Deck 2: Measuring Product Costs

Question 1

A company manager intentionally commits fraud by overstating the ending balance of inventory in order to improve his current period's performance evaluation and resulting bonus.Which of the following statements is true?

A)All accounting frauds do not require repeated misrepresentation period after period and the overstatement of income in one period does not cause a lower income in a subsequent period.
B)All accounting frauds do not require repeated misrepresentation period after period and the manager will most likely escape detection if internal controls are poor.
C)All accounting frauds require repeated misrepresentation period after period or else the overstatement of income in one period causes a lower income in a subsequent period.
D)According to Generally Accepted Auditing Standards,the independent auditors must report all accounting frauds,regardless of amount,directly to the Securities and Exchange Commission within 3 days of discovery.

Answer 1

C

Question 2

Which of the following statements is true concerning a normalized overhead rate?

A)A normalized overhead rate should be used whenever the firm does not prepare a master budget.
B)A normalized overhead rate is employed so that wide fluctuations and variations in the level of production will not influence unit costs.
C)A normalized overhead rate is used by firms that have a normal production schedule.
D)A normalized overhead rate results in distorting the income figures of the firm.

Answer 2

B

Question 3

In recording costs by departments,the accounting system has served its functions of providing data for department performance evaluation,and also assigns costs to products for managerial decision making,such as

A)evaluating a product's quality.
B)evaluating a product's profitability.
C)evaluating a product's integrity.
D)evaluating a product's effectiveness.

Answer 3

B

Question 4

Which of the following statements is true if a company overstates the ending balance of inventory?

A)Cost of Goods Sold and profits will be overstated and Gross Margin will be understated.
B)Cost of Goods Sold,Gross Margin,and profits will be understated.
C)Cost of Goods Sold,Gross Margin,and profits will be overstated.
D)Cost of Goods Sold will be understated,Gross Margin and profits will be overstated.

Question 5

Your supervisor at a consulting firm asks you to allocate the time you actually spent on jobs now in danger of exceeding their cost estimates to other jobs less likely to overrun cost estimates.Which of the following statements is true?

A)This practice misleads managers who rely on accurate cost information for pricing,cost control,and other decisions.
B)This practice cheats people who may be paying for a job on a cost-plus-fee basis,where the job has cost less than the producer claims.
C)This practice avoids the appearance of cost overruns on some jobs and is unethical.
D)All of the answers are correct.

Question 6

Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little league baseball bats,hires workers to convert the materials to customized finished baseball bats,and then offers the customized baseball bats for sale to little league teams and the general public.
Refer to Little League Baseball Manufacturer.
Manufacturing costs,such as the wages for janitorial staff to sweep and mop the floors,that are not easily traced to a specific customized baseball bat fall into which of the following categories?

A)direct material costs.
B)direct labor costs.
C)manufacturing overhead costs.
D)opportunity costs.

Question 7

In a service organization,accounting charges overhead to jobs based on hours worked on the job.Actual overhead incurred is $15,000.Actual hours worked for client A is 200 hours,for client B is 100 hours,and unbillable is 100 hours.Calculate the overhead rate.

A)$30 per hour.
B)$40 per hour.
C)$50 per hour.
D)$60 per hour.

Question 8

Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little league baseball bats,hires workers to convert the materials to customized finished baseball bats,and then offers the customized baseball bats for sale to little league teams and the general public.
Refer to Little League Baseball Manufacturer.
Manufacturing costs such as cleaning supplies which are not easily traced to a specific customized baseball bat fall into which of the following categories?

A)direct material costs.
B)direct labor costs.
C)manufacturing overhead costs.
D)opportunity costs.

Question 9

The Work-in-Process account both describes the transformation of inputs into outputs in a company and accounts for the costs incurred in the process.The key equation in symbols is

A)BB + TI = TO + EB.
B)EB + TI = TO + BB.
C)BB + TO = TI + EB.
D)None of the answers is correct.

