Deck 20: Accounting for Manufacturing

Question 1

If projected factory overhead is $540 000 p.a. and projected direct labour hours are 60 000 hours p.a., the overhead application rate is:

A) $90 000.
B) $540 000.
C) $9 per direct labour hour.
D) $0.90 per direct labour hour.

Answer 1

C

Question 2

Which of the following is an example of a period cost?

A) Factory rent
B) Admin wages
C) Direct materials
D) Production supervisor's salary

Answer 2

B

Question 3

Which of the following statements is correct?

A) Power used for factory lighting and heating is classified as a period cost.
B) Absorption costing splits up factory costs into product and period costs.
C) The cost of collecting debts from customers is classified as part of factory overhead.
D) Items such as glue, nails and screws become part of the finished product but are usually classified as factory overhead.

Answer 3

D

Question 4

Raw materials inventory is:

A) stock of supplies.
B) stock of partly finished goods.
C) materials that have been scrapped.
D) stock of materials purchased for conversion into saleable goods.

Question 5

The following issues must be resolved in accounting for factory overhead except for:

A) the allocation of product costs.
B) the allocation of common costs between activities.
C) how to assign factory overhead costs as product costs.
D) the assignment of service department costs to production departments.

Question 6

Which of the following statements is incorrect?

A) Many costs eventually become expenses.
B) A cost that provides future economic benefits is treated as an asset.
C) To accountants, the terms cost and expense always mean the same thing.
D) An expense is the consumption or loss of resources that will result in a decrease in equity.

Question 7

Costs which are not directly required to produce a product but are expensed in the income statement in the period in which they are incurred are called:

A) period costs.
B) fixed costs.
C) product costs.
D) miscellaneous costs.

Question 8

Common bases for assigning manufacturing overhead costs to products include all of the following except for:

A) machine hours.
B) direct labour cost.
C) direct labour hours.
D) direct labour hours plus direct machine hours.

Question 9

Which of the following are reasons why managers need information on manufacturing costs?
I) Pricing
II) Inventory valuation
III) Profit determination
IV) Evaluation of past performance

A) I, II and III
B) II, III and IV only
C) II and III only
D) I and IV only

Question 10

Product costs are integral to the production of a product and are expensed in the period in which the:

A) costs are paid.
B) costs are incurred.
C) related products are sold.
D) related products are produced.

Question 11

Which of the following statements concerning product and period costs is incorrect?

A) Service businesses have both period and product costs.
B) Period costs are not directly required to produce the product.
C) Product costs are included in the cost of inventories until the products are sold.
D) The basis of the distinction between product and period costs is the timing of the recognition of an expense in the income statement.

Question 12

What is the correct order in which the flow of costs in a manufacturing organisation occurs?
I) Transfer finished goods to stock of finished goods
II) Purchase stocks of raw materials
III) Transfer finished goods to cost of sales
IV) Charge raw materials, direct labour and factory overhead to work in process

A) I, III, IV, II
B) II, IV, I, III c II, IV, III, I
D) II, I, III, IV

Question 13

Direct material costs plus direct labour costs are known as:

A) prime costs.
B) fixed costs.
C) period costs.
D) conversion costs.

Question 14

Which of the following statements is correct?

A) For a retailer all costs and expenses are treated as period costs.
B) Product costs are included in inventory until the product is sold.
C) Finished goods inventory also includes the cost of raw materials.
D) Manufacturing overhead costs are treated as period costs rather than product cost.

Question 15

Although the terms cost and expense are often used synonymously there is a difference between them. A cost can be an asset or an expense whereas an expense is:

A) where the future economic benefits have not expired.
B) the consumption or loss of resources that will result in a decrease in equity.
C) used to run the business.
D) paid out in cash.

Question 16

Which of the following is an example of a product cost?

A) Interest expense
B) Telephone expense
C) Depreciation of office furniture
D) Assembly line worker's wages

Question 17

Work in process inventory is:

A) work that is in the planning process.
B) raw materials that have not been paid for.
C) product that has been partly processed.
D) inventory that is subject to a legal dispute.

Question 18

Which of the following is not a product cost?

A) factory electricity.
B) wages of factory workers.
C) advertising of a new product.
D) material used in production.

