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Shop What's New Sign inManagerial Accounting Tenth Canadian Edition Test Bank
Preview Extract
2
Student: ___________________________________________________________________________
1. What would be the classification of corporate controller’s salary?
A. Manufacturing cost.
B. Product cost.
C. Administrative cost.
D. Selling cost.
2. How should the cost of the fire insurance for a manufacturing plant be classified?
A. Prime cost.
B. Product cost.
C. Period cost.
D. Variable cost.
3. How would the cost of rent for a manufacturing plant generally be classified?
A. A product cost but not a prime cost.
B. Neither a product nor prime Cost.
C. A prime cost but not a product cost.
D. Both a prime cost and product cost.
4. For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver lamps to
customers is best described as a:
A. Prime cost.
B. Manufacturing overhead cost.
C. Period cost.
D. Differential cost of a lamp.
5. For a manufacturing company, which of the following is an example of a period cost rather than a
product cost?
A. Depreciation of factory equipment.
B. Wages of salespersons.
C. Wages of machine operators.
D. Insurance on factory equipment.
6. Which of the following would be considered a product cost for external financial reporting
purposes?
A. Cost of a warehouse used to store finished goods.
B. Cost of guided public tours through the company’s facilities.
C. Cost of travel necessary to sell the manufactured product.
D. Cost of sand spread on the factory floor to absorb oil from manufacturing machines.
7. Which of the following would NOT be treated as a product cost for external financial reporting
purposes?
A. Depreciation on a factory building.
B. Salaries of factory workers.
C. Indirect labour in the factory.
D. Advertising expenses.
8. What would be the classification of the transportation costs incurred by a manufacturing company
to ship its product to its customers?
A. Product cost.
B. Manufacturing overhead.
C. Period cost.
D. Administrative cost.
9. The advertising costs incurred by Pepsi to air its commercials during the hockey season can best
be described as a:
A. Variable cost.
B. Fixed cost.
C. Prime cost.
D. Conversion cost.
10. Micro Computer Company has set up a toll-free telephone line for customer inquiries regarding
computer hardware produced by the company. How would the cost of this toll-free line be
classified?
A. Product cost.
B. Manufacturing overhead.
C. Direct labour.
D. Period cost.
11. How would the wages of factory maintenance personnel usually be classified?
A. Direct labour and manufacturing overhead.
B. Indirect labour and manufacturing overhead.
C. Direct labour and period cost.
D. Indirect labour and period cost
12. Prime costs consist of:
A. Direct Labour and Manufacturing Overhead.
B. Direct Material and Direct Labour.
C. Direct Material and Manufacturing overhead.
D. Direct Material, Direct Labour and Manufacturing Overhead.
13. What does manufacturing overhead cost consist of?
A. All manufacturing costs.
B. All manufacturing costs, EXCEPT direct materials and direct labour.
C. Indirect materials but NOT indirect labour.
D. Indirect labour but NOT indirect materials.
14. A brewery produces many variety of beer. If the cost object is a particular brand of beer the
factory supervisor salary is classified a/an _____________ cost of the brand of beer and a
_____________ cost of the entire division.
A. Direct, Common
B. Indirect, Common
C. Direct, Prime
D. Fixed, Period
15. Rossiter Company failed to record a credit sale at the end of the year, although the reduction in
finished goods inventories was correctly recorded when the goods were shipped to the customer.
Which one of the following statements is correct?
A. Accounts receivable was not affected, inventory was not affected, sales were understated, and
cost of goods sold was understated.
B. Accounts receivable was understated, inventory was overstated, sales were understated, and
cost of goods sold was overstated.
C. Accounts receivable was not affected, inventory was understated, sales were understated, and
cost of goods sold was understated.
D. Accounts receivable was understated, inventory was not affected, sales were understated, and
cost of goods sold was not affected.
16. What is the outcome if the cost of goods sold is greater than the cost of goods manufactured?
A. Work-in-process inventory has decreased during the period.
B. Finished goods inventory has increased during the period.
C. Total manufacturing costs must be greater than cost of goods manufactured.
D. Finished goods inventory has decreased during the period.
17. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this
level of activity, variable costs were 50% of total unit costs. If 10,500 units are manufactured next
month and cost behaviour patterns remain unchanged, how will costs be affected?
A. Total variable costs will remain unchanged.
B. Fixed costs will increase in total.
C. Variable cost per unit will increase.
D. Total cost per unit will decrease.
18. Which of the following statements regarding variable cost is true?
A. Variable cost increases on a per unit basis as the number of units produced increases.
B. Variable cost remains constant on a per unit basis as the number of units produced increases.
C. Variable cost remains the same in total as production increases.
D. Variable cost decreases on a per unit basis as the number of units produced increases.
19. Within the relevant range, what is the difference between variable costs and fixed costs?
A. Variable costs per unit fluctuate and fixed costs per unit remain constant.
B. Variable costs per unit are constant and fixed costs per unit fluctuate.
C. Total variable costs and total fixed costs are constant.
D. Total variable costs and total fixed costs fluctuate.
20. The Target store in your home town is one of many Target department stores across the
province. Some of the costs associated with the store in your home town last month appear
below:
The Shoe Department is one of many departments in the home town store. The direct costs of
the Shoe Department total:
A. $80,000
B. $88,000
C. $97,000
D. $108,000
21. Which of the following best defines an opportunity cost?
A. The difference in total costs from selecting one alternative instead of another.
B. The benefit forgone by selecting one alternative instead of another.
C. A cost that may be saved by NOT adopting an alternative.
D. A cost that may be shifted to the future with little or no effect on current operations.
22. To what does the term differential cost refer?
A. A difference in cost that results from selecting one alternative instead of another.
B. The benefit forgone by selecting one alternative instead of another.
C. A cost that does not entail any dollar outlay, but which is relevant to the decision-making
process.
D. A cost that continues to be incurred even though there is no activity.
23. Which of the following costs is often important in decision making, but is omitted from
conventional accounting records?
A. Fixed cost.
B. Sunk cost.
C. Opportunity cost.
D. Indirect cost.
24. When a decision is made among a number of alternatives, the benefit that is lost by choosing one
alternative over another is called what?
A. Realized cost.
B. Opportunity cost.
C. Conversion cost.
D. Accrued cost.
25. What does conversion cost consist of?
A. Manufacturing overhead cost.
B. Direct materials and direct labour cost.
C. Direct labour cost.
D. Direct labour and manufacturing overhead cost.
26. Prime cost consists of direct materials and what?
A. Direct labour.
B. Manufacturing overhead.
C. Indirect materials.
D. Cost of goods manufactured.
27. Which one of the following costs should NOT be considered a direct cost of serving a particular
customer who orders a customized personal computer by phone directly from the manufacturer?
A. The cost of the hard disk drive installed in the computer.
B. The cost of shipping the computer to the customer.
C. The cost of leasing a machine on a monthly basis that automatically tests hard disk drives
before they are installed in computers.
D. The cost of packaging the computer for shipment.
28. Which one of the following costs should NOT be considered an indirect cost of serving a
particular customer at a Dairy Queen fast food outlet?
A. The cost of the hamburger patty in the burger the customer ordered.
B. The wages of the employee who takes the customer’s order.
C. The cost of heating and lighting the kitchen.
D. The salary of the outlet’s manager.
29. Green Company’s costs for the month of August are as follows:
The beginning work-in-process inventory is $16,000 and the ending work-in-process inventory is
$9,000. What is the cost of goods manufactured for the month?
A. $105,000.
B. $132,000.
C. $138,000.
D. $112,000.
30. A manufacturing company prepays its insurance coverage for a three-year period. The premium
for the three years is $2,700 and is paid at the beginning of the first year. Eighty percent of the
premium applies to manufacturing operations and 20% applies to selling and administrative
activities. What amounts should be considered product costs and period costs respectively for the
first year of coverage?
A. Option A
B. Option B
C. Option C
D. Option D
31. You have the following data:
Which of the following represents the beginning work-in-process inventory?
A. $20.
B. $15.
C. $55.
D. $25.
32. During the month of May, Bennett Manufacturing Company purchases $43,000 of raw materials.
The manufacturing overhead totals $27,000 and the total manufacturing costs are $106,000.
Assuming a beginning inventory of raw materials of $8,000 and an ending inventory of raw
materials of $6,000, what must be the total for direct labour?
A. $34,000.
B. $38,000.
C. $36,000.
D. $45,000.
33. You are given the following data for January:
Which of the following is the cost of goods manufactured?
A. $89,000.
B. $78,000.
C. $79,000.
D. $80,000.
34. During the month of June, Reardon Company incurs $17,000 of direct labour and $8,500 of
manufacturing overhead, and purchases $15,000 of raw materials. Between the beginning and
the end of the month, the raw-materials inventory increases by $2,000, the finished goods
inventory increases by $1,500, and the work-in-process inventory decreases by $3,000. What is
the cost of goods manufactured?
