Chapter 1-Introduction To Cost Accounting: Multiple Choice

CHAPTER 1—INTRODUCTION TO COST ACCOUNTING
MULTIPLE CHOICE
1. Factory overhead includes:

a. Indirect labor but not indirect materials.
b. Indirect materials but not indirect labor.
c. All manufacturing costs, except indirect materials and indirect labor.
d. All manufacturing costs, except direct materials and direct labor.
ANS: D
Factory overhead includes all manufacturing costs except direct materials and direct labor.
PTS: 1 DIF: Easy REF: P. OBJ: 4

NAT: IMA 2B - Cost Management TOP: AACSB - Analytic
2. The term "prime cost" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of raw material costs and direct labor costs.
c. All costs associated with manufacturing other than direct labor costs and raw material
costs.
d. Manufacturing costs incurred to produce units of output.
ANS: B
The term "prime cost" refers to the sum of raw materials costs and direct labor costs.

3. The term "conversion costs" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of raw material costs and direct labor costs.
c. All costs associated with manufacturing other than direct labor costs.
d. Direct labor costs incurred to produce units of output.
ANS: A
The term "conversion costs" refers to the sum of direct labor costs and all factory overhead costs.

4. A typical factory overhead cost is:

a. Freight out.
b. Stationery and printing.
c. Depreciation on machinery and equipment.
d. Postage.
ANS: C
Depreciation on machinery and equipment is a factory overhead cost (i.e., it is a manufacturing cost,
but it can't be identified with specific jobs or processes), whereas the other three items are selling and
administrative expenses.
PTS: 1 DIF: Moderate REF: P. OBJ: 4

NAT: IMA 2B - Cost Management TOP: AACSB - Reflective
5. Under a job order system of cost accounting, the dollar amount of the entry to transfer inventory
from Work in Process to Finished Goods is the sum of the costs charged to all jobs:
a. In process during the period.
b. Completed and sold during the period.
c. Completed during the period.
d. Started in process during the period.
ANS: C
When jobs are completed during the period, Finished Goods is debited and Work in Process is credited
for the cost of the finished jobs.

6. Which of the following production operations would be most likely to employ a job order system
of cost accounting?
a. Candy manufacturing
b. Crude oil refining
c. Printing text books
d. Flour Milling
ANS: C
Printing would be most likely to employ a job order system of cost accounting due to the number of
custom jobs involved. The manufacture of candy, the vulcanizing of rubber, and the refining of crude
oil would normally be a continuous process of producing like goods and would be accounted for under
the process cost system.

7. In job order costing, the basic document for accumulating the cost of each order is the:
a. Job cost sheet.
b. Requisition sheet.
c. Purchase order.
d. Invoice.
ANS: A
In job order costing, the basic document to accumulate the cost of each order is the job cost sheet.

8. When should process costing techniques be used in assigning costs to products?

a. In situations where standard costing techniques should not be used
b. If the product is composed of mass-produced homogeneous units
c. When production is only partially completed during the accounting period
d. If the product is manufactured on the basis of each order received
ANS: B
Process costing techniques should be used in assigning costs to products if the product is composed of
mass-produced homogeneous units.

9. An industry that would most likely use process costing procedures is:
a. Beverage.
b. Home Construction.
c. Printing.
d. Shipbuilding.
ANS: A
Beverage production usually consists of manufacturing "long runs" of homogeneous products for
which process costing is used. The other three industries would utilize job order costing.

10. Under a job order system of cost accounting, Cost of Goods Sold is debited and Finished Goods
is credited for a:
a. Transfer of materials to the factory.
b. Shipment of completed goods to the customer.
c. Transfer of completed production to the finished goods storeroom.
d. Purchase of goods on account.
ANS: B
When completed goods are shipped to customers, Cost of Goods Sold is debited and Finished Goods is
credited.

11. Payroll is debited and Wages Payable is credited to:

a. Pay the payroll taxes.
b. Record the payroll.
c. Pay the payroll.
d. Distribute the payroll.
ANS: B
When the payroll is recorded, Payroll is debited and Wages Payable is credited. When payroll taxes
are paid, the various liability accounts are debited and Cash is credited. When the payroll is paid,
Wages Payable is debited and Cash is credited. When the payroll is distributed, Work in Process,
Factory Overhead, and Selling and Administrative Expenses are debited and Payroll is credited.