Question 10

Normal costing uses actual direct material and direct labor costs,plus an amount representing "normal"

A)manufacturing overhead.
B)indirect overhead.
C)direct overhead.
D)selling commissions.

Question 11

Under normal costing,the Predetermined Manufacturing Overhead Rate equals

A)Actual Manufacturing Overhead divided by the Actual Activity Level.
B)Actual Manufacturing Overhead divided by the Normal (or Estimated)Activity Level.
C)Estimated Manufacturing Overhead divided by the Normal (or Estimated)Activity Level.
D)None of the answers is correct.

Question 12

Which of the following is notone of the three major manufacturing cost categories?

A)Direct materials costs that can be easily traced to a product
B)Direct labor costs of workers who transform materials into finished products and whose time can be easily traced to a product
C)Manufacturing overhead costs which represents all other manufacturing costs that do not fit into the other categories
D)Opportunity costs which are the manufacturing costs forgone by accepting another production alternative

Question 13

Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little league baseball bats,hires workers to convert the materials to customized finished baseball bats,and then offers the customized baseball bats for sale to little league teams and the general public.
Refer to Little League Baseball Manufacturer.
Manufacturing costs such as depreciation and insurance for the factory building,as well as heat,light,power,and similar expenses incurred to keep the factory operating,fall into which of the following categories?

A)direct material costs.
B)direct labor costs.
C)manufacturing overhead costs.
D)opportunity costs.

Question 14

Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little league baseball bats,hires workers to convert the materials to customized finished baseball bats,and then offers the customized baseball bats for sale to little league teams and the general public.
Refer to Little League Baseball Manufacturer.
Manufacturing costs such as the cost of the high quality hard woods specifically selected by the customer for producing their own customized baseball bat fall into which of the following categories?

A)direct material costs.
B)direct labor costs.
C)manufacturing overhead costs.
D)opportunity costs.

Question 15

The basic cost flow equation is used by

A)independent auditors to perform reasonableness checks on the data they receive from clients.
B)companies to check that the amount of inventory recorded on the books matches the physical count of inventory.
C)independent auditors and companies to check for thefts or financial fraud.
D)All of the answers are correct.

Question 16

Little League Baseball Manufacturer
The Little League Baseball Manufacturer purchases materials for the production of customized little league baseball bats,hires workers to convert the materials to customized finished baseball bats,and then offers the customized baseball bats for sale to little league teams and the general public.
Refer to Little League Baseball Manufacturer.
Manufacturing costs such as the cost of production supervisors overseeing the production of several different products fall into which of the following categories?

A)direct material costs.
B)direct labor costs.
C)manufacturing overhead costs.
D)opportunity costs.

Question 17

Which of the following statements reflects the basic cost flow equation?

A)Beginning Balance plus Transfers In equals Transfers Out plus Ending Balance.
B)Beginning Balance minus Transfers In equals Transfers Out minus Ending Balance.
C)Beginning Balance plus Transfers In equals Transfers Out minus Ending Balance.
D)Beginning Balance minus Transfers In equals Transfers Out plus Ending Balance.

Question 18

Accounting for factory overhead costs involves averaging in
Job Order Costing Process Costing

A)Yes No
B)Yes Yes
C)No Yes
D)No No

Question 19

Which of the following is not normally added to the work-in-process account?

A)Direct labor.
B)Depreciation on factory equipment.
C)General factory labor.
D)Depreciation on office equipment.

Question 20

Which of the following is not a fraudulent practice for assigning costs?

A)Misstating the stage of completion of jobs
B)Charging costs to the wrong jobs or categories
C)Comparing actual with estimated costs for pricing future jobs
D)Misrepresenting the costs of jobs

Question 21

In a normal costing system,how is the predetermined variable manufacturing overhead rate calculated?

A)Divide actual variable manufacturing overhead by the normal (or estimated)activity level.
B)Divide estimated variable manufacturing overhead by the actual activity level.
C)Divide estimated variable manufacturing overhead by the normal (or estimated)activity level.
D)Divide actual variable manufacturing overhead by the actual activity level.

