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Cost accounting

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1. In general, more observations are required when cost and activity levels are unstable; i.e., the company's operations have changed significantly within the relevant range.
True False

2. One advantage that regression techniques have over other cost estimation methods is it generates information that can be used to determine how well the estimated cost equation will predict future costs.
True False

3. In general, the account analysis method focuses on the underlying relationship between cost and activities from the previous period.
True False

4. The Shapely Company uses the high-low method to determine its cost equation. The following information was gathered for 2008:

If Shapely expects to use 10,000 machine hours next month, what are the estimated direct labor costs?
A. $160,000
B. $180,000
C. $175,000
D. $150,000
E. some other answer _______________.

5. The Wiscow Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?
A. $9,730
B. $9,606
C. $9,106
D. $8,788

6. Which of the following is the difference between variable costs and fixed costs: (CMA adapted, 6/94)
A. variable costs per unit fluctuate and fixed costs per unit remain constant
B. variable costs per unit are fixed over the relevant range and fixed costs per unit are variable
C. total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change
D. variable costs per unit change in varying increments, while fixed costs per unit change in equal units
E. total variable costs can be varied by management, while fixed costs are uncontrollable

The Business School at Eastern College is accumulating data as a first step in the preparation of next year's budget development. One cost that is being looked at closely is administrative costs as a function of student credit hours. Data on administrative costs and credit hours for the most recent academic year is shown below:

The controller's office has analyzed the data and has given you the results from the regression analysis:

7. The correlation coefficient for the regression equation for administrative costs is:
A. 0.933.
B. 0.871
C. 0.859.
D. .
E. Some other amount.

8. The following direct labor information pertains to the manufacture of product Glu:

What is the standard direct labor cost per unit of product Glu? (CPA adapted, 5/92)
A. $30
B. $24
C. $15
D. $12

9. Cost pools are:
A. costs that are accumulated before being allocated to cost objects on some common basis.
B. costs that are relevant to decision-making but irrelevant to financial reporting.
C. product costs that are assigned to cost objects using direct labor or machine hours.
D. accounts in the product life cycle from research and development to customer service.

10. In calculating the break-even point for a multiproduct company, which of the following assumptions is (are) commonly made when variable costing is used? (CPA adapted, 5/92)

I. Sales volume equals production volume.
II. Variable costs are constant per unit.
III. A given sales mix is maintained for all volume changes.
A. I and II
B. I and III
C. II and III
D. I, II, and III

11. The basic cost flow model is:
A. BB + TO = TI + EB
B. BB + TO TI = EB
C. EB = BB + TI TO
D. EB BB = TO TI
E. EB + TI TO = BB

12. The journal entry to record actual manufacturing overhead for indirect material debits Manufacturing Overhead (Control) and credits Accounts Payable.
True False

13. Job shops have three types of inventory accounts: Direct Materials, Work-in-Process, and Merchandise Inventory.
True False

14. Time cards are to direct labor as purchase orders are to direct material.
True False

15. It is unethical to intentionally charge costs to the wrong job.
True False

16. The journal entry to write-off a significant underapplied overhead balance at the end of an accounting period is
A.

B.

C.

D.

17. Complex jobs that take multiple time periods and require the work of many different departments, divisions, or subcontractors are called
A. clients.
B. projects.
C. customers.
D. contracts.
E. vendors.

18. The journal entry to record the actual manufacturing overhead costs for indirect material is
A.

B.

C.

D.

E.

19. Which of the following companies would most likely use job costing?
A. paper manufacturer
B. paint producer
C. breakfast cereal maker
D. advertising agency

20. Under which of the following conditions will the FIFO method produce the same cost of goods manufactured as the weighted-average method?
A. There is no ending inventory.
B. There is no beginning inventory.
C. The beginning and ending inventories are equal.
D. The beginning and ending inventories are both 50% complete.

21. An equivalent unit of conversion costs is equal to the amount of conversion costs required to
A. start a unit.
B. complete a unit.
C. transfer a unit in.
D. transfer a unit out.

22. The following examples briefly describe the manufacture of two different products. Which costing method (job-order or process) would be the best method to use for each project?

I. Fred Puetz manufactures Fred's Wine Cooler. Fred once made the statement, "People can have any flavor of Fred's Wine Cooler they want as long it's boysenberry."
II. Ahmad Aerondonetics is manufacturing three space shuttles for the country of Kricherra. Each shuttle is slightly different and production will last approximately two years.