12. Selected data concerning the past fiscal year's operations (000's omitted) of the Stanley
Manufacturing Company are presented below:
INVENTORIES
Beginning Ending
Raw materials $ 90 $ 85
Work in process 50 65
Finished goods 100 90
Other data:
Raw materials used $365
Total manufacturing costs charged to production during
the year (includes raw materials, direct labor, and factory
overhead) 680
Cost of goods available for sale 765
Selling and general expenses 250
The cost of raw materials purchased during the year amounted to:
a. $455.
b. $450.
c. $365.
d. $360.
ANS: D
Add ending inventory of raw materials 85
Materials available during the year $450
Less beginning inventory of raw materials 90
Purchases of raw materials during the year $360
PTS: 1 DIF: Hard REF: P. OBJ: 4

INVENTORIES
Beginning Ending
Other data:
overhead) 680
The cost of goods manufactured during the year was:

a. $735.
b. $710.
c. $665.
d. $705.
ANS: C
Total manufacturing costs during the year $680
Add beginning work in process inventory 50
Total $730
Less ending work in process inventory - 65
Cost of goods manufactured during the year $665

INVENTORIES
Beginning Ending
Other data:
overhead) 680
The cost of goods sold during the year was:

a. $730.
b. $775.
c. $675.
d. $765.
ANS: C
Beginning finished goods inventory $100
Add cost of goods manufactured during the year ($680 + $50 - $65) 665
Total cost of goods available for sale $765
Less ending finished goods inventory 90
Cost of goods sold during the year $675

15. At a certain level of operations, per unit costs and profit are as follows: manufacturing costs, $50;
selling and administrative expenses, $10; desired profit, $20. Given this information, the mark-on
percentage to manufacturing cost used to determine selling price must have been:
a. 40 percent.
b. 60 percent.
c. 33 percent.
d. 25 percent.
ANS: B
Manufacturing cost $50
Selling and administrative expenses 10
Desired profit 20
Selling price $80
Selling price - Manufacturing costs

Manufacturing costs = Mark-on percentage
$80 - $50
= 60%
$50

16. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Supervisor's salary
c. Materials
d. Repairs and maintenance
ANS: B
A supervisor's salary would be least likely to appear on a performance report, because that person's
salary is determined by the company and is not controllable by the supervisor.

NAT: IMA 2D - Performance Measurement TOP: AACSB - Reflective
17. Which of the following items of cost would be least likely to appear on a performance report based on
responsibility accounting for the supervisor of an assembly line in a large manufacturing situation?
a. Direct labor
b. Indirect materials
c. Selling expenses
d. Repairs and maintenance
ANS: C
Selling expenses would be least likely to appear on a performance report, because the supervisor
would not have responsibility for the sales function.

18. Which of the following statements best describes a characteristic of a performance report prepared
for use by a production line department head?
a. The costs in the report should include only those controllable by the department head.
b. The report should be stated in dollars rather than in physical units so the department head
knows the financial magnitude of any variances.
c. The report should include information on all costs chargeable to the department, regardless
of their origin or control.
d. It is more important that the report be precise than timely.
ANS: A
The performance report should include only those costs controllable by the department head. It should
also be timely and should include production data as well as dollar amounts.

NAT: IMA 2D - Performance Measurement TOP: AACSB - Analytic
19. Unit cost information is important for making all of the following marketing decisions except:
a. Determining the selling price of a product.
b. Bidding on contracts.
c. Determining the amount of advertising needed to promote the product.
d. Determining the amount of profit that each product earns.
ANS: C
Unit cost information is used in determining selling price, bidding on contracts and determining
product profitability, but would not have a bearing on determining how much the product would need
to be advertised..
NAT: IMA 3B - Strategic Marketing TOP: AACSB - Analytic
20. Cost accounting differs from financial accounting in that financial accounting:
a. Is mostly concerned with external financial reporting.
b. Is mostly concerned with individual departments of the company.
c. Provides the additional information required for special reports to management.
d. Puts more emphasis on future operations.
ANS: A
Items (b) through (d) are characteristics of cost accounting, whereas Item (a) is a feature of financial
accounting.

