Exam 15 June 2019, questions and answers PDF

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Cost AccountingExam Chapters 1- The branch of accounting that serves as a bridge between financial and managerial accounting is __________ accounting. ANS: cost Costs that can be conveniently traced to a cost object are referred to as ____________ costs. ANS: direct The assumed range of activity tha...

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Cost Accounting Exam Chapters 1-3 1. The branch of accounting that serves as a bridge between financial and managerial accounting is __________ accounting. ANS: cost 2. Costs that can be conveniently traced to a cost object are referred to as ____________ costs. ANS: direct 3. The assumed range of activity that reflects the company’s normal operating range is referred to as the _____________________________. ANS: relevant range 4. Another name for inventoriable costs is ______________ costs. ANS: product 5. The three stages of production for a manufacturing firm are ______________, ________________, and ______________________. ANS: raw materials, work in process, finished goods 6. In a(n) _________ cost system, factory overhead is assigned to an overhead control account and then allocated to products and services. ANS: normal 7. If actual overhead exceeds applied overhead, factory overhead is said to be ______________. ANS: underapplied 8. If underapplied or overapplied factory overhead is material, it is prorated among ______________________, _________________________, and _______________________. ANS: Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold 9. A performance measure that assumes all production factors are operating perfectly is referred to as ___________________ capacity. ANS: theoretical 10. Consider the regression equation y = a + bX. The portion of the equation that represents the variable rate is ________. ANS: b 11. A __________________________ is a planning document that presents expected variable and fixed overhead costs at different activity levels. ANS: flexible budget

12. The costing technique that treats all manufacturing costs as inventoriable is referred to as _________________ costing. ANS: absorption or full 13. In comparing financial and management accounting, which of the following more accurately describes

management accounting information? a. b. c. d.

historical, precise, useful required, estimated, internal budgeted, informative, adaptable comparable, verifiable, monetary

ANS: C 14. Management and financial accounting are used for which of the following purposes? Management accounting

a. b. c. d.

Financial accounting

internal

external

external

internal

internal

internal

external

external

ANS: A

15. a. b. c. d.

Cost accounting is directed toward the needs of regulatory agencies. external users. internal users. stockholders.

ANS: C

16. Cost and management accounting a. require an entirely separate group of accounts than financial accounting uses. b. focus solely on determining how much it costs to manufacture a product or provide a service. c. provide product/service cost information as well as information for internal decision making. d. are required for business recordkeeping as are financial and tax accounting. ANS: C 17. a. b. c.

Which of the following statements is true? Management accounting is a subset of cost accounting. Cost accounting is a subset of both management and financial accounting. Management accounting is a subset of both cost and financial accounting.

d. Financial accounting is a subset of cost accounting. ANS: B

18. The ethical standards established for management accountants are in the areas of a. b. c. d.

competence, licensing, reporting, and education. budgeting, cost allocation, product costing, and insider trading. competence, confidentiality, integrity, and objectivity. disclosure, communication, decision making, and planning.

ANS: C 19.

Which of the following defines variable cost behavior? Total cost reaction to increase in activity

a. b. c. d.

remains constant remains constant increases increases

Cost per unit reaction to increase in activity

remains constant increases increases remains constant

ANS: D 20.

Which of the following always has a direct cause-effect relationship to a cost?

Predictor

a. b. c. d.

Cost driver

yes yes

yes no

no

yes

no

no

ANS: C

21. a. b. c. d.

The indirect costs of converting raw material into finished goods are called period costs. prime costs. overhead costs. conversion costs.

ANS: C

22.

The distinction between direct and indirect costs depends on whether a cost

a. is controllable or non-controllable.

b. is variable or fixed. c. can be conveniently and physically traced to a cost object under consideration. d. will increase with changes in levels of activity. ANS: C

23.

The formula to compute cost of goods manufactured is

a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process Inventory. b. beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred minus ending Work in Process Inventory. c. direct material used plus direct labor plus overhead incurred. d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory. ANS: B Wilson Company The following information has been taken from the cost records of Wilson Company for the past year: Raw material used in production Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to 60% of direct labor cost) Cost of goods available for sale Selling and Administrative expenses

Inventories Raw Material Work in Process Finished Goods

Beginning $75

$326 686 826 25

Ending $ 85

80

30

90

110

24. Refer to Wilson Company. The cost of raw material purchased during the year was a. b. c. d.

$316. $336. $360. $411.

ANS: B Beginning Inventory +Purchases =Goods Available for Sale -Ending Inventory Materials Used in Production

75 336 411 (326) 85

25. Refer to Wilson Company. Direct labor cost charged to production during the year was a. b. c. d.

$135. $216. $225. $360.

