Deck 10: An Introduction to Management Accounting

Question 1

Period costs are initially recorded in asset accounts and are later expensed in the period when the related units are sold.

Answer 1

False

Question 2

Product costs flow from the balance sheet to the income statement.

Answer 2

True

Question 3

During its first year of operations, a company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. The company's ending finished goods inventory was $300.

Answer 3

False

Question 4

For a manufacturing company, both direct labor costs and indirect labor costs are classified as product costs.

Question 5

Managerial accounting is designed to satisfy needs of external users including creditors, investors, and governmental agencies.

Question 6

Most internal users of accounting information need primarily global information that reflects the performance of the company as a whole.

Question 7

Senior executives focus on financial data when comparing the performance of their companies to that of competitors.

Question 8

Costs that are not classified as product costs are normally expensed in the period incurred.

Question 9

Depreciation on manufacturing equipment is an indirect product cost, while depreciation on office equipment is a period cost.

Question 10

Distinguishing between product and period costs is sometimes guided by the value-added principle

Question 11

Product costs are immediately recorded in expense accounts when the products are manufactured.

Question 12

Product costs include materials, labor, and selling and administrative costs.

Question 13

The biggest challenge in computing the total cost per unit of a product is determining the amount of overhead cost that should be assigned to each unit.

Question 14

Cash paid to production workers should be recorded as Wages Expense in the income statement for the period incurred.

Question 15

A company uses sandpaper to prepare its product for finishing. Most manufacturers would classify the sandpaper as direct material because it is physically consumed in the production process.

Question 16

Average costs are used for internal decision-making, but actual costs are required for calculating cost of goods sold.

Question 17

Managerial accounting focuses primarily on the performance of the company as a whole.

Question 18

During its first year of operations, a company that incurred $1,500 in production costs reported cost of goods sold of $890 and selling costs of $190. The company's ending finished goods inventory was $610.

Question 19

Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes.

Question 20

Unlike direct material and direct labor costs, overhead costs must be allocated to products.

Question 21

Cost of goods sold must be determined prior to computing cost of goods manufactured.

Question 22

A just-in-time system can lower inventory holding costs and increase customer satisfaction.

Question 23

Costs associated with holding inventory include hidden costs, such as low employee motivation.

Question 24

The primary difference between manufacturing companies and service companies is that the products provided by service companies are consumed immediately.

Question 25

All costs incurred prior to delivery of the product to the customer are referred to as upstream costs.

Question 26

A manufacturing business paid $3,000 to purchase inventory. As a result, assets would increase by $3,000.

Question 27

Unlike manufacturers, service companies do not have an inventory of products.

Question 28

A merchandising business paid $2,100 to purchase inventory and $150 to have the inventory delivered to its customers. Its product costs were $2,250.

Question 29

A merchandising business paid $2,500 to purchase inventory and $50 to have the inventory delivered to its customers. Its product costs were $2,550.

Question 30

Transportation costs incurred to transfer products to customers are downstream costs.

Question 31

The objective of a just-in-time inventory system is to totally eliminate all inventories.

Question 32

Karen is a Certified Management Accountant and is bound by the IMA's Standards of Ethical Conduct. Karen works as an accountant for Sam Pharmaceuticals. Karen's friend is the CEO of another pharmaceutical company and has asked Karen to share private accounting information. If Karen agrees to help her friend, she will violate the confidentiality standard.

Question 33

Information about all three manufacturing inventory accounts is required to prepare the cost of goods manufactured and sold schedule.

Question 34

Just-in-time systems can be used by both manufacturing and merchandising companies.

Question 35

The four Standards of Ethical Conduct for Management Accountants relate to competence, confidentiality, integrity, and credibility.

Question 36

A potential negative effect of using a just-in-time inventory system is the immediate impact of labor strikes on the transportation system such as railroad.

Question 37

Karen is a Certified Management Accountant and is bound by the IMA's Standards of Ethical Conduct. Her superior has asked her to try to influence the firm's outside auditors with expensive gifts and favors. If Karen complies, she will violate the competence standard.

Question 38

The philosophy of encouraging workers to achieve zero defects and high customer satisfaction is known as total quality management.

Question 39

At the end of the period, the balance remaining in work in process is reported on the balance sheet.

Question 40

Product costs are reported on the income statement above gross margin.

Question 41

The sequence of activities through which an organization provides products to its customers is called a supply chain.

Question 42

For a manufacturing company, product costs include all of the following except:

A) indirect material costs.
B) warehousing costs of finished goods.
C) direct labor costs.
D) All of these are product costs.

Question 43

Which of the following costs should be recorded as an expense in the period incurred?

A) Salary of administrative employee
B) Depreciation of manufacturing equipment
C) Insurance for the factory building
D) All of these are expenses.

Question 44

Select the correct statement regarding managerial and financial accounting.