Question 22

Actual costing does notuse which of the following to measures product costs?

A)Actual direct material costs
B)Actual direct labor costs
C)An amount representing "normal" manufacturing overhead
D)Actual manufacturing overhead

Question 23

Continuous flow processing is most appropriate for
Type of Product Length of Production Run

A)Customized Short
B)Customized Long
C)Standardized Short
D)Standardized Long

Question 24

Safa Visual Works,Inc.estimated its overhead costs for the current year to be as follows: fixed,$175,000;variable,$4 per unit.Safa expected to produce 350,000 units during the year.During the year,the company incurred overhead costs of $1,600,000 and produced 400,000 units.Calculate the rate to be used to apply manufacturing overhead costs to products.

A)$3.50
B)$4.50
C)$5.50
D)$9.00

Question 25

Which costing methodology derives a rate for applying overhead to units produced before the production period,then uses this "predetermined rate" in applying overhead to each unit as they produces it?

A)Normal costing
B)Actual costing
C)Predetermined costing
D)Imputed production costing

Question 26

Which of the following is not a characteristic of an effective cost system?

A)Decision focus
B)Different costs for different purposes
C)Cost-benefit test
D)Generally accepted accounting principles compliant

Question 27

Job costing is most appropriate for
Type of Product Length of Production Run

A)Customized Short
B)Customized Long
C)Standardized Short
D)Standardized Long

Question 28

Which of the following represents an example of an organization that would use continuous flow processing methods?

A)a chemical manufacturer.
B)a custom home builder.
C)a hospital.
D)a custom jeweler.

Question 29

Which of the following is the appropriate procedure to apply overhead to production using normal costing?

A)Assign actual direct material and direct labor costs plus an amount representing "normal" manufacturing overhead to products.
B)Assign "normal" direct material and direct labor costs plus an amount representing "normal" manufacturing overhead to products.
C)Assign actual direct material and direct labor costs plus an amount representing actual manufacturing overhead to products.
D)All of the answers are correct.

Question 30

In a normal costing system,how is the predetermined fixed manufacturing overhead rate calculated?

A)Divide actual fixed manufacturing overhead by the normal (or estimated)activity level.
B)Divide estimated fixed manufacturing overhead by the actual activity level.
C)Divide estimated fixed manufacturing overhead by the normal (or estimated)activity level.
D)Divide actual fixed manufacturing overhead by the actual activity level.

Question 31

Assume a normal costing system.Calculate the predetermined overhead rate based on the following assumptions:

A)$9.00 per machine hour
B)$10.00 per machine hour
C)$9.375 per machine hour
D)$10.42 per machine hour

Question 32

Normal costing does not use which of the following to measure product costs?

A)Actual direct material costs
B)Actual direct labor costs
C)An amount representing "normal" manufacturing overhead
D)Actual manufacturing overhead

Question 33

An effective cost system has which of the following characteristic(s)?

A)Decision focus
B)Different costs for different purposes
C)Cost benefit test
D)All of the answers are correct.

Question 34

Which of the following is an example of an organization that would use job-order accounting?

A)a custom construction company.
B)an oil refinery.
C)a cereal processor.
D)None of the answers is correct.

Question 35

Which of the following is/are abenefit of normal costing?

A)Normal costing enable companies to smooth out,or normalize,seasonal production fluctuations.
B)Under normal costing,a firm can quickly calculate the cost of items manufactured.
C)Under normal costing,a firm uses a predetermined overhead rate in applying overhead to each unit as the firm produces it throughout the year,rather than wait for the actual overhead rate to be determined at the end of the year.
D)All of the answers are correct.

Question 36

Which of the following is false regarding normal costing?