NAT: IMA 2E - External Financial Reporting TOP: AACSB - Reflective
21. The business entity that converts purchased raw materials into finished goods by using
labor, technology, and facilities is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. Not-for-profit service agency.
ANS: A
The business entity that converts purchased raw materials into finished goods by using labor,
technology, and facilities is a manufacturer.
PTS: 1 DIF: Easy REF: P. OBJ: Introduction

NAT: IMA 4 - Business Applications TOP: AACSB - Analytic
22. The business entity that purchases finished goods for resale is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. For-profit service business.
ANS: B
The business entity that purchases finished goods for retail is a merchandiser.

23. The type of merchandiser who purchases goods from the producer and sells to stores who sell to the
consumer is a:
a. Manufacturer.
b. Retailer.
c. Wholesaler.
d. Service business.
ANS: C
The type of merchandiser that purchases goods from the producer and sells to the retailer is a
wholesaler.

24. Inventory accounts for a manufacturer include all of the following except:
a. Merchandise Inventory.
b. Finished Goods.
c. Work in Process.
d. Materials.
ANS: A
Inventory accounts for a manufacturer include Materials, Work in Process, and Finished Goods.

25. Examples of service businesses include:

a. Airlines, architects, and hair stylists.
b. Department stores, poster shops, and wholesalers.
c. Aircraft producers, home builders, and machine tool makers.
d. None of these are correct.
ANS: A
Examples of service businesses include airlines, architects, and hair stylists.
PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

NAT: IMA 4 - Business Applications TOP: AACSB - Reflective
26. In the financial statements, Materials should be categorized as:

a. Revenue.
b. Expenses.
c. Assets.
d. Liabilities.
ANS: C
Materials are included in inventory, which is an asset on the balance sheet because it has a future
benefit.

NAT: IMA 2E - External Financial Reporting TOP: AACSB - Reflective
27. Factory overhead would include:

a. Wages of office clerk.
b. Sales manager’s salary.
c. Supervisor’s salary.
d. Tax accountant’s salary.
ANS: C
The supervisor’s salary is an indirect factory cost.

28. The statement of costs of goods manufactured shows:

a. Office supplies used in accounting office.
b. Deprecation of factory building.
c. Salary of sales manager.
d. Rent paid on finished goods warehouse.
ANS: B
The factory building is a cost necessary to manufacture goods.

29. Responsibility accounting would most likely hold a manager of a manufacturing unit responsible for:
a. cost of raw materials.
b. quantity of raw materials used.
c. workers pay scale.
d. amount of taxes incurred.
ANS: B
In responsibility accounting the manager of a cost center is only responsible for those costs the
manager controls.

30. Which of the following is not a cost that is accumulated in Work in process?
a. Direct materials
b. Administrative expense
c. Direct labor
d. Factory overhead
ANS: B
Administrative expense is not a factory cost, so it would not be included in work in process.

31. Mountain Company produced 20,000 blankets in June to be sold during the holiday season. The
manufacturing costs were:
Direct materials $125,000

Direct labor 55,000
Factory overhead 60,000
Managment has decided that the mark-on percentage necessary to cover the product’s share of selling
and administrative expenses and to earn a satisfactory profit is 30%. The selling price per blanket
should be:
a. $12.00.
b. $15.60.
c. $23.60.
d. $31.20.
ANS: B
Direct labor 55,000
Total manufacturing costs $240,000
$240,000 / 20,000 units = $12.00 cost per unit
$12.00 x 30% = $3.60 + $12.00 = $15.60

32. Mountain Company produced 20,000 blankets in June to be sold during the holiday season. The
manufacturing costs were:

Direct labor 55,000
Selling expense 25,000
Administrative expense 30,000
The cost per blanket is:

a. $6.25.
b. $9.00.
c. $12.00.
d. $14.75.
ANS: C
Direct labor 55,000
Total manufacturing costs $240,000
$240,000 / 20,000 units = $12.00 cost per unit

33. A law firm wanting to track the costs of serving different clients may use a:
a. process cost system.
b. job order cost system.
c. cost control system.
d. standard cost system.
ANS: B
Professional firms use job order cost systems to track client costs.

