Chapter 1 Continue

1) The income statement of a manufacturing firm reports:

A) period costs only
B) inventoriable costs only
C) both period and inventoriable costs
D) period and inventoriable costs but at different times; the reporting varies
Answer: C

2) The income statement of a service-sector firm reports:

A) period costs only
B) inventoriable costs only
C) both period and inventoriable costs
D) period and inventoriable costs but at different times; the reporting varies
Answer: A

3) Costs that are initially recorded as assets and expensed when sold are called:
A) period costs
B) inventoriable costs
C) variable costs
D) fixed costs
Answer: B

4) Period costs:
A) are treated as expenses in the period they are incurred
B) are directly traceable to products
C) include direct labor
D) are also referred to as manufacturing overhead costs
Answer: A

5) Prime costs include:

A) direct materials and direct manufacturing labor costs
B) direct manufacturing labor and manufacturing overhead costs
C) direct materials and manufacturing overhead costs
D) only direct materials
Answer: A

6) Conversion costs include:

A) direct materials and direct manufacturing labor costs
B) direct manufacturing labor and manufacturing overhead costs
C) direct materials and manufacturing overhead costs
D) only direct materials
Answer: B

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7) Total manufacturing costs equal:
A) direct materials + prime costs
B) direct materials + conversion costs
C) direct manufacturing labor costs + prime costs
D) direct manufacturing labor costs + conversion costs
Answer: B

8) Which of the following formulas determine cost of goods sold in a manufacturing entity?
A) Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-
process inventory = Cost of goods sold
B) Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-
process inventory = Cost of goods sold
C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods
inventory = Cost of goods sold
D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods
inventory = Cost of goods sold
Answer: D

The following information pertains to the Cannady Corporation:

Beginning work-in-process inventory $ 50,000

Ending work-in-process inventory 48,000
Beginning finished goods inventory 180,000
Ending finished goods inventory 195,000
Cost of goods manufactured 1,220,000

9)What is cost of goods sold?

A) $1,235,000
B) $1,205,000
C) $1,218,000
D) $1,222,000
Answer: B
Explanation: B) $180,000 + $1,220,000 - $195,000 = $1,205,000
Answer the following questions using the information below:

Beginning finished goods, 1/1/2020 $ 80,000

Ending finished goods, 12/31/2020 67,000
Cost of goods sold 270,000
Sales revenue 500,000
Operating expenses 145,000

10) What is cost of goods manufactured for 2020?

A) $230,000
B) $257,000
C) $283,000
D) $355,000
Answer: B
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Explanation: B) $270,000 + $67,000 - $80,000 = $257,000

11) What is gross profit for 2020?

A) $283,000
B) $355,000
C) $230,000
D) $257,000
Answer: C
Explanation: C) $500,000 - $270,000 = $230,000

12) What is operating income for 2020?

A) $85,000
B) $112,000
C) $62,000
D) $230,000
Answer: A
Explanation: A) $500,000 - $270,000 - $145,000 = $85,000

The West Company manufactures several different products. Unit costs associated with Product
ORD203 are as follows:
Direct materials $ 40
Direct manufacturing labor 8
Variable manufacturing overhead 12
Fixed manufacturing overhead 23
Sales commissions (2% of sales) 6
Administrative salaries 9
Total $98

13) What are the variable costs per unit associated with Product ORD203?
A) $60
B) $83
C) $66
D) $48
Answer: C
Explanation: C) $40 + $8 + $12 + $6 = $66

14) What are the fixed costs per unit associated with Product ORD203?
A) $23
B) $32
C) $35
D) $44
Answer: B

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15) What are the inventoriable costs per unit associated with Product ORD203?
A) $60
B) $66
C) $48
D) $83
Answer: D
Explanation: D) $40 + $8 + $12 + $23 = $83

16) What are the period costs per unit associated with Product ORD203?
A) $15
B) $6
C) $9
D) $27
Answer: A
Explanation: A) $6 + 9 = $15

17) For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of
$108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000.
Operating income for that year was:
A) $319,000
B) $312,000
C) $249,000
D) $242,000
Answer: D
Explanation: D) $420,000 - $108,000 - $70,000 = $242,000

18) For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of
$108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Gross
margin for last year was:
A) $319,000
B) $312,000
C) $249,000
D) $242,000
Answer: B
Explanation: B) $420,000 - $108,000 = $312,000

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19) Springfield Manufacturing produces electronic storage devices, and uses the following three-
part classification for its manufacturing costs: direct materials, direct manufacturing labor, and
indirect manufacturing costs. Total indirect manufacturing costs for January were $300 million,
and were allocated to each product on the basis of direct manufacturing labor costs of each line.
Summary data (in millions) for January for the most popular electronic storage device, the Big
Bertha, was:

Big Bertha
Direct manufacturing costs $9,000,000 Required:
Direct manufacturing labor costs $3,000,000
Indirect manufacturing costs $8,500,000 a.Compute the manufacturing cost per unit for
Units produced 40,000 each product produced in January.

b. Suppose production will be reduced to 30,000 units in February. Speculate as to whether the
unit costs in February will most likely be higher or lower than unit costs in January; it is not
necessary to calculate the exact February unit cost. Briefly explain your reasoning.

Answer: a. Unit costs for January were:

($9,000,000 + $3,000,000 + $8,500,000) / 40,000 = $512.50 per unit

b. Unit costs should be higher in February if only 30,000 units are to be produced. Indirect
manufacturing costs most likely include both fixed and variable components. Since fewer units
are expected to be produced in February, total fixed costs will be spread over fewer units. This
will result in an increase in total cost per unit since variable costs per unit will most likely not
change with the decreased production.

20) During 2009, Favata Corporation incurred manufacturing expenses of $20,000,000 to

produce 400,000 finished units. At year-end, it was determined that 370,000 units were sold
while 30,000 units remained in ending inventory.
Required:

a. What is the cost of producing one unit?

b. What is the amount that will be reported on the income statement for cost of goods sold?
c. What is the amount that will be reported on the balance sheet for ending inventory?
Answer: a. $20,000,000 / 400,000 = $50.00
b. 370,000 units × $50 = $18,500,000
c. 30,000 units × $50 = $1,500,000