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FAR EASTERN UNIVERSITY Institute of Accounts, Business and Finance MIDTERM EXAMINATION SET B

14. ABC Inc. overstated the percentage of work completed with respect to conversion cost on the ending work-in-process inventory. This overstatement caused conversion-cost equivalent units to be overstated.

PART I. True or False (Shade A for True, B for False) 1. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory.

2. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units’ increases or decreases.

3. As activity increases within the relevant range, fixed costs remain constant on a per unit basis.

4. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car. 5. The amount that was paid by a company for a building to house its operations is an example of a sunk cost.

6. The flow of costs through the manufacturing accounts is essentially the same in both process costing and job-order costing.

7. Equivalent-unit calculations are necessary to allocate manufacturing costs between units sold and ending work in process.

8. Companies that use a process-cost accounting system would establish a separate Work-in-Process Inventory account for each manufacturing department.

9. The sum of all costs that composed manufacturing costs except direct materials is called manufacturing overhead. 10. Conversion cost is the sum of direct labor and manufacturing overhead.

11. Prime cost is the sum manufacturing overhead.

of

direct

labor

and

12. Thread used in the production of bed sheet set, an indirect material, is classified as manufacturing overhead.

13. All costs in a manufacturing company are product costs.

15. Equivalent units are computed to assign costs to partially completed units.

PART II. Multiple Choice 16. Direct materials cost is part of Conversion Cost a. No b. Yes c. No d. Yes 17. Direct labor cost is part of Conversion Cost a. No b. Yes c. No d. Yes 18. Indirect a. b. c. d.

Prime Cost Yes Yes No No

Prime Cost No Yes Yes No

labor is a Prime cost Period cost Non-manufacturing cost Conversion cost

19. Prime cost and conversion cost share what common element of total cost? a. Direct labor b. Variable overhead c. Fixed overhead d. Direct materials 20. Costs that vary inversely with changes in volume include a. Total variable costs b. Total fixed costs divided by volume c. Total variable costs divided by volume d. Total fixed costs 21. Costs that vary directly with changes in volume include a. Total variable costs divided by volume b. Total variable costs c. Total fixed costs d. Total fixed costs divided by volume 22. Which of the following cost is not a product cost? a. Wages paid to workers for rework on defective products b. Wages and benefits paid to factory workers. c. Wages paid to workers for idle time due to machine breakdown in a production department d. Wages paid to truck loaders who load finished goods onto outgoing delivery trucks 23. A process costing system is used by a company that a. Produces heterogeneous products b. Produces items by special requests of

customers c. Produces homogeneous products d. Accumulates costs by job

24. Which of the following characteristics applies to process costing but not to job-order costing? a. Identifiable batches of production b. Equivalent units of production (EUP) c. Averaging process d. Use of standard costs 25. Equivalent units of production are equal to a.

Number of whole units that could have been completed if all work of the period had been used to produce whole units b. Units completed by a production department in the period c. Number of units worked on during the period by a production department d. Identifiable units existing at the end of the period in a production department 26. The cost of the cushions that are used to manufacture sofas is best described as a: a. variable cost. b. manufacturing overhead cost. c. period cost. d. conversion cost. 27. ABC Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease be classified? Direct Material Cost Fixed Cost a. Yes Yes b. Yes No c. No Yes d. No No 28. A security guard's wages at a factory would be an example of:

a. b. c. d.

Indirect labor No Yes Yes No

Fixed manufacturing overhead No Yes No Yes

29. M a n u f

acturing overhead includes: a.all manufacturing costs except direct labor and direct materials. b.all direct material, direct labor and administrative costs. c.all manufacturing costs except direct labor. d.all selling and administrative costs. 30. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: a.direct materials. b.manufacturing overhead. c.a period cost. d.administrative expense.

31. The one cost that would be classified as part of both prime cost and conversion cost would be: a. direct labor. b. indirect material. c. direct material. d. indirect labor.

32. Direct costs: a. are incurred to benefit a particular accounting period. b. can be easily traced to a particular cost object. c. are incurred due to a specific decision. d. are the variable costs of producing a product. 33. Prime costs consist of: a. direct labor and direct materials. b. direct materials and the variable portion of manufacturing overhead. c. direct labor and indirect labor. d. indirect labor and the fixed portion of manufacturing overhead....