Deck 16: Management Accounting: a Business Partner

Question 1

Product costs are charged directly to expense accounts.

Answer 1

False

Question 2

Product costs become part of inventory and are placed on the balance sheet until the products are sold.

Answer 2

True

Question 3

Direct materials used, direct labor, and manufacturing overhead are included among the expenses listed in the income statement of a manufacturing company.

Answer 3

False

Question 4

Prime costs include direct materials and direct labor used in the production of goods and services.

Question 5

Manufacturing overhead is a term used to describe all manufacturing costs other than direct materials and direct labor.

Question 6

Direct labor costs are debited and is credited when the direct labor employees contribute to the production process.

Question 7

Managerial accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers inside and outside the business organization.

Question 8

A debit balance in the Direct Labor account represents a liability for wages payable.

Question 9

Management accounting encompasses the design and use of accounting information systems inside the company to achieve the company's objectives.

Question 10

Manufacturing overhead is considered an indirect cost, since overhead costs generally cannot be traced conveniently and directly to specific units of product.

Question 11

A value chain is a linked set of activities and resources necessary to deliver a product of low cost but high value to the retailer.

Question 12

The three basic types of manufacturing costs are direct materials, direct labor and manufacturing overhead.

Question 13

Product costs are offset against revenue in the period in which the related products are manufactured, rather than the period in which the products are sold.

Question 14

Supervisor salaries, equipment repairs, depreciation of machinery, and indirect materials are all examples of manufacturing overhead.

Question 15

Management accounting reports may provide sufficient means of monitoring, evaluating and rewarding performance.

Question 16

Direct labor and overhead costs that are required to convert raw materials into finished goods are considered to be conversion costs.

Question 17

Period costs are recognized in the period in which the costs are incurred and placed on the income statement as part of Cost of Goods Sold.

Question 18

A schedule of the cost of finished goods manufactured summarizes the flow of manufacturing costs into and out of the finished goods inventory account.

Question 19

As units are completed, their cost is transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

Question 20

Product costs are selling expenses that appear on the income statement.

Question 21

Which of the following is not a product cost?

A) Depreciation on a warehouse where raw materials are stored.
B) An employee working directly on assembling a car.
C) The leather seats of a motorcycle.
D) The real estate tax of the showroom.

Question 22

Determine the amount of manufacturing overhead given the following information:

A) $7,750.
B) $10,430.
C) $9,750.
D) $11,080.

Question 23

The cost of the employee who computes total manufacturing costs would be considered:

A) Direct labor.
B) Indirect labor.
C) Manufacturing overhead.
D) Administrative costs.

Question 24

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is less likely to:

A) Focus upon the entire organization as the accounting entity.
B) Focus upon future accounting periods.
C) Make use of estimated amounts.
D) Be tailored to the specific needs of an individual decision maker.

Question 25

The wages paid to employees working directly on a company's products would be shown as a:

A) Credit to Direct Labor.
B) Debit to Direct Labor.
C) Credit to Work in Process.
D) Debit to Manufacturing Overhead.

Question 26

Which of the following is not a period cost?

A) Depreciation on factory equipment.
B) Depreciation on the retail store building.
C) Salesperson salaries.
D) Office supplies used.

Question 27

The James Company has incurred the following costs of production:
Direct Materials $350,000
Direct Labor $475,000
Manufacturing Overhead $722,000
Selling and Administrative Costs $256,000
The James Company prime costs are $606,000.
Prime costs = Direct Materials $350,000 + Direct Labor $475,000 = $825,000

Question 28

The James Company has incurred the following costs of production:
Direct Materials $350,000
Direct Labor $475,000
Manufacturing Overhead $722,000
Selling and Administrative Costs $256,000
The James Company conversion costs are $1,197,000.
Conversion costs = Direct Labor $475,000 + Manufacturing Overhead = $1,197,000

Question 29

When goods are completed and transferred from the assembly line:

A) Cost of Goods Sold is debited and Finished Goods Inventory is credited.
B) Work in Process Inventory is debited and Finished Goods Inventory is credited.
C) Finished Goods Inventory is debited and Cost of Goods Sold is credited.
D) Work in Process Inventory is credited and Finished Goods Inventory is debited.

