directlabor..............................5,000
Workinprocessinventory,1/1............800
Workinprocessinventory,12/31..........3,000
Finishedgoodsinventory,1/1.............4,000
Finishedgoodsinventory,12/31...........5,300
Accountspayable,1/1.....................1,700
Accountspayable,12/31...................1,500
Directmaterialsinventory,1/1...........6,000
Directmaterialsinventory,12/31.........1,000
Indirectlabor............................600
Indirectmaterialsused...................500
Utilitiesexpense,factory................1,900
Depreciationonfactoryequipment.........3,500
Answer:
Directmaterialsused=6,000+7,0001,000=12,000.
Costofgoodsmanufactured=12,000+5,000+(600+500+
1,900+3,500)+8003,000=
21,300.
Costofgoodssold=4,000+21,3005,300=20,000.
Grossmargin=31,80020,000=11,800
98. ThefollowinginformationisfromMarchantManufacturingCo.
Hard forSeptember:
Directmaterialsusedinproduction..$95,000
Directlabor.........................67,000
Totalmanufacturingcost.............234,000
Rawmaterialsinventory,Sept.1.....24,000
Workinprocessinventory,Sept.1...6,000
Finishedgoodsinventory,Sept.1....101,000
Purchasesofrawmaterials...........102,000
Costofgoodsmanufactured...........233,000
Administrativeexpense...............41,000
Sellingexpense......................56,000
Sales................................344,000
Grossmargin.........................127,000
Netincome...........................30,000
Required:
a.ComputetheCostofGoodsSold.
b.ComputethebalanceinFinishedGoodsInventoryatSeptember
30.
c.ComputethebalanceinWorkinProcessInventoryat
September30.
d.ComputethebalanceinRawMaterialsInventoryatSeptember
30.
e.Computethetotalmanufacturingoverhead.
(Hint:Theeasiestmethodofsolvingthisproblemistosketch
outtheincomestatementandthescheduleofcostofgoods
manufactured,enterthegivenamounts,andthenenterthe
unknownsasplugfigures.)
Answer:
MARCHANTMANUFACTURING
ScheduleofCostofGoodsManufactured
Directmaterialsused:
Inventory,Sept.1....................$24,000
Purchases.............................102,000
126,000
Inventory,Sept.30(d)plug.......31,000
Directmaterialsusedgiven....95,000
Directlabor............................67,000
Manufacturingoverhead(e)plug......72,000
Totalmanufacturingcostgiven..234,000
Inventoryofworkinprocess,Sept1....6,000
240,000
Inventoryofworkinprocess,Sept30
(c)plug............................7,000
Costofgoodsmanufacturedgiven.....$233,000
MARCHANTMANUFACTURING
IncomeStatement
Sales...................................$344,000
Costofgoodssold:
Finishedgoods,Sept1................$101,000
Costofgoodsmanufacturedabove...233,000
Availableforsale.................334,000
Finishedgoods,Sept30(b)plug...117,000
Costofgoodssold(a)plug.....217,000
Grossmargingiven...................127,000
Operatingexpenses:
Administrativeexpenses...............41,000
Sellingexpenses......................56,00097,000
Netincomegiven.....................$30,000
99. NOTETOTHEINSTRUCTOR:Questions99,100and101aredifferent
Medium versionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentaken
fromtheaccountingrecordsofLarsenCorporationforthejust
completedyear.
Sales.....................................$860
Purchasesofrawmaterials................$150
Directlabor..............................$110
Manufacturingoverhead....................$210
Administrativeexpenses...................$130
Sellingexpenses..........................$180
Rawmaterialsinventory,beginning........$40
Rawmaterialsinventory,ending...........$80
Workinprocessinventory,beginning......$20
Workinprocessinventory,ending.........$80
Finishedgoodsinventory,beginning.......$80
Finishedgoodsinventory,ending..........$150
Required:
a.PrepareaScheduleofCostofGoodsManufacturedingood
form.
b.ComputetheCostofGoodsSold.
c.Usingdatafromyouranswersaboveasneeded,preparean
IncomeStatementingoodform.
Answer:
a.Scheduleofcostofgoodsmanufactured
Directmaterials:
Add:Purchasesofrawmaterials...........$150
Rawmaterialsavailableforuse...........$190
Deduct:Rawmaterialsinventory,ending...$80
Rawmaterialsusedinproduction..........$110
Directlabor..............................$110
Totalmanufacturingcost..................$430
Add:Workinprocessinventory,beginning.$20
$450
Deduct:Workinprocessinventory,ending.$80
Costofgoodsmanufactured................$370
b.Computationofcostofgoodssold
Finishedgoodsinventory,beginning.........$80
Add:Costofgoodsmanufactured.............$370
Goodsavailableforsale....................$450
Deduct:Finishedgoodsinventory,ending....$150
Costofgoodssold..........................$300
c.Incomestatement
Sales.......................................$860
Less:Costofgoodssold....................$300
Grossmargin................................$560
Less:Administrativeexpenses...............$130
Less:Sellingexpenses......................$180
Netincome..................................$250
fromtheaccountingrecordsofLarnerCorporationforthejust
completedyear.
Sales.....................................$870
Directlabor..............................$130
Required:
form.
Answer:
Directmaterials:
Directlabor..............................$130
$460
c.Incomestatement
Sales.......................................$870
Grossmargin................................$410
Netincome..................................$110
fromtheaccountingrecordsofLarmontCorporationforthejust
completedyear.
Sales.....................................$990
Directlabor..............................$240
Required:
form.
Answer:
Directmaterials:
Directlabor..............................$240
$540
c.Incomestatement
Sales.......................................$990
Grossmargin................................$470
Netincome..................................$230
102. Thefollowingcostsrelatetoonemonth'sactivityinMartin
Medium Company:
Indirectmaterials........................$300
Rentonfactorybuilding..................500
Maintenanceofequipment..................50
Directmaterialused......................1,200
Utilitiesonfactory......................250
Directlabor..............................1,500
Sellingexpense...........................500
Administrativeexpense....................300
Workinprocessinventory,beginning......600
Workinprocessinventory,ending.........800
Finishedgoodsinventory,beginning.......500
Finishedgoodsinventory,ending..........250
Required:
form.
b.DeterminetheCostofGoodsSold.
Answer:
a.Directmaterials......................1,200
Directlabor..........................1,500
Indirectmaterials........$300
Rent......................500
Maintenance...............50
Utilities.................2501,100
Totalmanufacturingcosts.............3,800
Add:WIP,beginning...................600
4,400
Deduct:WIP,ending...................800
Costofgoodsmanufactured............$3,600
b.Finishedgoods,beginning.............$500
Add:Costofgoodsmanufactured.......3,600
Goodsavailableforsale..............4,100
Finishedgoods,ending................250
Costofgoodssold....................$3,850
103. (Appendix)BrookeFosterisemployedbyWongLaboratories,Inc.,
Hard andisdirectlyinvolvedinpreparingandpackagingthecompanys
leadingsleepaid,RestWell.Brookesbasicwagerateis$15per
hour,andsheispaidtimeandahalfforanyworkinexcessof
40hoursperweek.Additionally,WongLaboratoriesprovidesa
fringebenefitpackagethatcoststhecompany$5foreachhourof
employeetime(regularorovertime).Duringarecentweek,Brooke
worked49hoursbutwasidlefor3hoursduetomaterials
shortages.
Required:
a.AssumethatWongLaboratoriestreatsallfringebenefitsas
partofmanufacturingoverhead.ComputeBrookestotalwages
andfringebenefitsfortheweekandindicatehowmuchofher
wagesandfringebenefitsfortheweekwouldbeallocatedto
directlaborandhowmuchwouldbeallocatedtomanufacturing
overhead.
b.AssumethatWongLaboratoriestreatsthepartoffringe
benefitsrelatedtodirectlaborasacomponentofdirect
laborcost.ComputeBrookestotalwagesandfringebenefits
fortheweekandindicatehowmuchofherwagesandfringe
benefitswouldbeallocatedtodirectlaborandhowmuch
wouldbeallocatedtomanufacturingoverhead.
Answer:
a.
Regulartime:.................40hoursx$15=$600.00
Overtime:.....................9hoursx$22.50=202.50
Fringebenefits:..............49hoursx$5=245.00
Totalwagesandfringebenefits$1,047.50
Allocationofwagesandfringebenefits:
Directlabor:...............46hrs.x$15=$690.00
Idletime:....................3hrs.x$15=45.00
Overtimepremium:.............9hrs.x$7.50=67.50
Fringebenefit:...............49hrs.x$5=245.00
b.Totalwagesandfringebenefitswouldbe$1,047.50asshown
above.