A. $38,500.
B. $40,500.
C. $41,500.
D. $43,500.
35. Mueller Company reports the following data for the year just ended:
What was the beginning work-in-process inventory?
A. $300,000.
B. $500,000.
C. $1,300,000.
D. $100,000.
36. Williams Company’s direct labour cost is 25% of its conversion cost. If the manufacturing
overhead cost for the last period is $45,000 and the direct materials cost is $25,000, what is the
direct labour cost?
A. $15,000.
B. $60,000.
C. $33,333.
D. $20,000.
37. The Lyons Company’s cost of goods manufactured was $120,000 when its sales were $360,000
and its gross margin was $220,000. If the ending inventory of finished goods was $30,000, what
was the beginning inventory of finished goods?
A. $20,000.
B. $50,000.
C. $110,000.
D. $150,000.
38. The gross margin for Cushing Company for the first quarter of last year was $325,000 when sales
were $700,000. The beginning inventory of finished goods was $60,000, and the ending inventory
of finished goods was $85,000. What was the cost of goods manufactured for the first quarter?
A. $375,000.
B. $350,000.
C. $400,000.
D. $385,000.
39. Last month, a manufacturing company had the following operating results:
What was the cost of goods manufactured for the month?
A. $413,000
B. $411,000
C. $412,000
D. $463,000
40. The following information was provided by Wilson Company for the year just ended:
What was the cost of goods manufactured for the year?
A. $314,725.
B. $335,275.
C. $325,000.
D. $464,725.
41. The following information was provided by Grand Company for the year just ended:
What was the cost of goods manufactured for the year?
A. $95,345.
B. $104,655.
C. $395,345.
D. $404,655.
42. The following inventory valuation errors were discovered by Knox Corporation’s new controller
just after the annual financial statements were published at the end of Year 3.
The net income for Knox in each of these years was:
Assuming there were no income taxes, what was the adjusted net income in each year?
A. Option A
B. Option B
C. Option C
D. Option D
43. Delta Merchandising, Inc., has provided the following information for the year just ended:
What was the ending inventory for the company at year-end?
A. $65,450.
B. $24,500.
C. $14,050.
D. $9,950.
44. The beginning balance of the raw materials inventory account for May was $27,500. The ending
balance for May was $28,750, and $128,900 of raw materials were used during the month. What
was the cost of the materials purchased during the month?
A. $131,300.
B. $127,650.
C. $130,150.
D. $157,650.
45. Gabel Inc. is a merchandising company. Last month, the company’s merchandise purchases
totalled $63,000. The company’s beginning merchandise inventory was $13,000, and its ending
merchandise inventory was $15,000. What was the company’s cost of goods sold for the month?
A. $91,000.
B. $63,000.
C. $65,000.
D. $61,000.
46. Haack Inc. is a merchandising company. Last month, the company’s cost of goods sold was
$84,000. The company’s beginning merchandise inventory was $20,000, and its ending
merchandise inventory was $18,000. What was the total amount of the company’s merchandise
purchases for the month?
A. $86,000.
B. $82,000.
C. $84,000.
D. $122,000.
47. During January, the cost of goods manufactured was $93,000. The beginning finished goods
inventory was $16,000, and the ending finished goods inventory was $20,000. What was the cost
of goods sold for the month?
A. $129,000.
B. $89,000.
C. $93,000.
D. $97,000.
48. Sally Smith is employed in the production of various electronic products, and she earns $8 per
hour. She is paid time-and-a-half for work in excess of 40 hours per week. During a given week,
she worked 45 hours and had no idle time. How much of her week’s wages would be charged to
manufacturing overhead?
A. $60.
B. $20.
C. $40.
D. $0.
49. During the first week of April, Gillian worked a total of 50 hours assembling products and had no
idle time. Gillian is paid $15 per hour for regular time, and is paid time-and-a-half for all hours in
excess of a 40-hour week. How much of Gillian’s wages for the week should be charged to direct
labour?
A. $600.
B. $225.
C. $750.
D. $975.
50. Robert Smith earns $16 per hour assembling products. For each hour over 40 he works in a week
he is paid time-and-a-half. During a given week, he worked 40 hours for which 3 hours were idle
time. How much of his weekly wages would be charged to direct labour?
A. $640.
B. $592.
C. $688.
D. $48.
The following data (in thousands of dollars) have been taken from the accounting records of
Karling Corporation for the year just ended.
51. What was the cost (in thousands of dollars) of the raw materials used in production during the
year?
A. $190.
B. $90.
C. $150.
D. $160.
52. What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $540.
B. $500.
C. $570.
D. $590.
53. What was the cost of goods sold (in thousands of dollars) for the year?
A. $700.
B. $500.
C. $660.
D. $580.
54. What was the net income (in thousands of dollars) for the year?
A. $150.
B. $200.
C. $490.
D. $250.
The following data (in thousands of dollars) have been taken from the accounting records of
Karlana Corporation for the year just ended.
55. What was the cost of the raw materials used in production (in thousands of dollars) during the
year?
A. $180.
B. $40.
C. $120.
D. $160.
56. What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $530.
B. $520.
C. $500.
D. $460.
57. What was the net income (in thousands of dollars) for the year?
A. $410.
B. $110.
C. $40.
D. $180.
The following data (in thousands of dollars) have been taken from the accounting records of
Karlist Corporation for the just completed year.
58. What was the cost of the raw materials used in production (in thousands of dollars) during the
year?
A. $240.
B. $190.
C. $170.
D. $250.
59. What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $450.
B. $460.
C. $530.
D. $540.
60. What was the cost of goods sold (in thousands of dollars) for the year?
A. $610.
B. $410.
C. $490.
D. $570.
61. What was the Gross Margin (in thousands of dollars) for the year?
A. $350.
B. $130.
C. $390.
D. $190.
The following data pertain to Harriman Company’s operations during July:
62. What was the beginning work-in-process inventory?
A. $10,000.
B. $14,000.
C. $1,000.
D. $4,000.
63. What was the ending finished goods inventory?
A. $17,000.
B. $12,000.
C. $7,000.
D. $2,000.
Bergeron Inc. reported the following data for last year:
64. Which of the following is the prime cost?
A. $900.
B. $800.
C. $1,200.
D. $700.
65. Which of the following is the conversion cost?
A. $700.
B. $800.
C. $900.
D. $1,200.
66. Which of the following is the cost of goods manufactured?
A. $1,250.
B. $1,200.
C. $1,220.
D. $1,150.
Geneva Steel Corporation produces large sheets of heavy gauge steel. The company showed the
following amounts relating to its production for the year just completed:
67. What was the balance of the finished goods inventory at the end of the year?
A. $95,000.
B. $50,000.
C. $193,000.
D. $45,000.
68. What was the cost of goods manufactured for the year?
A. $171,000.
B. $160,000.
C. $243,000.
D. $244,000.
69. What was the manufacturing overhead cost for the year?
A. $84,000.
B. $78,000.
C. $56,000.
D. $72,000.
Boardman Company reported the following data for the month of January:
70. If raw materials costing $35,000 were purchased during January, what were the total
manufacturing costs for the month?
A. $145,000.
B. $144,000.
C. $151,000.
D. $146,000.
71. Assuming that cost of goods sold for January was $124,000, what was the net income for
January?
A. $61,000.
B. $26,000.
C. $51,000.
D. $25,000.
72. Which of the following is Boardman Company’s total conversion cost for January?
A. $110,000.
B. $170,000.
C. $135,000.
D. $130,000.
73. Assuming that cost of goods sold for Boardman Company for January was $140,000, what was
the cost of goods manufactured for the month?
A. $140,000
B. $135,000
C. $145,000
D. $139,000
At a sales volume of 32,000 units, CD Company’s total fixed costs are $64,000 and total variable
costs are $60,000. The relevant range is 30,000 to 55,000 units.
74. If CD Company sells 43,000 units, what is the total expected cost (Do not round your intermediate
calculations)?
A. $146,000.
B. $166,625.
C. $144,625.
D. $124,000.
75. If CD Company sells 50,000 units, what is the total expected cost per unit? (Do not round
intermediate computations). Round final answer to the nearest cent.
A. $3.20.
B. $2.48.
C. $3.88.
D. $3.16.
76. All costs incurred in a merchandising firm are considered to be period costs.
True
False
77. In a manufacturing firm, depreciation is always considered a product cost for external financial
reporting purposes.
True
False
78. In external financial reports, factory utilities costs may be included in an asset account on the
balance sheet at the end of the period.
True
False
79. Advertising costs are considered product costs for external financial reports since they are
incurred in order to promote specific products.
True
False
80. Property taxes and insurance premiums paid on a factory building are examples of manufacturing
overhead.
True
False
81. Manufacturing overhead combined with direct materials is known as conversion cost.
True
False
82. If the ending inventory of finished goods is understated, net income will be overstated.
True
False
83. In a manufacturing company, goods available for sale equals the sum of the cost of goods
manufactured and the beginning finished goods inventory.