A.
B.
C.
D.

23. An operations costing system is
A. identical to a process costing system except that actual cost is used for manufacturing overhead.
B. the same as a process costing system except that materials are allocated on the basis of batches of production.
C. the same as a job order costing system except that materials are accounted for in the same way as they are in a process costing system.
D. the same as a job order costing system except that no overhead allocations are made since actual costs are used throughout.
E. a system in which manufacturing activities are finely divided into individual, discrete steps or operations.

24. Process costing is based on the assumption that all units in a large group have the same unit cost.
True False

25. A company that uses first-in, first-out (FIFO) process costing to assign and control costs, must use FIFO to value its Finished Goods Inventories.
True False

26. The number of units in the beginning Work-in-Process Inventory plus the units transferred out during the period equals the number of units started during the period plus the number of units in the ending Work-in-Process Inventory.
True False

27. Material requisitions required to finish a job that was not complete at the end of the prior period are debited to Work-in-Process inventory account.
True False

28. Service organizations generally use the same job costing procedures as manufacturers.
True False

29. The cost in the ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead of all jobs still in process at the end of the period.
True False

30. Manufacturing overhead is only recorded on the job cost sheets when (a) financial statements are prepared or (b) a job is completed.
True False

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The solution explains various true/false and multiple choice questions in cost accounting

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Cost Accounting Questions and 3 Cost Analysis Problems

1. Cost of goods manufactured during a period is obtained by taking the total manufacturing costs incurred during the period, adding, and subtracting the following inventories:
Adding Subtracting
a. Beginning finished goods inventory Ending finished goods inventory
b. Beginning work in process inventory Ending finished goods inventory
c. Beginning raw materials inventory Ending work in process inventory
d. Beginning work in process inventory Ending work in process inventory

2. Cost of goods sold is equal to
a. total manufacturing costs plus beginning work in process less ending work in process.
b. cost of goods sold plus beginning work in process less ending work in process.
c. total manufacturing costs plus ending work in process less beginning work in process.
d. cost of goods manufactured plus beginning finished goods less ending finished goods.

3. Inventory accounts for a manufacturer consist of
a. direct materials, work in process, and finished goods.
b. direct labor, work in process, and finished goods.
c. manufacturing overhead, direct materials, and direct labor.
d. work in process, direct labor, and manufacturing overhead.

4. In a process cost system, equivalent units of production are the
a. work done on physical units expressed in fully completed units.
b. units that are transferred to the next processing department.
c. units completed and transferred to finished goods.
d. units that are incomplete at the end of a period.

Use the following information for questions 5 and 6.

In the month of November, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had $8,000 of materials cost and $6,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During November, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During November, manufacturing costs charged to the department were: Materials $184,000; Conversion costs $204,000.

5. The cost assigned to the units transferred to finished goods during November was
a. $360,000.
b. $362,000.
c. $376,000.
d. $358,000.

6. The cost assigned to the units in the ending work in process inventory on November 30 was
a. $72,000.
b. $42,000.
c. $32,000.
d. $58,000.

7. An appropriate cost driver for ordering and receiving materials cost is the
a. direct labor hours.
b. machine hours.
c. number of parts.
d. number of purchases orders.

8. Benefits of activity-based costing include all of the following except
a. more accurate product costing.
b. fewer cost pools used to assign overhead costs to products.
c. enhanced control over overhead costs.
d. better management decisions.

9. An example of a value-added activity in a manufacturing operation is
a. machine repair.
b. inventory control.
c. engineering design.
d. building maintenance.

10. Assigning manufacturing costs to work in process results in credits to all of the following accounts except
a. Factory Labor.
b. Manufacturing Overhead.
c. Raw Materials Inventory.
d. Work in Process Inventory.

11. Juniper, Inc. sells a single product with a contribution margin of $12 per unit and fixed costs of $74,400 and sales for the current year of $100,000. How much is Juniper's break even point?

a. 4,600 units
b. $25,600
c. 6,200 units
d. 2,133 units

12. Homer Company's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by how much will the company's net income increase?
a. $18,000
b. $6,000
c. $12,000
d . $12,000

13. Twix Company sells two products, beer and wine. Beer has a 10 percent profit margin and wine has a 12 percent profit margin. Beer has a 27 percent contribution margin and wine has a 25 percent contribution margin. If other factors are equal, which product should Twix push to customers?
a. Beer
b. Wine
c. Selling either results in the same additional income for the company
d. It should sell an equal quantity of both.

