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# Practice exam problems - managerial cost accounting

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Use the following information for the next 2 questions.
Direct Direct Direct
Materials Labor Cost Labor Hours
Job 400 \$200 \$800 40
Job 401 250 200 10
Job 402 500 600 32
O'Hare Sisters Manufacturing uses job costing and applies overhead using a normal costing system using direct labor hours as the allocation base. This period's estimated overhead cost is \$400,000, estimated direct labor cost is \$500,000 and estimated direct labor hours are 25,000. This period actual overhead cost was \$420,000, actual direct labor cost was \$390,000, and actual direct labor hours were 20,000.
1. What is the overhead allocation rate?
a. \$21/hour
b. \$10/hour
c. \$16/hour
d. \$18/hour
2. What is the total manufacturing cost of Job 400?
a. \$1,200
b. \$1,000
c. \$1,320
d. \$1,640
3. Manufacturers may track scrap to determine whether
a. Resources are being used efficiently
b. Machines need replacing
c. Job costs are being recorded accurately
d. Cash flow forecasts are accurate.
4. Direct materials in job costing
a. Can be traced to each product
b. Are allocated to each product
c. Are the only costs recorded in cost of goods sold
d. Are expensed as period costs, not product costs
5. Perry Company started 6,000 units during the month of March. 600 units were in the beginning work in process inventory and 400 units in the ending work in process inventory. Units completed and transferred out during March will be
a. 6,000
b. 6,400
c. 6,200
d. 5,400
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Use the following information for the next 2 questions.
Gholson, Inc. employs a process costing system in which direct materials are added at the beginning of the process. Direct material costs from the prior period for beginning work in process are \$1,250. The current period's direct material costs total \$31,500. The company began the period with 500 units, 70% complete, started 10,500 units, and finished the period with 1,000 units, 40% complete.
6. Using a FIFO system, the direct material cost per equivalent unit is
a. \$3.00
b. \$2.98
c. \$3.20
d. \$2.55
7. Using the weighted average method, the direct material cost per equivalent unit for the period is
a. \$3.00
b. \$2.98
c. \$3.20
d. \$2.55
8. In the weighted average method, costs from beginning work in process are averaged with costs incurred during the current period and then allocated to units completed and ending work in process.
_____ True _______ False
9. Which method(s) do traditional accounting systems use to assign the following costs to cost objects (departments or units)?
a. Allocate Trace
b. Trace Allocate
c. Allocate Allocate
d. Trace Trace
10. ABC systems differ from traditional costing systems because ABC systems use
a. Multiple activity cost pools and cost drivers to allocate overhead costs
b. Multiple activity cost pools and cost drivers to allocate direct costs
c. More automation and information technology to allocate overhead costs
d. Less automation and information technology to allocate overhead costs
11. In an ABC system, an activity is best defined as a
a. Type of task performed in an organization
b. Collection of activities in a particular department
c. Collection of cost drivers associated with a particular cost pool
d. Group of cost pools associated with a particular department
12. Which of the following is not part of the process used to assign costs in an ABC system?
a. Identify activities
c. Identify the relevant cost object
d. Assign costs to activity-based pools
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13. Cervantes Industries provides an in-house cafeteria for production and administrative employees. This service costs \$25,000 per month, plus \$3 per meal served. The company has 800 production employees and 400 administrative employees. During the past month 5,500 meals were served to production employees and 2,000 to administrative.
The amount of cost allocated to the administrative department using actual meals served as the basis is
a. \$16,675
b. \$12,667
c. \$14,325
d. \$18,500
14. Under the direct method
a. A support department's costs are allocated only to final operating department users
b. A support department's costs are allocated only to other support departments
c. The costs of the support departments are allocated sequentially
d. The costs of the support departments are allocated in order of their magnitude
15. The practice of using only one base to allocate both fixed and variable costs is called
a. Single-rate allocation
b. Activity-based allocation
c. Budgeted allocation
d. Direct allocation
16. The best allocation base choice for an ABC cost pool is a(n)
a. Cost driver
b. Activity dictionary
c. Allocation rate
d. Financial measure

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Information for Question 17 and 18:
Recyclers, Inc. reprocesses paper and obtains 2 main products, a by-product, and waste. By-product revenues are treated as a reduction in joint costs. During the period, 1,000 tons were processed at a cost of \$12,000 for materials and processing, resulting in the following:
Sales Value Separable Sales Value After
Product Tons at Split-Off Costs Further Processing
Main-1 200 \$4,000 \$2,000 \$10,000
Main-2 400 5,000 6,000 12,000
By-product 300 2,000 -0- 2,000
Waste 100 -0- -0- -0-
17. If the firm allocates joint costs to the main products using the physical output method, how much will be allocated to Main-1?
a. \$2,000
b. \$2,400
c. \$2,222
d. \$3,333
18. If the firm allocates joint costs to the main products using the sales value at split-off point method, how much will be allocated to Main-2?
a. \$5,556
b. \$4,545
c. \$5,333
d. \$6,666

