Download Standard costs and variance analysis and more Exercises Accounting in PDF only on Docsity! Observe high level of confidentiality over this document This may serve as a test of mastery Study not based on the answers but based on your learning/understanding before referring to the answers provided. Know first the concepts before opening this reviewer. GOD BLESS! STANDARD COSTING REVIEW MATERIALS: D 1. The type of standard that is intended to represent challenging yet attainable results is: A. theoretical standard B. flexible budget standard C. controllable cost standard D. normal standard E. expected actual standard A 2. Standard costs are used for all of the following except: A. income determination B. controlling costs C. measuring efficiencies D. forming a basis for price setting E. establishing budgets C 3. Of the following variances, the one that is most useful in assessing the performance of the Purchasing Department is the: A. idle capacity variance B. overhead price variance C. materials purchase price variance D. labor rate variance E. materials price usage variance B 4. The labor efficiency variance is computed as: A. the difference between standard and actual rates, multiplied by standard hours B. the difference between standard and actual hours, multiplied by standard rate C. the difference between standard and actual rates, multiplied by actual hours D. the difference between standard and actual hours, multiplied by the difference between standard and actual rates E. a percentage of the labor time variance 1 2 Chapter 18 B 5. The method used to assure fairness in the rates paid for each operation performed by an employee is: A. job costing B. job rating C. union contracting D. the agreedupon wages at the time of employment E. labor rate variance analysis D 6. Materials and labor cost standards are generally based on: A. expected actual conditions, anticipated prices, and desired efficiency levels B. theoretical conditions, present price levels, and desired efficiency levels C. capacity conditions, anticipated prices, and desired efficiency levels D. normal conditions, present price levels, and desired efficiency levels E. theoretical conditions, anticipated prices, and theoretically attainable efficiency levels D 7. The most effective standards are set following a careful study of products and operating conditions by the: A. Accounting Department, central management, and the Industrial Engineering Department B. central management and the employees whose performance is being evaluated C. Accounting Department and engineering staff D. Industrial Engineering Department and the employees whose performance is being evaluated E. central management and the Industrial Engineering Department E 8. In analyzing factory overhead variances, the volume variance is the difference between the: A. actual amount spent for overhead items during the period and the amount applied during the period B. variable efficiency variance and fixed efficiency variance C. amount shown in the flexible budget and the amount shown in the master budget D. master budget application rate and the flexible budget application rate, multiplied by actual hours worked E. budget allowance based on standard hours allowed for actual production for the period and the amount of applied factory overhead during the period D 9. The variance resulting from obtaining an output different from the one expected on the basis of input is the: A. mix variance B. output variance C. usage variance D. yield variance E. efficiency variance A 10. In its reports to management, a company disclosed the presence of a fixed efficiency variance. The procedure used to analyze variances was the: A. fourvariance method B. mix and yield variances method C. twovariance method D. alternative threevariance method E. threevariance method B 21. The most probable reason a company would experience a favorable labor rate variance and an unfavorable labor efficiency variance is that: A. the mix of workers assigned to the particular job was heavily weighted toward the use of higher paid, experienced individuals B. the mix of workers assigned to the particular job was heavily weighted toward the use of new, relatively lowpaid, unskilled workers C. because of the production schedule, workers from other production areas were assigned to assist in this particular process D. defective materials caused more labor to be used in order to produce a standard unit E. the actual price paid for materials that went into production was less than the standard price that was expected to be paid C 22. Information on Orman Company's direct labor costs is as follows: Standard direct labor rate................................................................................................. $3.75 Actual direct labor rate..................................................................................................... $3.50 Standard direct labor hours.............................................................................................. 10,000 Direct labor usage (efficiency) varianceCunfavorable.................................................... $ 4,200 What were the actual hours worked, rounded to the nearest hour? A. 11,914 B. 10,714 C. 11,120 D. 11,200 E. none of the above SUPPORTING CALCULATION: $4,200 = $3.75 (x 10,000) $3.75 x = $4,200 + $37,500 x = 11,120 D 23. Each unit of Product 8in1 requires two direct labor hours. Employee benefit costs are treated as direct labor costs. Data on direct labor are as follows: Number of direct employees............................................................................................ 25 Weekly productive hours per employee........................................................................... 30 Estimated weekly wages per employee............................................................................ $240 Employee benefits (related to weekly wages).................................................................. 25% The standard direct labor cost per unit of Product 8in1 is: A. $8.00 B. $10.00 C. $12.00 D. $20.00 E. none of the above SUPPORTING CALCULATION: B 24. J. R. Richard Company employs a standard absorption system for product costing. The standard cost of its product is as follows: Direct materials................................................................................................................ $14.50 Direct labor (2 direct labor hours x $8)............................................................................ 16.00 Manufacturing overhead (2 direct labor hours x $11)...................................................... 22.00 Total standard cost........................................................................................................... $52.50 The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is: Variable............................................................................................................................ $3,600,000 Fixed................................................................................................................................. 3,000,000 .......................................................................................................................................... $6,600,000 During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost of $433,350. Actual manufacturing overhead for the month was $250,000 fixed and $325,000 variable. The manufacturing overhead controllable variance for November is: A. $9,000 unfavorable B. $13,000 unfavorable C. $9,000 favorable D. $4,000 favorable E. none of the above SUPPORTING CALCULATION: Actual factory overhead................................................... $ 575,000 Budget allowance: Variable factory overhead (52,000 x $6).................. $312,000 Budgeted fixed overhead.......................................... 250,000 562,000 Controllable variance....................................................... $ 13,000 unfavorable B 25. J. R. Richard Company employs a standard absorption system for product costing. The standard cost of its product is as follows: Direct materials.............................................................................................................. $14.50 Direct labor (2 direct labor hours x $8)......................................................................... 16.00 Manufacturing overhead (2 direct labor hours x $11)................................................... 22.00 Total standard cost......................................................................................................... $52.50 The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is: Variable.......................................................................................................................... $3,600,000 Fixed ............................................................................................................................ 3,000,000 $6,600,000 During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost of $433,350. Actual manufacturing overhead for the month was $250,000 fixed and $325,000 variable. The manufacturing overhead volume variance for November is: A. $12,000 unfavorable B. $10,000 unfavorable C. $3,000 unfavorable D. $9,000 unfavorable E. $1,000 favorable SUPPORTING CALCULATION: Budget allowance based on standard hours allowed [(52,000 x $6) + $250,000].............................................................. $ 562,000 Factory overhead applied at standard....................................................... 572,000 Volume variance....................................................................................... $ (10,000) favorable C 26. The following information relates to Department 1 of Ruiz Company for the fourth quarter. The total overhead variance is divided into three variances: spending, variable efficiency, and volume. Actual total overhead (fixed plus variable)....................................... $178,500 Budget formula.................................................................................. $110,000 + $.50 per hour Total overhead application rate......................................................... $1.50 per hour Actual hours worked.......................................................................... 