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Managerial Accounting, 5e (Braun et al.)
Chapter 2 Building Blocks of Managerial Accounting
2.1 Distinguish among service, merchandising, and manufacturing companies
1) Service companies must carry a large amount of inventory to meet consumer demand.
Answer: FALSE
Diff: 1
LO: 2-1
EOC: S2AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2) Manufacturing companies usually have three types of inventory.
Answer: TRUE
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
3) Retailers sell their products to consumers.
Answer: TRUE
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
4) Merchandising companies include both wholesalers and retailers.
Answer: TRUE
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5) All companies have the same types of inventories.
Answer: FALSE
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
1
Copyright © 2018 Pearson Education, Inc.
6) Only manufacturing companies have finished goods inventory.
Answer: TRUE
Diff: 2
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
7) Which of the following are merchandising companies?
A) Manufacturers
B) Retailers
C) Wholesalers
D) Both retailers and wholesalers
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8) Which of the following types of companies has raw materials, work in process and finished goods
inventory?
A) Retailers
B) Manufacturers
C) Wholesalers
D) Service companies
Answer: B
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
9) Which type of company makes up the largest sector of the United States economy?
A) Manufacturers
B) Merchandising
C) Wholesalers
D) Service companies
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2
Copyright © 2018 Pearson Education, Inc.
10) The balance sheet of a service company has
A) raw materials inventory.
B) little or no inventory.
C) three categories of inventory.
D) two categories of inventory.
Answer: B
Diff: 1
LO: 2-1
EOC: S2-1
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
11) Schlabig & Associates, a public accounting firm that provides business consulting to a consumer, is
what type of company?
A) Manufacturer
B) Retailer
C) Service
D) Wholesaler
Answer: C
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
12) Jiffy Lube, an automotive maintenance company, is primarily what type of company?
A) Manufacturer
B) Retailer
C) Wholesaler
D) Service
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
13) Among other products, Nabisco makes Oreo cookies. Which type of company is Nabisco?
A) Service
B) Manufacturer
C) Retailer
D) Wholesaler
Answer: B
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
3
Copyright © 2018 Pearson Education, Inc.
14) Which type of company typically produces its own inventory?
A) Manufacturer
B) Service company
C) Retailer
D) Wholesaler
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
15) Before these materials are used to manufacture its cars, Toyota classifies steel, glass, and plastic as
A) raw materials inventory.
B) finished goods inventory.
C) work in process inventory.
D) merchandise inventory.
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
16) Before these materials are used to manufacture cabinets, a woodworker classifies lumber, paint, and
glue as
A) finished goods inventory.
B) work in process inventory.
C) raw materials inventory.
D) merchandise inventory.
Answer: C
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
17) Macy’s (the department store chain) classifies its clothing held for sale as
A) merchandise inventory.
B) raw materials inventory.
C) work in process inventory.
D) finished goods inventory.
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
4
Copyright © 2018 Pearson Education, Inc.
18) American Eagle Outfitters classifies the denim jeans on the shelves at its retail locations as
A) finished goods inventory.
B) work in process inventory.
C) merchandise inventory.
D) raw materials inventory.
Answer: C
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
19) How would Chevrolet classify its partially completed vehicles?
A) Finished goods inventory
B) Raw materials inventory
C) Work in process inventory
D) Supplies inventory
Answer: C
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
20) Which of the following is a characteristic of a service company?
A) Service companies make a product.
B) Service companies have a single category of inventory.
C) Service companies generally have no tangible products to sell.
D) Service companies transform raw materials into finished goods.
Answer: C
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
21) A snow removal business would be classified as a
A) manufacturing company.
B) merchandising company.
C) simple company.
D) service company.
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5
Copyright © 2018 Pearson Education, Inc.
22) An accounting firm would be classified as a
A) manufacturing company.
B) merchandising company.
C) simple company.
D) service company.
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
23) Toshiba Corporation makes computer chips. Toshiba Corporation would be classified as a
A) merchandising company.
B) manufacturing company.
C) service company.
D) simple company.
Answer: B
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
24) Which type of company has three categories of inventory?
A) A manufacturing company
B) A merchandising company
C) A service company
D) All of these companies
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
25) A ________ company’s balance sheet reports just one inventory called “Inventory.”
A) service
B) merchandising
C) manufacturing
D) All of these types of companies
Answer: B
Diff: 1
LO: 2-1
EOC: S2-1
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
6
Copyright © 2018 Pearson Education, Inc.
26) All of the following items would be found in raw materials inventory for a furniture manufacturer
except
A) wood.
B) fabric.
C) steel framing.
D) assembly worker wages.
Answer: D
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
27) Which of the following items could be found in work in process inventory at a candy bar
manufacturer?
A) Candy bars made but not coated in chocolate
B) Cocoa products to make candy bars
C) Sugar products to make candy bars
D) Candy bars completed but not yet sold
Answer: A
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
28) Enter the letter of the type of each company category on the line in front of each statement. Letters
may be used more than once or not at all.
A. service company
B. merchandising company
C. manufacturing company
________ generally has no or minimal inventory
________ has three types of inventory
________ has one class of inventory only
________ Ford Motor Company is an example of this company category
________ Wal-Mart is an example of this company category
Answer: A, C, B, C, B
Diff: 1
LO: 2-1
EOC: S2-1
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
7
Copyright © 2018 Pearson Education, Inc.
29) On the line in front of each statement, enter the letter corresponding to the term that best fits that
statement. You may use a letter more than once and some letters may not be used at all.
A.
B.
C.
D.
Raw materials inventory
Service companies
Merchandise inventory
Finished goods inventory
E.
F.
G.
Work in process inventory
Manufacturing companies
Merchandising companies
________ has a single category of inventory
________ resells products previously purchased ready-made from a supplier
________ does not sell inventory as a way to earn profit
________ produces its own inventory
________ transforms raw materials into a new finished product
________ completed goods that have not been sold
________ partially completed items of manufacturers
________ steel, glass, tires, upholstery, and fabric that Toyota uses to manufacture products
Answer:
G
has a single category of inventory
G
resells products previously purchased ready-made from a supplier
B
inventory is not sold for a profit
F
produces its own inventory
F
transforms raw materials into a new finished product
D
completed goods that have not been sold
E
partially completed items of manufacturers
A
steel, glass, tires, upholstery, and fabric that Toyota uses to manufacture products
Diff: 2
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
30) Describe service, merchandising, and manufacturing companies.
Answer: Service companies sell intangible services such as insurance, consulting, banking, and
healthcare. . They usually do not have inventory or cost of goods sold accounts, although some service
companies will have a small amount of supplies inventory which is used for their own use and not for
sale to customers. Merchandising companies resell tangible products they purchase from suppliers.
Merchandisers have inventory. Manufacturing companies use labor, plant and equipment to convert raw
materials into finished products that they sell to other companies. The three types of inventory include:
raw materials inventory, work in process inventory, and finished goods inventory.
Diff: 2
LO: 2-1
EOC: S2-1; S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8
Copyright © 2018 Pearson Education, Inc.
31) Explain the difference between raw materials inventory, work in process inventory, and finished
goods inventory.
Answer: Raw materials inventory includes all materials used to make a product including materials that
become a part of the product as well as other physical materials used in a plant such as machine
lubricants and janitorial supplies. Work in process inventory includes goods that are in the middle of the
manufacturing process; however, the product is not complete. Finished goods inventory includes
completed goods that have not yet been sold to a consumer or group in the marketplace.
Diff: 1
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
32) Describe a company that has some elements of all three types of companies. It is part service
company, part manufacturer, and part merchandiser.
Answer: Many restaurants fall into this category because most restaurants are a service company since
they serve hungry customers. A restaurant is also considered a manufacturer if the restaurant converts
raw ingredients into finished meals. A restaurant is also considered a merchandise company if the
restaurant sells ready-to-serve bottles of beer and wine to consumers and groups in the marketplace.
Outback Steakhouse is an example of a restaurant that is categorized as a service company, a
merchandise company, and a manufacturing company.
Diff: 2
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
33) Explain the type of inventory that is characteristic at a service company.
Answer: Service firms do not have inventory costs because services cannot be produced today and stored
to sell to a consumer later. They do not generally have inventory; however, some service providers do
carry a minimal amount of supply inventory used for internal operations, and it is not sold to generate a
profit.
Diff: 2
LO: 2-1
EOC: S2-2
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
9
Copyright © 2018 Pearson Education, Inc.