34. A standard cost system is one:

a. that provides a separate record of cost for each special-order product.
b. that uses predetermined costs to furnish a measurement that helps management make
decisions regarding the efficiency of operations.
c. that accumulates costs for each department or process in the factory.
d. where costs are accumulated on a job cost sheet.
ANS: B
A standard cost system uses predetermined standard costs to furnish a measurement that helps
managment make decisions regarding the efficiency of operations.
35. Which of the following is most likely to be considered an indirect material in the manufacture of a
sofa?
a. Lumber
b. Glue
c. Fabric
d. Foam rubber
ANS: B
While glue would be included in the finished product, its cost would be relatively insignificant,
therefore, it would not be cost effective to trace its cost to specific products.

36. The Macke Company’s payroll summary showed the following in November:
Sales department salaries $10,000

Supervisor salaries 20,000
Assembly workers’ wages 25,000
Machine operators’ wages 35,000
Maintenance workers’ wages 15,000
Accounting department salaries 5,000
What is the amount that would be included in direct labor in November?

a. $25,000
b. $60,000
c. $95,000
d. $120,000
ANS: B
Assembly workers and machine operators would be considered direct labor.
Assembly workers’ wages $25,000
Total direct labor $60,000
The supervisors and maintenance workers would be included in overhead, while the sales and
accounting department salaries would be included in selling and administrative expense.

37. The Macke Company’s payroll summary showed the following in November:
Sales department salaries $10,000

Supervisor salaries 20,000
Accounting department salaries 5,000
What is the amount that would be included in factory overhead in November?
a. $20,000
b. $35,000
c. $95,000
d. $120,000
ANS: B
The supervisors’ salaries and maintenance workers’ wages would be inlcuded in factory overhead.
Supervisors’ salaries $20,000
Total direct labor $35,000
The wages of the assembly workers and machine operators would be included in direct labor, while the
sales and accounting department salaries would be included in selling and administrative expense.

38. According to the Institute of Management Accountants (IMA) Statement of Ethical Professional
Practice, performing professional dutes in accordance with relevant laws, regulations and
technical standards is a component of which standard?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
ANS: B
Performing technical duties in accordance with relevant laws, regulations and technical standards is a
component of the competence standard.
PTS: 1 DIF: Moderate REF: Appendix OBJ: 2

NAT: IMA 4 - Business Applications TOP: AACSB - Ethics
39. The Institute of Management Accountants (IMA) Statement of Professional Practice includes all of
the following standards except:
a. Confidentiality.
b. Commitment.
c. Integrity.
d. Competence.
ANS: B
The four IMA Professional Standards are: Competence, Confidentiality, Integrity and Credibility.
PTS: 1 DIF: Easy REF: Appendix OBJ: 2

40. According to the Institute of Management Accountants (IMA) Statement of Ethical

Professional Practice, under the Integrity Standard, each member has the responsibility to:
a. Communicate information fairly and objectively.
b. Keep information confidential.
c. Mitigate conflicts of interest.
d. Maintain an appropriate leve of professional competence.
ANS: C
Under the Integrity Standard, IMA members have the responsibility to mitigate actual conflicts of
interest and avoid apparent conflicts of interest.
PTS: 1 DIF: Moderate REF: Appendix OBJ: 2

41. Under a job cost system of accounting, the entry to distribute payroll to the appropriate accounts would
be:
a. Debit-Payroll
Credit-Wages Payable
b. Debit-Work In Process
Debit-Factory Overhead
Debit-Selling and Administrative Expense
Credit-Payroll
c. Debit-Work In Process
Debit-Finished Goods
Debit-Cost of Goods Sold
Credit-Payroll
d. Debit-Work in Process
Debit-Factory Overhead
Debit-Selling and Administrative Expense
Credit-Wages Payable
ANS: B
Payroll is credited when the amounts are distributed to the appropriate accounts. Those accounts
include Work In Process for direct labor, Factory Overhead for indirect labor and Selling and
Administrative Expense for salaries and wages incurred outside of the factory.

