Chapter 2 MCQ PDF

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Multiple choice as well as math problems....

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1. Product costs are costs that are a necessary and integral part of producing the finished product. True False 2. Both direct and indirect materials may physically become part of the finished product. True False 3. Fixed costs are costs that remain the same per unit regardless of changes in the activity level. True False 4. Mixed costs change proportionately with changes in the activity level. True False 5. The cost of beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured. True False 6. Direct materials are a product cost and manufacturing overhead, but not a period cost. a product cost, but neither a manufacturing overhead nor a period cost. a product cost, manufacturing overhead, and a period cost. neither a product cost, manufacturing overhead, nor period cost. 7. Indirect labour is a non-manufacturing cost. raw material cost. product cost. period cost.

8. Manufacturing overhead includes all of the following except amortization. direct materials. indirect labour. maintenance.

9. On average, the smallest component of total manufacturing cost is direct materials. direct labour. manufacturing overhead. factory overhead. 10. Product costs include each of the following except direct materials. direct labour. manufacturing overhead. selling and administrative expenses 11. Variable costs are costs that vary in total directly and proportionately with changes in the activity level. remain the same per unit at every activity level. vary in total directly and proportionately with changes in the activity level and remain the same per unit at every activity level. neither of the above. 12. The relevant range is the range of activity in which variable costs will be curvilinear. the range of activity in which fixed costs will be curvilinear. the range that the company expects to operate in during a year. usually from zero to 100% of operating capacity.

13. Mixed costs consist of a

variable cost element and a fixed cost element. fixed cost element and a controllable cost element. relevant cost element and a controllable cost element. variable cost element and a relevant cost element. 14. A cost that remains the same per unit at every level of activity is a fixed cost. mixed cost. semi-variable cost. variable cost. 15. The following data pertain to activity and electricity costs for two recent years: Year 1

Year 2

Activity Levels in Units 12,000 8,000 Electricity costs $15,000 $12,000 Using the high-low method, what is the variable cost per unit for electricity? $1.25 per unit $1.50 per unit $1.33 per unit $0.75 per unit 16. Kendra Corporation’s total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded to 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method? $0.075 variable and $450 fixed $0.120 variable and $0 fixed $0.300 variable and $0 fixed $0.060 variable and $600 fixed

17. In a manufacturer’s balance sheet, three inventories may be reported: (1) raw materials, (2) work in process, and (3) finished goods. In what sequence do these inventories generally appear on a balance sheet? (1), (2), (3) (2), (3), (1) (3), (1), (2) (3), (2), (1) 18. For the year, Redder Company has Cost of Goods Manufactured of $600,000, beginning Finished Goods Inventory of $200,000, and ending Finished Goods Inventory of $250,000. The Cost of Goods Sold is $450,000. $500,000. $550,000. $600,000 19. A Cost of Goods Manufactured schedule shows beginning and ending inventories for Raw Materials and Work in Process only. Work in Process only. Raw Materials only. Raw Materials, Work in Process, and Finished Goods. 20. Babar Inc. manufactures electronic parts. Its managers are analyzing its monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last 6 months: Month Machine Hours Maintenance Costs January 30,000 $62,000 February 40,000 $74,500 March

37,500

$65,900

April

39,000

$68,750

May

42,300

$74,000

June

35,000

$64,500

Using the high-low method and the Babar Inc. data above, calculate the variable maintenance cost per machine hour.

$1.016/hr $0.976/hr $1.863/hr $1.250/hr FOR THIS USE THE HIGH-LOW SO TAKE THE HIGHEST AND LOWEST LEVELS OF ACTIVITY 20. A music company has these costs: Classify each cost as a period or a product cost. Within the product cost category, indicate if the cost is part of direct materials, direct labour, or manufacturing overhead. (Select Not Applicable if the cost category does not apply to any of the mentioned costs.) Advertising – period cost – not applicable

Blank CDs – product cost – direct materials Depreciation of CD image burner - product costs – manu overhead Salary of factory manager - product costs – manu overhead

Factory supplies used - product costs – manu overhead Paper inserts for CD cases – product cost – direct materials

CD plastic cases – product cost – direct materials Salaries of sales representatives – period cost – not applicable Salaries of factory maintenance employees – product costs – manu overhead

Salaries of employees who burn music onto CDs – product costs -direct labour

22. Montana Company reports the following total costs at two levels of production. Classify each cost as variable, fixed, or mixed. 5,000 Units Indirect labour Property taxes Direct labour

22,000 44,000

Depreciatio n

4,000 4,000

3,000 5,000

Maintenanc e Viariable Fixed Variable Variable Fixed Mixed Mixed

7,000 7,000 27,000 54,000

Direct materials

Utilitie s

$ 3,000

9,000 11,000

10,000 Units $ 6,000

23. Raw materials inventory is not an asset until it is used to make a product. True False 24. The high-low method is a quick means of separating fixed and variable costs. True False 25. Raw materials are equal to direct materials. True False 26. Manufacturing costs that cannot be classified as direct material or direct labour are classified as operating expenses. True False 27. What the high-low method may lack in precision, it makes up for in efficiency and ease of use. True False 28. If the ending work in process inventory is less than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the period. True False 29. Which one of the following represents a period cost? company advertisement depreciation of plant equipment production manager’s salary direct materials 30. Which of the following is considered manufacturing overhead? depreciation on the press that moulds the plastic into work in process

the line worker’s Christmas bonus designated by management tools that were originally utilized for production but are currently being used by management to fix a copier in the upstairs corporate office the courier charge for delivering a new ball bearing joint for a robotic paint arm 31. Which of the following are period costs? workers wages in the shipping department factory workers wages paid for statutory holidays workers wages in the plant maintenance department workers wages on an assembly line 32. Examples of fixed costs include all but one of the following: cost of factory rent for the 12 month contract term. cost of Janet’s apartment rent during her 3rd year of university. cost of a car rental which includes a fee per km driven. a one-week rental of a carpet cleaning machine. 33. Which of the following would most likely be considered direct labour? a worker installing components in a computer a maintenance worker a security guard 34. Fees for office telephones are fixed period costs. mixed period costs. variable period costs. direct, fixed, or variable period costs. 35. A curvilinear relationship between variable costs and changes in activity levels suggests what? A strictly linear relationship between fixed costs and activity levels is implausible. A strictly curvilinear relationship between changes in activity levels and variable costs is possible only within the relevant range. Since the relationship between activity levels and variable costs is linear within the relevant range and less linear at lower and higher levels outside the relevant range, the

straight-line (linear) relationship takes on a curvature in the real world. None of the above. 36. The high-low method is a useful means of predicting the highest cost a company will incur in the operating period. is a useful means of separating fixed and variable elements from a mixed cost. is more time-consuming than the scatter diagram method. is more complex than the use of linear regression analysis. 37. Labour Hours (X) 198

Overhead Costs (Y) $413

Feb

173

$383

Mar

288

$518

Apr

298

$533

May Jun Jul Aug

183 263 120 320

$401 $488 $370 $580

Month Jan

What is the slope of this data, using the high-low method? $1.81 $2.67 $1.05 $0.95 38. Month Jan Feb Mar Apr May Jun

Labour Hours (X) 202

Overhead Costs (Y) $415

175 288 302 187 265

$387 $520 $536 $404 $488

Jul Aug

161 321

$373 $566

Which of the following choices represents the highest and lowest respective coordinates of activity level and corresponding total overhead costs? ($373, 161 labour hours), ($566, 321 labour hours) ($566, 321 labour hours), ($373, 161 labour hours) (161 labour hours, $373), (321 labour hours, $566) (321 labour hours, $566), (161 labour hours, $373)

39. Ending finished goods inventory appears on a cost of goods manufactured schedule. for a manufacturing company is equivalent to merchandise inventory for a merchandising company. represents the cost of completed goods available for sale to customers. is calculated by adding beginning finished goods inventory to cost of goods sold and subtracting cost of goods manufactured. 40. What amount is given by the sum of direct materials, direct labour, and manufacturing overhead incurred? total cost of work in process cost of goods available for sale total manufacturing costs cost of goods manufactured 41. Sheridan Combines, Inc. has $4500 of finished goods inventory as of December 31, 2020. If beginning finished goods inventory was $2000 and cost of goods sold was $8300, how much would Sheridan report for cost of goods manufactured?

$14800 $1800 $10800 $6300 42. At May 31, 2020, Swifty Inc. has $4500 in beginning raw materials, $6300 of direct labour. If manufacturing overhead was $11000, total manufacturing costs was $50100, and total raw material purchases were $35800, how much is ending amount of raw materials? $35800 $21800 $39100 $7500

43. Which of the following would most likely be viewed as indirect materials? ball bearings associated with an industrial tractor wheel axle grease associated with the suspension of a new car new tires for a commercial truck cost of boring a cylinder in assembly 44. Which of the following is true? a) Within the relevant range a valid argument can be made for the assumption of linearity of variable costs. b) At the upper and lower limits of the relevant range of company activity, linearity of variable c) costs is a given. c) The relevant range is reflective of the relevant range of products a company offers to its customers. d) Fixed costs vary in total within the relevant range. 45. Costs of goods manufactured of Sheffield Company are shown below: Sheffield Company

Cost of Goods manufactured Year Ending December 31, 2020 Beginning work in process Direct materials: Beginning raw materials $13600 Raw material purchases +21500 Total raw materials available for use =35100 Ending raw materials -5100

$15100

Direct materials used Direct Labour Total manufacturing overhead

30000 5700 10800

Ending work in process

17700

Cost of Goods Manufactured

$43900

How much is the total manufacturing cost? $13500 $19200 $46500 $43900 BEGGIN WORK IN PROGRESS+DIRECT MATERIALS+DIRECT LABOUR+TOT MANU OVERHEAD-ENDING WORK IN PROGRESS=COST OF GOODS MANU...