2.2 Describe the value chain and its elements
1) Controlling costs across the whole value chain often requires a trade-off between the individual
elements of the value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2) All of the components of manufacturing — from research and development through customer service
after the sale — are part of a firm’s value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
3) The activities in the value chain must take place in a specific order.
Answer: FALSE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
4) The value chain concept helps companies control costs over the value chain as a whole.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5) Research and development is needed to improve products and to design new products.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
6) Receipt of materials is part of the firm’s value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
10
Copyright © 2018 Pearson Education, Inc.
7) A company’s distribution system is an important part of the value chain.
Answer: TRUE
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8) Which of the following value chain elements is associated with the costs of shipping inventory to the
retail outlet in a merchandising company?
A) Design
B) Distribution
C) Production and Purchases
D) Customer Service
Answer: B
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
9) All of the following are part of a company’s value chain except
A) design.
B) distribution.
C) administration.
D) marketing.
Answer: C
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
10) Which of the following activities is not included in the value chain?
A) Reporting
B) Design
C) Production
D) Customer service
Answer: A
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
11
Copyright © 2018 Pearson Education, Inc.
11) All of the following activities are included in the value chain except
A) customer service.
B) design.
C) safety.
D) production.
Answer: C
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
12) Which of the following would not be included in the value chain?
A) Website development costs
B) Costs to deliver product to retail outlets
C) Costs of print advertisements
D) All of these costs would be included as part of the value chain.
Answer: D
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
13) The value chain is used by
A) service, manufacturing, and merchandising businesses.
B) only service and manufacturing businesses.
C) only service and merchandising businesses.
D) only manufacturing and merchandising businesses.
Answer: A
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
14) Collectively, all costs such as distribution, marketing, and design are part of
A) downstream activities.
B) fixed costs.
C) the value chain.
D) manufacturing costs.
Answer: C
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
12
Copyright © 2018 Pearson Education, Inc.
15) What is the promotion of products and services known as?
A) Customer service
B) Marketing
C) Distribution
D) Design
Answer: B
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
16) All of the following relate to part of the value chain for a clothing company except
A) cost of advertising new products.
B) administrative costs.
C) cost of shipping products to retailers.
D) salaries of clothing designers.
Answer: B
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
17) Which element of the value chain would depreciation on a factory be classified as?
A) Design
B) Distribution
C) Research and development
D) Production
Answer: D
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
18) Testing ways to increase the strength of your product would be classified as which element of the
value chain?
A) Design
B) Distribution
C) Production
D) Research and development
Answer: D
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
13
Copyright © 2018 Pearson Education, Inc.
19) Which element of the value chain would a technical support hotline for customers be considered?
A) Design
B) Customer service
C) Distribution
D) Marketing
Answer: B
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
20) Advertising expenses would be considered which element of the value chain?
A) Customer service
B) Marketing
C) Production
D) Research and development
Answer: B
Diff: 1
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
21) The costs associated with reengineering machinery and its location within the factory to increase
efficiency would be considered which element of the value chain?
A) Customer service
B) Marketing
C) Research and development
D) Design
Answer: D
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
22) The costs incurred to transport merchandise to a company’s retail store would be considered to be
what element of the value chain?
A) Marketing
B) Customer service
C) Production or purchases
D) Research and development
Answer: C
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
14
Copyright © 2018 Pearson Education, Inc.
23) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,600
3300
125,300
10,200
20,100
75,900
52,400
63,800
70,000
6200
What is the total cost of research and development of the value chain?
A) $74,000
B) $70,000
C) $55,300
D) $195,300
Answer: B
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
15
Copyright © 2018 Pearson Education, Inc.
24) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,100
3800
125,500
10,700
20,300
75,400
52,200
63,800
70,600
6800
What is the total cost for the production category of the value chain?
A) $501,200
B) $203,500
C) $234,500
D) $332,000
Answer: B
Explanation: B) Calculations: $72,100 + 3800 + 75,400 + 52,200 = $203,500
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
16
Copyright © 2018 Pearson Education, Inc.
25) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,100
3600
125,700
10,400
20,300
75,000
52,300
63,200
70,300
6800
What is the total cost for the design category of the value chain?
A) $268,100
B) $188,900
C) $197,800
D) $125,700
Answer: D
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
17
Copyright © 2018 Pearson Education, Inc.
26) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,800
3800
125,100
10,500
20,500
75,800
52,300
63,300
70,400
6900
What is the total cost for the distribution category of the value chain?
A) $218,400
B) $24,300
C) $20,500
D) $153,500
Answer: C
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
18
Copyright © 2018 Pearson Education, Inc.
27) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,500
3700
125,000
10,100
20,800
75,300
52,300
63,800
70,500
6200
What is the total cost for the marketing category of the value chain?
A) $70,000
B) $188,800
C) $198,700
D) $269,200
Answer: A
Explanation: A) Calculations: $63,800 + 6200 = $70,000
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
19
Copyright © 2018 Pearson Education, Inc.
28) Lucky Cow Dairy provided the following expense information for May:
Assembly-line workers’ wages
Caps for milk bottles
Reconfiguring the assembly line
Customer support hotline
Delivery expenses
Depreciation on factory equipment
Plastic milk bottles
Salaries of salespeople
Salaries of research scientists
Customer toll-free order line
$72,300
3100
125,500
10,300
20,200
75,000
52,600
63,300
70,100
6100
What is the total cost for the customer service category of the value chain?
A) $82,800
B) $16,400
C) $73,600
D) $10,300
Answer: D
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
20
Copyright © 2018 Pearson Education, Inc.
29) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,600
$35,700
$3400
$52,700
$123,900
$63,900
$12,700
$65,700
$40,500
$8900
What is the total cost of research and development?
A) $58,200
B) $78,400
C) $65,700
D) $189,600
Answer: C
Diff: 21
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
21
Copyright © 2018 Pearson Education, Inc.
30) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,400
$35,700
$3800
$52,200
$123,600
$63,800
$12,900
$65,200
$40,200
$8800
What is the total cost for the production category of the value chain?
A) $462,600
B) $310,000
C) $148,800
D) $148,100
Answer: D
Explanation: D) Calculations: $56,400 + 35,700 + 3800 + 52,200 = $148,100
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
22
Copyright © 2018 Pearson Education, Inc.
31) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,700
$35,000
$3100
$52,800
$123,900
$63,900
$12,900
$65,900
$40,000
$8800
What is the total cost for the design category of the value chain?
A) $246,500
B) $187,800
C) $180,600
D) $123,900
Answer: D
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
23
Copyright © 2018 Pearson Education, Inc.
32) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,900
$35,800
$3100
$52,500
$123,500
$63,600
$12,900
$65,000
$40,300
$8000
What is the total cost for the distribution category of the value chain?
A) $40,300
B) $43,400
C) $220,700
D) $173,700
Answer: A
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
24
Copyright © 2018 Pearson Education, Inc.
33) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,200
$35,400
$3200
$52,300
$123,700
$63,700
$12,700
$65,100
$40,300
$8300
What is the total cost for the marketing category of the value chain?
A) $72,000
B) $180,600
C) $187,400
D) $246,300
Answer: A
Explanation: A) Calculations: $63,700 + 8300 = $72,000
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
25
Copyright © 2018 Pearson Education, Inc.
34) Joe’s Bottling Company provided the following expense information for July:
Assembly-line workers’ wages
Depreciation on factory equipment
Caps for bottles
Plastic bottles
Reconfiguring the assembly line
Salaries of salespeople
Customer support hotline
Salaries of research scientists
Delivery expenses
Customer toll-free order line
$56,800
$35,800
$3700
$52,100
$123,600
$63,700
$12,400
$65,700
$40,500
$8800
What is the total cost for the customer service category of the value chain?
A) $61,700
B) $12,400
C) $21,200
D) $76,100
Answer: B
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
26
Copyright © 2018 Pearson Education, Inc.
35) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
$63,300
$60,900
$30,600
$75,900
$4500
$75,800
$3200
$122,800
$5200
$25,500
What is the total cost for the research and development category of the value chain?
A) $75,900
B) $81,100
C) $46,900
D) $198,700
Answer: A
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
27
Copyright © 2018 Pearson Education, Inc.
36) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
$63,600
$60,900
$30,300
$75,000
$4800
$75,000
$3200
$122,500
$5900
$25,000
What is the total cost for the production category of the value chain?