True
False
84. Variable costs are costs whose per unit costs vary as the activity level rises and falls.
True
False
85. On a per unit basis, a fixed cost varies inversely with the level of activity.
True
False
86. The following would typically be considered indirect costs of manufacturing a particular Boeing
747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory
manager’s salary, and the cost of the General Electric jet engines installed on the aircraft.
True
False
87. When raw materials are used in production, their costs are transferred to the work in process
inventory account as direct materials.
True
False
88. The following costs should be considered by a law firm to be indirect costs of defending a
particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, the
costs of heating the law firm’s offices, and the depreciation on the personal computer in the office
of the attorney who has been assigned the client.
True
False
89. As goods are completed their cost is transferred from the Work in Process account to the
Finished Goods account where they await sale to customer.
True
False
90. Some companies classify labour fringe benefits for direct labour workers as part of the direct
labour cost and some classify these costs as manufacturing overhead.
True
False
91. Stony Electronics Corporation manufactures a portable radio designed for mounting on the wall of
the bathroom. The following list represents some of the different types of costs incurred in the
manufacture of these radios:
1) The plant manager’s salary.
2) The cost of heating the plant.
3) The cost of heating executive offices.
4) The cost of printed circuit boards used in the radios.
5) Salaries and commissions of company salespersons.
6) Depreciation on office equipment used in the executive offices.
7) Depreciation on production equipment used in the plant.
8) Wages of janitorial personnel who clean the plant.
9) The cost of insurance on the plant building.
10) The cost of electricity to light the plant.
11) The cost of electricity to power plant equipment.
12) The cost of maintaining and repairing equipment in the plant.
13) The cost of printing promotional materials for trade shows.
14) The cost of solder used in assembling the radios.
15) The cost of telephone service for the executive offices.
Required:
Classify each of the items above as product (inventoriable) cost or period (noninventoriable) costs
for the purpose of preparing external financial statements.
92. Bill Pope has developed a new device that is so exciting he is considering quitting his job in order
to produce and market it on a large-scale basis. Bill will rent a garage for $300 per month for
production purposes. Utilities will cost $40 per month. Bill has already taken an industrial design
course at the local community college to help prepare for this venture. The course cost $300. Bill
will rent production equipment at a monthly cost of $800. He estimates the material cost will be $5
per unit, and the labour cost will be $3 per unit. He will hire workers and spend his time promoting
the product. To do this, he will quit his job, which pays $3,000 per month. Advertising and
promotion will cost $900 per month.
Required:
Complete the chart below by placing an “X” under each heading that helps to identify the cost
involved. You can place an “X” under more than one heading for a single cost: for example, a
cost may be a sunk cost, an overhead cost, and a product cost; you would place an “X” under
each of these headings opposite the cost.
* Between the alternatives of going into business to make the device or not going into business to
make the device. See column heading “Differential Cost”.
* Between the alternatives of going into business to make the device or not going into business to
make the device.
93. Logan Products, a small manufacturer, has submitted the items below concerning last year’s
operations. The president’s secretary, trying to be helpful, has alphabetized the list.
Required:
a.) Prepare a schedule of cost of goods manufactured in good form for the year.
b.) Determine the cost of goods sold for the year.
94. Lake Company recorded the following data for the month of January 20xx:
Required:
a) Compute the amount of direct materials used in January.
b) List and total the Manufacturing Overhead costs for the month of January.
c) Compute the Cost of Goods Manufactured.
Note: It may be helpful to prepare a Cost of Goods Manufactured statement in rough form but it is
not required. You may use short forms in your answers for DM, DL etc.
95. The accounts for a manufacturing company for an accounting period are listed below. Find the
unknown amounts indicated by question marks.
96. Use the following information to determine the gross margin for Pacific States Manufacturing for
the year just ended (all amounts are in thousands of dollars):
97. The following information is from Marchant Manufacturing Co. for September:
Required:
(a.) Compute the cost of goods sold.
(b.) Compute the balance in finished goods inventory at September 30.
(c.) Compute the balance in work-in-process inventory at September 30.
(d.) Compute the balance in raw materials inventory at September 30.
(e.) Compute the total manufacturing overhead.
(Hint: The easiest method of solving this problem is to sketch out the income statement and the
schedule of cost of goods manufactured, enter the given amounts, and then enter the unknowns
as plug figures.)
98. The following data (in thousands of dollars) have been taken from the accounting records of
Larsen Corporation for the year just ended:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good form.
99. The following data (in thousands of dollars) have been taken from the accounting records of
Larner Corporation for the year just completed:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good form.
100.The following data (in thousands of dollars) have been taken from the accounting records of
Larmont Corporation for the year just completed:
*Raw Materials Inventory consist of both direct and indirect materials.
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good form.
101.The following costs relate to one month’s activity in Martin Company:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Determine the cost of goods sold.
(c.) Assume Martin Company produced the equivalent of 500 units during this particular month.
What was the average cost per unit for direct materials? For rent on factory building?
(d.) Assume next month Martin Company plans to produce 600 units of product. What average
cost per unit and total cost would you expect to be incurred for direct material?, for rent?
102.Brooke Foster is employed by Wong Laboratories, Inc., and is directly involved in preparing and
packaging the company’s leading sleep aid, RestWell. Brooke’s basic wage rate is $15 per hour,
and she is paid time-and-a-half for any work in excess of 40 hours per week. Additionally, Wong
Laboratories provides a fringe benefit package that costs the company $5 for each hour of
employee time (regular or overtime). During a recent week, Brooke worked 49 hours but was idle
for 3 hours due to materials shortages.
Required:
(a.) Assume that Wong Laboratories treats all fringe benefits as part of manufacturing overhead.
Compute Brooke’s total wages and fringe benefits for the week and indicate how much of her
wages and fringe benefits for the week would be allocated to direct labour and how much would
be allocated to manufacturing overhead.
(b.) Assume that Wong Laboratories treats the part of fringe benefits related to direct labour as a
component of direct labour cost. Compute Brooke’s total wages and fringe benefits for the week
and indicate how much of her wages and fringe benefits would be allocated to direct labour and
how much would be allocated to manufacturing overhead.
103.Fred Adams is employed by the Cedar Manufacturing Company on their assembly line. Fred is
paid $15 per hour for regular time, and time-and-a-half for all work in excess of 40 hours per
week. During the two weeks of the pay period just completed, Fred reported the following:
Required:
Compute Fred’s wages for each week and allocate Fred’s wages for each week between direct
labour cost and manufacturing overhead.
104.The following inventory and cost data for the just completed year are taken from the accounting
records of Sankar Company:
Required:
(a.) Calculate the cost of goods manufactured.
(b.) Calculate the cost of goods sold
105.The following selected account balances for the year ended December 31 are provided for Amita
Company:
In addition, you have the following information about inventories during the year:
Cleaning supplies are in the factory.
Assume the company uses FIFO.
Required:
(a.) Calculate the cost of the 27,600 equivalent units that were produced during the year.
(b.) Calculate the cost of the ending finished goods inventory.
(c.) Calculate the cost of goods sold.
106.Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a
memo from her boss, Gary Resnick, to the controller of the company. The memo appears below:
Galaxy Toys Internal Memo
Sept 15
To: Harry Wilson, Controller
Fm: Gary Resnick, Executive Vice President
As you know, we won’t start recording many sales until October when stores start accepting
shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are
building up our finished goods inventories so that we will be ready to ship next month.
Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending
on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always
review the quarterly financial reports and may call in our loan if they don’t like what they see. Is
there any possibility that we could change the classification of some of our period costs to
product costs–such as the rent on the finished goods warehouse?
Please let me know as soon as possible. The President is pushing for results.
Mary didn’t know what to do about the memo. It wasn’t intended for her, but its contents were
alarming.
Required:
a. Why has Gary Resnick suggested reclassifying some period costs as product costs?
b. Why do you think Mary was alarmed about the memo?
107.For the majority of manufacturing companies, the distinction between period costs and product
costs is essential because of its effect on net income for a period. Failure to make the distinction
can affect the cost of goods manufactured and cost of goods sold.
Required:
Would the need to make the distinction between product costs and period costs still be essential
if a manufacturing company were to adopt the just-in-time technique in the lean thinking model?
Explain.
108.The following data (in thousands of dollars) have been taken from the accounting records of
Karling Corporation for the year just ended.
Required:
a) Compute the Cost of Goods Manufactured
b) Compute Cost of Goods Sold
c) What is the Gross Margin for the Year?
d) Compute Net Operating Income.
109.Manufacturing overhead is one of the three elements of manufacturing costs. Unlike direct
materials and direct labour costs, assigning manufacturing overhead cost to products can be a
very difficult task.
Required:
Do you agree with this aspect of manufacturing overhead? Why or why not?
2 Key
1.
