Cost Accounting CH. 6

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Chapter 6 Multiple Choice Practice

1. The term "product" often refers to an organization's output and includes both tangible items (e.g., chair, desk, etc.) and intangible items (e.g., services provided).
True False

True

2. Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.
True False

False

3. One of the most common decisions facing managers is determining the price at which to sell one of their product or provide their services.
True False

True

4. It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information.
True False

True

5. In general, indirect costs are allocated, while direct costs are assigned.
True False

TRUE

6. Cost management systems should be designed to report the same costs to each decision-maker.
True False

FALSE

7. The only purpose of cost information is to determine the individual product cost on a per unit basis in order to value inventory.
True False

FALSE

8. "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)".
True False

FALSE

9. The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are Direct materials, Direct labor and Manufacturing overhead.
True False

TRUE

10. The basic cost flow model applies only to physical units and not to costs.
True False

FALSE

11. If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the Transfers Out (TO).
True False

TRUE

12. The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e., activity level).
True False

FALSE

13. Overestimating a period's allocation base will understate the predetermined overhead rate.
True False

TRUE

14. Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost.
True False

TRUE

15. The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost objects using different allocation bases.
True False

TRUE

16. If a company has three cost pools, it should have three different cost allocation bases.
True False

TRUE

17. The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.
True False

FALSE

18. Hospitals are more likely to use a process costing system than a job order costing system.
True False

FALSE

19. Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product.
True False

TRUE

20. Operation costing is a hybrid system used in manufacturing goods that have some common characteristics and some individual characteristics.
True False

TRUE

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

41. For which of the following businesses would the job order cost system be appropriate?
A. law office
B. crude oil refinery
C. baby formula manufacturer
D. soft drink producer

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

44. For Case (A) above, what is the Beginning Balance (BB)?
A. $52,000
B. $82,000
C. $67,000
D. $97,600

B. $82,000

45. For Case (B) above, what is the amount Transferred Out (TO)?
A. $93,900
B. $101,500
C. $116,900
D. $120,700

B. $101,500

46. For Case (C) above, what is the amount Transferred In (TI)?
A. $12,800
B. $20,700
C. $21,500
D. $29,400

C. $21,500

47. The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31:

Actual manufacturing OC $212,500
Actual direct labor hours 54,900
Actual direct labor costs $445,000
Estimated man. OC $210,000
Estimated direct labor $434,000
Estimated DL hours 56,000

What is the predetermined manufacturing overhead rate per direct labor hour?
A. $3.87
B. $3.79
C. $3.83
D. $3.75

D. $3.75

48. The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31:



What is the predetermined manufacturing overhead rate assuming direct labor cost is used as the activity base?
A. 48.4%
B. 47.2%
C. 49.0%
D. 47.8%

A. 48.4%

49. The predetermined manufacturing overhead rate for 2010 was $4.00 per direct labor hour; employees were paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead?
A. $15,000
B. $60,000
C. $75,000
D. $93,750

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.

51. Techniques, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year:



Techniques used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?
A. $24.00
B. $15.00
C. $14.00
D. $10.00

D. $10.00

52. Lexie Lou Industries applies manufacturing overhead to its cost objects on the basis of 75% of direct material cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct materials assigned to Job 17X was:
A. $54,000
B. $72,000
C. $96,000
D. $126,000

C. $96,000

53. The Super Supply Company manufactures cleaning spray for public schools. During 2010, the company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate of 150% of direct labor costs. How much did the company allocate for manufacturing overhead during 2010?
A. $480,000
B. $360,000
C. $320,000
D. $300,000

A. $480,000

54. Fab Co. manufactures textiles. Among Fab's 2010 manufacturing costs were the following salaries and wages:



What was the amount of Fab's 2010 direct labor? (CPA adapted)
A. $195,000
B. $165,000
C. $150,000
D. $120,000

D. $120,000

55. Fab Co. manufactures textiles. Among Fab's 2010 manufacturing costs were the following salaries and wages:



What was the amount of Fab's 2010 indirect labor? (CPA adapted)
A. $75,000
B. $165,000
C. $150,000
D. $120,000

A. $75,000

56. The following direct labor information pertains to the manufacture of product Glu:



What is the standard direct labor cost per unit of product Glu? (CPA adapted)
A. $30
B. $24
C. $15
D. $12

A. $30

57. The following direct labor information pertains to the manufacture of product Frez:



What is the standard direct labor cost per unit of product Frez? (CPA adapted)
A. $19.44
B. $25.28
C. $58.33
D. $75.83

D. $75.83

58. The cost per unit of the allocation base used to charge overhead to products is the
A. job cost.
B. predetermined overhead rate.
C. operational cost.
D. process cost.