A) $466,200
B) $60,900
C) $305,300
D) $202,700
Answer: D
Explanation: D) Calculations: $75,000 + 3200 + 63,600 + 60,900 = $202,700
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
28
Copyright © 2018 Pearson Education, Inc.
37) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
$63,100
$60,600
$30,800
$75,200
$4900
$75,300
$3900
$122,600
$5600
$25,200
What is the total cost for the design category of the value chain?
A) $122,600
B) $197,900
C) $153,400
D) $273,100
Answer: A
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
29
Copyright © 2018 Pearson Education, Inc.
38) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
$63,900
$60,500
$30,400
$75,100
$4600
$75,300
$3000
$122,400
$5100
$25,700
What is the total cost for the distribution category of the value chain?
A) $28,700
B) $25,700
C) $223,400
D) $152,700
Answer: B
Explanation: B) 25,700
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
30
Copyright © 2018 Pearson Education, Inc.
39) Sneider Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
$63,300
$60,400
$30,500
$75,400
$4400
$75,500
$3400
$122,100
$5000
$25,900
What is the total cost for the marketing category of the value chain?
A) $275,000
B) $34,900
C) $152,600
D) $199,500
Answer: B
Explanation: B) Calculations: $30,500 + 4400 = $34,900
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
31
Copyright © 2018 Pearson Education, Inc.
40) Lucas Family Orange Groves processes a variety of fresh juices. The company has the following
expenses for July:
Wages of factory workers
Freshness seals/caps for juice bottles
Reconfiguring the factory layout
Customer help line
Costs of refrigerated trucks used to deliver juice
Depreciation expense on bottling machines
Glass juice bottles
Commissions for salespeople
Salaries of nutrition researchers
Costs of maintaining website used for customer orders
$75,100
$3700
$102,500
$2400
$17,800
$63,000
$54,300
$27,000
$89,200
$4700
What is the total cost for the customer service category of the value chain?
A) $2400
B) $34,100
C) $80,800
D) $10,800
Answer: A
Diff: 2
LO: 2-2
EOC: E2-19A; E2-31B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
41) Delivery expenses are charged to which of the following areas?
A) Distribution
B) Customer service
C) Production or purchases
D) Marketing
Answer: A
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
42) A product support hotline would be considered
A) marketing.
B) distribution.
C) production or purchases.
D) customer service.
Answer: D
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
32
Copyright © 2018 Pearson Education, Inc.
43) Place the value chain elements in the correct order by numbering them from 1 to 6.
________ Design
________ Customer Service
________ Marketing
________ Research and Development
________ Distribution
________ Production or Purchases
Answer: 2, 6, 4, 1, 5, 3
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
44) Place the letter for the appropriate value chain activity on the line in front of each item. Letters may be
used more than once or not at all. Assume a manufacturer.
A.
B.
C.
research and development
design
production or purchases
D.
E.
F.
marketing
distribution
customer service
________ depreciation expense on equipment in factory
________ delivery expense
________ toll free line for customer orders
________ customer support hot line
________ assembly line workers’ wages
Answer: C, E, D, F, C
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
45) Name and briefly describe the activities that make up the value chain.
Answer: The value chain consists of research and development, design, production or purchase,
marketing, distribution, and customer service. Research and development refers to researching and
developing new or improved products or services and the processes used to produce them. Design
involves the detailed engineering of products and services and the processes used to produce them.
Production or purchases refers to the resources used to produce a product or service or to purchase
finished merchandise intended for resale. Marketing is the promotion and advertising of products or
services. Distribution is the delivery of products or services to customers and customer service provides
support for customers after the sale of the product or service.
Diff: 2
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
33
Copyright © 2018 Pearson Education, Inc.
46) Classify each of the following business costs into one of the six value chain elements.
A. cost of a commercial during a TV program
B. cost of shipping goods to customers
C. costs associated with repairing products under warranty
D. costs of developing a new product
E. cost of making a prototype of a new product
F. cost of labor for machine operator in factory
Answer:
A. marketing
B. distribution
C. customer service
D. research and development
E. design
F. production
Diff: 3
LO: 2-2
EOC: S2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2.3 Distinguish between direct and indirect costs
1) The total cost of a cost object can only include the direct costs that are directly traced to that cost object.
Answer: FALSE
Diff: 2
LO: 2-3
EOC: S2-5
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2) If a company wants to determine a product’s cost, it must assign both direct and indirect costs.
Answer: TRUE
Diff: 2
LO: 2-3; 2-4
EOC: S2-5
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
3) Costs can be either direct or indirect, depending upon the cost object.
Answer: TRUE
Diff: 1
LO: 2-3
EOC: S2-5
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
34
Copyright © 2018 Pearson Education, Inc.
4) Direct costs can be traced to specific units.
Answer: TRUE
Diff: 1
LO: 2-3
EOC: S2-5
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5) Indirect costs cannot be traced to the cost objects, so they are allocated.
Answer: TRUE
Diff: 1
LO: 2-3
EOC: S2-5
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
6) Direct costs for one cost object will always be direct costs for any cost object.
Answer: FALSE
Diff: 2
LO: 2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
7) An indirect cost for one cost object can be direct cost for a different cost object.
Answer: TRUE
Diff: 2
LO: 2-3
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8) Which of the following items could be an example of a cost object?
A) A manufacturing plant
B) An international plant
C) The accounting department
D) All of the above are examples of potential cost objects.
Answer: D
Diff: 2
LO: 2-3
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
35
Copyright © 2018 Pearson Education, Inc.
9) Which of the following is not an example of an indirect cost incurred in manufacturing automobiles?
A) Plant supervisor salary
B) Machinery depreciation in the factory
C) Plant utilities
D) Cost of the automobile engines
Answer: D
Diff: 2
LO: 2-3
EOC: S2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
10) A factory janitor’s wages would be classified as ________ when determining the cost of a
manufactured product.
A) an indirect cost
B) a direct cost
C) a period cost
D) none of the above
Answer: A
Diff: 1
LO: 2-3; 2-4
EOC: S2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
11) A salesperson’s salary would be classified as ________ when determining the cost of a manufactured
product.
A) a direct cost
B) a period cost
C) an indirect cost
D) none of the above
Answer: B
Diff: 1
LO: 2-3; 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
12) The cost of lighting the factory would be classified as ________ when determining the cost of a
manufactured product.
A) an indirect cost
B) a direct cost
C) a period cost
D) none of the above
Answer: A
Diff: 1
LO: 2-3; 2-4
EOC: S2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
36
Copyright © 2018 Pearson Education, Inc.
13) Which of the following would not be considered a direct cost of a mattress?
A) Fabric
B) Lumber
C) Glue
D) Steel
Answer: C
Diff: 1
LO: 2-3
EOC: S2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
14) All of the following would be considered a direct material for a kitchen cabinet except
A) wood.
B) stain.
C) sand paper.
D) hinges.
Answer: C
Diff: 1
LO: 2-3
EOC: S2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
15) If the Ford Focus is the cost object, classify each of the following costs as indirect or direct,
respectively: property taxes for the manufacturing plant, engines for the cars, and janitor wages for the
factory.
A) indirect, direct, and indirect
B) all are indirect
C) all are direct
D) indirect, direct, and direct
Answer: A
Diff: 1
LO: 2-3
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
16) If a frozen pizza plant is the cost object, classify each of the following costs as direct or indirect,
respectively: property insurance, cafeteria workers wages, and janitorial supplies.
A) direct, indirect, and indirect
B) direct, indirect, and direct
C) all are direct
D) all are indirect
Answer: C
Diff: 1
LO: 2-3
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
37
Copyright © 2018 Pearson Education, Inc.
17) Classify each of the following costs as direct or indirect as it relates to one Best Buy retail location:
CFO salary, that Best Buy’s sales associates, that Best Buy’s property insurance, and the legal department
for Best Buy.
A) direct, indirect, indirect, and direct
B) indirect, direct, direct, and indirect
C) all are indirect
D) all are direct
Answer: B
Diff: 1
LO: 2-3
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2.4 Identify the inventoriable product costs and period costs of merchandising and
manufacturing firms
1) An example of direct labor would be which of the following?
A) Salary of a production manager
B) Salary of the vice-president of operations
C) Wages of factory security
D) Wages of assembly line personnel
Answer: D
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2) Which of the following is an example of direct labor?
A) Wages of a managerial accountant
B) Wages of a machine operator
C) Salary of the vice-president of operations
D) Wages of the CFO
Answer: B
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
38
Copyright © 2018 Pearson Education, Inc.