121,000 What was the spending variance in this department during the quarter? A. $8,000 favorable B. $4,500 favorable C. $8,000 unfavorable D. $4,500 unfavorable E. none of the above B 1. An organizational concept that groups business functions around resources, processes, and human interrelations is the: A. resources function B. functionalteamwork concept C. processes function D. linestaff concept E. matching concept E 2. The measurement of performance and the control of costs is aided the most by: A. organizational charts B. continuous supervision C. preparation for the future D. planning E. budgets and standards A 3. All of the following are abbreviations for systems or processes that represent changes in manufacturing technology, except: A. CMA B. JIT C. CIM D. CAD E. FMS D 4. The process of providing individuals with the authority to carry out their assigned responsibilities is referred to as: A. control circuit B. objective setting C. accountability D. delegation E. linestaff organization A 5. The department that uses pertinent cost data to determine products that are most profitable and sales policies is: A. Marketing B. Manufacturing C. Treasury D. Legal E. Cost 10 B 6. Examples of nonroutine planning include all of the following, except: A. responses to the appearance of new competition B. estimating the collection of receivables during the next month for the purpose of making investment/borrowing decisions C. responses to a proposed government regulation of the industry D. responses to a significant change in consumer tastes E. none of the above B 7. The coordinated development of a company's organization with the cost and budgetary system will lead to an approach to accounting and reporting called: A. functionalteamwork system B. responsibility accounting C. linestaff organization D. controllable segmentation E. superiorsubordinate relationship E 8. The organizational group that advises or performs technical functions of an enterprise is the: A. line B. function C. team D. executive management E. staff A 9. The business function in the functionalteamwork concept of management that deals with activities such as product design, research and development, purchasing, manufacturing, advertising, marketing, and billing is the: A. processes function B. executive function C. resources function D. staff E. human interrelations function E 10. Pronouncements of the Cost Accounting Standards Board adhere to the concept of: A. indirect costing B. common costing C. direct costing D. standard costing E. full costing B 11. The professional certification developed by the IMA indicating professional competence in the management accounting field is the: A. CIA B. CMA 12 Chapter 1 C. CA D. CPA E. CPM D 19. In an attempt to resolve an ethical conflict in a publiclyheld corporation, if the accountant has unsuccessfully gone to the board of directors, the next step is to: A. go to the company president B. go back to middle management to garner support C. report the problem to the SEC D. resign E. none of the above C 20. An organizational concept recognizing that all positions or functional divisions can be categorized into two groups is: A. functionalteamwork concept B. processes function C. linestaff concept D. matching concept E. resources function A 21. In an attempt to resolve an ethical conflict when the immediate superior is involved, an accountant should first: A. go to the next higher level of management B. report the problem to the SEC C. resign D. go to the company president E. none of the above C 22. The Standards of Ethical Conduct for Management Accountants presents fifteen responsibilities of the management accountant that encompass all of the following categories except: A. competence B. confidentiality C. dependability D. integrity E. objectivity SUPPORTING CALCULATION: x = $5.10 [7,800 (2,000 x 4)] x = ($1,020) favorable D 33. During the last three months, a manufacturer incurred an unfavorable labor efficiency variance. The least likely cause of this variance is: A. substantial materials were purchased at a discount at a previously unused supplier's liquidation B. for one week, only half of the workforce, those with the highest seniority, were called in to work C. a second production line with all new personnel was started D. the costofliving adjustment for the threemonth period was $.10 more per hour than expected E. none of the above D 34. The direct labor standards for producing a unit of a product are two hours at $10 per hour. Budgeted production was 1,000 units. Actual production was 900 units, and direct labor cost was $19,000 for 2,000 direct labor hours. The direct labor efficiency variance was: A. $1,000 favorable B. $1,000 unfavorable C. $2,000 favorable D. $2,000 unfavorable E. none of the above SUPPORTING CALCULATION: x = $10 [2,000 (900 x 2)] x = $2,000 unfavorable C 35. Under the twovariance method for analyzing factory overhead, the factory overhead applied to production is used in the computation of the: Controllable Volume (Budget) Variance Variance A. yes no B. yes yes C. no yes D. no no D 36. Under the threevariance method for analyzing factory overhead, which of the following is used in computation of the spending variance? Actual Factory Budget Allowance Overhead Based on Actual Hours A. no yes B. no no C. yes no D. yes yes D 37. Compute the variable efficiency variance, using the following data: Standard labor hours per good unit produced....................................................................... 2 Good units produced............................................................................................................. 1,000 Actual labor hours used........................................................................................................ 2,100 Standard variable overhead per standard labor hour............................................................. $3 Actual variable overhead...................................................................................................... $ 6,500 A. $200 favorable B. $200 unfavorable C. $300 favorable D. $300 unfavorable E. none of the above SUPPORTING CALCULATION: Variable budget allowance for actual hours (2,100 x $3)................................ $ 6,300 Variable budget allowance for standard hours ($3 x 1,000 x 2)........................................................................................ 6,000 ................................................................................................................. $ 300 ..............................................................................................unfavorable The following questions are based on materials in the Appendix to the chapter. A 38. In the alternate threevariance method, the efficiency variance is: A. Standard factory overhead rate x (Actual units of allocation base Standard units of allocation base allowed) B. Actual factory overhead incurred Budget allowance based on actual hours C. Budget allowance based on actual hours (Actual hours x Factory overhead rate) D. Budgeted fixed factory overhead (Actual hours x Fixed overhead rate) E. none of the above D 39. The fourvariance method reconciles to the twovariance method by combining which of the following to get the controllable variance? A. fixed efficiency variance and idle capacity variance B. spending variance and fixed efficiency variance C. spending variance and idle capacity variance D. spending variance and variable efficiency variance E. none of the above B 40. The fourvariance method reconciles to the twovariance method by combining which of the following to get the volume variance? A. spending variance and variable efficiency variance B. fixed efficiency variance and idle capacity variance C. variable efficiency variance and fixed efficiency variance D. spending variance and idle capacity variance E. none of the above COST CONCEPTS: 17 20 Chapter 2 B 11. Pitino Company has a beginning inventory of direct materials on March 1 of $30,000 and an ending inventory on March 31 of $36,000. The following additional manufacturing cost data were available for the month of March: Direct materials purchased.................................................................... $84,000 Direct labor........................................................................................... 60,000 Factory overhead................................................................................... 80,000 During March, prime cost added to production was: A. $140,000 B. $138,000 C. $144,000 D. $150,000 E. none of the above SUPPORTING CALCULATION: $84,000 + $60,000 ($36,000 $30,000) = $138,000 C 12. Pitino Company has a beginning inventory of direct materials on March 1 of $30,000 and an ending inventory on March 31 of $36,000. The following additional manufacturing cost data were available for the month of March: Direct materials purchased.................................................................... $84,000 Direct labor........................................................................................... 60,000 Factory overhead................................................................................... 80,000 During March, conversion cost added to production was: A. $80,000 B. $144,000 C. $140,000 D. $138,000 E. none of the above SUPPORTING CALCULATION: $60,000 + $80,000 = $140,000 A 13. The term "variable costs" refers to: A. all costs whose total amounts change in proportion to changes in activity within a relevant range B. all costs that are likely to respond to the amount of attention devoted to them by a specified manager C. all costs that are associated with marketing, shipping, warehousing, and billing activities
all costs that do not change in total for a given period and relevant range, but
become progressively smaller on a perunit basis as volume increases
all manufacturing costs incurred to produce units of output
A 20. Direct labor is a: Conversion Cost Manufacturing Cost Prime Cost A. Yes Yes Yes B. No Yes Yes C. No No No D. No No Yes E. Yes Yes No C 21. A factory overhead cost: A. is a direct cost B. is a prime cost C. can be a variable cost or a fixed cost D. can only be a fixed cost E. includes all factory labor A 22. Prime cost and conversion cost share what common element of total cost? A. direct labor B. commercial expense C. variable overhead D. fixed overhead E. direct materials E 23. Factory overhead includes: A. indirect materials but not indirect labor B. indirect labor but not indirect materials C. prime costs D. all manufacturing costs E. all manufacturing costs, except direct materials and direct labor C 24. Indirect materials are a(n): A. fixed cost B. irrelevant cost C. factory overhead cost D. direct cost E. prime cost C 25. Wages of the security guard for a small plant are an example of: Fixed Factory Indirect Labor Overhead A. No Yes B. No No C. Yes Yes D.
E.