What would be the classification of corporate controller’s salary?
A. Manufacturing cost.
B. Product cost.
C. Administrative cost.
D. Selling cost.
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Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #1
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-06 Non-manufacturing Costs.
2.
How should the cost of the fire insurance for a manufacturing plant be classified?
A. Prime cost.
B. Product cost.
C. Period cost.
D. Variable cost.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #2
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
3.
How would the cost of rent for a manufacturing plant generally be classified?
A. A product cost but not a prime cost.
B. Neither a product nor prime Cost.
C. A prime cost but not a product cost.
D. Both a prime cost and product cost.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #3
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
4.
For a lamp manufacturing company, the cost of the insurance on its vehicles that deliver
lamps to customers is best described as a:
A. Prime cost.
B. Manufacturing overhead cost.
C. Period cost.
D. Differential cost of a lamp.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #4
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
5.
For a manufacturing company, which of the following is an example of a period cost rather
than a product cost?
A. Depreciation of factory equipment.
B. Wages of salespersons.
C. Wages of machine operators.
D. Insurance on factory equipment.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #5
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
6.
Which of the following would be considered a product cost for external financial reporting
purposes?
A. Cost of a warehouse used to store finished goods.
B. Cost of guided public tours through the company’s facilities.
C. Cost of travel necessary to sell the manufactured product.
D. Cost of sand spread on the factory floor to absorb oil from manufacturing machines.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #6
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
7.
Which of the following would NOT be treated as a product cost for external financial reporting
purposes?
A. Depreciation on a factory building.
B. Salaries of factory workers.
C. Indirect labour in the factory.
D. Advertising expenses.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #7
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
8.
What would be the classification of the transportation costs incurred by a manufacturing
company to ship its product to its customers?
A. Product cost.
B. Manufacturing overhead.
C. Period cost.
D. Administrative cost.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #8
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
9.
The advertising costs incurred by Pepsi to air its commercials during the hockey season can
best be described as a:
A. Variable cost.
B. Fixed cost.
C. Prime cost.
D. Conversion cost.
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Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #9
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
Topic: 02-15 Fixed Cost.
10.
Micro Computer Company has set up a toll-free telephone line for customer inquiries
regarding computer hardware produced by the company. How would the cost of this toll-free
line be classified?
A. Product cost.
B. Manufacturing overhead.
C. Direct labour.
D. Period cost.
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #10
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
11.
How would the wages of factory maintenance personnel usually be classified?
A. Direct labour and manufacturing overhead.
B. Indirect labour and manufacturing overhead.
C. Direct labour and period cost.
D. Indirect labour and period cost
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #11
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
12.
Prime costs consist of:
A. Direct Labour and Manufacturing Overhead.
B. Direct Material and Direct Labour.
C. Direct Material and Manufacturing overhead.
D. Direct Material, Direct Labour and Manufacturing Overhead.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #12
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
13.
What does manufacturing overhead cost consist of?
A. All manufacturing costs.
B. All manufacturing costs, EXCEPT direct materials and direct labour.
C. Indirect materials but NOT indirect labour.
D. Indirect labour but NOT indirect materials.
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Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #13
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
14.
A brewery produces many variety of beer. If the cost object is a particular brand of beer the
factory supervisor salary is classified a/an _____________ cost of the brand of beer and a
_____________ cost of the entire division.
A. Direct, Common
B. Indirect, Common
C. Direct, Prime
D. Fixed, Period
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #14
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
15.
Rossiter Company failed to record a credit sale at the end of the year, although the reduction
in finished goods inventories was correctly recorded when the goods were shipped to the
customer. Which one of the following statements is correct?
A. Accounts receivable was not affected, inventory was not affected, sales were understated,
and cost of goods sold was understated.
B. Accounts receivable was understated, inventory was overstated, sales were understated,
and cost of goods sold was overstated.
C. Accounts receivable was not affected, inventory was understated, sales were understated,
and cost of goods sold was understated.
D. Accounts receivable was understated, inventory was not affected, sales were understated,
and cost of goods sold was not affected.
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #15
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-12 Inventoriable Costs.
16.
What is the outcome if the cost of goods sold is greater than the cost of goods manufactured?
A. Work-in-process inventory has decreased during the period.
B. Finished goods inventory has increased during the period.
C. Total manufacturing costs must be greater than cost of goods manufactured.
D. Finished goods inventory has decreased during the period.
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #16
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
Topic: 02-12 Inventoriable Costs.
17.
Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At
this level of activity, variable costs were 50% of total unit costs. If 10,500 units are
manufactured next month and cost behaviour patterns remain unchanged, how will costs be
affected?
A. Total variable costs will remain unchanged.
B. Fixed costs will increase in total.
C. Variable cost per unit will increase.
D. Total cost per unit will decrease.
The average cost per unit will decrease as activity increases due to the presence of fixed
costs. Refer to page 41 of text.
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #17
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
Topic: 02-15 Fixed Cost.
18.
Which of the following statements regarding variable cost is true?
A. Variable cost increases on a per unit basis as the number of units produced increases.
B. Variable cost remains constant on a per unit basis as the number of units produced
increases.
C. Variable cost remains the same in total as production increases.
D. Variable cost decreases on a per unit basis as the number of units produced increases.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #18
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
19.
Within the relevant range, what is the difference between variable costs and fixed costs?
A. Variable costs per unit fluctuate and fixed costs per unit remain constant.
B. Variable costs per unit are constant and fixed costs per unit fluctuate.
C. Total variable costs and total fixed costs are constant.
D. Total variable costs and total fixed costs fluctuate.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #19
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
Topic: 02-15 Fixed Cost.
20.
The Target store in your home town is one of many Target department stores across the
province. Some of the costs associated with the store in your home town last month appear
below:
The Shoe Department is one of many departments in the home town store. The direct costs of
the Shoe Department total:
A. $80,000
B. $88,000
C. $97,000
D. $108,000
80,000 + 8,000 + 9,000 = $97,000.
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #20
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
21.
Which of the following best defines an opportunity cost?
A. The difference in total costs from selecting one alternative instead of another.
B. The benefit forgone by selecting one alternative instead of another.
C. A cost that may be saved by NOT adopting an alternative.
D. A cost that may be shifted to the future with little or no effect on current operations.
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Blooms: Remember
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #21
Learning Objective: 02-07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-19 Opportunity Cost.
22.
To what does the term differential cost refer?
A. A difference in cost that results from selecting one alternative instead of another.
B. The benefit forgone by selecting one alternative instead of another.
C. A cost that does not entail any dollar outlay, but which is relevant to the decision-making
process.
D. A cost that continues to be incurred even though there is no activity.
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Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #22
Learning Objective: 02-07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-18 Differential Cost and Revenue.
23.
Which of the following costs is often important in decision making, but is omitted from
conventional accounting records?
A. Fixed cost.
B. Sunk cost.
C. Opportunity cost.
D. Indirect cost.
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #23
Learning Objective: 02-07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-19 Opportunity Cost.
24.
When a decision is made among a number of alternatives, the benefit that is lost by choosing
one alternative over another is called what?
A. Realized cost.
B. Opportunity cost.
C. Conversion cost.
D. Accrued cost.
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Blooms: Remember
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #24
Learning Objective: 02-07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-19 Opportunity Cost.
25.
What does conversion cost consist of?
A. Manufacturing overhead cost.
B. Direct materials and direct labour cost.
C. Direct labour cost.
D. Direct labour and manufacturing overhead cost.
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #25
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
26.
Prime cost consists of direct materials and what?
A. Direct labour.
B. Manufacturing overhead.
C. Indirect materials.
D. Cost of goods manufactured.
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #26
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
27.
Which one of the following costs should NOT be considered a direct cost of serving a
particular customer who orders a customized personal computer by phone directly from the
manufacturer?
A. The cost of the hard disk drive installed in the computer.
B. The cost of shipping the computer to the customer.
C. The cost of leasing a machine on a monthly basis that automatically tests hard disk drives
before they are installed in computers.
D. The cost of packaging the computer for shipment.
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #27
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
28.
Which one of the following costs should NOT be considered an indirect cost of serving a
particular customer at a Dairy Queen fast food outlet?
A. The cost of the hamburger patty in the burger the customer ordered.
B. The wages of the employee who takes the customer’s order.
C. The cost of heating and lighting the kitchen.
D. The salary of the outlet’s manager.
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #28
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
29.
Green Company’s costs for the month of August are as follows:
The beginning work-in-process inventory is $16,000 and the ending work-in-process inventory
is $9,000. What is the cost of goods manufactured for the month?
A. $105,000.
B. $132,000.
C. $138,000.
D. $112,000.
DM + DL + MOH + WIP B.I. – WIP E.I.
27,000 + 34,000 + (10,000 + 15,000 + 2,000 + 17,000) + 16,000 – 9,000 = $112,000.
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #29
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
30.