Information for 19 and 20:

A joint input costing \$500 results in four distinct products at the point of split-off. Relevant data follows:
Sales Value Separable Sales Value After
Product at Split-Off Cost Further Processing
J \$200 \$100 \$400
K 300 200 600
L 100 50 140
M 20 10 40
19. Which of the four products should not be further processed?
a. J
b. K
c. L
d. M
20. Assume that K is processed further and that management is considering an alternative to the current process. The new separable cost of processing would be \$250. If the firm is to be no worse off, the product must sell for at least
a. \$550
b. \$650
c. \$750
d. \$850

#### Solution Summary

The solution answers 20 Practice exam problems related to managerial cost accounting.

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## Practice exam problems - managerial cost accounting

Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks:
Solvents and cleaners used by the custodians to clean the textbook printing presses \$500
Depreciation on the automobiles used by sales representatives \$4,200
Fire insurance on factory building \$2,000
Shipping costs on textbooks sold \$3,700

1. What is the total of the manufacturing overhead costs above?

\$500
\$2,500
\$6,200
\$6,700

2. All of the following are examples of product costs except:
depreciation on the company's retail outlets.
salary of the plant manager.
insurance on the factory equipment.
rental costs of the factory facility.

3. The person MOST likely to use management accounting information is a(n):
banker evaluating a credit application
shareholder evaluating a stock investment
governmental taxing authority
assembly department supervisor

4. Management accounting:
focuses on estimating future revenues, costs, and other measures to forecast activities and their results.
provides information about the company as a whole.
reports information that has occurred in the past that is verifiable and reliable.
provides information that is generally available only on a quarterly or annual basis.

5. Consider the following costs incurred in a recent period:
Direct materials \$33,000
Depreciation on factory equipment \$12,000
Factory janitor's salary \$23,000
Direct labor \$28,000
Utilities for factory \$9,000
Selling expense \$16,000
Production supervisor's salary \$34,000

What was the total amount of the period costs listed above for the period?

\$78,000
\$71,000
\$46,000
\$37,000

6. All of the following are characteristics of a pull production system EXCEPT:
Inventories are reduced to a minimum by purchasing raw materials and producing units only as needed to meet consumer demand.
Raw materials are released to a production far in advance of being needed to ensure no interruptions in work flows due to shortages of raw materials.
Products are completed just in time to be shipped to customers.
Manufactured parts are completed just in time to be assembled into products.

7. A plant manufactures several different products. The wages of the maintenance staff in the plant can be classified as a (an):
direct cost
product cost
opportunity cost
nonmanufacturing cost

8. The plans of management are often expressed formally in:
financial statements.
performance reports.
budgets.
ledgers.

9. Which of the following statements refers to management accounting information?
There are no regulations governing the reports.
The reports are generally delayed and historical.
The audience tends to be stockholders, creditors, and tax authorities.
The scope tends to be highly aggregate.

10. The one cost that would be classified as part of both prime cost and conversion cost would be:
indirect material
direct labor
direct material
indirect labor

11. Which of the folloiwng is NOT one of the five steps in the lean thinking model discussed in the text?
Continuously pursue perfection in the business process.
Identify value in specific products/services.
Implement an enterprise system.
Create a pull system that responds to customer orders.

12. The Institute of Management Accountants (IMA):
is a professional organization of management accountants
is a professional organization of financial accountants
issues standards for management accounting
issues standards for financial accounting

13. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy regarding confidentiality that requires that management accountants:
refrain from disclosing confidential information acquired in the course of their work except when authorized by management.
refrain from disclosing confidential information acquired in the course of their work in all situations.
refrain from disclosing confidential information acquired in the course of their work except when authorized by management, unless legally obligated to do so.
refrain from disclosing confidential information acquired in the course of their work in all cases since the law requires them to do so.

14. During the month of July, direct labor cost totaled \$12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were \$86,000, the manufacturing overhead was:
\$46,000
\$40,000
\$28,000
\$74,000

15. Conversion costs consist of:
direct and indirect labor.
direct labor and direct materials.

16. Which of the following groups would be LEAST likely to receive detailed management accounting reports?
stockholders
customer service representatives
production supervisor
vice president of operations

all direct material, direct labor and administrative costs.
all manufacturing costs except direct labor.
all manufacturing costs except direct labor and direct materials.

18. The five step framework used to guide Six Sigma improvement efforts includes all of the following EXCEPT:
Analyze.
Control.
Digitize.
Measure.

19. The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT: