Deck 8: Accounting for Manufacturing

Question 1

Which of the following statements is correct?

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

Answer 1

B

Question 2

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

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

Answer 2

B

Question 3

For which purposes do product costs need to be calculated by a manufacturer?
Inventory valuation,Profit determination,Management decision-making

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

Answer 3

Yes Yes Yes

Question 4

As manufacturing overhead costs cannot be traced to products a method must be developed for assigning them to products. Common bases for assignment are all of the following except:

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

Question 5

Which of these statements is not correct?

A) An expense is the consumption or loss of resources that will result in a decrease in equity.
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) Many costs eventually become expenses.

Question 6

Which of these is an example of a period cost?

A) Direct materials
B) Production supervisor's salary
C) Sales salaries
D) Factory rent

Question 7

15. Which of these would normally be classified as direct materials?
Sheet metal used in making tractors, Lubricants used on production machinery, Plastic used in making calculators

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

Question 8

Raw materials inventory is:

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

Question 9

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

Question 10

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

A) i, ii, iii, iv
B) ii, i, iii, iv
C) ii, i, iv, iii
D) ii, iii, i, iv

Question 11

If projected factory overhead is $360 000 p.a. and projected direct labour hours are 60 000 hours p.a., the overhead application rate is:

A) $60 000.
B) $6 per direct labour hour.
C) $360 000.
D) $0.60 per direct labour hour.

Question 12

Issues that must be resolved in accounting for factory overhead are all of the following except:

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

Question 13

How many of these inventory accounts are maintained by a manufacturer?
$\bullet$ Stock of raw materials
$\bullet$ Stock of work in process
$\bullet$ Stock of finished goods

A) 0
B) 1
C) 2
D) 3

Question 14

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) product costs.
B) other costs.
C) period costs.
D) fixed costs.

Question 15

How many of the following are reasons why managers need information on manufacturing costs?
$\bullet$ Inventory valuation
$\bullet$ Profit determination
$\bullet$ Evaluation of past performance
$\bullet$ Pricing

A) 1
B) 2
C) 3
D) 4

Question 16

Which of these is an example of a product cost?

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

Question 17

Work in process inventory is:

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

Question 18

Which of these is not a product cost:

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

Question 19

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

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

Question 20

Which of the following statements is correct?

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

Question 21

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

A) Wood
B) Materials
C) Glue
D) Handles

Question 22

The true statement in relation to direct costing is:

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

Question 23

If expected factory overhead costs are $600 000 and expected direct labour hours are 40 000, what is the overhead application rate per direct labour hour?

A) $15
B) $150
C) $0.66
D) $66

Question 24

Accounting standard IAS 2/AASB 102:

A) only allows the use of direct costing for external financial reporting purposes.
B) allows the use of direct costing and absorption costing for external financial reporting purposes.
C) only allows the use of 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 25

Direct material costs plus direct labour costs are known as:

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

Question 26

A clothing manufacturer has a production department where the clothing is produced and two other departments, a warehouse and a general office, which are known as:

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

Question 27

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

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

Question 28

Costs that remain constant in total (over the relevant range) as the volume of production changes are known as:

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

Question 29

Which of these is an example of a fixed cost?

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

Question 30

If total fixed costs are $250 000 what is the per unit overhead cost for Maxima Ltd if 50 000 units are produced? Assume units of production are used as the basis for applying overhead to product.

A) $50
B) $5
C) $0.50
D) $0.05

Question 31

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

Question 32

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

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

Question 33

Variable costs:

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

Question 34

If total fixed costs are $25 000 what is the per unit overhead cost for R Co if 5000 units are produced? Assume units of production are used as the basis for applying overhead to product.

A) $50
B) $5
C) $0.50
D) $0.05

Question 35

Variable costs:

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

Question 36

If the overhead application rate is $10 per direct labour hour and 120 direct labour hours are used in printing a text book how much overhead is included in the total production cost of the book?

A) $10
B) $120
C) $1200
D) $12 000

Question 37

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

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

Question 38

Applying overhead to products means:

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

Question 39

Direct labour costs plus factory overhead costs are known as:

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

Question 40

In 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 41

Kid Gloves Manufacturing reports the following information for the year. Determine the cost of finished goods manufactured.
Work in process 1 January $7 000
Work in process 31 December 10 000
Finished goods inventory 1 January 5 000
Finished goods inventory 31 December 6 000
Direct materials used 3 000
Direct labour 2 000
Factory overhead 2 000
Selling expenses 3 000
General and administrative expenses 4 000

A) $4000
B) $3000
C) $5000
D) $6000

Question 42

Before the application of overhead costs Chrome & Steel Ltd has the following costs traced to production:
Direct materials Direct labour
Charged to production $50 000 $40 000
Assuming that overhead is applied at the rate of 80% of direct labour cost what is the amount of inventory finished for the period (assume no work in process)?

A) $50 000
B) $90 000
C) $122 000
D) $130 000

Question 43

These figures have been extracted from the trial balance of ABC Ltd for June 2014:
Direct materials $5 000
Light and power factory 14 000
Freight outwards 2 000
Office salaries 11 000
Depreciation on factory plant 6 000
Directors' fees 7 000
Salesmen's commission 8 000
Factory wages - direct 30 000
- indirect 10 000
There was no opening or closing work in process. What are total factory overhead expenses?

A) $35 000
B) $30 000
C) $60 000
D) $20 000

Question 44

Assume direct materials, direct labour and factory overhead for the period total $700 000. If work in process at the start is $55 000 and work in process at the end is $40 000, what is the cost of goods manufactured?

A) $700 000
B) $735 000
C) $685 000
D) $715 000

Question 45

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 carpet factory
B) manufacturer private school
C) A lawyer
D) A shoe shop

Question 46

A fixed cost is one that:

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

Question 47

In relation to the cost of goods manufactured report which is not a correct statement?

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

Question 48

A) $8000.
B) $10 000.
C) $13 000.
D) $18 000.

Question 49

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

A) Indirect materials
B) Work in process at start
C) Indirect materials
D) Indirect labour

Question 50

Mega Manufacturing's accounting records provide the following information. What is the business direct material cost for the period?
Cost of goods manufactured is $35 000
Ending work in process is $11 500
Manufacturing overhead is $12 700
Direct labour is $8 900
Beginning work in process is $7 500

A) $17 400
B) $13 400
C) $9400
D) $6400

Question 51

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 retailer
D) A non-profit organisation

Question 52

What is the statement prepared by a manufacturer to calculate the cost of the goods manufactured called?

A) Statement of cost of sales
B) Income statement
C) Gross profit statement
D) Cost of goods manufactured statement

Question 53

Calculate product cost per unit.
Direct materials per unit $50
Direct labour per unit $30
Factory overhead applied at 50% of direct labour cost

A) $50
B) $80
C) $95
D) $105

Question 54

Assume Coburg Heaters issued $50 500 of direct materials to production, total direct labour costs were $30 000 and total overhead costs were $30 000. If work in process at the start was $10 000 and work in process at the end was $12 000, what is the total cost of goods manufactured for the period?

A) $50 500
B) $80 500
C) $110 500
D) $108 500

Question 55

A) $50 000.
B) $60 000.
C) $55 000.
D) $45 000.

Question 56

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

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

Question 57

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

Question 58

When preparing a cost of goods manufactured statement from the following information, what is the total cost of goods manufactured?
Direct materials $6
Advertising expenses 3
Indirect labour 1
Indirect materials 5
Direct labour 2
Other manufacturing overhead 3

A) $23
B) $20
C) $17
D) $16

Question 59

For a manufacturer, if cost of goods manufactured is $652 000, stock of finished goods at start is $40 000 and stock of finished goods at end is $36 000, calculate the cost of sales.

A) $728 000
B) $648 000
C) $656 000
D) Cannot be calculated with the information available

Question 60

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

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

Question 61

Sustainable manufacturing is of importance to how many of these groups?
I) Management
Ii) Government
Iii) Customers
Iv) Public at large

A) 1
B) 2
C) 3
D) 4

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) 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.
C) An overhead application rate is an historical rate.
D) The direct labour rate per unit of output is constant but total direct labour costs increase with an increase in the level of production.

Question 63

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

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

Question 64

Which of the following statements concerning sustainable manufacturing is correct?

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

Question 65

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

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