B. predetermined overhead rate.

59. Acme, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be:
A. 101.67%
B. $10.00
C. $10.16
D. $10.33

B. $10.00

60. Acme, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred. Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs. The predetermined overhead rate would be:
A. 101.67%
B. 104.00%
C. 120.00%
D. 83.33%

C. 120.00%

61. For Case (A) above, what is the Ending Balance (EB)?
A. $36,920
B. $36,520
C. $34,720
D. $38,320

D. $38,320

62. For Case (B) above, what is the Transferred-In (IT)?
A. $96,900
B. $119,700
C. $89,500
D. $66,700

C. $89,500

63. For Case (C) above, what is the Transferred-Out (TO)?
A. $75,000
B. $61,800
C. $68,400
D. $80,600

B. $61,800

64. For Case (A) above, what is the Beginning Balance (BB)?
A. $36,400
B. $32,560
C. $37,680
D. $34,040

B. $32,560

65. For Case (B) above, what is the Ending Balance (EB)?
A. $4,730
B. $12,530
C. $46,500
D. $8,630

A. $4,730

66. For Case (C) above, what is the Transferred-In (TI)?
A. $146,700
B. $178,400
C. $190,790
D. $185,400

D. $185,400

67. For Case (A) above, what is the Transferred-Out (TO)?
A. $185,600
B. $192,600
C. $126,100
D. $178,890

B. $192,600

68. For Case (B) above, what is the Ending Balance (EB)?
A. $139,300
B. $136,260
C. $62,950
D. $56,730

C. $62,950

69. For Case (C) above, what is the Beginning Balance (BB)?
A. $15,900
B. $2,100
C. $11,700
D. $13,800

A. $15,900

70. The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31:



What is the predetermined office overhead rate per billable labor hour?
A. $28.60
B. $26.57
C. $22.50
D. $24.22

C. $22.50

71. The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31:



What is the predetermined office overhead rate per billable labor dollar?
A. 118.10%
B. 25.00%
C. 32.21%
D. 400.00%

B. 25.00%

72. The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per labor dollar?
A. 178.54%
B. 211.44%
C. 118.43%
D. 198.41%

D. 198.41%

73. The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per labor hour?
A. $29.01
B. $31.25
C. $37.01
D. $34.36

B. $31.25

74. The following information has been gathered for Roswell Machining for its fiscal year ending December 31:



What is the predetermined factory overhead rate per machine hour?
A. $15.625
B. $14.620
C. $18.504
D. $17.314

A. $15.625

75. Slurpy produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that was completed and transferred to finished goods?
A. $54,600
B. $51,000
C. $46,410
D. $38,220

B. $51,000

76. Slurpy produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that remains in work-in-process?
A. $16,380
B. $51,000
C. $3,600
D. $9,000

C. $3,600

77. Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that was completed and transferred to finished goods?
A. $3,610,000
B. $3,555,850
C. $2,994,400
D. $3,743,000

A. $3,610,000

78. Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that remains in work-in-process?
A. $591,000
B. $131,005
C. $187,150
D. $133,000

D. $133,000

79. Lo-crete produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the material cost of the product that remains in work-in-process?
A. $315,200
B. $157,600
C. $112,000
D. $160,000

C. $112,000

80. Trans-X processes credit card receipts for local banks. Trans-X processed 1,400,000 receipts in October. All receipts are processed the same day they are received. October costs were labor of $14,000 and overhead of $28,000. What is the cost to process 1,000 receipts?
A. $10.00
B. $30.00
C. $20.00
D. $42.00

B. $30.00

81. Mounder processes rebate requests for a large building supply firm. Mounder processed 420,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $28,000 and overhead of $14,000. What is the cost to process 1,000 rebates?
A. $66.67
B. $100.00
C. $10.00
D. $42.00

B. $100.00

82. Sweet Lu Industries applies manufacturing overhead to its products on the basis of 50% of direct material cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct materials assigned to the job was:
A. $17,500
B. $35,000
C. $70,000
D. $140,000

C. $70,000

83. Zeppo Supply Company manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs. How much did the company spend on manufacturing overhead during the year?
A. $260,000
B. $468,000
C. $128,000
D. $404,444

B. $468,000

84. The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour; employees were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the estimated manufacturing overhead?
A. $22,500
B. $90,000
C. $252,000
D. $393,750

C. $252,000

85. The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated manufacturing overhead?
A. $210,000
B. $187,500
C. $262,500
D. $367,500

D. $367,500

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