Yes
none of the above
B 26. Wages paid to factory machine operators of a manufacturing plant are an element of: Prime Cost Conversion Cost A. Yes No B. Yes Yes C. No No D. No Yes E. none of the above E 27. Common costs are: A. costs that occur when the production of one product is possible only if one or more other products are manufactured at the same time B. intended to benefit future periods C. variable in direct proportion to the level of production D. chargeable directly to the product E. costs of facilities or services employed by two or more operations D 28. Joint costs are: A. direct costs B. costs of facilities or services employed by two or more operations C. revenue expenditures D. incurred when the production of one product is possible only if other products are produced at the same time E. always variable B 29. All of the following are examples of nonfinancial performance measures except: A. the number of defective units produced B. the gross margin on a product line income statement C. hours of machine downtime D. number of days on schedule E. weight of scrap material produced E 30. Reasons for the increased attention being given to nonfinancial performance measures include: A. dissatisfaction with exclusive reliance on financial measures B. dissatisfaction with financial measures of plant utilization C. dissatisfaction with financial measures of processing efficiency D. dissatisfaction with the slow pace at which a company's data processing system can modify traditional financial measures E. all of the above E 31. Of the following items, a cost object is: A. a unit of product B. a customer order management intends for the organization to succeed, the predictions are in a sequence that begins with: A. growth and learning B. innovation C. customer service D. customer satisfaction E. investment opportunity A 38. Balanced scorecards are called “balanced” because they report: A. both leading and lagging measures B. both balance sheets and income statements C. both historical costs and replacements costs D. both original costs and book values E. all of the above COST BEHAVIORS: D 1. Expenses that require a series of payments over a long period of timeCsuch as longterm debt and lease rentalsCare frequently known as: A. programmed fixed expenses B. avoidable expenses C. variable expenses D. committed fixed expenses E. normal capacity expenses C 2. A mathematical technique used to fit a straight line to a set of plotted points is: A. integral calculus B. the EOQ model C. the method of least squares D. linear programming E. PERT network analysis E 3. One advantage of using multiple regression analysis is that: A. computations are simplified B. only two data points need be considered C. a twodimensional graph may be used to show cost relationships D. costs may be grouped into one independent variable E. the effects of several variables on costs may be analyzed B 4. The coefficient of determination indicates: A. causal relationships among costs and other factors B. the percentage of explained variance in the dependent variable C. the linear relationship between two variables D. whether several variables fluctuate E. the size of the standard deviation 30 E 5. Hoyden Co. developed the following equation to predict certain components of its budget for the coming period: Costs = $50,000 + ($5 x direct labor hours) The $5 would approximate: A. total cost B. direct labor rate per hour C. fixed cost per direct labor hour D. the coefficient of determination E. variable costs per direct labor hour E 6. When cost relationships are linear, total variable manufacturing costs will vary in proportion to changes in: A. machine hours B. direct labor hours C. total material cost D. total overhead cost E. volume of production B 7. The term "relevant range" as used in cost accounting means the range over which: A. relevant costs are incurred B. cost relationships are valid C. costs may fluctuate D. sales volume fluctuates E. production may vary E 8. Within a relevant range, the amount of fixed cost per unit: A. differs at each production level on a perunit basis B. remains constant in total C. decreases as production increases on a perunit basis D. increases as production decreases on a perunit basis E. all of the above C 9. The following relationships pertain to a year's budgeted activity for Buckeye Company: High Low Direct labor hours................................................................ 400,000 300,000 Total costs............................................................................ $154,000 $129,000 What are the budgeted fixed costs for the year? A. $100,000 B. $25,000 C. $54,000 D. $75,000 E. none of the above SUPPORTING CALCULATION: High..................................................................................... $ 154,000 400,000 Low...................................................................................... 129,000 300,000 Difference............................................................................ $ 25,000 100,000 Variable rate = $25,000 ) 100,000 = $.25/direct labor hour Fixed cost = $154,000 $.25(400,000) = $54,000 B 10. Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures: High Low Cost per month..................................................................... $39,200 $32,000 Machine hours...................................................................... 24,000 15,000 Using the highlow method of analysis, the estimated variable cost per machine hour is: A. $12.50 B. $0.80 C. $0.08 D. $1.25 E. none of the above SUPPORTING CALCULATION: High..................................................................................... $ 39,200 24,000 Low...................................................................................... 32,000 15,000 Difference............................................................................ $ 7,200 9,000 Variable rate = $7,200 ) 9,000 = $.80/machine hour D 11. A company allocates its variable factory overhead based on direct labor hours. During the past three months, the actual direct labor hours and the total factory overhead allocated were as follows: October November December Direct labor hours...................................... 2,500 3,000 5,000 Total factory overhead allocated.............................. $80,000 $75,000 $100,000 Based upon this information, the estimated variable cost per direct labor hour was: A. $.125 B. $12.50 C. $.08 D. $8 E. none of the above C 20. A measure of the extent to which two variables are related linearly is referred to as: A. sensitivity analysis B. inputoutput analysis C. coefficient of correlation D. causeeffect ratio E. costbenefit analysis C 21. The appropriate range for the coefficient of correlation (r) is: A. infinity # r # infinity B. 0 # r # 1 C. 1 # r # 1 D. 100 # r # 100 E. none of the above A 22. The covariation between two variables, such as direct labor hours and electricity expense, can best be measured by: A. correlation analysis B. simple regression analysis C. multiple regression analysis D. highlow method E. scattergraph method B 23. The quantitative method that will separate a semivariable cost into its fixed and variable components with the highest degree of precision is: A. simplex method B. least squares method C. scattergraph method D. account analysis E. highlow method A 24. If the coefficient of correlation between two variables is zero, a scatter diagram of these variables would appear as: A. random points B. a least squares line that slopes up to the right C. a least squares line that slopes down to the right D. under this condition, a scatter diagram could not be plotted on a graph E. none of the above D 25. Multiple regression analysis involves the use of: Dependent Independent Variables Variables A. 1 none B. 1> 1 C. 1> 1> D. 1 1> C 26. A company using regression analysis to correlate income to a variety of sales indicators found that the relationship between the number of sales managers in a territory and net income for the territory had a correlation coefficient of 1. The best description of this situation is: A. that more sales managers should be hired B. imperfect negative correlation C. perfect inverse correlation D. no correlation E. perfect positive correlation B 27. The correlation coefficient that indicates the weakest linear association between two variables is: A. 0.73 B. 0.11 C. 0.12 D. 0.35 E. 0.72 B 28. If regression was applied to the data shown in Figure 31, the coefficients of correlation and determination would indicate the existence of a: A. low linear relationship, high explained variation ratio B. high inverse linear relationship, high explained variation ratio C. high direct linear relationship, high explained variation ratio D. high inverse linear relationship, low explained variation ratio E. none of the above A 29. Omitting important variables from the multiple regression is referred to as a(n): A. specification error B. autocorrelation C. confidence loss D. homoscedastic error E. heteroscedastic error E 30. When two or more independent variables are correlated with one another, the condition is referred to as: A. serial correlation B. autocorrelation C. heteroscedacity D. homoscedacity E. multicollinearity 40 Chapter 4 D 6. Finished Goods is debited and Work in Process is credited for a: A. transfer of materials to the factory B. return of unused materials from the factory C. purchase of goods on account D. transfer of completed production E. transfer of completed goods out of the factory B 7. The best cost accumulation procedure to use when many batches, each differing as to product specifications, are produced is: A. absorption B. job order C. process D. actual E. standard A 8. Job order costs are most useful for: A. determining the cost of a specific project B. determining the labor cost involved in production C. determining inventory valuation using lifo D. estimating overhead costs E. controlling indirect costs of future production E 9. Under a job order cost system, the dollar amount of the entry to transfer the inventory from Finished Goods to Cost of Goods Sold is the sum of the costs charged to all jobs: A. completed during the period B. started in process during the period C. in process during the period D. completed and sold during the period E. sold during the period A 10. The industry most likely to use job order costing in accounting for costs is: A. accounting firms B. textile manufacturer C. paint manufacturer D. oil refinery E. none of the above A 11. Job order cost accounting systems and process accounting systems differ in the way: A. costs are traced to cost objects B. orders are taken and in the number of units in the orders C. product profitability is determined and compared with planned costs D. manufacturing processes can be accomplished and in the number of production runs that may be performed in a year E. none of the above D 12. In a job order cost system, the distribution of direct labor costs usually are recorded as an increase in: A. Cost of Goods Sold B. Factory Overhead Control C. Finished Goods D. Work in Process E. none of the above C 13. Process costing techniques should be used in assigning costs to products: A. if the product is manufactured on the basis of each order received B. when production is only partially completed during the accounting period C. if the product is composed of massproduced homogeneous units D. whenever