42. The following data were taken from Mansfield Merchandisers on January 31:
Merchandise inventory, January 1 $ 90,000
Sales salaries 35,000
Merchandise inventory, January 31 65,000
Purchases 560,000
What was the Cost of goods sold in January?

a. $585,000
b. $650,000
c. $620,000
d. $535,000
ANS: A
Merchandise Inventory, January 1 $ 90,000
Plus Purchases 560,000
Equals Cost of Goods Available for Sale $650,000
Less Merchandise Inventory, January 31 65,000
Equals Cost of Goods Sold $585,000
43. Joshua Company prepares monthly performance reports for each department. The budgeted amounts
of wages for the Finishing Department for the month of August and for the eight-month period ended
August 31 were $12,000 and $100,000, respectively. Actual wages paid through July were $91,500,
and wages for the month of August were $11,800. The month and year-to-date variances, respectively,
for wages on the August performance report would be:
a. $200 F; $8,500 F
b. $200 F; $3,300 U
c. $200 U; $3,300 U
d. $200 U; $8,500 F
ANS: B
Calculation of monthly variance:
Budgeted wages for August $12,000
Actual wages for August 11,800
Variance for August $ 200 F
Calculation of year-to-date variance:

Budgeted wages for the eight-month period ended August 31 $100,000
Actual wages for the eight-month period ended August 31 (91,500 + 11,800) 103,300
Variance for eight-month period ended August 31 $ 3,300 U

PROBLEM
1. The following data was taken from the general ledger and other records of Martinez
Manufacturing Co. at July 31, the end of the first month of operations in the current fiscal year:
Sales $50,000
Materials inventory (July 1) 15,000
Work in process inventory (July 1) 20,000
Finished goods inventory (July 1) 28,000
Materials purchased 21,000
Direct labor cost 12,500
Factory overhead (including $5,000 of indirect materials used and $2,500 of
indirect labor cost) 11,500
Selling and administrative expense 8,000
Inventories at July 31:
Materials 16,000
Work in process 18,000
Finished goods 30,000
a. Prepare a statement of cost of goods manufactured.

b. Determine the cost of goods sold for the month.
ANS:
(a)
Martinez Manufacturing Co.
Statement of Cost of Goods Manufactured
For the Month Ended July 31, 20--
Direct Materials:
Inventory, July 1 $15,000
Purchases 21,000
Total cost of available materials $36,000
Less inventory, July 31 16,000
Cost of materials used $20,000
Less indirect materials used 5,000
Cost of direct materials used in production $15,000
Direct labor 12,500
Factory overhead:
Indirect materials $ 5,000
Indirect labor 2,500
Other 4,000
Total factory overhead 11,500
Total manufacturing cost $39,000
Add work in process inventory, July 1 20,000
Total $59,000
Less work in process inventory, July 31 18,000
Cost of goods manufactured during the month $41,000
(b)
Finished goods inventory, July 1 $28,000

Add cost of goods manufactured during July 41,000
Goods available for sale $69,000
Less finished goods inventory, July 31 30,000
Cost of goods sold $39,000

2. The following data was taken from the general ledger and other records of Mrwick Manufacturing
Co. at January31, the end of the first month of operations in the current fiscal year:
Sales $650,000
Inventories at January 31:
Materials inventory 20,000
Work in process inventory 32,000
Finished goods inventory 54,000
Inventories at January 1:
Materials 25,000
Work in process 29,000
Finished goods 48,000
Materials purchased 154,000
Labor Costs:
Supervisors’ salaries 30,000
Sales personnel salaries 52,000
Depreciation:
Factory building 73,000
Sales office 28,000
Indirect materials used 3,000
Factory utilities 67,000
a. Prepare a statement of cost of goods manufactured.

b. Determine the cost of goods sold for the month.
ANS:
(a)
Marwick Manufacturing Co.