Question 30

Which of the following is not a characteristic of managerial accounting?

A) Reports are used primarily by insiders rather than by persons outside of the business entity.
B) Its purpose is to assist managers in planning and controlling business operations.
C) Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.
D) Information may be tailored to assist in specific managerial decisions.

Question 31

Goods that are still in the production process would be in which account?

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

Question 32

The set of linked activities and resources needed to create and deliver a product or service to the customer is referred to as:

A) The budget.
B) The value chain.
C) The operating cycle.
D) The production process.

Question 33

The principal difference between managerial accounting and financial accounting is that managerial accounting information is:

A) Prepared by managers.
B) Intended primarily for use by decision makers inside the business organization.
C) Prepared in accordance with a set of accounting principles developed by the Institute of Certified Managerial Accountants.
D) Oriented toward measuring solvency rather than profitability.

Question 34

The cost of the employee who installs the leather on the seats of a new automobile would be considered:

A) Manufacturing overhead.
B) Indirect labor.
C) Direct material.
D) Direct labor.

Question 35

Management accounting systems are designed to assist organizations in the performance of all of the following functions except:

A) The assignment of decision-making authority over company assets.
B) Planning and decision-making.
C) Monitoring, evaluating, and rewarding performance.
D) The preparation of income tax returns.

Question 36

Costs related to the disposal of hazardous materials are classified as manufacturing overhead costs.

Question 37

The Schedule of Finished Goods Manufactured summarizes all production costs incurred through an entire accounting year.

Question 38

Which of the following is not a product cost?

A) Property tax on the factory building.
B) Advertising.
C) Factory workers' salaries.
D) Indirect materials used in production.

Question 39

Costs that are traceable to a particular unit and are inventoriable are called:

A) Period costs.
B) Product costs.
C) Overhead costs.
D) Job costs.

Question 40

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to:

A) Be used by decision makers outside of the business organization.
B) Focus upon the operating results of the most recently completed accounting period.
C) View the entire organization as the reporting entity.
D) Be tailored to the specific needs of an individual decision maker.

Question 41

In an aircraft factory, the inventory of direct materials would not include:

A) Electronic instruments to be installed in aircraft.
B) Completed aircraft, available for sale.
C) Sheet aluminum to be used for the exterior "skin" of the aircraft.
D) Ejection seats to be installed only in military aircraft.

Question 42

Amounts debited to the Work in Process Inventory account may best be described as:

A) Direct materials purchased, direct labor costs paid, and payments for items classified as manufacturing overhead.
B) The cost of finished goods manufactured during the period.
C) Total manufacturing costs charged to production.
D) The cost of goods sold.

Question 43

When products are completed:

A) Finished Goods Inventory is credited.
B) Work in Process Inventory is credited.
C) Cost of Goods Sold is debited.
D) Work in Process Inventory is debited.

Question 44

The placing of direct materials into the production process is recorded by an entry debiting:

A) Materials Expense.
B) Raw Materials Inventory.
C) Work in Process Inventory.
D) Finished Goods Inventory.

Question 45

Amounts credited to the Work in Process inventory account may best be described as:

A) The cost of finished goods manufactured.
B) Total manufacturing costs charged to production.
C) The cost of goods sold.
D) Direct materials purchased, direct labor costs paid, and payments for items classified as manufacturing overhead.

Question 46

Which of the following is a period cost?

A) Direct materials used.
B) Direct labor costs applicable to production.
C) Manufacturing overhead.
D) Advertising expense.

Question 47

Manufacturing companies normally have three types of inventory:

A) Direct materials, direct labor, and manufacturing overhead.
B) Raw materials, work in process, and finished goods.
C) Work in process, finished goods, and returned merchandise.
D) Economy, standard, and deluxe.

Question 48

Manufacturing costs do not include:

A) Direct labor applicable to production within the period.
B) Selling expenses related to goods manufactured during the period.
C) Direct materials used during the period.
D) Manufacturing overhead charged to work in process during the period.