standard costing techniques should not be used E. none of the above A 14. A characteristic of a process costing system is: A. partially processed inventory is restated in terms of completed units B. costs are accumulated by order C. it is used by a company manufacturing custom machinery D. standard costs are not applicable E. none of the above C 15. The industry most likely to use process costing in accounting for costs is: A. road builder B. electrical contractor C. airlines D. automobile repair shop E. none of the above B 16. In the computation of manufacturing cost per equivalent unit, the weighted average method of process costing considers: A. current costs only B. current costs plus cost of beginning work in process inventory C. current costs plus cost of ending work in process inventory D. current costs less cost of beginning work in process inventory E. none of the above B 17. The element of manufacturing cost that supports time tickets is: A. materials B. labor C. factory overhead D. all of the above E. none of the above C 18. The element of manufacturing cost that supports depreciation schedules is: A. materials B. labor C. factory overhead D. all of the above E. none of the above D 19. Work in Process is debited and Materials is credited for: A. indirect materials requisitioned to production B. the completion of work in process C. the sale of completed product D. direct materials requisitioned to production E. materials returned to the storeroom E 20. Factory Overhead Control is debited and Work in Process is credited for: A. indirect materials requisitioned to production B. the completion of work in process C. the sale of completed product D. direct materials requisitioned to production E. none of the above A 21. Products, operations, and processes costed on the basis of predetermined quantities of resources to be used and predetermined prices of those resources are distinguishing characteristics of which: A. standard cost system B. historical cost system C. process cost system D. job order cost system E. backflush cost system D 22. The tax requirement that certain purchasing and storage costs be allocated to inventory is known as: A. backflush costing B. postdeduction C. justintime D. super absorption E. none of the above C 23. The manufacturing systems characterized by short setup times, moderate to low lead times, and very low direct labor cost is: A. manual systems B. fixed automation systems C. flexible manufacturing systems D. process cost systems E. job order cost systems E 24. The cost accounting system noted for its lack of detailed tracking of work in process during the accounting period is: A. process costing B. job order costing C. standard costing D. actual costing E. backflush costing D 25. Ziffel Company had the following account balances and results from operations for the month of July: direct materials consumed, $10,400; direct labor, $8,000; factory overhead, $8,800; July 1, work in process inventory, $2,400; July 31, work in process inventory, $1,800; finished goods inventory, July 1, $1,200; finished goods inventory, July 31, $1,000. The total manufacturing cost for the month of July was: A. $27,800 B. $28,000 C. $18,400 D. $27,200 E. none of the above SUPPORTING CALCULATION: $10,400 + $8,000 + $8,800 = $27,200 JOB ORDER: A 1. Under job order cost accumulation, the factory overhead control account controls: A. factory overhead analysis sheets B. all general ledger subsidiary accounts C. job order cost sheets D. cost reports by processes E. materials inventories B 2. Supplies needed for use in the factory are issued on the basis of: A. job cost sheets B. materials requisitions C. time tickets D. factory overhead analysis sheets E. clock cards B 3. Finished Goods is debited and Work in Process is credited for a: A. transfer of completed goods out of the factory B. transfer of completed production to the finished goods storeroom C. purchase of goods on account D. transfer of materials to the factory E. return of unused materials from the factory A 4. In job order costing, when materials are returned to the storekeeper that were previously issued to the factory for cleaning supplies, the journal entry should be made to: A. Materials Factory Overhead B. Materials Work in Process C. Purchases Returns Work in Process D. Work in Process Materials E. Factory Overhead Work in Process 47 D 11. Howell Corporation has a job order cost system. The following debits (credits) appeared in Work in Process for the month of July: July 1, balance................................................................................................................ $ 12,000 July 31, direct materials.................................................................................................. 40,000 July 31, direct labor........................................................................................................ 30,000 July 31, factory overhead................................................................................................ 27,000 July 31, to finished goods............................................................................................... (100,000) Howell applies overhead to production at a predetermined rate of 90% based on the direct labor cost. Job 1040, the only job still in process at the end of July, has been charged with factory overhead of $2,250. What was the amount of direct materials charged to Job 1040? A. $6,750 B. $2,250 C. $2,500 D. $4,250 E. $9,000 SUPPORTING CALCULATION: Job 1040 = $12,000 + $40,000 + $30,000 + $27,000 $100,000 = $9,000 E 12. Valentino Corporation makes aluminum fasteners. Among Valentino's 19 manufacturing costs were: Wages and salaries: Machine operators.................................................................................................. $80,000 Factory supervisors................................................................................................ 30,000 Machine mechanics................................................................................................ 20,000 Direct labor amounted to: A. $50,000 B. $100,000 C. $110,000 D. $130,000 E. none of the above B 13. Rudolpho Corporation makes aluminum fasteners. Among Rudolpho's 19 manufacturing costs were: Materials and supplies: Aluminum..................................................................................................................... $400,000 Machine parts............................................................................................................... 18,000 Lubricants for machines............................................................................................... 5,000 Direct materials amounted to: A. $23,000 B. $400,000 C. $405,000 D. $418,000 E. $423,000 C 14. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow Manufacturing Company are presented below. Inventories Beginning Ending Materials........................................................................................... $75 $ 85 Work in process................................................................................ 80 30 Finished goods.................................................................................. 90 110 Materials used, $326 Total manufacturing costs charged to production during the year (including direct materials, direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686 Cost of goods available for sale, $826 Selling and general expenses, $25 The cost of direct materials purchased during the year amounted to: A. $360 B. $316 C. $336 D. $411 E. none of the above SUPPORTING CALCULATION: $326 + $85 $75 = $336 C 15. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow Manufacturing Company are presented below. Inventories Beginning Ending Materials........................................................................................... $75 $ 85 Work in process................................................................................ 80 30 Finished goods.................................................................................. 90 110 Materials used, $326 Total manufacturing costs charged to production during the year (including direct materials, direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686 Cost of goods available for sale, $826 Selling and general expenses, $25 Direct labor costs charged to production during the year amounted to: A. $216 B. $135 C. $225 D. $360 E. none of the above SUPPORTING CALCULATION: $686 = $326 + x + .6x x = $225 A 16. Selected cost data (in thousands) concerning the past fiscal year's operations of the Moscow Manufacturing Company are presented below. Inventories Beginning Ending Materials........................................................................................... $75 $ 85 Work in process................................................................................ 80 30 Finished goods.................................................................................. 90 110 Materials used, $326 Total manufacturing costs charged to production during the year (including direct materials, direct labor, and factory overhead applied at the rate of 60% of direct labor cost), $686 Cost of goods available for sale, $826 Selling and general expenses, $25 The cost of goods manufactured during the year was: A. $736 B. $716 C. $636 D. $766 E. none of the above SUPPORTING CALCULATION: $80 + $686 $30 = $736 C. a unit of work in process inventory D. the amount of material or conversion cost necessary to start a unit of production into work in process E. 50% of the material or conversion cost of a unit of finished goods inventory, assuming a linear production pattern B 2. The product flow format where certain portions of the work are done simultaneously and then brought together for completion is called: A. applied B. parallel C. standard D. selective E. sequential C 3. An item that does not appear on a cost of production report is: A. work in processCbeginning inventory B. cumulative costs through the end of departmental production C. finished goodsCending inventory D. materials used in the department E. unit costs added by the department C 4. Goode Manufacturing has three producing departments in its factory. The ending inventory in the Milling Department consisted of 3,000 units. These units were 60% complete with respect to labor and factory overhead. Materials are applied at the end of the milling process. Unit costs for the complete process in the Milling Department are: materials, $1; labor, $2; and factory overhead, $3. The appropriate unit cost for each unit in the ending inventory is: A. $2 B. $5 C. $3 D. $6 E. $4 SUPPORTING CALCULATION: 60% ($2 + $3) = $3 55 56 Chapter 6 D 5. When added materials in subsequent departments result in an increase of the units produced, the unit transferredin costs will: A. be reclassified as new materials B. be increased to provide for the additional units C. be accounted for under the fifo costing method D. be decreased as they are spread over more units E. remain unchanged E 6. Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials were added in the department. At the end of the month, 7,000 units were transferred to the next department. There was no beginning inventory. The costs for units transferred in would be effectively allocated over: A. 17,000 units B. 3,000 units C. 10,000 units D. 7,000 units E. 13,000 units SUPPORTING CALCULATION: 7,000 units transferred out + 6,000 units in ending inventory = 13,000 units E 7. A characteristic of a process costing system is that: A. costs are accumulated by order B. it is used by a company manufacturing custom machinery C. standard costs are not applicable D. it requires a lot more detailed accounting than does a job order system E. work in process inventory is restated in terms of completed units D 8. Transferredin costs as used in a process cost accounting system are: A. supervisory salaries that are transferred from an overhead cost center to a production cost center B. ending work in process inventory of a previous process that will be used in a succeeding process C. labor that is transferred from another department within the same plant instead of hiring temporary workers from the outside D. costs of the product of a previous internal process that is subsequently used in a succeeding internal process E. none of the above E 9. In a process costing system, how is the unit cost affected in a production cost report when materials are added in a department subsequent to the first department and the added materials result in additional units? A. The first department's unit cost is increased, but it does not necessitate an adjustment of the transferredin unit cost. B. The first department's unit cost is decreased, but it does not necessitate an adjustment of the transferredin unit cost. C. The first department's unit cost is not affected. D. The first department's unit cost is increased, which necessitates an adjustment of the transferredin unit cost. E. The first department's unit cost is decreased, which necessitates an adjustment of the transferredin unit cost. E 10. Assuming that there was no beginning work in process inventory and the ending work in process inventory is 50% complete as to conversion costs, the number of equivalent units as to conversion costs would be: A. less than the units completed B. more than the units completed C. the same as the units placed in process D. the same as the units completed E. less than the units placed in process A 11. An error was made in the computation of the percentage of completion of the current year's ending work in process inventory. The error resulted in assigning a lower percentage of completion to each component of the inventory than actually was the case. What is the effect of this error upon: (1) the computation of equivalent units in total (2) the computation of costs per equivalent unit (3) costs assigned to cost of goods completed for the period (1) (2) (3) A. understate overstate overstate B. understate understate overstate C. overstate understate understate D. overstate overstate understate E. none of the above C 12. Read, Inc. instituted a new process in October. During October, 10,000 units were started in Department A. Of the units started, 7,000 were transferred to Department B, and 3,000 remained in work in process at October 31. The work in process at October 31 was 100% complete as to material costs and 50% complete as to conversion costs. Materials costs of $27,000 and conversion costs of $39,950 were charged to Department A in October. What were the total costs transferred to Department B? A. $46,900 B. $53,600 C. $51,800 D. $57,120 E. none of the above SUPPORTING CALCULATION: Materials unit cost = $27,000 ) (7,000 + 3,000) = $2.70 Conversion unit cost = $39,950 ) [7,000 + 50%(3,000)] = $4.70 Costs transferred = 7,000($2.70 + $4.70) = $51,800 D 13. In accounting for beginning inventory costs, the method that allows the addition of beginning inventory costs with costs incurred during the period is referred to as: A. firstin, firstout B. addition C. lastin, firstout D. average E. firstin, lastout B 21. Kennedy Company adds materials in the beginning of the process in the Forming Department, which is the first of two stages of its production cycle. Information concerning the materials used in the Forming Department in October is as follows: Materials Units Costs Work in process, October 1.................................................................... 6,000 $ 3,000 Units started............................................................................................ 50,000 25,560 Units completed and transferred out....................................................... 44,000 Using the average cost method, what was the materials cost of work in process at October 31? A. $3,000 B. $6,120 C. $3,060 D. $5,520 E. $6,000 SUPPORTING CALCULATION: ($3,000 + $25,560) ) (44,000 + 12,000) = $.51 $.51 x 12,000 = $6,120 E 22. Roger Company manufactures Product X in a twostage production cycle in Departments A and B. Materials are added at the beginning of the process in Department B. Roger uses the average costing method. Conversion costs for Department B were 50% complete as to the 6,000 units in beginning work in process and 75% complete as to the 8,000 units in ending work in process. A total of 12,000 units were completed and transferred out of Department B during February. An analysis of the costs relating to work in process and production activity in Department B for February follows: Transferred Materials Conversion in Costs Costs Costs Work in process, February 1: Costs attached.................................................... $12,000 $2,500 $1,000 February activity: Costs added........................................................ 29,000 5,500 5,000 The total cost per equivalent unit transferred out for February of Product X, rounded to the nearest penny, was: A. $2.82 B. $2.85 C. $2.05 D. $2.75 E. $2.78 SUPPORTING CALCULATION: Transferredin costs = $41,000 ) 20,000 = $2.05 Materials cost = $8,000 ) 20,000 = .40 Conversion cost = $6,000 ) 18,000 = .33 $2.78 A 23. Simpson Co. adds materials at the beginning of the process in Department M. The following information pertains to Department M's work in process during April: Units Work in process on April 1 (60% complete as to conversion cost)..................................................................... 3,000 Started in April............................................................................................................... 25,000 Completed in April......................................................................................................... 20,000 Work in process on April 30 (75% complete as to conversion cost)..................................................................... 8,000 Under the average costing method, the equivalent units for conversion cost are: A. 26,000 B. 25,000 C. 24,000 D. 21,800 E. none of the above SUPPORTING CALCULATION: 20,000 + .75(8,000) = 26,000 D 24. During March, Quig Company's Department Y equivalent unit product costs, computed under the average cost method, were as follows: Materials.................................................. $1 Conversion............................................... 3 Transferredin.......................................... 5 Materials are introduced at the end of the process in Department Y. There were 4,000 units (40% complete as to conversion costs) in work in process at March 31. The total costs assigned to the March 31 work in process inventory should be: A. $36,000 B. $28,800 C. $27,200 D. $24,800 E. none of the above SUPPORTING CALCULATION: $5(4,000) + $3(4,000 x .4) = $24,800 The following questions are based on the material in the Appendix to the chapter. B 25. If a company reports two different unit costs for goods transferred to the next department, it is reasonable to assume that: A. the department accounts for lost units at the end of the process B. a fifo costing method is used C. lost unit costs are computed separately D. an average costing method is used E. errors must have occurred in recording costs C 26. In order to compute equivalent units of production using the fifo method of process costing, work for the period must be broken down to units: A. started and completed during the period B. completed during the period and units in ending inventory C. completed from beginning inventory, started and completed during the month, and units in ending inventory D. started during the period and units transferred out during the period E. processed during the period and units completed during the period A 27. The firstin, firstout method of process costing will produce the same cost of goods manufactured amount as the average cost method when: A. there is no beginning inventory B. there is no ending inventory C. beginning and ending inventories are each 50% complete D. beginning inventories are 100% complete as to materials E. goods produced are homogeneous B 28. The fifo method of process costing differs from the average cost method of process costing in that fifo: A. allocates costs based on whole units, but the average cost method uses equivalent units B. considers the stage of completion of beginning work in process in computing equivalent units of production, but the average cost method does not C. does not consider the stage of completion of beginning work in process in computing equivalent units of production, but the average cost method does D. is applicable only to those companies using the fifo inventory pricing method, but the average cost method may be used with any inventory pricing method E. none of the above A 29. Connor Company computed the flow of physical units completed for Department M for the month of March as follows: Units completed: From work in process on March 1.............................................................................. 15,000 From March production.............................................................................................. 45,000 Total..................................................................................................................... 