Statement of Cost of Goods Manufactured
For the Month Ended January 31, 20--
Direct Materials:
Inventory, January 1 $25,000
Purchases 154,000
Total cost of available materials $179,000
Less inventory, July 31 20,000
Cost of materials used $159,000
Less indirect materials used 3,000
Cost of direct materials used in production $156,000
Direct labor 185,000
Factory overhead:
Indirect materials $ 3,000
Indirect labor (Supervisors) 30,000
Depreciation 73,000
Utilities 67,000
Total factory overhead 173,000
Total manufacturing cost $514,000
Add work in process inventory, January 1 29,000
Total $543,000
Less work in process inventory, January 31 32,000
Cost of goods manufactured during the month $511,000
(b)
Finished goods inventory, January 1 $48,000

Add cost of goods manufactured during July 511,000
Goods available for sale $559,000
Less finished goods inventory, January 31 54,000
Cost of goods sold $505,000

3. Following is a list of costs incurred by the Sitka Products Co. during the month of June:
Direct materials used $12,000 Expired insurance $3,000

Indirect materials used 3,000 Utilities 800
Direct labor employed 20,000 Repairs 700
Indirect labor employed 4,500 Depreciation expense
Selling expenses 6,000 --Machinery and equipment 1,200
Prepare the journal entries necessary to record the issuance of materials, the distribution of labor cost,
the recording of factory overhead, and the entry transferring Factory Overhead to Work in Process.
ANS:
Work in Process (Direct Materials) 12,000

Factory Overhead (Indirect Materials) 3,000
Materials 15,000
Work in Process (Direct Labor) 20,000

Factory Overhead (Indirect Labor) 4,500
Payroll 24,500
Factory Overhead 5,700

Prepaid Insurance 3,000
Accounts Payable (Utilities) 800
Accounts Payable (Repairs) 700
Accumulated Depreciation (Machinery and Equipment) 1,200
Work in Process 13,200


4. The Shawshank Manufacturing Co. uses a job order cost system of accounting. The following
information was taken from the books of the company after all posting had been completed at the
end of January:
Jobs Direct Direct Factory Units

Completed Materials Cost Labor Cost Overhead Completed
101 $1,800 $2,000 $1,000 200
102 1,235 1,250 890 150
104 900 850 350 100
a. Prepare the journal entries to allocate the costs of materials, labor, and factory
overhead to each job and to transfer the costs of jobs completed to Finished Goods.
b. Compute the total production cost of each job.
c. Compute the unit cost of each job.
d. Compute the selling price per unit for each job, assuming a mark-on percentage of 40
percent.
ANS:
(a)
Work in Process--Job 101 1,800

Work in Process--Job 104 900
Materials 3,935
Payroll 4,100
Finished Goods 10,275
(b)
Total
Jobs Direct Direct Factory Production
Completed Materials Cost Labor Cost Overhead Cost
101 $1,800 $2,000 $1,000 $4,800
102 1,235 1,250 890 3,375
104 900 850 350 2,100
Total $3,935 $4,100 $2,240 $10,275
(c)
Unit Cost:
Job 101 ($4,800 / 200) $24.00
Job 102 ($3,375 / 150) $22.50
Job 104 ($2,100 / 100) $21.00
(d)
Selling Price Per Unit:

Job 101 ($24.00  40%) + $24.00 $33.60
Job 102 ($22.50  40%) + $22.50 $31.50
Job 104 ($21.00  40%) + $21.00 $29.40

5. Custom Cabinets Inc. manufactures goods on a job order basis. During the month of November, three
jobs were started. (There was no work in process at the beginning of the month.) Jobs 401 and 402
were completed and sold for $14,500 and $19,000, respectively, during the month; Job 403 was still in
process at the end of November.
The following data are taken from the job cost sheets for each job. Factory overhead charges include a
total of $900 of indirect materials and $600 of indirect labor. One work in process control account is
used.
Job 401 Job 402 Job 403

Direct materials $3,200 $3,800 $2,000
Direct labor 2,400 3,500 1,500
Factory overhead 1,250 2,000 850
Prepare a journal entry to record each of the following:

a. Materials used
b. Factory wages and salaries earned
c. Factory Overhead transferred to Work in Process
d. Jobs completed
e. Jobs sold
ANS:
(a)
Work in Process (3,200 + 3,800 + 2,000) 9,000

Factory Overhead 900
Materials 9,900
(b)
Work in Process (2,400 + 3,500 + 1,500) 7,400

Factory Overhead 600
Payroll 8,000
(c)
Work in Process (1,250 + 2,000 + 850) 4,100

(d)