Question 49

A product cost is deducted from revenue in the period in which:

A) The related finished goods are sold.
B) The expenditure is made.
C) Production of the product begins.
D) The production process is completed.

Question 50

When a manufacturing company purchases raw materials or component parts to be used in manufacturing finished goods, these costs are initially debited to:

A) Expense accounts.
B) Raw Materials Inventory.
C) Finished Goods Inventory.
D) Manufacturing Overhead.

Question 51

The following information is available about the August transactions of the Helpful Tool Company: The product costs to be deducted from revenue in August amount to:

A) $493,000.
B) $737,000.
C) $718,000.
D) $739,000.

Question 52

When products held in inventory are sold:

A) Cost of Goods Sold is credited.
B) Work in Process Inventory is credited.
C) Finished Goods Inventory is credited.
D) Finished Goods Inventory is debited.

Question 53

Until the related goods are sold, product costs are viewed as:

A) Assets.
B) Liabilities.
C) Operating expenses.
D) Manufacturing overhead.

Question 54

Which of the following is a period cost?

A) Depreciation on a factory building.
B) The cost of direct materials used.
C) Depreciation on a sales showroom.
D) The cost of disposing of hazardous waste materials from factory operations.

Question 55

The ending inventory of a merchandising company corresponds most closely to which of the following amounts of a manufacturer?

A) Ending inventory of finished goods.
B) Cost of finished goods manufactured.
C) Ending inventory of work in process.
D) Total manufacturing costs incurred during the period.

Question 56

Which of the following should not be classified as a manufacturing cost?

A) Indirect factory labor costs, such as salaries of plant security guards.
B) Direct materials used in the production process.
C) Utility bills related to factory operations.
D) Commissions paid to salespeople.

Question 57

The managerial functions of planning and controlling include all of the following activities except:

A) Setting objectives and goals for future performance.
B) Monitoring the extent to which planned objectives are being achieved.
C) Taking corrective action when actual results differ from the plan.
D) Directing the work of employees.

Question 58

If the salaries of the sales staff of a manufacturing company are improperly recorded as a product cost, what will be the likely effect on net income of the period in which the error occurs?

A) Net income will be overstated.
B) Net income will be understated.
C) Net income will be unaffected.
D) Net income will be understated only if inventory levels rise.

Question 59

The placing of direct materials into the production process is recorded by an entry crediting:

A) Materials Expense.
B) Raw Materials Inventory.
C) Work in Process Inventory.
D) Finished Goods Inventory.

Question 60

Which of the following is not one of the three types of inventories of a manufacturing company?

A) Raw materials inventory.
B) Work in process inventory.
C) Product inventory.
D) Finished goods inventory.

Question 61

The payment of raw materials previously purchased on account is recorded by an entry debiting:

A) Raw Materials Inventory.
B) Accounts Payable.
C) Work in Process Inventory.
D) Cash.

Question 62

The completion of a computer by First Wireless, Inc. would require a debit to which of the following accounts?

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

Question 63

In the year-end financial statements, the Manufacturing Overhead account should have:

A) A debit balance, representing overhead on hand and available for use.
B) A credit balance, representing accumulated depreciation and amounts owed to suppliers of overhead items.
C) Either a debit or a credit balance, depending upon whether the overhead application rate used throughout the year was higher or lower than 100%.
D) A zero balance, since all overhead costs incurred during the period should have been assigned to the production of the period.

Question 64

Direct labor costs in a paint factory would include wages of employees who:

A) Supervise heavy equipment operators.
B) Operate paint-mixing machines.
C) Develop highly secret formulas for new products.
D) Paint the interior of the factory every two years.

Question 65

If the end of the fiscal year is not a payroll date, the Direct Labor account normally has:

A) A debit balance, representing prepaid labor costs.
B) A credit balance, representing accrued wages payable.
C) Either a debit or a credit balance, depending upon whether the end of the fiscal year falls before or after the end of the pay period.
D) A zero balance, because the Direct Labor account is closed along with the other expense accounts.

Question 66

Which group of stakeholders is management accounting designed to satisfy?

A) Management.
B) Creditors.
C) Investors.
D) Governmental agencies.