A manufacturing company prepays its insurance coverage for a three-year period. The
premium for the three years is $2,700 and is paid at the beginning of the first year. Eighty
percent of the premium applies to manufacturing operations and 20% applies to selling and
administrative activities. What amounts should be considered product costs and period costs
respectively for the first year of coverage?
A. Option A
B. Option B
C. Option C
D. Option D
($2,700/3) * 80% and ($2,700/3) * 20%
Blooms: Analyze
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #30
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
31.
You have the following data:
Which of the following represents the beginning work-in-process inventory?
A. $20.
B. $15.
C. $55.
D. $25.
CGM + EI – Manufacturing Costs = 80 + 10 – (15 + 20 + 30) = $25
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #31
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
32.
During the month of May, Bennett Manufacturing Company purchases $43,000 of raw
materials. The manufacturing overhead totals $27,000 and the total manufacturing costs are
$106,000. Assuming a beginning inventory of raw materials of $8,000 and an ending inventory
of raw materials of $6,000, what must be the total for direct labour?
A. $34,000.
B. $38,000.
C. $36,000.
D. $45,000.
DM used = 8,000 + 43,000 – 6,000 = $45,000.
DL = 106,000 – 45,000 – 27,000 = $34,000.
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #32
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
33.
You are given the following data for January:
Which of the following is the cost of goods manufactured?
A. $89,000.
B. $78,000.
C. $79,000.
D. $80,000.
38,000 + 24,000 + 17,000 + 10,000 – 11,000 = $78,000.
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #33
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
34.
During the month of June, Reardon Company incurs $17,000 of direct labour and $8,500 of
manufacturing overhead, and purchases $15,000 of raw materials. Between the beginning and
the end of the month, the raw-materials inventory increases by $2,000, the finished goods
inventory increases by $1,500, and the work-in-process inventory decreases by $3,000. What
is the cost of goods manufactured?
A. $38,500.
B. $40,500.
C. $41,500.
D. $43,500.
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #34
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
35.
Mueller Company reports the following data for the year just ended:
What was the beginning work-in-process inventory?
A. $300,000.
B. $500,000.
C. $1,300,000.
D. $100,000.
C.G.M. + E.I. – Man. Costs
(2,500,000 + 400,000 – 800,000) – 700,000 – 900,000 = $500,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #35
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
36.
Williams Company’s direct labour cost is 25% of its conversion cost. If the manufacturing
overhead cost for the last period is $45,000 and the direct materials cost is $25,000, what is
the direct labour cost?
A. $15,000.
B. $60,000.
C. $33,333.
D. $20,000.
Let x = CC (conversion costs)
CC = DL + OH
x = .25x + 45,000
x = 60,000 Therefore DL 60,000 * .25 = $15,000
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #36
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
37.
The Lyons Company’s cost of goods manufactured was $120,000 when its sales were
$360,000 and its gross margin was $220,000. If the ending inventory of finished goods was
$30,000, what was the beginning inventory of finished goods?
A. $20,000.
B. $50,000.
C. $110,000.
D. $150,000.
CGS = Sales – gross margin = $360,000 – $220,000 = 140,000
B.I. = CGS + E.I. – CGM
B.I. = 140,000 + 30,000 – 120,000 = $50,000
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Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #37
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
38.
The gross margin for Cushing Company for the first quarter of last year was $325,000 when
sales were $700,000. The beginning inventory of finished goods was $60,000, and the ending
inventory of finished goods was $85,000. What was the cost of goods manufactured for the
first quarter?
A. $375,000.
B. $350,000.
C. $400,000.
D. $385,000.
CGM = CGS + EI – BI
= (700,000 – 325,000) + 85,000 – 60,000 = $400,000.
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #38
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
39.
Last month, a manufacturing company had the following operating results:
What was the cost of goods manufactured for the month?
A. $413,000
B. $411,000
C. $412,000
D. $463,000
CGM = CGS + EI -BI
= (464,000 – 52,000) + 73,000 – 74,000 = $411,000
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #39
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
40.
The following information was provided by Wilson Company for the year just ended:
What was the cost of goods manufactured for the year?
A. $314,725.
B. $335,275.
C. $325,000.
D. $464,725.
CGM = CGS + EI – BI
(475,000 – 150,000) + 140,475 – 150,750 = $314,725
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #40
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
41.
The following information was provided by Grand Company for the year just ended:
What was the cost of goods manufactured for the year?
A. $95,345.
B. $104,655.
C. $395,345.
D. $404,655.
CGM = CGS – decrease in FG inventory
CGM = (500,000 – 100,000) – 4,655 = $395,345
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #41
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
42.
The following inventory valuation errors were discovered by Knox Corporation’s new controller
just after the annual financial statements were published at the end of Year 3.
The net income for Knox in each of these years was:
Assuming there were no income taxes, what was the adjusted net income in each year?
A. Option A
B. Option B
C. Option C
D. Option D
When BI is overstated Net Income is understated. When EI is overstated Net Income is
overstated.
Blooms: Evaluate
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #42
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-12 Inventoriable Costs.
43.
Delta Merchandising, Inc., has provided the following information for the year just ended:
What was the ending inventory for the company at year-end?
A. $65,450.
B. $24,500.
C. $14,050.
D. $9,950.
EI = BI + Purchases – CGS
EI = 24,000 + 80,000 – (128,500 – 38,550) = $14,050
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #43
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
44.
The beginning balance of the raw materials inventory account for May was $27,500. The
ending balance for May was $28,750, and $128,900 of raw materials were used during the
month. What was the cost of the materials purchased during the month?
A. $131,300.
B. $127,650.
C. $130,150.
D. $157,650.
RM purchased = RM used + EI – BI
= 128,900 + 28,750 – 27,500 = $130,150
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #44
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
45.
Gabel Inc. is a merchandising company. Last month, the company’s merchandise purchases
totalled $63,000. The company’s beginning merchandise inventory was $13,000, and its
ending merchandise inventory was $15,000. What was the company’s cost of goods sold for
the month?
A. $91,000.
B. $63,000.
C. $65,000.
D. $61,000.
CGS = BI + Purchases – EI = 13,000 + 63,000 – 15,000 = $61,000
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #45
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
46.
Haack Inc. is a merchandising company. Last month, the company’s cost of goods sold was
$84,000. The company’s beginning merchandise inventory was $20,000, and its ending
merchandise inventory was $18,000. What was the total amount of the company’s
merchandise purchases for the month?
A. $86,000.
B. $82,000.
C. $84,000.
D. $122,000.
Purchases = CGS + EI – BI = 84,000 + 18,000 – 20,000 = $82,000
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #46
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
47.
During January, the cost of goods manufactured was $93,000. The beginning finished goods
inventory was $16,000, and the ending finished goods inventory was $20,000. What was the
cost of goods sold for the month?
A. $129,000.
B. $89,000.
C. $93,000.
D. $97,000.
CGS = BI + CGM – EI = 16,000 + 93,000 – 20,000 = $89,000
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #47
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
48.
Sally Smith is employed in the production of various electronic products, and she earns $8 per
hour. She is paid time-and-a-half for work in excess of 40 hours per week. During a given
week, she worked 45 hours and had no idle time. How much of her week’s wages would be
charged to manufacturing overhead?
A. $60.
B. $20.
C. $40.
D. $0.
(45 – 40) hours = 5 hours overtime. MOH = 5 × 8 × 0.5 = $20.
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #48
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-03 Direct Labour
Topic: 02-04 Manufacturing Overhead.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
49.
During the first week of April, Gillian worked a total of 50 hours assembling products and had
no idle time. Gillian is paid $15 per hour for regular time, and is paid time-and-a-half for all
hours in excess of a 40-hour week. How much of Gillian’s wages for the week should be
charged to direct labour?
A. $600.
B. $225.
C. $750.
D. $975.
50 hours * $15/hr. = $750
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #49
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-03 Direct Labour
Topic: 02-04 Manufacturing Overhead.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
50.
Robert Smith earns $16 per hour assembling products. For each hour over 40 he works in a
week he is paid time-and-a-half. During a given week, he worked 40 hours for which 3 hours
were idle time. How much of his weekly wages would be charged to direct labour?
A. $640.
B. $592.
C. $688.
D. $48.
37 hrs. * $16/hr = $592
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #50
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
The following data (in thousands of dollars) have been taken from the accounting records of
Karling Corporation for the year just ended.
Garrison – Chapter 02
51.
What was the cost (in thousands of dollars) of the raw materials used in production during the
year?
A. $190.
B. $90.
C. $150.
D. $160.
Cost of RM used = RM BI + Purchases RM – RM EI = 40 + 120 – 70 = $90
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #51
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
52.
What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $540.
B. $500.
C. $570.
D. $590.
CGM = Cost of RM used + DL + OH + WIP BI – WIP EI
= 90 + 200 + 230 + 70 – 50 = $540
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #52
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
53.
What was the cost of goods sold (in thousands of dollars) for the year?