A) Users of managerial accounting information desire greater aggregation than do users of financial accounting information.
B) Both managerial and financial accounting use economic and physical data in addition to financial data.
C) Financial accounting is more highly regulated than managerial accounting.
D) Timeliness is more important in financial accounting than in managerial accounting.

Question 45

During its first year of operations, Connor Company paid $49,990 for direct materials and $19,700 in wages for production workers. Lease payments and utilities on the production facilities amounted to $8,700. General, selling, and administrative expenses were $9,700. The company produced 6,700 units and sold 5,700 units for $16.70 a unit. The average cost to produce one unit is which of the following amounts?

A) $10.30
B) $13.75
C) $13.15
D) $11.70

Question 46

During its first year of operations, Connor Company paid $50,000 for direct materials and $36,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $14,000. General, selling, and administrative expenses were $16,000. The company produced 5,000 units and sold 4,000 units for $30.00 a unit. The average cost to produce one unit is which of the following amounts?

A) $20.00
B) $16.00
C) $18.40
D) $25.00

Question 47

Select the incorrect statement regarding costs and expenses.

A) Some costs are initially recorded as expenses while others are initially recorded as assets.
B) Expenses are incurred when assets are used to generate revenue.
C) Manufacturing-related costs are initially recorded as expenses.
D) Non-manufacturing costs should be expensed in the period in which they are incurred.

Question 48

Which of the following costs should not be recorded as an expense in the period incurred?

A) Insurance on factory building
B) Sales commissions
C) Product shipping costs
D) Product advertising

Question 49

Which of the following costs is not considered a period cost?

A) Warehousing costs
B) Depreciation of delivery vehicles
C) Salaries paid to company executives
D) Freight paid on a purchase of raw materials

Question 50

Why do accountants normally calculate cost per unit as an average?

A) Determining the exact cost of a product is virtually impossible.
B) Minute details such as a second of labor time cannot be effectively measured.
C) Even when producing multiple units of the same product, normal variations occur in the amount of materials and labor used.
D) All of these are justifications for computing average unit costs.

Question 51

Which of the following is a product cost for a construction company?

A) Cost of transporting raw materials to the job site
B) Wages paid to the company's payroll clerk
C) Rent of the company's main office
D) All of these.

Question 52

All of the following are features of managerial accounting except:

A) information is provided primarily to insiders such as managers.
B) information includes economic and non-financial data as well as financial data.
C) information is characterized by objectivity, reliability, consistency, and accuracy.
D) information is reported continuously with a present or future orientation.

Question 53

Managerial accounting information is limited or restricted by which of the following authorities or principles?

A) Securities and Exchange Commission
B) Generally Accepted Accounting Principles
C) Managerial Accounting Standards Board
D) Value-Added Principle

Question 54

Which of the following costs would be classified as a direct cost for a company that produces motorcycles?

A) Rent of manufacturing facility that produces motorcycles.
B) Seats used in the motorcycles.
C) Wages of motorcycle assembly workers.
D) Both seats used in the motorcycles and wages of motorcycle assembly workers are correct.

Question 55

An ongoing process through which employees strive to eliminate waste, reduce response time, minimize defects, and simplify the design and delivery of products and services to customers is known as benchmarking.

Question 56

Which of the following most exemplifies the value-added principle?

A) An ongoing process where continuous improvement is the goal.
B) A competitive management program that emphasizes quality.
C) Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost.
D) Managerial accounting information is measured in economic, physical, and financial terms.

Question 57

Select the incorrect statement regarding the relationship between type of user and type of information.

A) Middle managers need more nonfinancial, or operational data than do senior executives.
B) Lower level employees use nonfinancial information such as work schedules, store hours, and customer service policies.
C) Senior executives need less aggregated information than do lower-level managers.
D) Senior executives use general economic information as well as financial information.

Question 58

During its first year of operations, Forrest Company paid $47,290 for direct materials and $50,700 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $14,300. General, selling, and administrative expenses were $20,700. The average cost to produce one unit was $5.70. How many units were produced during the period?

A) 20,823
B) 19,700
C) 23,332
D) None of these.

Question 59

Choose the answer that is not a distinguishing characteristic of financial accounting information.

A) It is global information that reflects the performance of the whole company.
B) It is focused primarily on the future.
C) It is more concerned with financial data than physical or economic data.
D) It is more highly regulated than managerial accounting information.

Question 60

During its first year of operations, Forrest Company paid $30,000 for direct materials and $50,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $15,000. General, selling, and administrative expenses were $20,000. The average cost to produce one unit was $2.50. How many units were produced during the period?

A) 40,000
B) 46,000
C) 38,000
D) None of these.

Question 61

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.What is Silverman's cost of goods sold for the year?

A) $50,000
B) $24,600
C) $30,000
D) $41,000

Question 62

Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?

