# Cost Accounting CH. 6

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Chapter 6 Multiple Choice Practice

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### 21. Which of the following statements is (are) true regarding product costing? (A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements. (B) A common decision facing managers is determining the price at which to sell their product or provide their services. A. Only A is true. B. Only B is true. C. Both A and B are true. D. Neither A nor B is true.

B. Only B is true.

### 22. Which of the following statements is (are) false regarding cost allocations and product costing? (A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler. (B) In general, indirect costs are assigned, while direct costs are allocated. A. Only A is false. B. Only B is false. C. Both A and B are false. D. Neither A nor B is false.

C. Both A and B are false.

### 23. The Cost Flow Diagram for product costing includes all of the following costs except: A. Selling expenses B. Direct materials C. Direct labor D. Fixed manufacturing overhead E. Variable manufacturing overhead

A. Selling expenses

### 24. Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes? A. Cost systems should have a decision focus. B. Different cost information is used for different purposes. C. Cost information for managerial purposes must meet the cost-benefit principle. D. The primary purpose of cost systems is to gather information to value inventory.

D. The primary purpose of cost systems is to gather information to value inventory.

### 25. The basic cost flow model is: A. BB + TO = TI + EB B. BB + TO - TI = EB C. EB = BB + TI - TO D. EB - BB = TO - TI E. EB + TI - TO = BB

C. EB = BB + TI - TO

### 26. The basic cost flow model is: A. EB + TO = TI + BB B. BB + TO - TI = EB C. EB = BB - TI + TO D. EB - BB = TO - TI E. EB + TI - TO = BB

A. EB + TO = TI + BB

### 27. The basic cost flow model is: A. EB + BB = TI + TO B. BB + EB = TI + TO C. EB - BB = TI - TO D. EB - BB = TO - TI E. BB -EB = TI

C. EB - BB = TI - TO

### 28. The basic cost flow model is: A. BB + TO - TI = EB B. BB + EB - TO = TI C. BB - TI - TO = EB D. BB + TI - TO = EB

D. BB + TI - TO = EB

### 29. When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work-in-process? A. Direct labor hours. B. Direct labor dollars. C. Machine hours. D. Cost of materials used.

C. Machine hours.

### 30. Beal Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2010, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to A. understate the predetermined overhead rate. B. overstate the predetermined overhead rate. C. there will be no effect on the predetermined overhead rate. D. Can't tell from the information provided.

B. overstate the predetermined overhead rate.

### 31. In a labor intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production? A. Direct labor cost. B. Direct material cost. C. Direct labor hours. D. Machine hours. E. Sales value of the product produced.

A. Direct labor cost.

### 32. A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified? A. The company has many service departments but only one production department. B. The company produces a few products with similar characteristics in a few departments. C. The company has no service departments but many production departments. D. The company produces a wide selection of differing products.

B. The company produces a few products with similar characteristics in a few departments.

### 33. Which of the following statements regarding the two-stage cost allocation process is (are) false? (A) If a company has three cost pools, then it should also have three different cost allocation bases. (B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems. A. Only A is false. B. Only B is false. C. Both A and B are false. D. Neither A nor B is false.

B. Only B is false.

### 34. Cost pools are: A. costs that are accumulated before being allocated to cost objects on some common basis. B. costs that are relevant to decision-making but irrelevant to financial reporting. C. product costs that are assigned to cost objects using direct labor or machine hours. D. accounts in the product life cycle from research and development to customer service.

A. costs that are accumulated before being allocated to cost objects on some common basis.

### 35. A system that provides information about the costs of processes, products, and services used and produced by an organization is a A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

B. cost management system.

### 36. The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is: A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

C. two-stage allocation system.

### 37. A system that mass-produces a single, homogenous output in a continuous process is: A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

A. continuous flow process.

### 38. A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called: A. continuous flow process. B. cost management system. C. two-stage allocation system. D. operations cost.

D. operations cost.

### 39. Which of the following statements is true? A. Job costing can only be used when a single unit is produced rather than a batch. B. Process costing is used when products are customized. C. Job costing must be used in a continuous flow processing environment. D. Process costing does not separately record the costs for each unit.

D. Process costing does not separately record the costs for each unit.

### 40. Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company? A. electricity used B. machine hours C. direct labor hours D. material consumed

C. direct labor hours

A. law office

### 42. The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department? A. job-order costing B. process costing C. operation costing D. batch costing

C. operation costing

### 43. The UVW Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by UVW? A. job-order costing B. process costing C. operation costing D. batch costing

B. process costing

B. \$82,000

B. \$101,500

C. \$21,500

D. \$3.75

A. 48.4%

B. \$60,000

### 50. The Silver Company uses a predetermined overhead rate in applying overhead to production orders on a labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of the year, the company made the following estimates: What predetermined overhead rate would be used in Department A and Department B respectively? A. 150% and 300%. B. 150% and \$3.00. C. \$1.50 and 300%. D. \$1.50 and \$3.00.

B. 150% and \$3.00.

D. \$10.00

C. \$96,000

A. \$480,000

D. \$120,000

A. \$75,000

A. \$30

D. \$75.83

B. \$10.00

C. 120.00%

D. \$38,320

C. \$89,500

B. \$61,800

B. \$32,560

A. \$4,730

D. \$185,400

B. \$192,600

C. \$62,950

A. \$15,900

C. \$22.50

B. 25.00%

D. 198.41%

B. \$31.25

A. \$15.625

B. \$51,000

C. \$3,600

A. \$3,610,000

D. \$133,000

C. \$112,000

B. \$30.00

B. \$100.00

C. \$70,000

B. \$468,000

C. \$252,000

D. \$367,500

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