A. $700.
B. $500.
C. $660.
D. $580.
CGS = BI + CGM – EI = 120 + 540 – 160 = $500
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #53
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
54.
What was the net income (in thousands of dollars) for the year?
A. $150.
B. $200.
C. $490.
D. $250.
NI = Sales – CGS – Admin. Expenses – Selling Expenses
= 990 – 500 – 150 – 140 = $200
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #54
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
The following data (in thousands of dollars) have been taken from the accounting records of
Karlana Corporation for the year just ended.
Garrison – Chapter 02
55.
What was the cost of the raw materials used in production (in thousands of dollars) during the
year?
A. $180.
B. $40.
C. $120.
D. $160.
RM used = RM BI + RM Purchases – RM EI = 80 + 100 – 20 = $160
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #55
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
56.
What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $530.
B. $520.
C. $500.
D. $460.
CGM = DM used + DL + OH + BI WIP – EI WIP
= 160 + 130 + 200 + 40 – 10 = $520
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #56
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
57.
What was the net income (in thousands of dollars) for the year?
A. $410.
B. $110.
C. $40.
D. $180.
NI = Sales – CGS – Admin. Expenses – Selling expenses
= 910 – (130 + 520 – 150) – 160 – 140 = $110
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #57
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
The following data (in thousands of dollars) have been taken from the accounting records of
Karlist Corporation for the just completed year.
Garrison – Chapter 02
58.
What was the cost of the raw materials used in production (in thousands of dollars) during the
year?
A. $240.
B. $190.
C. $170.
D. $250.
Cost of RM used = RM BI + RM Purchases – RM EI = 60 + 180 – 70 = $170
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #58
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
59.
What was the cost of goods manufactured (finished) for the year (in thousands of dollars)?
A. $450.
B. $460.
C. $530.
D. $540.
CGM = RM used + DL + OH + BI WIP – EI WIP
= 170 + 100 + 190 + 70 – 80 = $450
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #59
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
60.
What was the cost of goods sold (in thousands of dollars) for the year?
A. $610.
B. $410.
C. $490.
D. $570.
CGS = BI + CGM – EI = 120 + 450 – 160 = $410
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #60
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
61.
What was the Gross Margin (in thousands of dollars) for the year?
A. $350.
B. $130.
C. $390.
D. $190.
GM = Sales – CGS = 800 – 410 = $390
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #61
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
The following data pertain to Harriman Company’s operations during July:
Garrison – Chapter 02
62.
What was the beginning work-in-process inventory?
A. $10,000.
B. $14,000.
C. $1,000.
D. $4,000.
BI WIP = CGM + EI WIP – RM used – DL – OH
= 105,000 + 4,000 – 40,000 – 39,000 – 20,000 = $10,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #62
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
63.
What was the ending finished goods inventory?
A. $17,000.
B. $12,000.
C. $7,000.
D. $2,000.
EI = BI + CGM – CGS
= 12,000 + 105,000 – (210,000 – 100,000) = $7,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #63
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
Bergeron Inc. reported the following data for last year:
Garrison – Chapter 02
64.
Which of the following is the prime cost?
A. $900.
B. $800.
C. $1,200.
D. $700.
Prime cost = DM + DL = 500 + 300 = $800
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #64
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
65.
Which of the following is the conversion cost?
A. $700.
B. $800.
C. $900.
D. $1,200.
CC = DL + OH = 300 + 400 = $700
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #65
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
66.
Which of the following is the cost of goods manufactured?
A. $1,250.
B. $1,200.
C. $1,220.
D. $1,150.
CGM = DM + DL + OH + WIP BI – WIP EI
= 500 + 300 + 400 + 100 – 150 = $1,150
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #66
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
Geneva Steel Corporation produces large sheets of heavy gauge steel. The company showed
the following amounts relating to its production for the year just completed:
Garrison – Chapter 02
67.
What was the balance of the finished goods inventory at the end of the year?
A. $95,000.
B. $50,000.
C. $193,000.
D. $45,000.
EI = Cost of Goods Available for sale – Cost of Goods Sold
= 288,000 – 238,000 = $50,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #67
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
68.
What was the cost of goods manufactured for the year?
A. $171,000.
B. $160,000.
C. $243,000.
D. $244,000.
CGM = Cost of Goods Available for sale – Finished Goods B.I.
= 288,000 – 45,000 = $243,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #68
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
69.
What was the manufacturing overhead cost for the year?
A. $84,000.
B. $78,000.
C. $56,000.
D. $72,000.
Compute Total Manufacturing Costs = CGM + EI WIP – BI WIP
= 243,000 + 16,000 – 22,000 = $237,000
Then compute manufacturing overhead = Total Man. Costs – DM – DL
Manufacturing overhead = 237,000 – 110,000 – 55,000 = $72,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #69
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
Boardman Company reported the following data for the month of January:
Garrison – Chapter 02
70.
If raw materials costing $35,000 were purchased during January, what were the total
manufacturing costs for the month?
A. $145,000.
B. $144,000.
C. $151,000.
D. $146,000.
TMC = DM used + DL + MOH
= (32,000 + 35,000 – 31,000) + 40,000 + 70,000 = $146,000
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #70
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
71.
Assuming that cost of goods sold for January was $124,000, what was the net income for
January?
A. $61,000.
B. $26,000.
C. $51,000.
D. $25,000.
NI = Sales – CGS – Selling Exp. – Admin. Exp.
= 210,000 – 124,000 – 25,000 – 35,000 = $26,000.
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #71
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
72.
Which of the following is Boardman Company’s total conversion cost for January?
A. $110,000.
B. $170,000.
C. $135,000.
D. $130,000.
CC = DL + OH = 40,000 + 70,000 = $110,000
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #72
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
73.
Assuming that cost of goods sold for Boardman Company for January was $140,000, what
was the cost of goods manufactured for the month?
A. $140,000
B. $135,000
C. $145,000
D. $139,000
CGM = COGS + EI – BI = 140,000 + 35,000 – 30,000 = $145,000
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #73
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
At a sales volume of 32,000 units, CD Company’s total fixed costs are $64,000 and total
variable costs are $60,000. The relevant range is 30,000 to 55,000 units.
Garrison – Chapter 02
74.
If CD Company sells 43,000 units, what is the total expected cost (Do not round your
intermediate calculations)?
A. $146,000.
B. $166,625.
C. $144,625.
D. $124,000.
VC/unit = $60,000/32,000 units = $1.875/unit
Total Cost = VC + FC
= 43,000 * 1.875 + 64,000 = $144,625
Accessibility: Keyboard Navigation
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #74
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
Topic: 02-15 Fixed Cost.
75.
If CD Company sells 50,000 units, what is the total expected cost per unit? (Do not round
intermediate computations). Round final answer to the nearest cent.
A. $3.20.
B. $2.48.
C. $3.88.
D. $3.16.
VC/unit = 60,000/32,000 = $1.875/unit
TC = VC + FC = 50,000 * 1.875 + 64,000 = $157,750
Expected Cost/unit = 157,750/50,000 = 3.155 = $3.16/unit
Accessibility: Keyboard Navigation
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #75
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
Topic: 02-15 Fixed Cost.
76.
All costs incurred in a merchandising firm are considered to be period costs.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #76
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
77.
In a manufacturing firm, depreciation is always considered a product cost for external financial
reporting purposes.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #77
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
78.
In external financial reports, factory utilities costs may be included in an asset account on the
balance sheet at the end of the period.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #78
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
79.
Advertising costs are considered product costs for external financial reports since they are
incurred in order to promote specific products.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #79
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-06 Non-manufacturing Costs.
Topic: 02-07 Product Costs.
80.
Property taxes and insurance premiums paid on a factory building are examples of
manufacturing overhead.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #80
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-04 Manufacturing Overhead.
81.
Manufacturing overhead combined with direct materials is known as conversion cost.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #81
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-07 Product Costs.
82.
If the ending inventory of finished goods is understated, net income will be overstated.
FALSE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #82
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
83.
In a manufacturing company, goods available for sale equals the sum of the cost of goods
manufactured and the beginning finished goods inventory.
TRUE
Accessibility: Keyboard Navigation
Blooms: Understand
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #83
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-10 The Income Statement.
84.
Variable costs are costs whose per unit costs vary as the activity level rises and falls.
FALSE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #84
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-14 Variable Cost.
85.
On a per unit basis, a fixed cost varies inversely with the level of activity.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #85
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-15 Fixed Cost.
86.
The following would typically be considered indirect costs of manufacturing a particular Boeing
747 to be delivered to Singapore Airlines: electricity to run production equipment, the factory
manager’s salary, and the cost of the General Electric jet engines installed on the aircraft.
FALSE
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Easy
Garrison – Chapter 02 #86
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
87.
When raw materials are used in production, their costs are transferred to the work in process
inventory account as direct materials.
TRUE
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #87
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-11 Product Costs—A Closer Look.