Question 19

Product costs need to be calculated by a manufacturer for which of the following purposes?
Inventory Profit Management decision-
Valuation determination making

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

Question 20

Which of the following inventory accounts are maintained by a manufacturer?
I) Stock of raw materials
II) Stock of work in process
III) Stock of finished goods

A) None
B) I, II and III
C) I and II only
D) I and III only

Question 21

When calculating product costs, the wages paid to employees whose time can be directly traced to products are classified as:

A) indirect labour costs.
B) direct labour costs.
C) factory overhead.
D) fixed costs.

Question 22

Costs that remain constant per unit regardless of the level of output are known as:

A) variable costs.
B) mixed costs.
C) direct costs.
D) fixed costs.

Question 23

Which of the following statements in relation to direct costing is correct?

A) It treats all costs as period costs.
B) It is sometimes called adaptable costing.
C) It only recognised direct materials as a product cost.
D) It only recognises as product costs those factory costs that vary with levels of production.

Question 24

For a manufacturer, all factory costs that are not directly traceable to products are classified as:

A) variable costs.
B) period costs.
C) indirect materials.
D) factory overhead.

Question 25

Accounting standard IAS 2/AASB 102 Inventories:

A) only allows the use of direct costing for external financial reporting purposes.
B) only allows the use of absorption costing for external financial reporting purposes.
C) allows the use of direct costing and absorption costing for external financial reporting purposes.
D) does not allow the use of either direct costing or absorption costing for external financial reporting purposes.

Question 26

Which of the following is an example of a fixed cost?

A) Raw materials
B) Factory rental
C) Packaging costs
D) Factory bonuses linked to the level of production

Question 27

Direct labour costs plus factory overhead costs are known as:

A) prime costs.
B) direct costs.
C) variable costs.
D) conversion costs.

Question 28

A fixed cost is one that:

A) does not rise as inflation changes.
B) is the same per unit of production regardless of volume.
C) remains constant in total within the relevant production range.
D) increases on a per unit basis as volume increases.

Question 29

If expected factory overhead costs are $300 000 and expected direct labour hours are 25 000, what is the overhead application rate per direct labour hour?

A) $0.08
B) $12.00
C) $83.00
D) $120.00

Question 30

costs remain constant in total (over the relevant range) as the volume of production changes.

A) Indirect
B) Variable
C) Fixed
D) Direct

Question 31

Variable costs:

A) increase per unit as output increases.
B) decrease per unit as output decreases.
C) remain constant in total regardless of the level of output.
D) remain constant per unit regardless of the level of output.

Question 32

Indirect materials and indirect labour incurred by the factory are classified as:

A) administrative expenses.
B) factory overhead.
C) fixed costs.
D) period costs.

Question 33

If the overhead application rate is $5 per direct labour hour and 180 direct labour hours are used in printing a text book, how much overhead is included in the total production cost of the book?

A) $36
B) $90
C) $900
D) $3600

Question 34

Applying overhead to products means:

A) calculating the total overhead cost.
B) directly tracing the overhead to products.
C) passing on the overhead costs to customers in the price charged.
D) assigning the overhead on a basis that closely relates it to the work performed.

Question 35

If total fixed costs are $60 000 what is the per unit overhead cost for Denim Co if 15,000 units are produced? Assume units of production are used as the basis for applying overhead to product.

A) $4.00
B) $40.00
C) $0.25
D) $0.50

Question 36

The costs of the two service departments, maintenance and quality control, that provide support for the production departments are classified as:

A) factory overhead.
B) selling expenses.
C) finance expenses.
D) administrative expenses.

Question 37

Calculate the per unit overhead cost for London Ltd if total fixed costs are $126 000 and 18 000 units are produced? Assume units of production are used as the basis for applying overhead to product.

A) $70.00
B) $7.00
C) $0.70
D) $0.07

Question 38

A clothing manufacturer has a production department where the clothing is produced. It also has two other departments, a warehouse and an administration office, which are known as:

A) minor departments.
B) service departments.
C) auxiliary departments.
D) training departments.

Question 39

Costs can be classified into those that are traceable to products and those that are non- traceable. The costs of raw materials that are directly and economically traceable as an integral part of a product, are called:

A) cost of sales.
B) direct labour costs.
C) direct materials costs.
D) factory overhead costs.