60,000 Materials are added at the beginning of the process. The 12,000 units of work in process at March 31 were 80% complete as to conversion costs. The work in process at March 1 was 60% complete as to conversion costs. Using the fifo method, the equivalent units for March conversion costs were: A. 60,600 B. 55,200 C. 57,000 D. 54,600 E. 63,600 SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600 D 5. All of the following are characteristics of total quality management except: A. the company's objective for all business activity is to serve its customers B. top management provides an active leadership role in quality improvement C. all employees are actively involved in quality improvement D. the company maintains a loosely defined system of identifying quality problems so as not to stifle employee creativity E. the company provides continuous training as well as recognition for achievement A 6. The best approach to quality improvement is to concentrate on: A. prevention B. detection C. appraisal D. increased production E. none of the above C 7. A mathematical technique used to monitor production quality and reduce product variability is: A. the method of least squares B. the statistical scattergraph method C. statistical process control D. linear programming E. none of the above D 8. Appraisal costs include all of the following except: A. inspecting and testing materials B. inspecting products during and after production C. obtaining information from customers about product satisfaction D. designing quality into the product and the production process E. all of the above B 9. Internal failure costs include all of the following except: A. the cost of the scrap B. the cost of warranty repairs and replacements C. rework D. downtime due to machine failures E. all of the above E 10. All of the following accounts would be acceptable ones to credit at the time scrap is sold except: A. Scrap Sales B. Cost of Goods Sold C. Factory Overhead Control D. Work in Process E. all of the above would be acceptable C 11. Scrap includes all of the following except: A. the trimmings remaining after processing materials B. defective materials that cannot be used or returned to the vendor C. partially or fully completed units that are in some way defective D. broken parts resulting from employee or machine failures E. all of the above A 12. When spoilage occurs because of some action taken by the customer, the unrecoverable cost of the spoilage should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above C 13. When spoilage occurs because of some internal failure, the unrecoverable cost should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above A 14. When rework occurs because of some action taken by the customer, the cost of the rework should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above C 15. When rework occurs because of some internal failure, the cost of the rework should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above C 16. Newman Company's Job 1865 for the manufacture of 2,200 coats was completed during August at the unit costs presented below. Due to an internal failure in the production process, 200 coats were found to be spoiled during final inspection that were sold to a jobber for $6,000. Direct materials.................................................................................................................. $20 Direct labor........................................................................................................................ 18 Factory overhead................................................................................................................ 18 ................................................................................................................................ $56 What would be the unit cost of good coats produced on Job 1865? A. $57.00 B. $55.00 C. $56.00 D. $58.00 E. none of the above SUPPORTING CALCULATION: $20 + $18 + $18 = $56 A 17. During March, Vaughan Company incurred the following costs on Job 009 for the manufacture of 200 motors: Original cost accumulation: Direct materials........................................................................................................... $ 660 Direct labor................................................................................................................. 800 Factory overhead (150% of direct labor).................................................................... 1,200 $ 2,660 Direct costs of reworking 10 units: Direct materials........................................................................................................... $100 Direct labor................................................................................................................. 160 ..................................................................................................................................... $260 The rework costs were attributable to the exacting specifications of the customer. What is the cost per finished unit of Job 009? A. $15.80 B. $14.60 C. $14.00 D. $13.30 E. none of the above SUPPORTING CALCULATION: $2,660 + $260 + (150% x $160) = $3,160 ) 200 = $15.80 C 18. Spoilage occurs as a result of an internal failure in a process cost system. Using average costing, the number of equivalent units that production costs should be charged to would be based upon: A. spoiled units B. units transferred out and spoiled units C. units transferred out, spoiled units, and units in ending inventory D. units transferred out and units in ending inventory E. none of the above D 19. Spoilage occurs as a result of normal production shrinkage in a process cost system. Using average costing, the number of equivalent units that production costs should be charged to would be based upon: A. spoiled units B. units transferred out and spoiled units C. units transferred out, spoiled units, and units in ending inventory D. units transferred out and units in ending inventory E. none of the above C 20. In a process cost system, the cost of spoilage due to an internal production failure should be recorded as: A. dr. Work in Process; cr. Finished Goods B. dr. Work in Process; cr. Factory Overhead Control C. dr. Factory Overhead Control; cr. Work in Process D. dr. Materials; cr. Factory Overhead E. dr. Finished Goods; cr. Work in Process C 27. If spoilage occurs as a result of normal production shrinkage in a process cost system, using fifo costing, the number of equivalent units that production costs should be charged to would be based on: A. spoiled units B. units transferred out and spoiled units C. units transferred out, beginning inventory, and units in ending inventory D. units transferred out, spoiled units, units in ending inventory, and units in beginning inventory E. none of the above B 28. Primo Products transferred 15,000 units to one department. An additional 5,000 units were in beginning inventory in the department. At the end of the month, 12,000 units were transferred to the next department, 6,000 units remained in work in process, 40% complete as to conversion costs and the remaining units were lost at the 75% stage of conversion. Beginning inventory was 60% complete as to conversion costs and lost units were the result of internal failure. The equivalent units of conversion cost using fifo costing is: A. 14,400 B. 12,900 C. 13,900 D. 13,400 E. none of the above SUPPORTING CALCULATION: Equivalent units in beginning inventory (40% x 5,000).................................................... 2,000 Equivalent units started and completed during period (12,000 5,000)......................................................................................................... 7,000 Equivalent units in ending inventory (40% x 6,000)......................................................... 2,400 Equivalent units of spoilage (75% x 2,000)....................................................................... 1,500 Total equivalent units......................................................................................................... 12,900 A 29. Primo Products transferred 15,000 units to one department. An additional 5,000 units were added in the department. At the end of the month, 12,000 units were transferred to the next department, 6,000 units remained in work in process, 40% complete as to conversion costs and the remaining units were lost at the 75% stage of conversion. Beginning inventory was 60% complete as to conversion costs, and lost units were the result of normal production shrinkage. The equivalent units of conversion cost using fifo is: A. 11,400 B. 14,400 C. 12,900 D. 13,400 E. none of the above SUPPORTING CALCULATION: Equivalent units in beginning inventory (40% x 5,000).................................................... 2,000 Equivalent units started and completed during period (12,000 5,000)......................................................................................................... 7,000 Equivalent units in ending inventory (40% x 6,000)......................................................... 2,400 Total equivalent units......................................................................................................... 11,400 JOINT PRODUCTS: B 1. The allocation of joint costs to individual products is useful primarily for purposes of: A. determining whether to produce one of the joint products B. inventory costing C. determining the best market price D. deciding whether to sell at the splitoff point E. evaluating whether an output is a main product or a byproduct B 2. The method used for the allocation of joint costs to products is important: A. only in the minds of accountants B. because profits will be affected when ending inventories change from the beginning of the period C. because its validity for justifying prices before regulatory authorities is unquestioned D. because profit margins differ when the relative sales value method is used E. for income determination when inventories are nonexistent A 3. In a joint production process, a byproduct is also described as: A. a simultaneously produced product of relatively low value B. a form of main product with controllable production proportions C. waste D. products of low value recovered at the end of a production process E. a product with no value contribution to help offset production costs D 4. All of the following are methods of costing byproducts except the: A. market value method B. recognition of net revenue method C. recognition of gross revenue method D. average unit cost method E. replacement cost method 71 72 Chapter 8 E 5. Reporting revenue from byproduct sales on the income statement as additional sales revenue: A. allocates costs to byproducts on the basis of quantities produced B. reduces the main product cost by the estimated market value of the byproduct C. credits main product costs only when the byproduct is used in further production D. allocates a proper share of production costs to the byproduct E. overstates ending inventory costs of the main product E 6. All of the following are methods of allocating joint production costs except the: A. market value method B. quantitative unit method C. average unit cost method D. average cost method E. recognition of net revenue method D 7. Tobin Company manufactures products S and T from a joint process. The market value at splitoff was $50,000 for 6,000 units of Product S and $50,000 for 2,000 units of Product T. Assuming that the portion of the total joint cost properly allocated to Product S using the market value method was $30,000, the total joint cost was: A. $40,000 B. $42,500 C. $45,000 D. $60,000 E. $75,000 SUPPORTING CALCULATION: C 8. Costs to be incurred after the splitoff point are most useful for: A. adjusting inequities in the joint cost allocation procedure B. determining the levels of joint production C. assessing the desirability of further processing D. setting the mix of output products E. assessing sales realization values for allocating joint costs accurately Costing ByProducts and Joint Products 75 C 17. Harry Corp. manufactures Products J, K, L, and M from a joint process. Additional information is as follows: Market If Processed Further Units Value at Additional Market Product Produced SplitOff Costs Value J 6,000 $ 80,000 $ 7,500 $ 90,000 K 5,000 60,000 6,000 70,000 L 4,000 40,000 4,000 50,000 M 3,000 20,000 2,500 30,000 18,000 $ 200,000 $ 20,000 $ 240,000 Assuming that total joint costs of $160,000 were allocated using the market value at splitoff approach, what joint costs were allocated to each product? J K L M A. $53,333 $44,444 $35,556 $26,667 B. $60,000 $46,667 $33,333 $20,000 C. $64,000 $48,000 $32,000 $16,000 D. $60,000 $48,000 $32,000 $20,000 E. $40,000 $40,000 $40,000 $40,000 SUPPORTING CALCULATION: J: 40% x $160,000 = $64,000 K: 30% x $160,000 = $48,000 L: 20% x $160,000 = $32,000 M: 10% x $160,000 = $16,000 E 18. Cayan Company manufactures three main products, F, G, and W, from a joint process. Joint costs are allocated on the basis of relative market value at splitoff. Additional information for June production activity follows: F G W Total Units produced.................................. 