Topic: 02-12 Inventoriable Costs.
88.
The following costs should be considered by a law firm to be indirect costs of defending a
particular client in court: rent on the law firm’s offices, the law firm’s receptionist’s wages, the
costs of heating the law firm’s offices, and the depreciation on the personal computer in the
office of the attorney who has been assigned the client.
TRUE
Accessibility: Keyboard Navigation
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #88
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-17 Indirect Cost.
89.
As goods are completed their cost is transferred from the Work in Process account to the
Finished Goods account where they await sale to customer.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #89
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-11 Product Costs—A Closer Look.
90.
Some companies classify labour fringe benefits for direct labour workers as part of the direct
labour cost and some classify these costs as manufacturing overhead.
TRUE
Accessibility: Keyboard Navigation
Blooms: Remember
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #90
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
91.
Stony Electronics Corporation manufactures a portable radio designed for mounting on the
wall of the bathroom. The following list represents some of the different types of costs incurred
in the manufacture of these radios:
1) The plant manager’s salary.
2) The cost of heating the plant.
3) The cost of heating executive offices.
4) The cost of printed circuit boards used in the radios.
5) Salaries and commissions of company salespersons.
6) Depreciation on office equipment used in the executive offices.
7) Depreciation on production equipment used in the plant.
8) Wages of janitorial personnel who clean the plant.
9) The cost of insurance on the plant building.
10) The cost of electricity to light the plant.
11) The cost of electricity to power plant equipment.
12) The cost of maintaining and repairing equipment in the plant.
13) The cost of printing promotional materials for trade shows.
14) The cost of solder used in assembling the radios.
15) The cost of telephone service for the executive offices.
Required:
Classify each of the items above as product (inventoriable) cost or period (noninventoriable)
costs for the purpose of preparing external financial statements.
1) Product.
2) Product.
3) Period.
4) Product.
5) Period.
6) Period.
7) Product.
8) Product.
9) Product.
10) Product.
11) Product.
12) Product.
13) Period.
14) Product.
15) Period.
Blooms: Understand
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Easy
Garrison – Chapter 02 #91
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
92.
Bill Pope has developed a new device that is so exciting he is considering quitting his job in
order to produce and market it on a large-scale basis. Bill will rent a garage for $300 per
month for production purposes. Utilities will cost $40 per month. Bill has already taken an
industrial design course at the local community college to help prepare for this venture. The
course cost $300. Bill will rent production equipment at a monthly cost of $800. He estimates
the material cost will be $5 per unit, and the labour cost will be $3 per unit. He will hire workers
and spend his time promoting the product. To do this, he will quit his job, which pays $3,000
per month. Advertising and promotion will cost $900 per month.
Required:
Complete the chart below by placing an “X” under each heading that helps to identify the cost
involved. You can place an “X” under more than one heading for a single cost: for example, a
cost may be a sunk cost, an overhead cost, and a product cost; you would place an “X” under
each of these headings opposite the cost.
* Between the alternatives of going into business to make the device or not going into
business to make the device. See column heading “Differential Cost”.
* Between the alternatives of going into business to make the device or not going into
business to make the device.
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #92
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Learning Objective: 02-07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-07 Product Costs.
Topic: 02-14 Variable Cost.
Topic: 02-16 Direct Cost
Topic: 02-18 Differential Cost and Revenue.
93.
Logan Products, a small manufacturer, has submitted the items below concerning last year’s
operations. The president’s secretary, trying to be helpful, has alphabetized the list.
Required:
a.) Prepare a schedule of cost of goods manufactured in good form for the year.
b.) Determine the cost of goods sold for the year.
a.)
b.)
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #93
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
94.
Lake Company recorded the following data for the month of January 20xx:
Required:
a) Compute the amount of direct materials used in January.
b) List and total the Manufacturing Overhead costs for the month of January.
c) Compute the Cost of Goods Manufactured.
Note: It may be helpful to prepare a Cost of Goods Manufactured statement in rough form but
it is not required. You may use short forms in your answers for DM, DL etc.
a:
b:
c:
Blooms: Analyze
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #94
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
95.
The accounts for a manufacturing company for an accounting period are listed below. Find the
unknown amounts indicated by question marks.
Cost of goods sold = $39,000 – $11,700 = $27,300.
Direct materials used = $1,000 + $11,000 – $3,000 = $9,000.
Cost of goods manufactured = $9,000 + $5,000 + ($2,000 + $4,000 + $3,000 + $7,000) + $800
– $3,000 = $27,800.
Finished goods inventory, ending = $5,000 + $27,800 – $27,300 = $5,500.
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #95
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
96.
Use the following information to determine the gross margin for Pacific States Manufacturing
for the year just ended (all amounts are in thousands of dollars):
Direct materials used = $6,000 + $7,000 – $1,000 = $12,000.
Cost of goods manufactured = $12,000 + $5,000 + ($600 + $500 + $1,900 + $3,500) + $800 $3,000 = $21,300.
Cost of goods sold = $4,000 + $21,300 – $5,300 = $20,000.
Gross margin = $31,800 – $20,000 = $11,800.
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #96
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
97.
The following information is from Marchant Manufacturing Co. for September:
Required:
(a.) Compute the cost of goods sold.
(b.) Compute the balance in finished goods inventory at September 30.
(c.) Compute the balance in work-in-process inventory at September 30.
(d.) Compute the balance in raw materials inventory at September 30.
(e.) Compute the total manufacturing overhead.
(Hint: The easiest method of solving this problem is to sketch out the income statement and
the schedule of cost of goods manufactured, enter the given amounts, and then enter the
unknowns as plug figures.)
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #97
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
98.
The following data (in thousands of dollars) have been taken from the accounting records of
Larsen Corporation for the year just ended:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good
form.
(a.) Schedule of cost of goods manufactured.
(b.) Computation of cost of goods sold
(c.) Income statement
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #98
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
99.
The following data (in thousands of dollars) have been taken from the accounting records of
Larner Corporation for the year just completed:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good
form.
(a.) Schedule of cost of goods manufactured
(b.) Computation of cost of goods sold
(c.) Income statement
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #99
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
100.
The following data (in thousands of dollars) have been taken from the accounting records of
Larmont Corporation for the year just completed:
*Raw Materials Inventory consist of both direct and indirect materials.
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Compute the cost of goods sold.
(c.) Using data from your answers above as needed, prepare an income statement in good
form.
(a.) Schedule of cost of goods manufactured
Note: For calculation of Direct Materials used you must remember to take out the portion that
is indirect material.
(b.) Computation of cost of goods sold
(c.) Income statement
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #100
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
101.
The following costs relate to one month’s activity in Martin Company:
Required:
(a.) Prepare a schedule of cost of goods manufactured in good form.
(b.) Determine the cost of goods sold.
(c.) Assume Martin Company produced the equivalent of 500 units during this particular
month. What was the average cost per unit for direct materials? For rent on factory building?
(d.) Assume next month Martin Company plans to produce 600 units of product. What average
cost per unit and total cost would you expect to be incurred for direct material?, for rent?
c. Direct material $1,200/500 units = $2.40 per unit
Rent $500/500 = $1.00 per unit
d. Average cost per unit for Direct Material remains at $2.40 for a total of $1,440 (600 * $2.40).
Average cost per unit for Rent will be $0.83 ($500/600) and the total remains at $500. Fixed
costs per unit decrease as activity increases.
Blooms: Apply
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #101
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
Topic: 02-14 Variable Cost.
102.
Brooke Foster is employed by Wong Laboratories, Inc., and is directly involved in preparing
and packaging the company’s leading sleep aid, RestWell. Brooke’s basic wage rate is $15
per hour, and she is paid time-and-a-half for any work in excess of 40 hours per week.
Additionally, Wong Laboratories provides a fringe benefit package that costs the company $5
for each hour of employee time (regular or overtime). During a recent week, Brooke worked 49
hours but was idle for 3 hours due to materials shortages.
Required:
(a.) Assume that Wong Laboratories treats all fringe benefits as part of manufacturing
overhead. Compute Brooke’s total wages and fringe benefits for the week and indicate how
much of her wages and fringe benefits for the week would be allocated to direct labour and
how much would be allocated to manufacturing overhead.
(b.) Assume that Wong Laboratories treats the part of fringe benefits related to direct labour as
a component of direct labour cost. Compute Brooke’s total wages and fringe benefits for the
week and indicate how much of her wages and fringe benefits would be allocated to direct
labour and how much would be allocated to manufacturing overhead.
(a.)
(b.) Total wages and fringe benefits would be $1,047.50 as shown in (a.) above.
Allocation of wages and fringe benefits:
Blooms: Analyze
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Hard
Garrison – Chapter 02 #102
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-03 Direct Labour
Topic: 02-05 Classification of Labour Costs of Manufacturing.
103.