A)Normal costing assigns to products actual direct material and direct labor costs plus an amount representing "normal" manufacturing overhead.
B)Under normal costing,a firm derives a rate for applying overhead to units produced before the production period begins.
C)Under normal costing,a firm uses a predetermined overhead rate in applying overhead to each unit as the firm produces it throughout the year.
D)Under normal costing,a firm uses the actual overhead costs incurred because this is the "normal" procedure in the United States.

Question 37

In a normal costing system,how is the predetermined overhead rate calculated?

A)Divide actual manufacturing overhead by the normal (or estimated)activity level.
B)Divide estimated manufacturing overhead by the actual activity level.
C)Divide estimated manufacturing overhead by the normal (or estimated)activity level.
D)Divide actual manufacturing overhead by the actual activity level.

Question 38

Which of the following is true regarding cost drivers?

A)Cost drivers are the allocation base for applying overhead to production.
B)Cost drivers cause an activity's cost.
C)Cost drivers are the allocation base for applying overhead to production,and cost drivers cause an activity's cost.
D)None of the answers is correct.

Question 39

Assume a normal costing system.Calculate the predetermined overhead rate based on the following assumptions:

A)$8.33 per machine hour
B)$8.50 per machine hour
C)$7.50 per machine hour
D)$9.44 per machine hour

Question 40

Which of the following is true regarding normal costing?

A)Normal costing assigns to products actual direct material and direct labor costs plus an amount representing "normal" manufacturing overhead.
B)Under normal costing,a firm derives a rate for applying overhead to units produced before the production period begins.
C)Under normal costing,a firm uses a predetermined overhead rate in applying overhead to each unit as the firm produces it throughout the year.
D)All of the answers are correct.

Question 41

Which of the following is true?

A)In job costing,firms collect costs for each "unit" produced.
B)In process costing,firms accumulate costs in a department or production process during the accounting period,then spread those costs evenly over the units produced that period,computing an average unit cost.
C)Process costing does not require as much record keeping as job costing system because it does not require keeping track of the cost of each job.
D)All of the answers are correct.

Question 42

Which of the following is a deficiency of process costing?

A)In process costing,decision makers are informed about the average cost of the units,but not the actual cost of each particular unit or job.
B)In process costing,firms accumulate costs in a department or production process during the accounting period,then spread those costs evenly over the units produced that period,computing an average unit cost.
C)Process costing does not require as much record keeping as job costing system because it does not require keeping track of the cost of each job.
D)None of the answers is a deficiency.

Question 43

Which of the following costing system is appropriate for a company that produces customized products?

A)job costing.
B)process costing
C)operation costing.
D)standard costing.

Question 44

Why do firms collect costs by job?

A)For performance evaluation
B)To provide information for cost control
C)To compare actual with estimated costs for pricing future jobs
D)All of the answers are correct.

Question 45

Which of the following costing system is appropriate for a company that mass-produces homogeneous products (continuous flow processing)?

A)job costing.
B)process costing.
C)operation costing.
D)dynamic costing.

Question 46

Which costing system would be most appropriate for use by a soft drink bottling company?

A)process costing system.
B)variable costing system.
C)job costing system.
D)direct costing system.

Question 47

What costing method should a manufacturing company use when it produces batches of products where the value and quality of direct material varies by batch,but the direct labor and time spent are standardized?

A)Job costing
B)Process costing
C)Operation costing
D)Dynamic costing

Question 48

Which statement is true concerning job costing?

A)Firms collect costs for each unit produced.
B)Firms accumulate costs in a department or production process during the accounting period.
C)Firms spread costs evenly over the units produced during the period.
D)The equation for determining average unit cost is Total Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.

Question 49

Which of the following costing system has characteristics of both job and process costing?

A)normal costing.
B)actual costing
C)operation costing.
D)standard costing.

Question 50

In process costing,what is the equation for determining average unit cost?

A)Total Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.
B)Average Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.
C)Total Manufacturing Cost Incurred during the Period divided by Average Units Produced during the period.
D)Average Manufacturing Cost Incurred during the Period divided by Average Units Produced during the period.