ANS: C Total production costs - Raw materials Conversion Costs Let x = Direct Labor Let .60x = Factory Overhead x + .60x x

26. a. b. c. d.

$686 $326 $360

$360 $225

Refer to Wilson Company. Cost of Goods Manufactured was

$636. $716. $736. $766.

ANS: C Beginning WIP Inventory Costs of Production less: Ending WIP Inventory

$ 80 686 (30)

Cost of Goods Manufactured

$736 ====

27. a. b. c. d.

Refer to Wilson Company. Cost of Goods Sold was $691. $716. $736. $801.

ANS: B Beginning Finished Goods Inventory $ 90 Cost of Goods Manufactured 736 less: Ending Finished Goods Inventory (110) Cost of Goods Manufactured

$716

====

28. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw material used during the month was a. b. c. d.

$26,400. $34,100. $37,300. $29,600.

ANS: A Beginning RM Inventory + Purchases - Ending RM Inventory = RMaterials Used $4,500 + 29,600 - 7,700 = X X = $26,400

29. a. b. c. d.

An actual cost system differs from a normal cost system in that an actual cost system assigns overhead as it occurs during the manufacturing cycle. assigns overhead at the end of the manufacturing process. does not assign overhead at all. does not use an Overhead Control account.

ANS: B

30. If the level of activity increases, a. b. c. d.

variable cost per unit and total fixed costs increase. fixed cost per unit and total variable cost increase. total cost will increase and fixed cost per unit will decrease. variable cost per unit and total cost increase.

ANS: C

31. All other things being equal, if actual cost per unit is greater than budgeted cost per unit, variable overhead will be a. b. c. d.

overapplied. the same as fixed overhead. underapplied. applied to Finished Goods.

ANS: C

32. Walton Corporation wishes to develop a single predetermined overhead rate. The company's expected annual fixed overhead is $340,000 and its variable overhead cost per machine hour is $2. The company's relevant range is from 200,000 to 600,000 machine hours. Walton expects to operate at 425,000 machine hours for the coming year. The plant's theoretical capacity is 850,000. The predetermined overhead rate per machine hour should be

a. b. c. d.

$2.40. $2.57. $2.80. $2.85.

ANS: C Fixed component:

Variable component = $2.00 per unit Total predetermined overhead = $2.80 per unit

The records of Zenith Corporation revealed the following data for the current year. Work in Process Finished Goods Cost of Goods Sold Direct Labor Direct Material

$ 73,150 115,000 133,650 111,600 84,200

33. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200 and that this amount is material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.) a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and credit Overhead $37,200 b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 c. Debit Work in Process $37,200 and credit Overhead $37,200 d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200

ANS: A WIP: 73,150/321,800 = $ 8,456 FG: 115,000/321,800 = $13,294 EI: 133,650/321,800 = $15,450

34. a. b. c. d.

Another name for absorption costing is full costing. direct costing. job order costing. fixed costing.

ANS: A

35. Under variable costing, which of the following are costs that can be inventoried?

a. b. c. d.

variable selling and administrative expense variable manufacturing overhead fixed manufacturing overhead fixed selling and administrative expense

ANS: B 36. a. b. c. d.

Why is variable costing not in accordance with generally accepted accounting principles? Fixed manufacturing costs are treated as period costs under variable costing. Variable costing procedures are not well known in industry. Net earnings are always overstated when using variable costing procedures. Variable costing ignores the concept of lower of cost or market when valuing inventory.

ANS: A

37. A firm has fixed costs of $200,000 and variable costs per unit of $6. It plans on selling 40,000 units in the coming year. To realize a profit of $20,000, the firm must have a sales price per unit of at least a. b. c. d.

$11.00. $11.50. $10.00. $10.50.

ANS: B Sales--40,000 units * $11.50/unit Variable Costs: Manufacturing Contribution Margin

$460,000

Fixed Costs Net Income

200,000 $ 20,000 =====

240,000 $220,000

38. On what needs do (1) management accounting and (2) financial accounting focus? ANS: Management accounting focuses on the needs of users inside an organization. Managers need information related to planning, controlling, decision making, and performance evaluation. Their needs are satisfied through the providing of information designed for their particular uses. Financial accounting focuses on the needs of users outside the organization, such as stockholders, creditors, and regulatory agencies. These users require information that is in conformity with generally accepted accounting principles and, thus, is standardized in the form of general purpose financial statements.