14. Monroe Company manufactures a product with a unit variable cost of $42 and a unit sales price of $75. Fixed manufacturing costs were $80,000 when 10,000 units were produced and sold, equating to $8 per unit. The company has a one-time opportunity to sell an additional 1,000 units at $55 each in an international market which would not affect its present sales. The company has sufficient capacity to produce the additional units. How much is the relevant income effect of accepting the special order?
a. $42,000
b. $5,000
c. $50,000
d. $13,000

15. Beavers, Inc. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $16, while the cost of assembling each unit is estimated at $17. Unassembled units can be sold for $55, while assembled units could be sold for $71 per unit. What decision should Beavers make?
a. Sell before assembly, the company will save $1 per unit.
b. Sell before assembly, the company will save $15 per unit.
c. Process further, the company will save $1 per unit.
d. Process further, the company will save $16 per unit.

16. Lion Company sells office chairs with a selling price of $25 and a contribution margin per unit of $15. It takes 3 machine hours to produce one chair. How much is the contribution margin per unit of limited resource?
a. $5
b. $3.33
c. $45
d. $10

Use the following information for items 17 -19.

Dustin Company sells its product for $40 per unit. During 2005, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $10, direct labor $6, and variable overhead $2. Fixed costs are: $480,000 manufacturing overhead, and $60,000 selling and administrative expenses.

17. The per unit manufacturing cost under absorption costing is:
a. $16.
b. $18.
c. $26.
d. $27.

18. The per unit manufacturing cost under variable costing is:
a. $16.
b. $18.
c. $26.
d. $27.

19. Cost of goods sold under absorption costing is:
a. $ 900,000.
b. $1,080,000.
c. $1,300,000.
d. $1,560,000.

20. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $6 per pound. Last month, 2,000 pounds of direct materials were purchased for $11,400. The direct materials price variance for last month was
a. $11,400 favorable.
b. $600 favorable.
c. $300 favorable.
d. $600 unfavorable.

21. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was
a. $3,200 favorable.
b. $2,400 favorable.
c. $3,200 unfavorable.
d. $5,600 unfavorable.

22. The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 2,400 units, the actual direct labor cost was $51,200 for 4,000 direct labor hours worked, the total direct labor variance is
a. $1,920 unfavorable.
b. $6,400 favorable.
c. $4,000 unfavorable.
d. $6,400 unfavorable.

23. The standard rate of pay is $5 per direct labor hour. If the actual direct labor payroll was $19,600 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $800 unfavorable.
b. $800 favorable.
c. $1,000 unfavorable.
d. $400 favorable.

24. The standard number of hours that should have been worked for the output attained is 8,000 direct labor hours and the actual number of direct labor hours worked was 8,400. If the direct labor price variance was $8,400 unfavorable, and the standard rate of pay was $18 per direct labor hour, what was the actual rate of pay for direct labor?
a. $17.00 per direct labor hour
b. $15.00 per direct labor hour
c. $19.00 per direct labor hour
d. $18.00 per direct labor hour

Problem 1 - Activity-Based Costing (16 points)

Tuttle Manufacturing Company manufactures two products: radiators and gas tanks. During June, 200 radiators and 400 gas tanks were produced and overhead costs of $54,000 were incurred. The following information related to overhead costs was available:

Activity Cost Driver Total Cost
Materials handling Number of requisitions $24,000
Machine setups Number of setups 18,000
Quality inspections Number of inspections 20,000

The cost driver volume for each product was as follows:

Cost Driver Radiators Gas Tanks Total
Number of requisitions 300 500 800
Number of setups 140 220 360
Number of inspections 190 310 500

Instructions
a) Compute the overhead rate for each activity.
b) Assign the manufacturing overhead costs for June to the two products using activity-based costing.

Problem 2 - Cost-Volume-Profit (20 points)

Reavis Company prepared the following income statement for 2005:

REAVIS COMPANY
Income Statement
For the Year Ended December 31, 2005

Sales (20,000 units) $600,000
Variable expenses 360,000
Contribution margin 240,000
Fixed expenses 180,000
Net income $ 60,000

Instructions
Answer the following independent questions and show computations to support your answers.

1) What is the company's break-even point in units?
2) How many more units would the company have had to sell to earn net income of $90,000 in 2005?
3) If the company expects a 25% increase in sales volume in 2006, what would be the expected net income in 2006?
4) How much sales dollars would the company have to generate in order to earn a target net income of $110,000 in 2006?
Problem 3 - Standard Costing ( 16 points)

Beachwalk Company uses a standard cost accounting system. During January, 2006, the company reported the following manufacturing variances:

Material price variance $2,000 F
Material quantity variance 2,400 U
Labor price variance 800 U
Labor quantity variance 1,200 U
Overhead controllable 500 F
Overhead volume 3,000 U

In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had a standard cost of $12. Selling and administrative expenses for the month were $10,000.

Instructions
Prepare an income statement for management for the month ending January 31, 2006.

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