Question 51

What is the method of costing used by companies that use a combination of job and process costing?

A)hybrid costing.
B)standard costing.
C)sunk costing.
D)combination costing

Question 52

Which of the following isfalse about process costing?

A)Firms collect costs for each unit produced.
B)Firms accumulate costs in a department or production process during the accounting period
C)Firms spread costs evenly over the units produced during the period,to determine an average cost per unit.
D)The equation for determining average unit cost is Total Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.

Question 53

What is important to recognize when comparing the cost-benefit considerations of job versus process costing?

A)Job costing provides less detailed information than process costing and job costing costs more to implement than process costing.
B)Job costing provides less detailed information than process costing and job costing costs less to implement than process costing.
C)Job costing provides more detailed information than process costing and job costing costs less to implement than process costing.
D)Job costing provides more detailed information than process costing and job costing costs more to implement than process costing.

Question 54

Which costing system is generally used by companies who provide professional services to their clients,such as accountants and lawyers?

A)process costing system.
B)variable costing system.
C)job costing system.
D)direct costing system.

Question 55

Operation cost is a hybrid of job and process costing,where the materials differ by type of product but

A)labor and overhead amounts are different.
B)labor amounts are the same and overhead amounts are different.
C)labor and overhead amounts are the same.
D)labor amounts are different and overhead amounts are the same.

Question 56

What can be said of the relationship between cost of goods sold and the cost of goods manufactured when finished goods inventories increase? (Assume no change in unit prices. )

A)They are equal.
B)Cost of Goods Sold greater than Cost of Goods Manufactured
C)Cost of Goods Manufactured greater than Cost of Goods Sold
D)Nothing can be said without additional information.

Question 57

Which costing system is generally used by companies producing high value,customized products?

A)a process costing system.
B)a variable costing system.
C)a job costing system.
D)a direct costing system.

Question 58

To record the cost of producing the same type of tables made of different materials,but undergoing the same manufacturing process,a furniture manufacturing company would most likely use a(n)

A)process costing system.
B)variable costing system.
C)job costing system.
D)operation costing system.

Question 59

Which costing system is generally used by companies who mass-produce homogeneous products,such as a petroleum refining company?

A)process costing system.
B)variable costing system.
C)job costing system.
D)direct costing system.

Question 60

Operation costing is a hybrid of which of the following two costing methods?

A)batch costing and backflush costing.
B)job costing and process costing.
C)job costing and backflush costing.
D)process costing and backflush costing.

Question 61

Which of the following companies would most likely use a process costing system?

A)PriceWaterhouseCoopers (auditing engagements)
B)Accenture (consulting)
C)Universal Studios (movies)
D)Miller Brewing Company (beer)

Question 62

Which method of costing is used to record all manufacturing costs directly in Cost of Goods Sold,and if any inventories occur at the end of the accounting period,the appropriate costs are transferred back to the inventory accounts?

A)Put-back costing
B)Traditional costing
C)Reverse costing
D)Backflush costing

Question 63

Which of the following costs is not part of manufacturing overhead?

A)Depreciation of factory equipment
B)Health insurance for sales staff
C)Salaries for the production supervisors
D)Electricity for the factory

Question 64

Different types of companies use different types of cost systems.An effective cost system must have all of the following characteristics except:

A)Benefits from the cost system that exceed its costs.
B)Different costs for different purposes.
C)Decision focus.
D)Costs from the cost system that exceed benefits.

Question 65

Companies concerned about quality production do not treat waste or spoiled goods as a normal cost of production and remove all waste and spoilage costs from the product cost.Some companies have found that waste or spoilage costs range from

A)1 to 5 percent of their total product costs.
B)5 to 10 percent of their total product costs.
C)10 to 20 percent of their total product costs.
D)20 to 30 percent of their total product costs.

Question 66

Accounting in a JIT environment charges all costs directly to Cost of Goods Sold and charges them to Inventory accounts when needed using which of the following costing methods?