39. What is the difference between a product cost and a period cost? Give three examples of each. What is the difference between a direct cost and indirect cost? Give two examples of each. ANS:

A product cost is one that is associated with making or acquiring inventory. A period cost is any cost other than those associated with making or acquiring products and is not considered inventory. Students will have a variety of examples, but direct material, direct labor, and overhead are product costs. Selling and administrative expenses are considered period costs. A direct cost is one that is physically and conveniently traceable to a cost object. Direct material and direct labor are direct costs. An indirect cost is one that cannot be conveniently traced to a cost object. Any type of overhead cost is considered indirect. 40.

Why should predetermined overhead rates be used?

ANS: Predetermined overhead rates should be used for three reasons: (1) to assign overhead to Work in Process during the production cycle instead of at the end of the period; (2) to compensate for fluctuations in actual overhead costs that have no bearing on activity levels; and (3) to overcome problems of fluctuations in activity levels that have no impact on actual fixed overhead costs.

41.

Discuss underapplied and overapplied overhead and its disposition at the end of the period.

ANS: During the course of the production cycle, actual overhead costs are incurred. When overhead is applied to Work in Process, it is commonly applied using a predetermined rate. Overhead application at a predetermined rate may cause overhead to be under- or overapplied. If actual overhead is greater than applied overhead, then underapplied overhead results and a debit balance exists in the overhead account. If applied overhead is greater than actual overhead, then overapplied overhead results and a credit balance exists in the overhead account. If the amount of under- or overapplied overhead is immaterial, it is closed directly to Cost of Goods Sold. If the amount is material, it must be allocated among Work in Process, Finished Goods, and Cost of Goods Sold 42. Given the following information for McCurley Corporation, prepare the necessary journal entries, assuming that the Raw Material Inventory account contains both direct and indirect material. a. b. c. d. e. f.

Purchased raw material on account $28,500. Put material into production: $15,000 of direct material and $3,000 of indirect material. Accrued payroll of $90,000, of which 70 percent was direct and the remainder was indirect. Incurred and paid other overhead items of $36,000. Transferred items costing $86,500 to finished goods. Sold goods costing $71,300 on account for $124,700.

ANS: a. b.

c.

d. e.

RM Inventory A/P WIP Inventory Manufacturing OH RM Inventory WIP Inventory Manufacturing OH Salaries/Wages Payable Manufacturing OH Cash FG Inventory WIP Inventory

28,500 28,500 15,000 3,000 18,000 63,000 27,000 90,000 36,000 36,000 86,500 86,500

f.

124,700

A/R

124,700

Sales

71,300

CGS

71,300

FG Inventory

43. Hume Corporation has the following data for the current year: $220,000 137,800

Direct Labor Direct Material Actual Overhead Applied Overhead Raw Material Work in Process Finished Goods Cost of Goods Sold

320,000 395,000 51,394 101,926 111,192 250,182

What is the amount of under- or overapplied overhead? Prepare the necessary journal entry to dispose of under- or overapplied overhead. ANS: $395,000

Applied Overhead Actual Overhead

320,000 $ 75,000overapplied

WIP $101,926/$463,300=.22 FG $111,192/$463,300=.24 CGS $250,182/$463,300=.54

Manufacturing Overhead Work in Process Finished Goods Cost of Goods Sold

x x x

$75,000 = $16,500 $75,000 = $18,000 $75,000 = $40,500

$75,000 $16,500 18,000 40,500

44. The McAlister Co. has the following information available regarding costs and revenues for two recent months. Selling price is $20. March Sales revenue Cost of goods sold Gross profit Less other expenses: Advertising

April

$60,000 -36,000

$100,000 - 60,000

$24,000

$ 40,000

$

$

600

600

Utilities Salaries and commissions Supplies (bags, cleaning supplies etc.) Depreciation Administrative costs Total Net income

4,200

5,600

3,200

4,000

320

400

2,300

2,300

1,900 -12,520

1,900 -14,800

$11,480

$25,200

Required: a. b. c.

Identify each of the company's expenses (including cost of goods sold) as being either variable, fixed, or mixed. What is the total cost equation? Estimate total cost if sales = $75,000.

ANS: a.

Cost COGS Advertising Utilities Salaries, Etc. 3,200/60,000=5.3% Supplies Depreciation Administration

April

May

Behavior

36,000/60,000=60%

60,000/100,000=60%

V

600 4,200/60,000= 7% 4,000/100,000=4%

600 5,600/100,000=5.6% M

F M

320/60,000 .53%

400/100,000=.4%

M

2,300

2,300

F

1,900

1,900

F

b.

Total FC = $600 + $2,300 + $1,900 + $2,100 + $2,000 + $200 = $9,100 Total VC = 60% + 3.5% + 2% + .2% = 65.7% sales TC = $9,100 + 65.7% sales

c.

TC = $9100 + (65.7% x $75,000) = $58,375...