Multiple Choice

____ 1. Period costs would include
a. direct labor.
b. direct materials.
c. indirect manufacturing costs.
d. selling and administrative costs.

____ 2. Manufacturing costs are typically classified as
a. product costs or period costs.
b. direct materials or direct labor.
c. direct materials, direct labor, or manufacturing overhead.
d. direct materials, direct labor, or selling and administrative.

____ 3. A debit balance in the Manufacturing Overhead account at the end of an interim month means that
a. the balance should be reported as a current liability in the monthly balance sheet.
b. corrective action by management is necessary.
c. overhead has been underapplied.
d. cost of goods sold should be credited on the monthly income statement.

____ 4. In a job order cost system, which of the following accounts is not a control account?
a. Raw Materials Inventory
b. Factory Labor
c. Finished Goods Inventory
d. Manufacturing Overhead

____ 5. In the current assets section of the balance sheet, manufacturing inventories are listed in the following order:
a. raw materials, work in process, finished goods.
b. finished goods, work in process, raw materials.
c. work in process, finished goods, raw materials.
d. finished goods, raw materials, work in process.

The following data should be used for questions 6-9:
Raw materials inventory, January 1 $ 10,000
Raw materials inventory, December 31 15,000
Work in process, January 1 9,000
Work in process, December 31 5,000
Finished goods, January 1 16,000
Finished goods, December 31 20,000
Raw materials purchases 600,000
Direct labor 230,000
Factory utilities 75,000
Indirect labor 25,000
Factory depreciation 200,000
Selling and administrative expenses 210,000

____ 6. Direct materials used is
a. $630,000.
b. $610,000.
c. $600,000.
d. $595,000.

____ 7. Assume your answer to question 6 above is $600,000. Total manufacturing costs equal
a. $1,130,000.
b. $1,127,000.
c. $1,030,000.
d. $1,340,000.

____ 8. Assume your answer to question 7 above is $1,100,000. Cost of goods manufactured equals
a. $1,096,000.
b. $1,097,000.
c. $1,104,000.
d. $1,109,000.

____ 9. Assume your answer to question 8 is $1,120,000. The cost of goods sold is
a. $1,123,000.
b. $1,104,000.
c. $1,116,000.
d. $1,124,000.

____ 10. A company's break-even point can be decreased by decreasing
a. the contribution margin ratio.
b. the contribution margin.
c. the selling price.
d. variable costs per unit.

____ 11. Brooke Company desires net income of $720,000 when it has $2,000,000 of fixed costs and variable costs of 60% of sales. Contribution margin equals
a. $6,800,000.
b. $2,720,000.
c. $1,280,000.
d. $1,200,000.

____ 12. Fixed costs
a. increase in total as total production increases.
b. decrease in total as production decreases.
c. decrease per unit as total production decreases.
d. increase per unit as total production decreases.

____ 13. Assume October is the high volume month for a toy manufacturer and July is the low volume month. The following total production costs and volume levels have been recorded:

Total Costs Volume
October $30,000 6,000
July $12,000 2,000

Compute the total fixed costs.
a. $18,000.
b. $3,000.
c. $9,000.
d. $6,000.

____ 14. A relevant cost
a. is a sunk cost.
b. is a past cost.
c. must be a future cost.
d. is an opportunity cost.

____ 15. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and fixed and variable factory overhead cost?
a. standard costing.
b. variable costing.
c. absorption costing.
d. direct costing.

____ 16. Which of the following is included in the cost of goods manufactured under absorption costing but not under variable costing?
a. direct materials.
b. variable factory overhead.
c. fixed factory overhead.
d. direct labor.

____ 17. Which of the following would not be deducted in determining the contribution margin under variable costing?
a. direct labor.
b. sales commissions.
c. sales office depreciation based using the straight-line method.
d. variable factory overhead.

____ 18. Under absorption costing, which of the following costs would not be included in finished goods inventory?
a. hourly wages of assembly workers.
b. overtime wages paid factory workers.
c. advertising costs for a clothing manufacturer.
d. depreciation on factory equipment.

____ 19. Under variable costing, which of the following costs would not be included in finished goods inventory?
a. hourly wages of assembly workers.
b. direct material costs.
c. fixed factory overhead cost.
d. variable factory overhead cost.

____ 20. Under variable costing, which of the following costs would be included in finished goods inventory?
a. hourly wages of assembly workers.
b. utilities expense for corporate headquarters.
c. sales commissions.
d. fixed factory overhead cost.

____ 21. Under variable costing, which of the following costs would be included in finished goods inventory?
a. advertising costs.
b. salary of CEO.
c. wages of carpenters in furniture factory.
d. rent on corporate headquarters.

____ 22. The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured
a. exceed units sold.
b. equal units sold.
c. are less than units sold.
d. are equal to or greater than units sold.

____ 23. The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured
a. exceed units sold.
b. equal units sold.
c. are less than units sold.
d. are equal to or greater than units sold.

____ 24. Cost-plus pricing means that:
a. selling price = fixed costs + (markup percentage X variable costs)
b. selling price = cost + (markup percentage X cost).
c. selling price = variable costs + (markup percentage X fixed costs).
d. selling price = cost + (markup percentage X variable costs).

____ 25. Rusty Company is considering developing a new product. The company has gathered the following information on this product:

Expected total unit cost $20
Estimated investment for new product $700,000
Desired ROI 5%
Expected number of units to be produced and sold 1,000

The desired selling price given this information is:
a. $35.
b. $50.
c. $15.
d. $55.

____ 26. Rusty Company is considering developing a new product. The company has gathered the following information on this product:

Expected total unit cost $20
Estimated investment for new product $700,000
Desired ROI 5%
Expected number of units to be produced and sold 1,000

The desired markup percentage is:
a. 275%.
b. 75%.
c. 175%.
d. 100%.

____ 27. The following information is provided by Bullet Corporation for a new product it recently introduced:

Total unit cost $50
Desired ROI per unit $20
Target selling price $70

What would be Bullet Corporation's percentage markup on cost?
a. 40%.
b. 71%.
c. 29%.
d. 60%.

____ 28. Target costing assumes
a. the market price is known and works to achieve an acceptable cost.
b. the cost is known and works to achieve an acceptable market price.
c. the desired profit is known and works to achieve an acceptable market price.
d. the desired profit is known and works to achieve an acceptable cost.

____ 29. The Molding Division of White Corporation manufactures plastic molds and then sells them to customers for $80 per unit. Its variable cost is $30 per unit, and its fixed cost per unit is $10. Management would like the Molding Division to transfer 15,000 of these molds to another division within the company at a price of $45. The Molding Division is operating at full capacity. What is the minimum transfer price the Molding Division should accept?
a. $45.
b. $40.
c. $80.
d. $50.

____ 30. The Molding Division of White Corporation manufactures plastic molds and then sells them to customers for $80 per unit. Its variable cost is $30 per unit, and its fixed cost per unit is $10. Management would like the Molding Division to transfer 15,000 of these molds to another division within the company at a price of $45. The Molding Division has available capacity to produce the 15,000 units for the other division. What is the minimum transfer price the Molding Division should accept?
a. $40.
b. $30.
c. $45.
d. $80.

____ 31. HIT Company provides the following cost information related to its production of its primary product:

Per unit
Variable manufacturing cost $40
Fixed manufacturing cost $40
Variable selling and administrative expenses $10
Fixed selling and administrative expenses $12
Desired ROI per unit $14

What is its markup percentage assuming that HIT Company uses absorption costing?
a. 27.5%.
b. 17.5%.
c. 45%.
d. 260%.

___ 32. Looker Hats is planning to sell 600 felt hats, and 700 will be produced during
June. Each hat requires ½ yard of felt and ¼ hour of direct labor. Felt costs
$3.00 per yard and employees of the company are paid $20 per hour. How
much is the total amount of budgeted direct labor for June?
a. $3,000
b. $48,000
c. $3,500
d. $2,400

____ 33. Orr Corporation's manufacturing costs for August when production was 800
units appears below:

Direct material $10 per unit
Direct labor $4,800
Variable overhead 4,000
Factory depreciation 3,000
Factory supervisory salaries 2,000
Other fixed factory costs 1,000

How much is the budgeted manufacturing cost for a month when 900 units
are produced?
a. $23,800
b. $18,900
c. $24,900
d. $25,650

____ 34. Lewis Production is planning to sell 220 boxes of bricks and produce 200
boxes of bricks during May. Each box of bricks requires 20 pounds of brick
mix and a half hour of direct labor. Brick mix costs $5 per 100 pounds and
employees of the company are paid $12.00 per hour. Manufacturing overhead
is applied at a rate of 120% of direct labor costs. Lewis Production has 600
pounds of brick mix in beginning inventory and wants to have 800 pounds of brick mix in ending inventory. What is the total amount to be budgeted for manufacturing overhead for the month?
a. $1,440
b. $2,880
c. $2,400
d. $1,200

____ 35. Hargrow, Inc. makes and sells a single product, buckets. It takes 30 ounces of
plastic to make one bucket. Budgeted production of buckets for the next three
months is as follows: August 90,000 units, September 75,000 units, October
65,000 buckets. The company wants to maintain monthly ending inventories of
plastic equal to 10% of the following month's production needs. On August
31st, 195,000 ounces of plastic were on hand. The cost of plastic is $0.03 per
ounce. How much is the ending inventory of plastic to be reported on
the company's balance sheet at September 30?
a. $195,000
b. $5,850
c. $6,750
d. $7,500

____ 36. Razmataz Company makes and sells umbrellas. The company is in the process
of preparing its Selling and Administrative Expense Budget for the last half of
the year. The following budget data are available:

Item Variable Cost Per Unit Sold Monthly Fixed Cost
Sales commissions $0.60 $3,000
Shipping $1.20
Advertising $0.30
Depreciation on office equipment $4,000
Other operating expenses $0.35 $34,000

Expenses are paid in the month incurred. If the company has budgeted to sell 2,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October?
a. $41,000
b. $4,600
c. $45,900
d. $4,900

____ 37. Which one of the following is a similarity of both a job order and a process
cost system?
a. They both track direct materials and direct labor, but not manufacturing overhead.
b. They both track conversion costs, but not materials.
c. They both track the same three manufacturing cost elements - direct materials, direct labor, and manufacturing overhead.
d. They both are used for the same type of inventory production items.

____ 38. How are costs assigned in a process cost system?
a. To only one work in process account
b. To work in process and finished goods inventory
c. To work in process, finished goods, and cost of goods sold
d. To multiple work in process accounts

____39. Schiller Company has unit costs of $5 for materials and $15 for conversion costs. There are 4,200 units in ending work in process which are 25% complete as to conversion costs, and fully complete as to materials cost. How much is the total cost assignable to the ending work in process inventory if the weighted average method is used?
a. $36,750
b. $84,000
c. $21,000
d. $15,750

____40. Which of the following is a characteristic of products that are mass-produced in
continuous fashion?

a. They are grouped in batches.
b. They are produced all in one process.
c. Each batch of costs is accumulated in a separate cost of goods sold account.
d. The products are identical or very similar in nature.

____41. For which one of the following would a process cost system most likely be
used?

a. Custom furniture
b. Potato chips
c. Motion pictures
d. Cruise ships

____42. The functions of management in an organization are

a. planning, controlling, and decision making.
b. planning, directing and motivating, and controlling.
c. directing and motivating, controlling, and decision making.
d. directing and motivating, planning, and decision making.

____43. The major activities of managerial accounting include all of the following except
a. providing a basis for controlling costs by comparing actual results with planned objectives.
b. preparing financial statements designed primarily for stockholders and creditors.
c. preparing internal reports for management.
d. determining the behavior of costs as activity levels change.

____44. A job order cost system would most likely be used by a(n)
a. cement manufacturer.
b. paint manufacturer.
c. specialty printing company.
d. automobile manufacturer.

____45. The formula for computing a predetermined overhead rate is
a. estimated annual overhead costs ÷ estimated annual operating activity.
b. estimated annual overhead costs ÷ actual annual operating activity.
c. actual annual overhead costs ÷ actual annual operating activity.
d. actual annual overhead costs ÷ estimated annual operating activity.

____46. An example of a period cost, as opposed to a product cost, is
a. factory utilities.
b. wages of factory workers.
c. salesmen's commissions.
d. depreciation on the factory building.

____47. When production costs are debited to Work in Process Inventory, accounts that may be credited are
a. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.
b. Accounts Payable, Factory Wages Payable, and Accumulated Depreciation.
c. Raw Materials Inventory, Factory Labor, and Finished Goods Inventory.
d. Manufacturing Overhead, Factory Labor, and Cost of Goods Sold.