3) Which statement describes direct materials in a manufacturing setting?
A) Direct materials are used to determine total manufacturing overhead.
B) Direct materials are used to determine total inventoriable product costs.
C) Direct materials cannot be separately and conveniently traced.
D) Direct materials do not become part of the finished product.
Answer: B
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
4) Which of the following is an example of indirect labor in a manufacturing plant?
A) Chief financial officer
B) Machine operators
C) Salespersons
D) Plant managers
Answer: D
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5) Which of the following are classified as manufacturing overhead?
A) Indirect labor and indirect materials
B) Direct materials and direct labor
C) All materials
D) Factory rent and direct labor
Answer: A
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
6) Which of the following is an example of manufacturing overhead expense in a factory?
A) Wages of machine operators
B) Wages of administrators in the corporate office
C) Wages of factory maintenance personnel
D) Salaries of salespersons
Answer: C
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
39
Copyright © 2018 Pearson Education, Inc.
7) Prime costs consist of
A) direct materials and direct labor.
B) direct labor and manufacturing overhead.
C) direct materials and manufacturing overhead.
D) direct materials, direct labor and manufacturing overhead.
Answer: A
Diff: 1
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8) Conversion costs consist of
A) direct materials and direct labor.
B) direct labor and manufacturing overhead.
C) direct materials and manufacturing overhead.
D) direct materials, direct labor and manufacturing overhead.
Answer: B
Diff: 1
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
40
Copyright © 2018 Pearson Education, Inc.
9) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from
the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9000
16,300
50,700
23,400
3900
21,900
115,700
10,700
3200
9300
115,900
82,400
54,700
26,700
Prime costs for Country Furniture Company totaled
A) $93,100.
B) $209,000.
C) $212,200.
D) $378,600.
Answer: C
Explanation: C) Calculations: $3200 + 10,700 + 115,900 + 82,400 = $212,200
Diff: 2
LO: 2-3; 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
41
Copyright © 2018 Pearson Education, Inc.
10) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9800
16,000
50,300
23,700
3400
21,000
115,700
10,200
3600
9400
115,400
82,100
54,900
26,400
Conversion costs for Country Furniture Company totaled
A) $376,700.
B) $211,300.
C) $465,600.
D) $197,500.
Answer: A
Explanation: A) Calculations: $16,000 + 50,300+ 3400 + 21,000 + 115,700 + 115,400 + 54,900= $376,700
Diff: 2
LO: 2-3; 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
42
Copyright © 2018 Pearson Education, Inc.
11) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9300
16,000
50,400
23,000
3500
21,000
115,100
10,600
3300
9400
115,700
82,400
54,800
26,200
Direct material costs for Country Furniture Company totaled
A) $82,400.
B) $10,600.
C) $96,300.
D) $93,000.
Answer: C
Explanation: C) Calculations: $10,600 + 3300 + 82,400 = $96,300
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
43
Copyright © 2018 Pearson Education, Inc.
12) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9900
16,000
50,400
23,800
3600
21,700
115,200
10,100
3500
9300
115,100
82,500
54,200
26,700
Direct labor costs for Country Furniture Company totaled
A) $304,500.
B) $115,200.
C) $115,100.
D) $280,700.
Answer: C
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
44
Copyright © 2018 Pearson Education, Inc.
13) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9300
16,600
50,900
23,300
3500
21,700
115,300
10,500
3200
9500
115,300
82,900
54,900
26,200
Manufacturing overhead costs for Country Furniture Company totaled
A) $131,400.
B) $262,900.
C) $237,700.
D) $324,900.
Answer: B
Explanation: B) Calculations: $16,600 + $50,900 + $3500 + $21,700 + $115,300 + $54,900 = $262,900
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
45
Copyright © 2018 Pearson Education, Inc.
14) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9800
16,700
50,100
23,700
3600
21,400
115,200
10,400
3200
9300
115,700
82,600
54,000
26,300
Product costs for Country Furniture Company totaled
A) $472,900.
B) $448,300.
C) $373,100.
D) $489,200.
Answer: A
Explanation: A) Calculations: $16,700 + 50,100 + 3600 + 21,400 + 115,200 + 10,400 + 3200 + 115,700 + 82,600
+ 54,000 = $472,900
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
46
Copyright © 2018 Pearson Education, Inc.
15) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its
costs from the past year include:
Wages paid to maintenance workers
Fabric used to upholster furniture
Wages paid to assembly-line workers
Lumber used to build product
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,800
$80,800
$100,600
$15,600
$7700
$21,300
$3700
$12,400
$60,700
$18,600
$26,300
$8100
$1000
$800
Prime costs for Rustic Living Furniture Company totaled
A) $200,700.
B) $96,400.
C) $197,000.
D) $243,000.
Answer: A
Explanation: A) Calculations: $15,600 + 80,800 + 3700 + 100,600 = $200,700.
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
47
Copyright © 2018 Pearson Education, Inc.
16) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its
costs from the past year include:
Wages paid to maintenance workers
Fabric used to upholster furniture
Wages paid to assembly-line workers
Lumber used to build product
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,400
$80,000
$100,000
$15,700
$7100
$21,100
$3700
$12,800
$60,800
$18,700
$26,000
$8200
$1800
$500
Conversion costs for Rustic Living Furniture Company totaled
A) $199,400.
B) $369,500.
C) $176,100.
D) $274,300.
Answer: D
Explanation: D) Calculations: $18,700 + 60,400 + 500 + 21,100 + 60,800 + 12,800 + 100,000 = $274,300
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
48
Copyright © 2018 Pearson Education, Inc.
17) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its
costs from the past year include:
Wages paid to maintenance workers
Fabric used to upholster furniture
Wages paid to assembly-line workers
Lumber used to build product
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,700
$80,500
$100,200
$15,100
$7700
$21,900
$3900
$12,400
$60,100
$18,200
$26,400
$8500
$1700
$500
Direct material costs for Rustic Living Furniture Company totaled
A) $15,100.
B) $99,500.
C) $95,600.
D) $80,500.
Answer: B
Explanation: B) Calculations: $80,500 + 3900 + 15,100 = $99,500
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
49
Copyright © 2018 Pearson Education, Inc.
18) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its
costs from the past year include:
Wages paid to maintenance workers
Fabric used to upholster furniture
Wages paid to assembly-line workers
Lumber used to build product
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,300
$80,200
$100,300
$15,300
$7000
$21,700
$3800
$12,900
$60,800
$18,100
$26,700
$8800
$1300
$500
Direct labor costs for Rustic Living Furniture Company totaled
A) $228,400.
B) $221,400.
C) $100,300.
D) $60,800.
Answer: C
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
50
Copyright © 2018 Pearson Education, Inc.
19) Rustic Living Furniture Company manufactures furniture at its central Kentucky factory. Some of its
costs from the past year include:
Wages paid to maintenance workers
Fabric used to upholster furniture
Wages paid to assembly-line workers
Lumber used to build product
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,100
$80,700
$100,200
$15,500
$7200
$21,600
$3900
$12,700
$60,900
$18,400
$26,000
$8900
$1800
$800
Manufacturing overhead costs for Rustic Living Furniture Company totaled
A) $174,500.
B) $81,100.
C) $152,100.
D) $222,300.
Answer: A
Explanation: A) Calculations: $18,400 + 60,100 + 800 + 21,600 + 60,900 + 12,700 = $174,500
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
51
Copyright © 2018 Pearson Education, Inc.
20) Use the correct number to designate each item below. Assume each item is for a manufacturer.
1.
2.
3.
4.
direct materials
period costs
manufacturing overhead
direct labor
A) ________ rent expense on factory building
B) ________ sales supplies used
C) ________ factory supplies used
D) ________ indirect materials used
E) ________ wages of assembly line personnel
F) ________ cost of primary material used to make product
G) ________ depreciation expense on office equipment
H) ________ rent expense on office facilities
I) ________ insurance expired on factory equipment
J) ________ utilities incurred in the office
K) ________ advertising expense
L) ________ taxes paid on factory building
Answer: A) 3, B) 2, C) 3, D) 3, E) 4, F) 1, G) 2, H) 2, I) 3, J) 2, K) 2, L) 3
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
21) Differentiate between:
A. direct materials versus indirect materials
B. direct labor versus indirect labor
Answer: Student responses will vary but should include the following points:
A. Direct materials must become a physical part of the finished product and their costs must be separate
and traceable through the manufacturing process to specific units of the finished product. Examples for a
furniture manufacturer include wood, leather, steel, etc. Indirect materials become part of the finished
product, but their minor costs cannot conveniently be traced directly to individual units of the finished
products. They are included as part of manufacturing overhead. Examples for a furniture manufacturer
include thread, glue, snaps, etc.
B. Direct labor cost is the compensation of employees who physically convert raw materials into the
company’s products and whose efforts can be traced directly to specific units of finished goods. Examples
of direct material at a furniture manufacturer include machine operators and assemblers. Indirect labor is
factory labor that is difficult to trace to individual units of specific products. Instead, the cost is included
in manufacturing overhead. Examples of indirect labor at a furniture manufacturer include costs for
forklift operators, janitors, and plant managers.
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
52
Copyright © 2018 Pearson Education, Inc.
22) Indirect manufacturing costs should be included in manufacturing overhead.
Answer: TRUE
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
23) An inventoriable cost could be the cost of the marketing and distribution of a product.
Answer: FALSE
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
24) Inventoriable product costs consist of manufacturing overhead, direct labor and direct materials.
Answer: TRUE
Diff: 1
LO: 2-4
EOC: S2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
25) Indirect materials, indirect labor, and indirect manufacturing costs are what type of manufacturing
cost?
A) Direct labor
B) Direct materials
C) Manufacturing overhead
D) Prime costs
Answer: C
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
26) Which of the following would not be considered a product cost of a manufacturer?
A) Direct labor
B) Direct materials
C) Manufacturing overhead
D) Freight out
Answer: D
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
53
Copyright © 2018 Pearson Education, Inc.
27) Period costs are
A) always recorded as an expense.
B) always considered part of the inventory.
C) expensed only when the inventory is sold.
D) none of the above.
Answer: A
Diff: 1
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
28) All of the following are period costs except
A) distribution expenses.
B) direct labor expenses.
C) marketing expenses.
D) research and development expenses.
Answer: B
Diff: 1
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
29) Inventoriable product costs for a manufactured product include
A) the costs of direct materials, direct labor and manufacturing overhead.
B) marketing and research and development costs.
C) the costs of direct materials and direct labor only.
D) none of the above.
Answer: A
Diff: 1
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
30) Where would period costs be found on the financial statements?
A) Under current assets on the balance sheet
B) Under current liabilities on the balance sheet
C) As operating expenses on the income statement in the period incurred
D) As operating expenses on the income statement for a previous period
Answer: C
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
54
Copyright © 2018 Pearson Education, Inc.
31) Which of the following statements is correct concerning product costs?
A) Product costs are expensed in the period the related product is sold.
B) Product costs are expensed in the period incurred.
C) Product costs are shown with operating expenses on the income statement.
D) Product costs are shown with current liabilities on the balance sheet.
Answer: A
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
32) Which of the following costs include all of the costs associated with production of a product?
A) Inventoriable
B) Direct
C) Mixed
D) Overhead
Answer: A
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
33) Manufacturing overhead costs for a product include
A) direct material.
B) operating expenses.
C) indirect manufacturing costs.
D) prime costs.
Answer: C
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
34) When do inventoriable costs become expenses?
A) When direct materials are purchased
B) When the manufacturing process begins
C) When the manufacturing process is completed
D) None of the above
Answer: D
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
55
Copyright © 2018 Pearson Education, Inc.
35) Indirect materials and indirect labor are ________ for a manufactured product.
A) overhead and period costs
B) operating and period costs
C) overhead and product costs
D) operating and product costs
Answer: C
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
36) Manufacturers consider selling and administrative costs to be
A) period costs.
B) conversion costs.
C) inventoriable costs.
D) prime costs.
Answer: A
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
37) Which of the following is an example of a period cost when manufacturing products?
A) Depreciation expense on factory equipment
B) Advertising expense
C) Indirect materials used in the factory
D) Property taxes on the plant
Answer: B
Diff: 1
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
38) Which of the following is an example of an inventoriable cost when manufacturing products?
A) Depreciation on office equipment
B) Depreciation on store building
C) Sales salaries expenses
D) Depreciation on factory equipment
Answer: D
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
56
Copyright © 2018 Pearson Education, Inc.
39) When manufacturing products, direct labor and direct materials are classified as
A) period costs and expensed when incurred.
B) product costs and expensed when the goods are sold.
C) product costs and expensed when incurred.
D) period costs and expensed when the goods are sold.
Answer: B
Diff: 2
LO: 2-4
EOC: S2-7
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
40) Certain materials used in a manufacturing plant cannot be traced to a specific unit. What are these
materials called?
A) General materials
B) Direct materials
C) Indirect materials
D) Finished materials
Answer: C
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
41) Rent on a factory building would be considered to be a ________ cost.
A) product
B) period
C) direct
D) none of the above
Answer: A
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
42) The ________ element in the value chain would contain inventoriable costs for a manufacturer.
A) research and development
B) production
C) design
D) distribution
Answer: B
Diff: 2
LO: 2-4
EOC: S2-5
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
57
Copyright © 2018 Pearson Education, Inc.
43) Country Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs
from the past year include:
Depreciation on sales office
Depreciation on factory equipment
Factory supervisor salary
Sales commissions
Lubricants used in factory equipment
Insurance costs for factory
Wages paid to maintenance workers
Fabric used to upholster furniture
Freight-in (on raw materials)
Costs of delivery to customers
Wages paid to assembly-line workers
Lumber used to build product
Utilities in factory
Utilities in sales office
$
9100
16,400
50,600
23,200
3600
21,100
115,100
10,200
3300
9900
115,500
82,900
54,600
26,600
Period costs for Country Furniture Company totaled
A) $42,200.
B) $129,900.
C) $45,600.
D) $68,800.
Answer: D
Explanation: D) Calculations: $9100 + 23,200 + 9900 + 26,600 = $68,800
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
58
Copyright © 2018 Pearson Education, Inc.
44) Wooden Shed Company manufactures custom wooden sheds. Some of its costs from the past year
include:
Wages paid to maintenance workers
Lumber used to build the product
Wages paid to assembly-line workers
Shingles used for the roof
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,700
$80,400
$100,300
$15,600
$7200
$21,700
$3000
$12,100
$60,000
$18,300
$26,500
$8800
$1800
$100
Product costs for Rustic Living Furniture Company totaled
A) $279,500.
B) $347,500.
C) $372,200.
D) $369,900.
Answer: C
Explanation: C) Calculations: $18,300+ 60,700 + 100 + 21,700 + 12,100 + 60,000 + 80,400 + 3000 + 100,300 +
15,600 = $372,200
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
59
Copyright © 2018 Pearson Education, Inc.
45) Wooden Shed Company manufactures custom wooden sheds. Some of its costs from the past year
include:
Wages paid to maintenance workers
Lumber used to build the product
Wages paid to assembly-line workers
Shingles used for the roof
Sales commissions
Insurance costs for factory
Freight-in (on raw materials)
Utilities in factory
Factory supervisor salary
Depreciation on factory equipment
Utilities in sales office
Costs of delivery to customers
Depreciation on sales office
Lubricants used in factory equipment
$60,600
$80,600
$100,200
$15,900
$7400
$21,000
$3700
$12,100
$60,900
$18,000
$26,200
$8300
$1700
$100
Period costs for Rustic Living Furniture Company totaled
A) $43,600.
B) $36,200.
C) $17,400.
D) $65,400.
Answer: A
Explanation: A) Calculations: $1700 +7400 + 8300 + 26,200 = $43,600
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
60
Copyright © 2018 Pearson Education, Inc.
46) Winner’s Sporting Equipment manufactures sporting goods. Selected costs from the past year include:
Plastics used to make products
Heating and lighting costs for factory
Factory janitor wages
Costs of shipping to customers
Lubricants used in factory equipment
Lighting costs for sales office
Depreciation on factory equipment
Office supplies for sales office
Insurance costs for factory
Maintenance worker wages
Freight-in (on plastics)
Aluminum used to make products
Assembly-line worker wages
Salaries of salespeople
$151,200
$65,700
$67,400
$12,000
$2700
$20,600
$23,800
$6800
$13,700
$99,600
$7600
$175,900
$142,600
$74,600
Product costs for Winner’s Sporting Equipment totaled
A) $728,900.
B) $750,200.
C) $618,800.
D) $742,500.
Answer: B
Explanation: B) Calculations: $23,800 + 67,400 + 2700 + 13,700 + 99,600 + 151,200 + 7600 + 142,600 + 175,900
+ 65,700 = $750,200
Diff: 3
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
61
Copyright © 2018 Pearson Education, Inc.
47) Winner’s Sporting Equipment manufactures sporting goods. Selected costs from the past year include:
Plastics used to make products
Heating and lighting costs for factory
Factory janitor wages
Costs of shipping to customers
Lubricants used in factory equipment
Lighting costs for sales office
Depreciation on factory equipment
Office supplies for sales office
Insurance costs for factory
Maintenance worker wages
Freight-in (on plastics)
Aluminum used to make products
Assembly-line worker wages
Salaries of salespeople
$151,400
$65,300
$67,800
$11,100
$2900
$20,100
$23,400
$6200
$13,600
$99,900
$7600
$175,300
$142,000
$74,600
Period costs for Winner’s Sporting Equipment totaled
A) $94,934.
B) $91,900.
C) $189,600.
D) $112,000.
Answer: D
Explanation: D) Calculations: $11,100 + 20,100 + 6200 + 74,600 = $112,000
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
62
Copyright © 2018 Pearson Education, Inc.
48) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What are the total period costs for Happy Feet Running Company for the month?
A) $46,250
B) $40,250
C) $53,175
D) $74,725
Answer: A
Explanation: A) $25,000 + $3,000 + $5,000 + $6,000 + $7,000 + $250 = $46,250
Diff: 3
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
63
Copyright © 2018 Pearson Education, Inc.
49) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What is the total manufacturing overhead for Happy Feet Running Company for the month?
A) $40,025
B) $33,775
C) $31,575
D) $58,775
Answer: B
Explanation: B) $1,300 + $850 + $3,000 + $5,000 + $17,250 + $3,500 + $1,000 + $1,200 + $675 = $33,775
Diff: 3
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
64
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50) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What is the total direct materials for Happy Feet Running Company for the month?
A) $60,000
B) $83,400
C) $75,000
D) $81,250
Answer: D
Explanation: D) $35,000 + $15,000 + $25,000 + $6,250 = $81,250
Diff: 3
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
65
Copyright © 2018 Pearson Education, Inc.
51) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What is the total for direct labor costs for Happy Feet Running Company for the month?
A) $15,000
B) $40,000
C) $48,000
D) $10,000
Answer: D
Diff: 2
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
66
Copyright © 2018 Pearson Education, Inc.
52) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What are prime costs for Happy Feet Running Company for the month?
A) $124,250
B) $116,250
C) $91,250
D) $85,000
Answer: C
Explanation: C) DM: $35,000 + $15,000 + $25,000 + $6,250 = $81,250 DL: $10,000 so $81,250 + $10,000 =
$91,250
Diff: 3
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
67
Copyright © 2018 Pearson Education, Inc.
53) Happy Feet Running Company manufactures running shoes and has the following costs during the
past month:
Rubber used to make the product
$35,000
Gel used to make the product
15,000
Fabric used to make the product
25,000
Lubricants used in the factory equipment
1,300
Glue used to make the product
850
Wages paid to maintenance workers in the factory
3,000
Wages paid to assembly line workers
10,000
Wages paid to factory supervisor
5,000
Wages paid to CFO
25,000
Depreciation on factory equipment
17,250
Depreciation on the accounting department’s computers
3,000
Depreciation on the sales force vehicles
5,000
Utilities for factory
3,500
Cost of shipping to customers
6,000
Property tax on factory equipment
1,000
Property insurance for the factory
1,200
Cardboard material to box each pair of shoes
6,250
Commissions paid to sales force
7,000
Office supplies for accounting department
250
Janitorial supplies for the factory
675
What are conversion costs for Happy Feet Running Company for the month?
A) $82,350
B) $50,025
C) $43,775
D) $68,775
Answer: C
Explanation: C) DL: $10,000 MOH: $1,300 + $850 + $3,000 + $5,000 + $17,250 + $3,500 + $1,000 + $1,200 +
$675 = $33,775 so $10,000 + $33,775 = $43,775
Diff: 3
LO: 2-4
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
68
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54) ABC Company makes wooden furniture. Identify each of the following as either an inventoriable
product cost or a period cost. If it is an inventoriable product cost, classify it as direct materials, direct
labor, or manufacturing overhead.
A. ________ Insurance on the plant building
B. ________ Cost of shipping the furniture to the customers
C. ________ Assembly line workers’ wages
D. ________ Depreciation on plant equipment
E. ________ Salesmen’s salaries
F. ________ Cost of various types of wood
G. ________ Insurance on delivery trucks
H. ________ Plant forklift operator’s salary
Answer:
A. Inventoriable product cost, manufacturing overhead
B. Period cost
C. Inventoriable product cost, direct labor
D. Inventoriable product cost, manufacturing overhead
E. Period cost
F. Inventoriable product cost, direct materials
G. Period cost
H. Inventoriable product cost, manufacturing overhead
Diff: 3
LO: 2-4
EOC: S2-7
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
69
Copyright © 2018 Pearson Education, Inc.
55) Indicate whether each of the following costs is a product cost or a period cost. Assume it is for a
manufacturer.
A. ________
B. ________
C. ________
D. ________
E. ________
F. ________
G. ________
H. ________
I. ________
J. ________
K. ________
L. ________
M. ________
Answer:
A. product
B. product
C. period
D. product
E. product
F. period
G. product
H. period
I. product
J. product
K. product
L. period
M. product
direct materials used in factory
factory utilities
salespersons’ commissions
salary of plant manager
indirect materials used in factory
depreciation expense on store equipment
indirect labor incurred in factory
advertising expense
direct labor incurred in factory
factory machinery repairs and maintenance
depreciation expense on factory machinery
supplies used in store
plant insurance expired
Diff: 2
LO: 2-4
EOC: S2-6
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
56) Direct labor for a company was $145,100; manufacturing overhead was $300,300; and direct materials
were $270,800. Conversion costs would total
A) $571,100
B) $716,200
C) $415,900
D) $445,400
Answer: D
Explanation: D) Calculations: $300,300 + 145,100 = $445,400
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
70
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57) Direct materials for a company were $501,000; manufacturing overhead was $250,600; and direct labor
was $770,300. Conversion costs would total
A) $1,020,900
B) $1,271,300
C) $1,521,900
D) $751,600
Answer: A
Explanation: A) Calculations: $770,300 + 250,600 = $1,020,900
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
58) Direct labor for a company was $145,800; manufacturing overhead was $300,400; and direct materials
were $270,600. Prime costs would total
A) $716,800.
B) $446,200.
C) $416,400.
D) $571,000.
Answer: C
Explanation: C) Calculations: $145,800 + 270,600 = $416,400
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
59) Direct materials for a company were $500,700; manufacturing overhead was $250,500; and direct labor
was $770,500. Prime costs would total
A) $1,021,000.
B) $1,271,200.
C) $1,521,700.
D) $751,200.
Answer: B
Explanation: B) Calculations: $500,700 + 770,500 = $1,271,200
Diff: 2
LO: 2-4
EOC: E2-21A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
71
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60) Product costs include
A) direct materials.
B) indirect materials.
C) direct labor.
D) all of the above are included in product costs.
Answer: D
Diff: 1
LO: 2-4
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
61) Which of the following would NOT be considered period costs?
A) Depreciation of factory equipment
B) Utilities of retail location
C) Depreciation on sales force vehicles
D) Property insurance on corporate headquarters
Answer: A
Diff: 1
LO: 2-4
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
62) Manufacturing overhead includes
A) direct materials, direct labor, and factory overhead.
B) only indirect materials and indirect labor.
C) indirect materials, indirect labor, and all other indirect costs related to the manufacturing facility.
D) only labor, both direct and indirect.
Answer: C
Diff: 1
LO: 2-4
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
63) An example of a period cost would be the
A) salary to the CEO.
B) materials purchased to manufacture the product.
C) salary to the factory supervisor.
D) property insurance paid for the manufacturing facility.
Answer: A
Diff: 1
LO: 2-4
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
72
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64) Period costs are generally also known as
A) factory overhead.
B) prime costs.
C) annual expenses.
D) operating expenses.
Answer: D
Diff: 1
LO: 2-4
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
65) Pink Ribbon Shoppe, a clothing retailer, had the following total costs as grouped by value chain
element:
Research and development
Design
Purchases
Marketing
Distribution
Customer service
$53,200
$17,700
$72,200
$42,100
$58,200
$35,200
What were the company’s period costs?
A) $206,400
B) $278,600
C) $100,300
D) $135,500
Answer: A
Explanation: A) Calculations: $53,200 + 17,700 + 42,100 + 58,200 + 35,200 = $206,400
Diff: 2
LO: 2-2
EOC: E2-18A; E2-30B
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
73
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2.5 Prepare the financial statements for service, merchandising, and manufacturing
companies
1) Product costs and period costs receive similar treatment when presented in the financial statements.
Answer: FALSE
Diff: 1
LO: 2-5
EOC: S2-12
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
2) The income statements of manufacturing companies are more complex than those of service or
merchandising companies.
Answer: TRUE
Diff: 1
LO: 2-5
EOC: S2-11
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
3) The financial statements of a merchandiser are more complex than those of a manufacturer.
Answer: FALSE
Diff: 1
LO: 2-5
EOC: E2-22A
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
4) Service companies have the most complex accounting with regard to the income statement.
Answer: FALSE
Diff: 1
LO: 2-5
EOC: E2-22A
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
5) Cost of goods sold is a major expense of service companies.
Answer: FALSE
Diff: 1
LO: 2-5
EOC: E2-22A
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
74
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6) The schedule of cost of goods manufactured is prepared before the income statement for a
manufacturing company.
Answer: TRUE
Diff: 1
LO: 2-5
EOC: E2-25A
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
7) Which of the following items is not used when calculating the cost of goods manufactured?
A) Direct materials used
B) Direct labor
C) Salesperson salaries
D) Manufacturing overhead
Answer: C
Diff: 2
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
8) Before operating income can be determined for a manufacturer, which of the following is calculated?
A) Cost of goods available for sale
B) Cost of goods sold
C) Cost of goods manufactured
D) All of the above
Answer: D
Diff: 2
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
9) The only difference in the balance sheets of various types of businesses (for example, manufacturing
vs. service) is
A) current liabilities.
B) current assets.
C) investments.
D) equity.
Answer: B
Diff: 2
LO: 2-5
EOC: E2-22A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
75
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10) The balance sheet of a service company would include which of the following?
A) Factory equipment depreciation
B) Cost of goods manufactured
C) Accounts receivable
D) Cost of goods sold
Answer: C
Diff: 1
LO: 2-5
EOC: E2-22A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
11) The income statement of a retailer would include which of the following?
A) Cost of goods sold
B) Value of inventory
C) Accounts payable
D) Accounts receivable
Answer: A
Diff: 1
LO: 2-5
EOC: E2-23A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
12) The income statements for both a merchandiser and manufacturer would include which of the
following?
A) Operating expenses
B) Direct labor incurred
C) Direct materials used
D) Cost of goods manufactured
Answer: A
Diff: 1
LO: 2-5
EOC: E2-23A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
76
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13) A merchandiser’s purchases are equivalent to a manufacturer’s
A) cost of goods sold.
B) cost of goods manufactured.
C) raw materials inventory.
D) work in process inventory.
Answer: B
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
14) Tuity Fruity Beverage Company’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$140,900
80,900
12,400
18,500
300,100
What is the cost of goods available for sale?
A) $140,900
B) $153,300
C) $80,900
D) $134,800
Answer: B
Explanation: B) Calculations: Beginning Inventory $12,400 + Purchases $140,900 = Cost of Goods
Available For Sale = $153,300
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
77
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15) Tuity Fruity Beverage Company’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$140,700
80,500
12,500
18,000
300,100
What is the cost of goods sold for the year?
A) $153,200
B) $135,200
C) $140,700
D) $80,500
Answer: B
Explanation: B) Calculations: Beginning Inventory $12,500 + Purchases $140,700 = Goods Available For
Sale $153,200 – Ending Inventory $18,000 = $135,200
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
16) Tuity Fruity Beverage Company’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$140,100
80,400
13,000
19,000
300,400
What is the gross profit for the year?
A) $160,300
B) $300,400
C) $80,400
D) $166,300
Answer: D
Explanation: D) Calculations: Beg Inv $13,000 + Purchases $140,100 = Goods available $153,100 – ending
inventory $19,000 = Cost of Goods Sold 134,100. Now Sales $300,400 – CGS $134,100 = Gross Profit
$166,300
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
78
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17) Chicago Steel’s operating activities for the year are listed below.
Beginning inventory
Ending inventory
Purchases
Sales revenue
Operating expenses
$1,001,000
$350,100
$750,300
$1,500,100
$700,800
What is the cost of goods available for sale?
A) $1,401,200
B) $749,800
C) $49,500
D) $1,751,300
Answer: D
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
18) Chicago Steel’s operating activities for the year are listed below.
Beginning inventory
Ending inventory
Purchases
Sales revenue
Operating expenses
$1,000,400
$350,800
$750,700
$1,500,900
$700,600
What is the cost of goods sold for the year?
A) $1,400,300
B) $750,200
C) $50,100
D) $1,751,100
Answer: A
Explanation: A) Calculations: Beginning Inventory $1,000,400 + Purchases $750,700 = Goods Available
$1,751,100 – Ending Inventory $350,800 = $1,400,300
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
79
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19) Chicago Steel’s operating activities for the year are listed below.
Beginning inventory
Ending inventory
Purchases
Sales revenue
Operating expenses
$1,000,000
$350,700
$750,500
$1,500,300
$700,300
What is the gross profit for the year?
A) $50,200
B) $749,800
C) $1,500,300
D) $100,500
Answer: D
Explanation: D) Calculations: Beginning Inventory $1,000,000 + Purchases $750,500 = Goods Available
$1,750,500 – Ending Inventory $350,700 = CGS $1,399,800. Now Sales 1,500,300 – CGS $1,399,800 = Gross
Profit $100,500
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
20) Challenge Tennis & Recreation’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$174,800
62,900
27,000
37,800
333,300
What is the cost of goods available for sale?
A) $164,000
B) $201,800
C) $95,600
D) $174,800
Answer: B
Explanation: B) Calculations: $27,000 + $174,800 = $201,800
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
80
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21) Challenge Tennis & Recreation’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$174,000
62,200
27,900
38,000
333,400
What is the cost of goods sold for the year?
A) $201,900
B) $163,900
C) $174,000
D) $97,200
Answer: B
Explanation: B) Calculations: $27,900 + $174,000 = $201,900 – $38,000 = $163,900
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
22) Challenge Tennis & Recreation’s operating activities for the year are listed below.
Purchases
Operating expenses
Beginning inventory
Ending inventory
Sales revenue
$174,900
62,800
27,200
37,000
333,500
What is the gross profit for the year?
A) $158,600
B) $333,500
C) $95,800
D) $168,400
Answer: D
Explanation: D) Calculations: $27,200 + $174,900 = $202,100 – $37,000 = $165,100. Then $333,500 – $165,100
= $168,400
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
81
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23) In addition to cost of goods manufactured, which of the following is needed to compute the cost of
goods sold for a manufacturer?
A) Beginning work in process inventory less ending work in process inventory
B) Ending work in process inventory less beginning work in process inventory
C) Ending finished goods
D) Beginning finished goods inventory less ending finished goods inventory
Answer: D
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
24) For a manufacturer, beginning work in process would be equal to
A) manufacturing costs incurred in the period – ending work in process inventory.
B) cost of goods manufactured – ending work in process inventory + manufacturing costs incurred in the
period.
C) ending work in process inventory + manufacturing costs incurred in the period.
D) cost of goods manufactured + ending work in process inventory – manufacturing costs incurred in the
period.
Answer: D
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
82
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25) Lots of Stuff Company reports the following data for its first year of operation.
Work in process inventory, beginning
Work in process inventory, ending
Direct materials used
Direct Labor
Manufacturing overhead
Finished goods inventory, beginning
Finished goods inventory, ending
0
140,000
110,400
134,000
185,800
0
90,500
What are the total manufacturing costs to account for?
A) $199,700
B) $244,400
C) $430,200
D) $134,000
Answer: C
Explanation: C) Calculations: $110,400 + $134,000 + $185,800 = $430,200
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
26) Lots of Stuff Company reports the following data for its first year of operation.
Cost of goods manufactured
Work in process inventory, beginning
Work in process inventory, ending
Direct materials used
Direct Labor
Manufacturing overhead
Finished goods inventory, beginning
Finished goods inventory, ending
$455,800
0
140,400
110,900
137,000
185,300
0
90,700
What is the cost of goods sold?