A) Product costs associated with unsold units appear on the income statement as general expenses.
B) General, selling, and administrative costs appear on the balance sheet.
C) Product costs associated with units sold appear on the income statement as cost of goods sold.
D) None of these are true.

Question 63

During its first year of operations, Silverman Company paid $10,000 for direct materials and $11,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $10,500 while general, selling, and administrative expenses totaled $3,000. The company produced 8,000 units and sold 5,000 units at a price of $6.50 a unit. What is the amount of gross margin for the first year?

A) $12,000
B) $11,000
C) $32,500
D) $12,500

Question 64

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,500 units of Product A requiring a total of 300 machine hours and 2,500 units of Product B requiring a total of 75 machine hours. What allocation rate should be used if the company incurs overhead costs of $16,875?

A) $45 per machine hour
B) $2.81 per machine hour
C) $2.81 per unit
D) $45 per unit

Question 65

During its first year of operations, Silverman Company paid $15,085 for direct materials and $10,200 for production workers' wages. Lease payments and utilities on the production facilities amounted to $9,200 while general, selling, and administrative expenses totaled $4,700. The company produced 6,050 units and sold 3,700 units at a price of $8.20 a unit.What was Silverman's net income for the first year in operation?

A) $4,550
B) $25,640
C) $5,055
D) $21,140

Question 66

Which of the following is not classified as manufacturing overhead?

A) Product delivery costs
B) Salary of factory supervisor
C) Factory insurance
D) Production supplies

Question 67

During its first year of operations, Silverman Company paid $11,625 for direct materials and $11,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $10,000 while general, selling, and administrative expenses totaled $3,500. The company produced 7,250 units and sold 4,500 units at a price of $7.00 a unit. What is the amount of finished goods inventory on the balance sheet at year-end?

A) $2,750
B) $12,375
C) $11,250
D) $6,188

Question 68

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.What was Silverman's net income for the first year in operation?

A) $7,000
B) $12,000
C) $28,000
D) $37,000

Question 69

What is the effect on the balance sheet of recording a $200 cash purchase of raw materials?

A) Assets decrease by $200 and stockholders' equity decreases by $200.
B) Assets and stockholders' equity do not change.
C) Assets increase by $200 and stockholders' equity increases by $200.
D) Assets increase by $200 and stockholders' equity does not change.

Question 70

Which of the following transactions would cause net income for the period to decrease?

A) Paid $2,500 cash for raw material cost
B) Purchased $8,000 of merchandise inventory
C) Recorded $5,000 of depreciation on production equipment
D) Used $2,000 of office supplies

Question 71

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.What is the amount of finished goods inventory on the balance sheet at year-end?

A) $10,000
B) $20,000
C) $4,000
D) $15,000

Question 72

During its first year of operations, Silverman Company paid $13,840 for direct materials and $10,100 for production workers' wages. Lease payments and utilities on the production facilities amounted to $9,100 while general, selling, and administrative expenses totaled $4,600. The company produced 5,900 units and sold 3,600 units at a price of $8.10 a unit. What is Silverman's cost of goods sold for the year?

A) $20,160
B) $33,040
C) $28,540
D) $17,414

Question 73

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,300 units of Product A requiring a total of 830 labor hours and 2,800 units of Product B requiring a total of 230 labor hours. What allocation rate should be used if the company incurs overhead costs of $24,380?

A) $23 per labor hour
B) $3.01 per unit
C) $29.37 per labor hour for Product A and $106 per labor hour for Product B
D) None of these.

Question 74

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000?

A) $10 per labor hour
B) $2.67 per unit
C) $12.50 per labor hour for Product A and $50 per labor hour for Product B
D) None of these

Question 75

Which of the following statements concerning product costs versus general, selling, and administrative costs is false?

A) Product costs incurred during the period will initially appear as inventory on the balance sheet.
B) General, selling, and administrative costs are always expensed when paid.
C) Product costs may be divided between the balance sheet and income statement.
D) General, selling, and administrative costs never appear as inventory on the balance sheet.

Question 76

Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner include:

A) depreciation on production equipment.
B) direct material.
C) indirect labor.
D) both depreciation on production equipment and indirect labor.

Question 77

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.What is the amount of gross margin for the first year?

A) $15,000
B) $24,000
C) $20,000
D) $45,000

Question 78

Which of the following types of labor costs will never flow through the inventory account?

A) Plant supervision
B) Sales commissions
C) Material handling
D) Assembly labor

Question 79

Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

A) $2 per unit
B) $2 per machine hour
C) $80 per unit
D) $80 per machine hour

Question 80

What is the effect on the balance sheet of making cash sales of inventory to customers for profit?

A) Assets and stockholders' equity increase.
B) Assets and stockholders' equity decrease.
C) Assets decrease and stockholders' equity increases.
D) Assets increase and stockholders' equity decreases.