50,000 40,000 10,000 100,000 Joint costs......................................... ? ? ? $450,000 Market value at splitoff................... $ 420,000 $ 270,000 $60,000 $750,000 Additional costs if processed further....................... $ 88,000 $ 30,000 $12,000 $130,000 Market value if processed further....................... $ 538,000 $ 320,000 $87,000 $945,000 Assuming that the 10,000 units of W were processed further and sold for $87,000, what was Cayan's gross profit on this sale? A. $75,000 B. $51,000 C. $21,000 D. $28,500 E. $39,000 Costing ByProducts and Joint Products 76 SUPPORTING CALCULATION: Sales:........................................................................................................ $87,000 Cost of Goods Sold: Joint Costs......................................................................................... $36,000 Separable Costs................................................................................. 12,000 48,000 Gross Profit.............................................................................................. $39,000 B 19. A company manufactures two joint products at a joint cost of $1,000. These products can be sold at splitoff, or when further processed at an additional cost, sold as higher quality items. The decision to sell at splitoff or further process should be based on the: A. allocation of the $1,000 joint cost using the quantitative unit measure B. assumption that the $1,000 joint cost is irrelevant C. allocation of the $1,000 joint cost using the relative sales value approach D. assumption that the $1,000 joint cost must be allocated using a physicalmeasure approach E. allocation of the $1,000 joint cost using any equitable and rational allocation basis D 20. The characteristic that is most often used to distinguish a product as either a joint product or a by product is the: A. amount of labor used in processing the product B. amount of separable product costs that are incurred in processing C. amount (i.e., weight, inches, etc.) of the product produced in the manufacturing process D. relative sales value of the products produced in the process E. none of the above A 21. A company processes raw material into products F1, F2, and F3. Each ton of raw material produces five units of F1, two units of F2, and three units of F3. Joint processing costs to the splitoff point are $15 per ton. Further processing results in the following per unit figures: F1 F2 F3 Additional processing costs per unit............................ $28 $30 $25 Selling price per unit.................................................... 30 35 35 If joint costs are allocated by the net realizable value of finished product, what proportion of joint costs should be allocated to F1? A. 20% B. 30% C. 33 1/3% D. 50% E. none of the above SUPPORTING CALCULATION: Costing ByProducts and Joint Products 77 B 22. Jeffrey Co. manufactures Products A and B from a joint process. Market value at splitoff was $700,000 for 10,000 units of A, and $300,000 for 15,000 units of B. Using the market value at splitoff approach, joint costs properly allocated to A were $140,000. Total joint costs were: A. $98,000 B. $200,000 C. $233,333 D. $350,000 E. none of the above SUPPORTING CALCULATION: C 23. A company produces three main joint products and one byproduct. The byproduct's relative market value is quite low compared to that of the main products. The preferable accounting for the by product's net realizable value is as: A. an addition to the revenues of the other products allocated on their respective net realizable values B. revenue in the period in which it is sold C. a reduction in the joint cost to be allocated to the three main products D. a separate net realizable value upon which to allocate some of the joint costs E. none of the above C 24. A company manufactures Products X and Y using a joint process. The joint processing costs are $10,000. Products X and Y can be sold at splitoff for $12,000 and $8,000 respectively. After splitoff, Product X is processed further at a cost of $5,000 and sold for $21,000, whereas Product Y is sold without further processing. If the company uses the market value method for allocating joint costs, the joint cost allocated to X is: A. $4,000 B. $5,000 C. $6,000 D. $6,667 E. none of the above SUPPORTING CALCULATION: Costing ByProducts and Joint Products 80 MATERIALS: A 1. The cycle of materials procurement and use includes all of the following steps except for: A. determining the cost of goods sold B. the production budget C. preparing the receiving report D. maintaining the materials ledger E. engineering to determine materials specifications E 2. In a wellcontrolled materials system, the Purchasing Department performs all of the following activities except the: A. placing of purchase orders with suppliers B. receiving of purchase requisitions C. maintaining of information on market prices for goods used D. preparation of purchase orders E. approving and checking of invoices B 3. The purchase requisition is a document used to: A. initiate the return of merchandise to the vendor B. inform the purchasing agent of a need for a materials item C. initiate payment for merchandise received D. inform the Purchasing Department of a receipt of goods E. authorize the vendor to supply merchandise or materials B 4. The expense that theoretically is not a correct part of inventory cost is: A. freightin B. freightout C. inspection costs D. accounting costs for materials received E. purchasing costs C 5. Theoretically, cash discounts permitted on purchased raw materials should be: A. added to other income, whether taken or not B. added to other income, only if taken C. deducted from inventory, whether taken or not D. deducted from inventory, only if taken E. none of the above 80 Materials: Controlling, Costing, and Planning 81 E 6. The materials requisition: A. is the list of materials requirements for each step in the production sequence B. informs the purchasing agent of the quantity and kind of materials needed C. contracts for quantities to be delivered D. certifies quantities received and reports results of inspection and testing E. authorizes the storeroom to deliver types and quantities of materials to a given department C 7. The purchase order: A. is the list of materials requirements for each step in the production sequence B. informs the purchasing agent of the quantity and kind of materials needed C. contracts for quantities to be delivered D. certifies quantities received and reports results of inspection and testing E. authorizes the storeroom to deliver types and quantities of materials to a given department A 8. The bill of materials: A. is the list of materials requirements for each step in the production sequence B. informs the purchasing agent of the quantity and kind of materials needed C. contracts for quantities to be delivered D. certifies quantities received and reports results of inspection and testing E. authorizes the storeroom to deliver types and quantities of materials to a given department D 9. The receiving report: A. is the list of materials requirements for each step in the production sequence B. informs the purchasing agent of the quantity and kind of materials needed C. contracts for quantities to be delivered D. certifies quantities received and reports results of inspection and testing E. authorizes the storeroom to deliver types and quantities of materials to a given department D 10. The purchasing department performs all of the following functions except: A. receives purchase requisitions for materials, supplies, and equipment B. keeps informed concerning sources of supply, prices, and delivery schedules C. prepares and places purchase orders D. compares quantities received with the suppliers' packing list E. arranges for the reporting among the purchasing, receiving, and accounting departments C 11. The purchase requisition may originate with all of the following except: A. a storeroom employee B. a materials record clerk C. a receiving department clerk D. a research, engineering, or other department employee who needs materials of a special nature E. a computer B 12. The receiving department does all of the following except: A. unloads and unpacks incoming materials B. keeps informed concerning sources of supply, prices, and delivery schedules C. matches materials received with descriptions on purchase orders D. arranges for inspection, when necessary E. routes accepted materials to the appropriate departments Materials: Controlling, Costing, and Planning 82 A 13. A cost of having too few items on hand in inventory is: A. frequent stockouts B. excessive insurance costs C. payment of additional warehouse space D. spoilage costs E. costs of obsolescence B 14. Of the following, the expense that is not relevant to determining the most economic quantity to order is: A. additional costs to store inventory B. rental of warehouse space under a tenyear lease C. interest expense of financing purchases D. spoilage costs E. variable costs of placing an order B 15. A company has been ordering more than the economic order quantity. This would result in: A. more frequent order points B. carrying costs greater than order costs C. equal safety stock costs and carrying costs D. carrying costs less than order costs E. insufficient safety stock costs B 16. Annual demand for squash racquets is 50,000 units, and carrying costs amount to $2 per unit. Order costs for the company amount to $5. The optimum order quantity in units for squash racquets is (rounded to the nearest unit): A. 191 B. 500 C. 250 D. 100 E. 625 SUPPORTING CALCULATION: E 17. A company orders 10,000 units (a oneyear supply) of Zap at one time. Zap costs $1 per unit, and order costs amount to $500 each time an order is placed. The costs to carry Zap in inventory amount to 20% of the materials cost. For an entire year, the inventory carrying costs and order costs are: A. $2,000 B. $200 C. $500 D. $1,000 E. $1,500 SUPPORTING CALCULATION: C 27. The Cappalari Company wishes to determine the amount of safety stock that it should maintain for Product D to result in the lowest cost. The following information is available: Stockout cost................................................................................................ $ 80 per occurrence Carrying cost of safety stock....................................................................... $ 2 per unit Number of purchase orders.......................................................................... 5 per year The options available to Cappalari are as follows: Units of Probability of Running Safety Stock out of Safety Stock 10 50% 30 30% 50 10% 55 5% The number of units of safety stock that will result in the lowest cost is: A. 30 B. 50 C. 55 D. 10 E. none of the above SUPPORTING CALCULATION: Safety Expected Stockout Carrying Stockout and Stock Stockouts Cost Cost Carrying Cost 10 2.5 $200 $ 20 $220 30 1.5 120 60 180 50 .5 40 100 140 55 .25 20 110 130 B 28. The following information is available for Odyssey Company's Material Y: Annual usage in units........................................................................................................... 