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Chapters 6,7,8

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.

B only is true
A common decision facing managers is determining the price at which to sell their product or provide their services.

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.

both a & b are false
determining product costs is equally difficult for manufacturers and wholesalers; direct costs are traced.

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
Selling expenses are not part of product costs.

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.
Managerial purposes implies decision making. Valuing inventory is financial reporting.

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
Algebraic manipulation of basic formula BB + TI - TO = EB

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

C. EB - BB = TI - TO
Algebraic manipulation of basic formula BB + TI - TO = EB

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 would more closely reflect the usage of the automated equipment.

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.
Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller,
thus overstating the rate.

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.
Labor cost would reflect the higher skill level

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.
Single stage is best when there are few products with similar characteristics.

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.

Only B is false, the selection of the base is important

Costs that are accumulated before being allocated to cost objects on some common basis are

cost pools

A system that provides information about the costs of processes, products, and services used and
produced by an organization is a

cost management system

The process of first allocating costs to intermediate cost pools and then to the individual cost objects
using different allocation bases is

two-stage allocation system

A system that mass-produces a single, homogenous output in a continuous process is

continous flow system

A hybrid costing system that is often used when manufacturing goods that have some common
characteristics plus some individual characteristics is called:

Operation costing

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.
Job costing can be used for batches, process costing is used for homogenous units, process costing is
more appropriate in a continuous flow process.

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

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
Law office would have many different types of jobs. The refinery, baby formula, and soft drinks would
all be uniform and could use process costing.

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
Operation costing because outside services would vary but the evaluation costs would be standardized.

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 (single uniform product)

What often refers to an organization's output and includes both tangible items (e.g., chair,
desk, etc.) and intangible items (e.g., services provided).

product

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