Question 67

Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in the process of manufacturing units of product, these costs are debited to:

A) The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts.
B) Expense accounts.
C) The Work in Process Inventory account.
D) The Cost of Goods Sold account.

Question 68

When direct materials are used:

A) Manufacturing Overhead is debited.
B) Raw Materials Inventory is debited.
C) Cost of Goods Sold is debited.
D) Work in Process Inventory is debited.

Question 69

Manufacturing overhead is best described as:

A) All manufacturing costs other than direct materials and direct labor.
B) All period costs associated with manufacturing operations.
C) Indirect materials and indirect labor.
D) All operating expenses other than selling expenses and general and administrative expenses.

Question 70

Which of the following costs would not be considered part of the manufacturing overhead of a chemical plant?

A) The costs of disposing of toxic waste materials.
B) Salaries of factory medical personnel.
C) Salaries of employees who operate distilling equipment used in the production process.
D) The cost of complying with federal safety regulations concerning plant operations.

Question 71

Which of the following costs would not be considered part of the manufacturing overhead of a furniture manufacturer?

A) The cost of compliance with federal factory safety regulations.
B) Depreciation expense on factory equipment.
C) The cost of grease used to lubricate factory equipment.
D) The cost of wood used in furniture construction.

Question 72

Since production employees work directly on the goods being manufactured, the related labor costs are recorded by debiting:

A) Wages Expense.
B) Direct Labor.
C) Work in Process Inventory.
D) Manufacturing Overhead.

Question 73

It is the first year of operations at Johnny's Subs and the cost of all work in process during the year is $830,000. Assuming the cost of finished goods manufactured is $860,000, what is the value of the ending Work in Process inventory?

A) $0.
B) $30,000.
C) Some other amount.
D) This is an impossible situation.

Question 74

In a manufacturing company, the cost of goods sold is equal to:

A) The beginning inventory of finished goods, plus net purchases, less the ending inventory of finished goods.
B) The sum of the manufacturing costs charged (debited) to the Work in Process Inventory account during the period.
C) The costs of direct materials, direct labor, and manufacturing overhead incurred in manufacturing the goods sold during the period.
D) The beginning inventory of Work in Process, plus total manufacturing costs for the period, less the ending inventory of Work in Process.

Question 75

In a manufacturing company, the cost of finished goods manufactured is equal to:

A) The beginning inventory of finished goods, plus net purchases, less the ending inventory of finished goods.
B) The sum of the manufacturing costs charged (debited) to the Work in Process Inventory account during the period.
C) The costs of direct materials, direct labor, and manufacturing overhead incurred in manufacturing the goods sold during the period.
D) The beginning inventory of Work in Process, plus total manufacturing costs for the period, less the ending inventory of Work in Process.

Question 76

In a manufacturing company, the cost of goods sold is equal to:

A) The beginning inventory of finished goods, plus total manufacturing costs, less the ending inventory of finished goods.
B) Total manufacturing costs for the period, less selling expenses.
C) The beginning inventory of work in process, plus total manufacturing costs, less the ending inventory of work in process.
D) The cost of goods available for sale, less the ending inventory of finished goods.

Question 77

The payment of wages to factory employees who work directly on the goods being manufactured is recorded by an entry crediting:

A) Wages Expense.
B) Direct Labor.
C) Work in Process Inventory.
D) Cash.

Question 78

The accountant for Eric's Plumbing Equipment Company recently made a journal entry consisting of a debit to Work in Process and a credit to Raw Materials Inventory. This entry recorded:

A) The use of raw materials in the production process.
B) Payment for raw materials.
C) The return of unused materials to inventory.
D) The receipt of raw materials from the company's supplier.

Question 79

In a schedule of cost of finished goods manufactured, the figure for total manufacturing costs:

A) May be less than the cost of direct materials used.
B) May be less than the direct labor costs assigned to production.
C) May be less than the manufacturing overhead applied to production.
D) May be less than the cost of finished goods manufactured.

Question 80

Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in the process of manufacturing units of product, these costs are credited to:

A) The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts respectively.
B) Liability accounts.
C) The Work in Process Inventory account.
D) The Cost of Goods Sold account.