____48. Variable costs, as activity increases, will
a. decrease per unit.
b. increase per unit.
c. remain constant per unit.
d. decrease in total.

____49. A cost that increases in total, but not proportionately with increases in the activity level, is a(n)
a. mixed cost.
b. variable cost.
c. fixed cost.
d. unusual fixed cost.

____50. Given the following costs for Bently Company, classify each cost as either variable, fixed, or mixed.
Total Cost at
2,000 Units 3,000 Units
Cost A $12,900 $19,350
Cost B 12,300 16,650
Cost C 13,000 13,000
a. Cost A and Cost B are variable; Cost C is fixed.
b. Cost A is variable; Cost B is mixed; Cost C is fixed.
c. Cost A and Cost B are mixed; Cost C is fixed.
d. Cost A is mixed; Cost B is variable; Cost C is fixed.

____ 51. The assumptions that underlie basic CVP analysis include all of the following except
a. when more than one product is sold, total sales will be in a constant sales mix.
b. all costs can be classified as variable or fixed with reasonable accuracy.
c. the behavior of both costs and revenues is linear throughout the relevant
range.
d. all of the above are assumptions.

____ 52. Brooke Company desires net income of $720,000 when it has $2,000,000 of fixed costs and variable costs of 60% of sales. Required sales equals
a. $3,200,000.
b. $6,800,000.
c. $5,000,000.
d. $4,533,333.

____ 53. Grant Company estimates its sales at 80,000 units in the first quarter and that
sales will increase by 8,000 units each quarter over the year. They have, and
desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40%
of the sales are for cash. 70% of the credit customers pay within the quarter.
The remainder is received in the quarter following sale. Cash collections for
the third quarter are budgeted at
a. $1,356,000.
b. $1,968,000.
c. $2,364,000.
d. $2,736,000.

____ 54. At January 1, 2006, Jake, Inc. has beginning inventory of 3,000 surfboards.
Jake estimates it will sell 14,000 units during the first quarter of 2006 with a
10% increase in sales each quarter. Jake's policy is to maintain an ending
inventory equal to 20% of the next quarter's sales. Each surfboard costs $140
and is sold for $200. How many units should Jake produce during the first
quarter of 2006?
a. 14,080
b. 14,000
c. 16,800
d. 14,200

____ 55. Nunnally Manufacturing Company has furnished the following information
which occurred during May:

Accounts Payable balance at April 30 $ 29,000
Purchases on account during May 150,000
Cash payments for materials purchased in April 29,000
Cash payments for materials purchased in May 135,000

The accounts payable account is used only for direct materials. How much will
Nunnally report as accounts payable on the balance sheet at the end of May?
a. $21,000
b. $103,000
c. $8,000
d. $15,000

____ 56. Harrah Company provided the following information for the month of
October:

Beginning cash balance $ 35,000
Cash receipts 460,000
Cash disbursements 485,000

Harrah's policy is to keep a minimum end of the month cash balance of $30,000. How much will Harrah's need to borrow during October?
a. $20,000
b. $25,000
c. $10,000
d. $0

____ 57. Each production worker can produce 4 wooden chairs per hour. During the
month of June, Chairs, Inc. has forecasted sales of 100,000 chairs. The beginning inventory was 10,000 chairs, and desired ending inventory is 2,500 chairs. How many hours of direct labor must be budgeted to meet production needs?
a. 25,375
b. 25,000
c. 23,125
d. 24,625

____ 58. Zargus Company began the month of June with 650 units in beginning work in
process, 11,400 units started into production, and 500 units in ending work in
process that are 30% completed. How many units were transferred out during
June?
a. 11,550
b. 12,050
c. 11,900
d. 11,250

____ 59. The Cutting Department's output during the period consists of 12,000 units
completed and transferred out, and 3,000 units in ending work in process that
were 45% complete as to materials and conversion costs. Beginning inventory
was 1,500 units that were 25% complete as to materials and conversion costs.
How many units were started during the period?
a. 15,000
b. 16,500
c. 13,500
d. 12,000

____60. The Cutting Department's output during the period consists of 12,000 units
completed and transferred out, and 3,000 units in ending work in process that were 45% complete as to materials and conversion costs. Beginning inventory was 1,500 units that were 25% complete as to materials and conversion costs. Under the weighted average method, what are the equivalent units of production for materials?
a. 15,000
b. 13,350
c. 13,500
d. 14,475