Question 40

Direct material costs do not include small items that are uneconomical to trace to products. Which of the following would not be included as a direct materials cost for a furniture manufacturer?

A) Glue
B) Wood
C) Laminate materials
D) Drawer Handles

Question 41

Speed Skis Manufacturing reports the following information for the year. Determine the cost of finished goods manufactured.
$$\begin{array} { l r } \text { Work in process } 1 \text { January } & \$ 8000 \\\text { Work in process } 31 \text { December } & 12000 \\\text { Finished goods inventory 1 January } & 4000 \\\text { Finished goods inventory 31 December } & 6000 \\\text { Direct materials used } & 8000 \\\text { Direct labour } & 3000 \\\text { Factory overhead } & 2000 \\\text { Selling expenses } & 3000 \\\text { General and administrative expenses } & 4000\end{array}$$

A) $20 000
B) $7 000
C) $11 000
D) $9 000

Question 42

Assume direct materials, direct labour and factory overhead for the period total $450 000. If work in process at the start is $35 000 and work in process at the end is $50 000, the cost of goods manufactured is:

A) $435 000
B) $450 000
C) $465 000
D) $485 000

Question 43

Before the application of overhead costs James & Fraser Ltd has the following costs traced to production:
$$\begin{array} { c c c } & \text { Direct materials } & \text { Direct labour } \\\text { Charged to production } & \$ 60000 & \$ 80000\end{array}$$ Assuming that overhead is applied at the rate of 60% of direct labour cost what is the amount of inventory finished for the period? Assume no work in process.

A) $80 000
B) $140 000
C) $176 000
D) $188 000

Question 44

Max Company's accounting records provide the following information. What is the business' direct material cost for the period?
$$\begin{array} { l r } \text { Cost of goods manufactured } & \$ 65000 \\\text { Ending work in process } & \$ 31500 \\\text { Manufacturing overhead } & \$ 16400 \\\text { Direct labour } & \$ 9800 \\\text { Beginning work in process } & \$ 28000\end{array}$$

A) $35 300
B) $37 000
C) $42 300
D) $96 500

Question 45

Any increase in unit product cost must result in a decreased profit margin if the selling price of the product cannot be:

A) increased.
B) decreased.
C) measured.
D) calculated.

Question 46

For a manufacturer, a periodic inventory system has many limitations and deficiencies. These limitations____________ the number of products and producing departments.

A) are equal to
B) decrease with
C) increase with
D) are unaffected by

Question 47

In relation to the cost of goods manufactured report, which of the following statements is incorrect?

A) Cost of goods manufactured is transferred to the cost of sales account.
B) It is prepared to calculate the cost of goods completed in the period.
C) The ending work in process is subtracted to obtain the cost of completed goods manufactured for the period.
D) The total of direct materials, direct labour and factory overhead represent the manufacturing costs for the period.

Question 48

What type of business would calculate cost of sales in the income statement as stock of finished goods at start + purchases - stock of finished goods at end?

A) A lawyer
B) A clothing shop
C) A carpet factory
D) A school

Question 49

The statement prepared by a manufacturer to calculate the cost of the goods manufactured is the:

A) gross profit statement
B) statement of cost of sales
C) statement of financial position
D) cost of goods manufactured statement

Question 50

For a manufacturer, if cost of goods manufactured is $946 000, stock of finished goods at start is $83 000 and stock of finished goods at end is $62 000, calculate the cost of sales.

A) $863 000
B) $925 000
C) $967 000
D) Cannot be calculated with the information available

Question 51

These figures have been extracted from the trial balance of Williams Ltd for June 2019:
$$\begin{array} { l r } \text { Direct materials } & \$ 4000 \\\text { Light and power factory } & 16000 \\\text { Freight outwards } & 3000 \\\text { Office salaries } & 8000 \\\text { Depreciation on factory plant } & 5000 \\\text { Directors' fees } & 4000 \\\text { Salesmen's commission } & 2000 \\\text { Factory wages - direct } & 25000 \\\text { Factory wages - indirect } & 12000\end{array}$$
There was no opening or closing work in process. Total factory overhead expenses are:

A) $33 000
B) $28 000
C) $35 000
D) $29 000

Question 52

The format for the cost of goods manufactured statement is direct materials + direct labour + factory overhead + ????????__________ - ending work in process.

A) indirect materials
B) indirect labour
C) indirect materials
D) beginning work in process

Question 53

In a manufacturing organisation, the transfer from the work in process inventory account to the finished goods inventory account represents:

A) cost of sales.
B) cost of goods finished during the period.
C) work in process at the end of the period.
D) total manufacturing costs incurred for the period.

Question 54

$$\begin{array} { l r r } & 2018 & 2019 \\\text { Finished goods inventory } & \$ 20000 & \$ 10000 \\\text { Work in process inventory } & 12000 & 15000 \\\text { Raw materials inventory } & 6000 & 8000 \\\text { Purchases of raw materials } & & 17000 \\\text { Cost of goods manufactured } & & 50000\end{array}$$ The cost of raw materials transferred to production in 2019 is:

A) $15 000.
B) $19 000.
C) $27 000.
D) $50 000.

Question 55

$$\begin{array} { l c c } & & \text { March } 2018 \\\text { Finished goods purchases }&& \$ 35000\\\text { Cost of goods manufactured } & & 80000\\\text { Sales } & & 220000\\ \\\text { Inventories } & 1 \text { March 18 } & 31 \text { March 18 } \\\text { Raw materials } & \$ 20000 & \$ 24000 \\\text { Work in process } & 28000 & 32000 \\\text { Finished goods } & 180000 & 190000\end{array}$$ Gross profit for the month of March 2018 is:

A) $190 000.
B) $160 000.
C) $115 000.
D) $145 000.

Question 56

In the general ledger, the accounts used to determine the cost of goods manufactured are closed to the manufacturing summary account, which is then closed to the:

A) profit account.
B) cost of sales account.
C) gross profit account.
D) income summary account.

Question 57

Using the following information calculate the product cost per unit.
Direct labour per unit $40
Direct materials per unit $55
Factory overhead applied at 25% of direct labour cost

A) $95
B) $108
C) $125
D) $105

Question 58

When preparing a cost of goods manufactured statement from the following information, what is the total cost of goods manufactured?
$$\begin{array} { l c } \text { Direct materials } & \$ 12 \\\text { Advertising expenses } & 8 \\\text { Indirect labour } & 2 \\\text { Indirect materials } & 4 \\\text { Direct labour } & 5 \\\text { Other manufacturing overhead } & 1\end{array}$$

A) $18
B) $24
C) $17
D) $32

Question 59

What type of business would calculate cost of sales in the income statement as stock of finished goods at start + purchases - stock of finished goods at end?

A) A service business
B) A manufacturer
C) A retail business
D) A non-profit organisation

Question 60

Assume Outback Heaters issued $36 000 of direct materials to production, total direct labour costs were $20 000 and total overhead costs were $30 000. If work in process at the start was $12 000 and work in process at the end was $15 000, what is the total cost of goods manufactured for the period?

A) $36 000
B) $83 000
C) $86 000
D) $89 000

Question 61

Which of the following statements concerning sustainable manufacturing is correct?

A) Recycling can occur within the production process or at the end of the product's useful life.
B) Businesses in Australia have little interest in sustainable manufacturing.
C) Manufacturing in a sustainable way always involves higher manufacturing costs.
D) Businesses that operate sustainably make less profit than businesses that ignore sustainability.

Question 62

Which of the following statements is incorrect?

A) Today, with automation and computerisation, factory overhead costs are often a higher proportion of total manufacturing costs than direct labour costs.
B) An overhead application rate is an historical rate.
C) The direct labour rate per unit of output is constant but total direct labour costs increase with an increase in the level of production.
D) A manufacturing entity using a periodic inventory system must rely on the judgement of the accountant and/or the production manager to estimate the value of ending work in process.

Question 63

Sustainable manufacturing is of importance to which of the following groups?
I) Management
II) Government
III) Customers
IV) Public at large

A) I, III and IV only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV

Question 64

Which of the following is a not a limitation of the use of a periodic inventory system by a manufacturer?

A) A physical stocktake is necessary before costing information can be determined.
B) Costing information is not available before the end of the accounting period.
C) The costing information contains estimations and approximations.
D) The method is more expensive to implement than the perpetual method.