Work in Process* 16,150
* Jobs completed:
401 (3,200 + 2,400 + 1,250) $ 6,850
402 (3,800 + 3,500 + 2,000) 9,300
Total $16,150
(e)
Cost of Goods Sold 16,150

Accounts Receivable (14,500 + 19,000) 33,500
Sales 33,500

6. The following inventory data relate to the Reta Company:
INVENTORIES
Beginning Ending
Finished goods $80,000 $100,000
Work in process 65,000 70,000
Direct materials 60,000 64,000
Revenues and costs for the period:
Sales $740,000
Cost of goods available for sale 650,000
Total manufacturing costs 575,000
Direct materials used 164,000
Selling and administrative expenses 51,000
Compute the following for the year:

a. Direct materials purchased
b. Direct labor costs incurred
c. Cost of goods sold
d. Gross profit
ANS:
(a)
Direct materials used during the period $164,000

Add inventory of direct materials at the end of the period 64,000
Direct materials available during the period $228,000
Less inventory of direct materials at the beginning of the period 60,000
Direct materials purchased during the period $168,000
(b)
Total manufacturing costs incurred during the period $575,000

Less: Direct materials used $164,000
Factory overhead incurred 154,000 318,000
Direct labor costs incurred during the period $257,000
(c)
Cost of goods available for sale $650,000

Less finished goods inventory at the end of the period 100,000
Cost of goods sold during the period $550,000
(d)
Sales $740,000
Cost of goods sold 550,000
Gross profit $190,000
PTS: 1 DIF: Moderate REF: P. OBJ: 4,5

7. Campus Carriers Co. manufactures and sells backpacks to college students. Campus Carriers operates
a factory in Small Town and two stores in College Town and University City. Classify the following
costs incurred by Campus Carriers as Direct Materials, Direct Labor, Factory Overhead or Selling and
Administrative Expense.
a. Rent paid to lease the store in College Town.
b. Canvas fabric.
c. Wages paid to students distributing advertising fliers in University City.
d. Sewing machine operator’s wages.

e. Building depreciation on the factory building.
f. Thread.
g. The cost of transporting the backpacks from the factory in Small Town to the
Univeristy City store.
h. Depreciation of the racks and shelves at the College Town Store.
i. Factory manager’s salary.
j. Security guard at the factory.
k. Store manager’s salary.
l. Electricity to power sewing machines.
m. Electricity to light the College Town store.
ANS:
a. Selling and administrative expense would include costs related to stores.
b. Direct material - canvas would be used to make back packs.
c. Selling and administrative expense would include advertising.
d. Direct labor - sewing machine operators are “touch” labor.
e. Factory overhead - depreciation is a factory expense that cannot be traced directly to the
products.
f. Factory overhead. While thread is included in the final product, the cost is
insignificant and would be acccounted for as an indirect cost.
g. Selling and administrative expense. Transportation is incurred outside of the factory.
h. Selling and administrative expense would include costs relating to the stores.
i. Factory overhead - the factory manager’s salary is a factory cost that cannot be traced directly
to products.
j. Factory overhead - the security guard’s salary is a factory cost that cannot be traced directly to
products.
k. Selling and administrative expense would include all costs related to the stores.
l. Factory overhead - electricity to run the machines is a factory cost that cannot be traced
directly to products..
m. Selling and administrative expense would include all costs related to the stores.

8. The following data were taken from Middeltown Merchandisers on July 31, for the first month of
its fiscal year:
Merchandise Inventory, July 31 $ 25,000
Purchases 735,000
Cost of Goods Sold 750,000
Compute the inventory at July 1. ANS:
Cost of Goods Sold $750,000

Plus Merchandise Inventory, July 31 25,000
Equals Cost of Goods Available for Sale $775,000
Less Purchases 735,000
Equals Merchandise Inventory, July 1 $ 40,000

9. Prepare a performance report showing both month and year-to-date data for County Hospital’s
Radiology Department for February, 2008 using the following data:
January February
Budgeted Data:
Technicians’ wages $6,200 $5,600
Film 3,200 3,000
Depreciation 2,000 2,000
Utilities 1,500 1,400
Actual Data:
Technicians’ wages $6,120 $5,650
Film 3,300 3,180
Depreciation 2,000 2,000
Utilities 1,580 1,390
ANS:
County Hospital Radiology Department