Allocationofwagesandfringebenefits:
Directlabor:
Wagecost:....................46hrs.x$15=$690.00
Fringebenefit:...........46hrs.x$5=230.00
Totaldirectlabor........$920.00
Idletime:................3hrs.x$15=$45.00
Overtimepremium:9x$7.50=67.50
Fringebenefits:..........3hrs.x$5=15.00
Totalmanufacturingoverhead$127.50
104. (Appendix)FredAdamsisemployedbytheCedarManufacturing
Medium Companyontheirassemblyline.Fredispaid$15perhourfor
regulartime,andtimeandahalfforallworkinexcessof40
hoursperweek.Duringthetwoweeksofthepayperiodjust
completedFredreportedthefollowing:
Week1:
Idletimeduetomachinebreakdowns....3hours
Idletimeduetomaterialshortages....2hours
Overtime...............................None
Week2:
Idletime..............................None
Overtime...............................9hours
Required:
ComputeFredswagesforeachweekandallocateFredswagesfor
eachweekbetweendirectlaborcostandmanufacturingoverhead.
Answer:
Week1:
Fredswagesequal40hoursx$15perhour,or$600.
Fredswageswouldbeallocatedbetweendirectlaborand
manufacturingoverheadasfollows:
Directlaborcost:35hoursx$15=........$525.00
Manufacturingoverhead:5hoursx$15=....75.00
Total......................................$600.00
Week2:
Fredswagesequal:
40hoursx$15perhour=................$600.00
9hoursx$22.50perhour=.............202.50
TotalwagesforWeek2.....................$802.50
Fredswageswouldbeallocatedbetweendirectlaborand
manufacturingoverheadasfollows:
Directlaborcost:49hoursx$15perhour=$735.00
Manufacturingoverhead:9hoursx$7.50=67.50
Total.....................................$802.50


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Chapter 2

Cost Terms, Concepts, and Classifications

Oppor Vari Mfg. Differ

Oppor Vari Mfg. Differ

Oppor Vari Selling Differ

Oppor Vari Selling Differ

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