Fred Adams is employed by the Cedar Manufacturing Company on their assembly line. Fred is
paid $15 per hour for regular time, and time-and-a-half for all work in excess of 40 hours per
week. During the two weeks of the pay period just completed, Fred reported the following:
Required:
Compute Fred’s wages for each week and allocate Fred’s wages for each week between
direct labour cost and manufacturing overhead.
Fred’s wages would be allocated between direct labour and manufacturing overhead as
follows:
Blooms: Analyze
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
Difficulty: Medium
Garrison – Chapter 02 #103
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Topic: 02-03 Direct Labour
Topic: 02-05 Classification of Labour Costs of Manufacturing.
104.
The following inventory and cost data for the just completed year are taken from the
accounting records of Sankar Company:
Required:
(a.) Calculate the cost of goods manufactured.
(b.) Calculate the cost of goods sold
(a.)
(b.)
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #104
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
105.
The following selected account balances for the year ended December 31 are provided for
Amita Company:
In addition, you have the following information about inventories during the year:
Cleaning supplies are in the factory.
Assume the company uses FIFO.
Required:
(a.) Calculate the cost of the 27,600 equivalent units that were produced during the year.
(b.) Calculate the cost of the ending finished goods inventory.
(c.) Calculate the cost of goods sold.
(a.) This is the same as calculating the cost of goods manufactured during the year.
(b.) Because the company uses FIFO, the entire 3,400 units in ending finished goods
inventory are from the 27,600 equivalent units produced during the year. The average
manufacturing cost per unit is $24.28 per unit rounded to the nearest cent, that is,
$670,000/27,600. The cost of the ending finished goods inventory is $82,522, that is, 3,400 ×
$24.28 per unit.
(c.)
Blooms: Analyze
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #105
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
106.
Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a
memo from her boss, Gary Resnick, to the controller of the company. The memo appears
below:
Galaxy Toys Internal Memo
Sept 15
To: Harry Wilson, Controller
Fm: Gary Resnick, Executive Vice President
As you know, we won’t start recording many sales until October when stores start accepting
shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are
building up our finished goods inventories so that we will be ready to ship next month.
Unfortunately, we are in a bind right now since it looks like the net income for the quarter
ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since
they always review the quarterly financial reports and may call in our loan if they don’t like
what they see. Is there any possibility that we could change the classification of some of our
period costs to product costs–such as the rent on the finished goods warehouse?
Please let me know as soon as possible. The President is pushing for results.
Mary didn’t know what to do about the memo. It wasn’t intended for her, but its contents were
alarming.
Required:
a. Why has Gary Resnick suggested reclassifying some period costs as product costs?
b. Why do you think Mary was alarmed about the memo?
a. Gary Resnick has suggested reclassifying some period costs as product costs since the
company is building up large finished goods inventories in anticipation of the Christmas selling
season. Product costs are inventoried and flow through to the income statement only when
products are sold. Period expenses, in contrast, flow directly to the income statement. Since
most of the finished goods inventories will be held over to the next quarter, reclassifying period
costs as product costs will effectively defer recognition of expenses until next quarter and
therefore will improve the current quarter’s net operating income.
b. Mary Tappin is probably alarmed by both the economic situation the company finds itself in
and by the apparent willingness of top management to bend the rules. Improperly reclassifying
costs is an indication that top management does not feel like it has to play by the rules or be
honest in its dealings with the bank. With such loose ethical standards, Mary may wonder
what other things they are doing that are unethical and/or illegal.
Blooms: Evaluate
CPA Competency: 3.1.2 Evaluates the types of information systems used and the role they play in an organization
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #106
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
Topic: 02-11 Product Costs—A Closer Look.
Topic: 02-12 Inventoriable Costs.
107.
For the majority of manufacturing companies, the distinction between period costs and product
costs is essential because of its effect on net income for a period. Failure to make the
distinction can affect the cost of goods manufactured and cost of goods sold.
Required:
Would the need to make the distinction between product costs and period costs still be
essential if a manufacturing company were to adopt the just-in-time technique in the lean
thinking model? Explain.
The need for the distinction would not be essential in terms of its impact on net income. There
will literally be no inventories of any kind (raw materials, work-in-process, and finished goods).
Cost of goods manufactured will equal all the manufacturing costs incurred (nothing to be held
back as product costs or assets in either raw materials inventory or work-in-process inventory).
Cost of goods sold will also equal cost of goods manufactured (again because nothing will be
held back as product cost in finished goods inventory). All manufacturing costs will be
released to the income statement and therefore, in essence, treated as period costs.
Blooms: Evaluate
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #107
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
Topic: 02-12 Inventoriable Costs.
108.
The following data (in thousands of dollars) have been taken from the accounting records of
Karling Corporation for the year just ended.
Required:
a) Compute the Cost of Goods Manufactured
b) Compute Cost of Goods Sold
c) What is the Gross Margin for the Year?
d) Compute Net Operating Income.
a. CGM = DM + DL + MOH + WIP beg. – WIP end. =
90 + 200 + 230 +70 – 50 = $540
b. CGS = Fin. Goods beg. + CGM – Fin. Goods end =
120 + 540 – 160 = $500
c. GM = Sales – CGS = 990 – 500 = $490
d. Net Op. Income = GM – Operating Expenses =
490 – (150 + 140) = $200
Blooms: Apply
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Medium
Garrison – Chapter 02 #108
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
Topic: 02-07 Product Costs.
Topic: 02-08 Period Costs.
Topic: 02-10 The Income Statement.
109.
Manufacturing overhead is one of the three elements of manufacturing costs. Unlike direct
materials and direct labour costs, assigning manufacturing overhead cost to products can be a
very difficult task.
Required:
Do you agree with this aspect of manufacturing overhead? Why or why not?
The response is an emphatic yes (note: this response may not be so obvious to many
students at this stage of the course). Manufacturing overhead costs are indirect in the sense
that they cannot be conveniently traced to particular products. Some of these costs are
consumed in very small amounts and therefore tracing is not cost-effective. Others may be
common costs because they are consumed jointly by several products. An example is the
straight-line depreciation cost of factory equipment used to manufacture multiple products. It is
almost impossible to trace such cost to individual products.
Manufacturing overhead costs are, therefore, assigned to products only by using some
allocation base, such as some aspects of direct labour (for example; direct labour hours and
direct labour cost). Choosing an appropriate allocation is not easy since there are usually
several competing ones. Overhead application is covered in more detail in chapter 5. It should
be noted that recent advances in technology and managerial accounting techniques are
making it possible to conveniently (and economically) trace some of the so-called overhead
costs to products. Some of these advances (for example, activity-based costing and bar
coding) will be covered in later topics.
Blooms: Create
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
Difficulty: Hard
Garrison – Chapter 02 #109
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
Topic: 02-04 Manufacturing Overhead.
Topic: 02-05 Classification of Labour Costs of Manufacturing.
Topic: 02-16 Direct Cost
Topic: 02-17 Indirect Cost.
2 Summary
Category
# of Questions
Accessibility: Keyboard Navigation
55
Blooms: Analyze
37
Blooms: Apply
36
Blooms: Create
1
Blooms: Evaluate
3
Blooms: Remember
10
Blooms: Understand
22
CPA Competency: 3.1.2 Evaluates the types of information systems used and the role they play in an organization
1
CPA Competency: 3.3.1 Evaluates cost classifications and costing methods for management of ongoing operations.
33
CPA Competency: 3.3.2 Evaluates and applies cost management techniques appropriate for specific costing decisions.
81
Difficulty: Easy
29
Difficulty: Hard
39
Difficulty: Medium
41
Garrison – Chapter 02
117
Learning Objective: 02-01 Identify and give examples of each of the three basic manufacturing cost categories.
19
Learning Objective: 02-02 Distinguish between product costs and period costs; and give examples of each.
29
Learning Objective: 02-03 Prepare an income statement; including the calculation of cost of goods sold.
55
Learning Objective: 02-04 Prepare a schedule of cost of goods manufactured.
24
Learning Objective: 02-05 Explain the differences between variable and fixed costs.
10
Learning Objective: 02-06 Identify the differences between direct and indirect costs.
10
Learning Objective: 02-
5
07 Describe the cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs.
Topic: 02-03 Direct Labour
4
Topic: 02-04 Manufacturing Overhead.
13
Topic: 02-05 Classification of Labour Costs of Manufacturing.
9
Topic: 02-06 Non-manufacturing Costs.
2
Topic: 02-07 Product Costs.
29
Topic: 02-08 Period Costs.
27
Topic: 02-10 The Income Statement.
55
Topic: 02-11 Product Costs—A Closer Look.
20
Topic: 02-12 Inventoriable Costs.
6
Topic: 02-14 Variable Cost.
9
Topic: 02-15 Fixed Cost.
6
Topic: 02-16 Direct Cost
9
Topic: 02-17 Indirect Cost.
9
Topic: 02-18 Differential Cost and Revenue.
2
Topic: 02-19 Opportunity Cost.
3
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