Performance Report
For Period Ended February 28, 2008
Expense Budget Actual Variance

Year-to- Year-to- Year-to-
February Date February Date February Date
Technicians’ wages $ 5,600 $11,800 $ 5,650 $11,700 $ 50 U $ 30 F
Film 3,000 6,200 3,180 6,480 180 U 280 U
Depreciation 2,000 4,000 2,000 4,000 -- --
Utilities 1,400 2,900 1,390 2,970 10 F 70 U
Total $12,000 $24,900 $12,220 $25,220 $ 220 U $ 320 U


Chapter 1-Introduction To Cost Accounting: Multiple Choice

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Chapter 1-Introduction To Cost Accounting: Multiple Choice

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CHAPTER 1—INTRODUCTION TO COST ACCOUNTING

1. Factory overhead includes:

PTS: 1 DIF: Easy REF: P. OBJ: 4

2. The term "prime cost" refers to:

PTS: 1 DIF: Easy REF: P. OBJ: 4

3. The term "conversion costs" refers to:

PTS: 1 DIF: Easy REF: P. OBJ: 4

4. A typical factory overhead cost is:

PTS: 1 DIF: Moderate REF: P. OBJ: 4

PTS: 1 DIF: Moderate REF: P. OBJ: 7

PTS: 1 DIF: Moderate REF: P. OBJ: 6

PTS: 1 DIF: Easy REF: P. OBJ: 7

8. When should process costing techniques be used in assigning costs to products?

PTS: 1 DIF: Easy REF: P. OBJ: 6

PTS: 1 DIF: Moderate REF: P. OBJ: 6

PTS: 1 DIF: Moderate REF: P. OBJ: 7

11. Payroll is debited and Wages Payable is credited to:

PTS: 1 DIF: Moderate REF: P. OBJ: 5

PTS: 1 DIF: Hard REF: P. OBJ: 4

The cost of goods manufactured during the year was:

PTS: 1 DIF: Moderate REF: P. OBJ: 4

The cost of goods sold during the year was:

PTS: 1 DIF: Hard REF: P. OBJ: 3

Selling price - Manufacturing costs

PTS: 1 DIF: Hard REF: P. OBJ: 5

PTS: 1 DIF: Hard REF: P. OBJ: 1

PTS: 1 DIF: Moderate REF: P. OBJ: 1

PTS: 1 DIF: Easy REF: P. OBJ: 1

PTS: 1 DIF: Moderate REF: P. OBJ: 3

PTS: 1 DIF: Easy REF: P. OBJ: Introduction

PTS: 1 DIF: Easy REF: P. OBJ: Introduction

PTS: 1 DIF: Easy REF: P. OBJ: Introduction

PTS: 1 DIF: Easy REF: P. OBJ: 3

25. Examples of service businesses include:

PTS: 1 DIF: Moderate REF: P. OBJ: Introduction

26. In the financial statements, Materials should be categorized as:

PTS: 1 DIF: Moderate REF: P. OBJ: 3

27. Factory overhead would include:

PTS: 1 DIF: Moderate REF: P. OBJ: 4

28. The statement of costs of goods manufactured shows:

PTS: 1 DIF: Hard REF: P. OBJ: 3

PTS: 1 DIF: Moderate REF: P. OBJ: 1

PTS: 1 DIF: Moderate REF: P. OBJ: 5

Direct materials $125,000

PTS: 1 DIF: Moderate REF: P. OBJ: 5

Direct materials $125,000

The cost per blanket is:

$240,000 / 20,000 units = $12.00 cost per unit

PTS: 1 DIF: Moderate REF: P. OBJ: 5

PTS: 1 DIF: Moderate REF: P. OBJ: 6

34. A standard cost system is one:

PTS: 1 DIF: Moderate REF: P. OBJ: 4

Sales department salaries $10,000

What is the amount that would be included in direct labor in November?

PTS: 1 DIF: Moderate REF: P. OBJ: 4

Sales department salaries $10,000

PTS: 1 DIF: Moderate REF: P. OBJ: 4

PTS: 1 DIF: Moderate REF: Appendix OBJ: 2

PTS: 1 DIF: Easy REF: Appendix OBJ: 2