A)job order costing.
B)process costing.
C)hybrid costing.
D)backflush costing.

Question 67

What method of production eliminates the need for inventories because no production takes place until the firm knows that it will sell the item?

A)First-in,last-out methods
B)Last-in,first-out methods
C)Just-in-time methods
D)Next-in,first-out methods

Question 68

Using the following information,calculate equivalent units of production for XYZ Company using the FIFO method:
Beginning Inventory: 50,000 units,70% complete
Units started & completed: 100,000 units
Units in ending inventory: 25,000 units,40% complete

A)175,000
B)150,000
C)145,000
D)125,000

Question 69

What can be said of the relationship between total manufacturing costs and the cost of goods manufactured when work-in-process inventories decrease during the period? (Assume no change in per unit costs. )

A)They are equal.
B)Total Manufacturing Costs greater than Cost of Goods Manufactured
C)Cost of Goods Manufactured greater than Total Manufacturing Costs
D)Nothing can be said without additional information.

Question 70

Which of the following is true regarding waste and spoilage?

A)Accountants typically include the cost of normal waste in the cost of goods manufactured during the period.
B)Accountants typically treat the cost of abnormal waste as an expense during the period.
C)Companies concerned about quality production do not treat waste or spoiled goods as normal and remove all waste and spoilage costs from the product cost.
D)All of the answers are correct.

Question 71

Using the following information,calculate equivalent units of production for Jetton Manufacturing using the FIFO method:
Beginning Inventory: 30,000 units,40% complete
Units started & completed: 75,000 units
Units in ending inventory: 20,000 units,70% complete

A)93,000
B)107,000
C)105,000
D)125,000

Question 72

Which of the following accounts does not appear on the balance sheet?

A)Raw Materials Inventory
B)Work in Process Inventory
C)Cost of Goods Sold
D)Finished Goods Inventory

Question 73

Which statement is true concerning just-in-time inventory systems?

A)Just-in-time systems deal only with defective and reworked units.
B)Just-in-time systems require the use of many suppliers.
C)Just-in-time systems keep inventory to a minimum by careful planning.
D)Just-in-time systems work better for small companies than for large companies.

Question 74

Which of the following represents a reason management would use JIT methods?

A)To keep large amounts of materials on hand for production.
B)To provide finished goods just in time for sale.
C)To hide defective units.
D)To prevent laying off workers during slow times.

Question 75

Which of the following statements is true?

A)JIT requires workers to immediately correct a process making defective units.
B)JIT requires hiding of defective units.
C)JIT requires debiting various inventory accounts as goods are processed.
D)JIT requires crediting various inventory accounts as goods are processed.

Question 76

Just-in-time (JIT)methods

A)do not start production until the firm receives an order for the finished product.
B)do not order raw materials until the firm receives an order for the finished product.
C)ends production as soon as an order for the finished product is filled.
D)All of the answers are correct.

Question 77

Which is not correct for just-in-time (JIT)methods?

A)JIT attempts to obtain materials just in time for production and to provide finished goods just in time for sale.
B)JIT reduces,or potentially eliminates,inventories and the cost of carrying them.
C)JIT compels workers to immediately correct a process making defective units.
D)JIT relies on cheap,low quality materials from multiple suppliers,to meet production objectives.

Question 78

Which costing system uses equivalent units in the computation of costs?

A)Job costing
B)Process costing
C)Both a and b
D)Neither a nor b

Question 79

Which of the following isnot a component of just-in-time (JIT)production methods?

A)Management uses JIT methods to obtain materials just in time for production.
B)Management provides finished goods just in time for sale.
C)JIT requires that workers immediately correct a process making defective unit.
D)Workers and supervisors can hide defective units in inventory.

Question 80

Which of the following companies would most likely use a job costing system?

A)Pillsbury (flour)
B)Heinz (catsup)
C)Universal Studios (movies)
D)Budweiser (beer)