10,000 Working days per year......................................................................................................... 250 Normal lead time in working days....................................................................................... 30 Maximum lead time in working days.................................................................................. 70 Assuming that the units of Material Y will be required evenly throughout the year, the order point would be: A. 2,000 B. 2,800 C. 2,105 D. 1,200 E. 1,600 SUPPORTING CALCULATION: [(10,000 ) 250) x 30] + [(70 30) x 40] 30 (10,000 ) 250) + 40 (70 30) = 2,800 A 29. The following information relates to Hudson Company's Material A: Annual usage in units........................................................................................................... 7,200 Working days per year......................................................................................................... 240 Normal lead time in working days....................................................................................... 20 Maximum lead time in working days.................................................................................. 45 Assuming that the units of Material A will be required evenly throughout the year, the safety stock and order point would be: Safety Stock Order Point A. 750 1,350 B. 600 750 C. 600 1,350 D. 750 600 E. none of the above SUPPORTING CALCULATION: Safety Stock: (7,200 ) 240) (45 20) = 750 Order Point: 20 (7,200 ) 240) + 750 = 1,350 C 30. Penguin Company manufactures winter jackets. Setup costs are $2.00. Penguin manufactures 4,000 jackets evenly throughout the year. Using the economic order quantity approach, the optimal production run would be 200 when the cost of carrying one jacket in inventory for one year is: A. $0.10 B. $0.20 C. $0.40 D. $0.05 E. none of the above SUPPORTING CALCULATION: A 31. The following data refer to various annual costs relating to the inventory of a singleproduct company: Unit transportationin on purchases..................................................................................... $ .20 Storage per unit.................................................................................................................... .12 Insurance per unit................................................................................................................. 10 Annual interest foregone from alternate investment of funds............................................. $ 800 Annual number of units required......................................................................................... 10,000 What is the annual carrying cost per unit? A. $.30 B. $.42 C. $.50 D. $.32 E. $.22 SUPPORTING CALCULATION: D 32. Bliss Company has an order point at 1,400 units, usage during normal lead time of 600 units, and an EOQ of 2,000 units. Its maximum inventory, assuming normal lead time and usage, would be: A. 3,400 units B. 2,000 units C. 1,200 units D. 2,800 units E. 4,000 units SUPPORTING CALCULATION: (1,400 600) + 2,000 = 2,800 A 33. The inventory model that follows the concept that 80% of the value of an inventory is in 20% of the inventory items is the: A. ABC plan B. economic order quantity (EOQ) model C. justintime inventory system D. materials requirements planning (MRP) system E. zero inventory model B 34. The materials control method that is based on the premise that the quantities of most stock items are subject to definable limits is the: A. cycle review method B. minmax method C. twobin method D. ABC plan E. none of the above A 2. All of the following are terms used to describe the JIT effort to reduce inventories of work in process and raw materials, except: A. backflush production B. stockless production C. lean production D. ZIP production E. none of the above are appropriate terms C 3. The JIT production ideal is a batch size of: A. one hundred B. ten C. one D. zero E. none of the above C 4. The objective of reducing inventory to zero is possible if all of the following conditions are present, except: A. low or insignificant setup costs B. minimum lead times C. long setup times D. balanced and level work loads E. no interruptions due to stockouts D 5. The continuing reduction of inventories is achieved by all of the following steps except: A. inventories are reduced until a problem is discovered B. once the problem is defined the inventory level is increased to keep the system operating smoothly C. the problem is analyzed and practical ways are identified to reduce it D. once the problem is removed, the inventory level is increased until another problem is discovered E. all of the above steps are required 90 JustinTime and Backflushing 91 B 6. In a JIT system, velocity is inversely related to: A. backflushing B. throughput time C. acceleration D. zero inventory production E. none of the above D 7. If 500 units are produced per day and 2,000 units are in process at any time, the throughput time is: A. 1/2 day B. 1/4 day C. two days D. four days E. none of the above SUPPORTING CALCULATION: D 8. In a JIT system, if the rate of output is doubled while the number of units in process is cut in half, then the speed of the system has been: A. reduced by 25% B. doubled C. reduced by 50% D. quadrupled E. none of the above A 9. Of the following, the only activity that adds value to a product is: A. processing time B. moving time C. waiting time D. inspection time E. all of the above B 10. If the annual carrying cost percentage is 30% and average work in process is $300,000 and management plans to use JIT to double the velocity of work in process without changing total annual output, the savings in annual carrying costs will be: A. $90,000 B. $45,000 C. $150,000 D. $180,000 E. none of the above SUPPORTING CALCULATION: 30% x 1/2 x $300,000 = $45,000 JustinTime and Backflushing 92 A 11. If Step 1 in a production process processes each unit and sends it to await Step 2, and 500 units are waiting between Steps 1 and 2, how many defective units might Step 1 produce before the problem is detected in Step 2? A. 500 B. an unlimited number C. 250 D. 1,000 E. none of the above C 12. Assume that a company plans a reduction in work in process levels of 50% and has an annual inventory carrying cost of 20% and a past average cost of work in process of $75,000. The 50% reduction in work in process would be expected to produce annual savings of: A. $37,500 B. $15,000 C. $7,500 D. $3,750 E. none of the above SUPPORTING CALCULATION: 50% x 20% x $75,000 = $7,500 E 13. Alpha Company has 10 work stations where work in process is held, 100 average units in work in process per station, an average cost of a unit in work in process of $75, and an annual inventory carrying cost of 20%. If Alpha plans a 50% reduction in work in process levels, the expected annual savings in carrying costs would be: A. $37,500 B. $15,000 C. $30,000 D. $3,750 E. none of the above SUPPORTING CALCULATION: 50% x 20% x (10 x 100 x $75) = $7,500 B 14. Beta Company has an average dollar loss per defective unit of $25, a planned reduction in number of defective units produced per outofcontrol condition of 5, and the number of outofcontrol conditions not discovered immediately is 250. The expected savings in cost of defects would be: A. $1,250 B. $31,250 C. $6,250 D. $125 E. none of the above SUPPORTING CALCULATION: $25 x 5 x 250 = $31,250 JustinTime and Backflushing 95 B 26. Cheeta Company has materials cost in the June 1 Raw and In Process of $10,000, materials received during June of $205,000 and materials cost in the June 30 Raw and In Process of $12,500. The amount to be backflushed from Raw and In Process to Finished Goods at the end of June would be: A. $215,000 B. $202,500 C. $207,500 D. $217,500 E. none of the above D 27. In backflush costing, if the conversion cost in the Raw and In Process was $500 on July 1 and $1,000 on July 31, the account to be credited at the end of July for the $500 increase would be: A. Raw and In Process B. Finished Goods C. Raw Materials D. Cost of Goods Sold E. none of the above A 28. In backflush costing, if the conversion cost in Raw and In Process was $1,000 on March 1 and $400 on March 31, the account to be credited for the $600 decrease would be: A. Raw and In Process B. Finished Goods C. Raw Materials D. Cost of Goods Sold E. none of the above FACTORY OVERHEAD: E 1. All of the following phrases are used as alternate terminology for "factory overhead" except: A. manufacturing expense B. indirect manufacturing cost C. factory expense D. factory burden E. other expense C 2. The component of perunit costs that remains constant as the production level varies is: A. general and administrative expenses B. commercial expenses C. variable factory overhead D. fixed factory overhead E. heat, light, and power D 3. To express factory overhead as a percentage of direct materials dollars, estimated factory overhead is divided by estimated: A. machine hours B. normal capacity C. units of materials used D. materials cost E. materials requisition usage 95 JustinTime and Backflushing 96 E 4. Estimated factory overhead is $600,000, and the hours usage of machinery is expected to be 150,000. Factory overhead is applied at the rate of $10 per direct labor hour. The wage rate for direct labor is $6 per hour, and the total number of estimated direct labor hours for the period is: A. 100,000 B. 150,000 C. 300,000 D. 600,000 E. 60,000 96 Factory Overhead: Planned, Actual, and Applied 97 SUPPORTING CALCULATION: B 5. An objection to the use of a factory overhead rate based on direct labor dollars is that: A. these items are difficult to measure B. a job is charged with more overhead when a highly paid operator works on the job than when a lowpaid operator performs the work C. overhead is allocated in relation to units produced by workers D. overhead rates will be distributed inequitably when there are no wage differentials in the department E. costs of applying this method are excessive D 6. A company expects to produce an average of 75,000 units per year, but last year production equaled 60,000 units. For the coming year, estimated production is 90,000 units. Estimated overhead costs are $900,000, and overhead is applied at the rate of $10 per unit. The company bases its overhead rates on: A. theoretical (engineering) capacity B. a shortterm planning approach C. historical capacity costs D. expected actual capacity E. normal capacity C 7. Direct costing differs from absorption costing in that: A. direct materials and direct labor do not become a part of product cost under direct costing B. the variable portion of overhead cost does not become a part of product cost under direct costing C. the fixed portion of overhead cost does not become a part of product cost under direct costing D. marketing and administrative expenses become a part of product cost under direct costing E. direct costing does not differ from absorption costing E 8. Application rates for factory overhead best reflect anticipated fluctuations in sales over a cycle of years when they are computed under the concept of: A. practical capacity B. expected actual capacity C. theoretical capacity D. maximum capacity E. normal capacity D 9. Underapplied factory overhead related to a significant decrease in production should be charged to: A. Finished Goods Inventory B. Cost of Goods Sold C. Work in Process Inventory and Finished Goods Inventory D. Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold E. Work in Process Inventory