A) $365,100
B) $455,800
C) $752,000
D) $520,900
Answer: A
Explanation: A) Calculations: $455,800 – 90,700 = $365,100
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
83
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27) Youngstown Rubber reports the following data for its first year of operation.
Direct materials used
Direct Labor
Cost of goods manufactured
Finished goods inventory, ending
Finished goods inventory, beginning
Manufacturing overhead
Work in process inventory, beginning
Work in process inventory, ending
$710,200
350,000
1,030,300
190,900
0
100,100
0
130,000
What are the total manufacturing costs to account for?
A) $1,169,700
B) $1,160,300
C) $1,490,600
D) $489,400
Answer: B
Explanation: B) Calculations:
$710,200 + $350,000 + $100,100 = $1,161,100
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
84
Copyright © 2018 Pearson Education, Inc.
28) Youngstown Rubber reports the following data for its first year of operation.
Direct materials used
Cost of goods manufactured
Direct Labor
Finished goods inventory, ending
Manufacturing overhead
Finished goods inventory, beginning
Work in process inventory, beginning
Work in process inventory, ending
$710,100
1,030,300
350,000
190,800
100,100
0
0
130,000
What is the cost of goods sold?
A) $680,200
B) $459,500
C) $839,500
D) $1,490,400
Answer: C
Explanation: C) Calculations: $680,200 – 190,800 = $489,400
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
29) Fit Apparel Company reports the following data for its first year of operation.
Work in process inventory, beginning
Work in process inventory, ending
Direct materials used
Direct Labor
Manufacturing overhead
Finished goods inventory, beginning
Finished goods inventory, ending
0
90,200
85,200
60,000
100,900
0
70,700
What are the total manufacturing costs to account for?
A) $650,700
B) $836,800
C) $246,100
D) $580,000
Answer: C
Explanation: C) Calculations:
$85,200 +$60,000+ $100,900 = $246,200
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
85
Copyright © 2018 Pearson Education, Inc.
30) Fit Apparel Company reports the following data for its first year of operation.
Cost of goods manufactured
Work in process inventory, beginning
Work in process inventory, ending
Direct materials used
Direct Labor
Manufacturing overhead
Finished goods inventory, beginning
Finished goods inventory, ending
$155,600
0
90,500
85,300
60,000
100,800
0
70,500
What is the cost of goods sold?
A) $650,200
B) $836,300
C) $85,100
D) $655,400
Answer: C
Explanation: C) Calculations: $650,200 – 70,500 = $579,700
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
31) Tall Timbers reports the following data for its first year of operation.
Work in process inventory, beginning
Work in process inventory, ending
Manufacturing overhead
Direct materials used
Direct Labor
Finished goods inventory, beginning
Finished goods inventory, ending
Cost of goods manufactured
$
0
50,400
25,400
7700
60,000
0
20,000
42,700
What are the total manufacturing costs to account for?
A) $48,300
B) $93,100
C) $85,600
D) $118,700
Answer: B
Explanation: B) Calculations: $7700 + $60,000+ $25,400 = $92,900
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
86
Copyright © 2018 Pearson Education, Inc.
32) Tall Timbers reports the following data for its first year of operation.
Work in process inventory, beginning
Work in process inventory, ending
Manufacturing overhead
Direct materials used
Direct Labor
Finished goods inventory, beginning
Finished goods inventory, ending
Cost of goods manufactured
$
0
50,900
25,400
7800
60,000
0
20,000
42,300
What is the cost of goods sold?
A) $22,300
B) $85,400
C) $118,600
D) $116,300
Answer: A
Explanation: A) Calculations: $85,400 – 20,000 = $65,400
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
33) Page’s sells books. The following information summarizes the company’s operating expenses for the
year:
Purchases
Operating expenses
Beginning merchandise inventory
Ending merchandise inventory
Sales revenue
$105,200
$53,200
$15,000
$12,000
$170,700
What is cost of goods available for sale?
A) $117,200
B) $65,500
C) $120,200
D) $102,200
Answer: C
Explanation: C) Calculations: $105,200 + $15,000 = $120,200
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
87
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34) Page’s sells books. The following information summarizes the company’s operating expenses for the
year:
Cost of goods sold
Salaries and wages
Rent and utilities
Marketing
Sales revenues
$105,600
$53,900
$14,600
$11,800
$197,000
What is operating income?
A) $25,700
B) $102,800
C) $116,700
D) $11,100
Answer: D
Explanation: D) Calculations:
$197,000 – $105,600 = $91,400 gross profit
Operating Expenses: $53,900 + $14,600 + $11,800 = $80,300 Total Operating Expenses
Operating Income: 91,400-80,300 = $11,100 Operating Income
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
35) The Seashell Factory sells beach goods to tourists. The following information summarizes the
company’s operating expenses for the year:
Cost of goods sold
Marketing
Rent and utilities
Salaries and wages
Sales revenues
$108,000
$2000
$12,600
$12,800
$170,100
What is gross profit?
A) $62,100
B) $34,700
C) $142,700
D) $89,500
Answer: A
Explanation: A) Calculations: $170,100 – $108,000 = $62,100 Gross profit
Diff: 2
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
88
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36) Paper Clip Company sells office supplies. The following information summarizes the company’s
operating activities for the year:
Utilities for the store
Sales commissions
Sales revenue
Purchases of merchandise
January 1 inventory
Rent for store
December 31 inventory
$ 9900
10,400
164,300
85,600
27,600
14,300
23,200
What is cost of goods sold?
A) $85,600
B) $90,000
C) $108,800
D) $113,200
Answer: B
Explanation: B) Calculations: $27,600 + 85,600 = 113,200 – $23,200 = $90,000
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
89
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37) Paper Clip Company sells office supplies. The following information summarizes the company’s
operating activities for the year:
Utilities for the store
Sales commissions
Sales revenue
Purchases of merchandise
January 1 inventory
Rent for store
December 31 inventory
$ 10,200
10,900
164,200
89,000
27,000
14,000
23,500
What is operating income?
A) $153,300
B) $58,600
C) $36,600
D) $38,200
Answer: C
Explanation: C) Calculations: $164,200 -($27,000+ $89,000 – $23,500 = $92,500) = $71,700 – $10,200 – $10,900
– $14,000 = $36,600
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
90
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38) Paper Clip Company sells office supplies. The following information summarizes the company’s
operating activities for the year:
Utilities for the store
Sales commissions
Sales revenue
Purchases of merchandise
January 1 inventory
Rent for store
December 31 inventory
$ 9700
10,800
164,200
89,100
27,500
14,400
23,100
What is gross profit?
A) $70,700
B) $41,200
C) $85,500
D) $58,000
Answer: A
Explanation: A) Calculations: $164,200 – ($89,100 + $27,500 – $23,100 = $93,500) = $70,700
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
39) Paper Clip Company sells office supplies. The following information summarizes the company’s
operating activities for the year:
Utilities for the store
Sales commissions
Sales revenue
Purchases of merchandise
January 1 inventory
Rent for store
December 31 inventory
$ 9900
10,900
164,400
89,600
28,000
14,200
23,600
What are total operating expenses?
A) $35,000
B) $20,800
C) $25,100
D) $24,100
Answer: A
Explanation: A) Calculations: $9900 + $10,900 + $14,200 = $35,000
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
91
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40) Company X sells widgets. The following information summarizes the company’s operating activities
for the year:
Beginning inventory
Sales revenue
Sales commissions
Rent for office
Utilities for the office
Purchases
Ending inventory
$7200
$25,000
$700
$2200
$1400
$6500
$5600
What is cost of goods sold?
A) $9300
B) $6500
C) $8100
D) $13,700
Answer: C
Explanation: C) Calculations: $7200 + 6500 = 13,700 – $5600 = $8100
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
41) Company X sells widgets. The following information summarizes the company’s operating activities
for the year:
Beginning inventory
Sales revenue
Sales commissions
Rent for office
Utilities for the office
Purchases
Ending inventory
$7700
$25,000
$500
$2400
$1900
$6400
$5200
What is operating income?
A) $11,300
B) $23,100
C) $14,200
D) $13,700
Answer: A
Explanation: A) Calculations: $25,000 – $8900 = $16,100 – $1900 – $500 – $2400 = $11,300
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
92
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42) Company X sells widgets. The following information summarizes the company’s operating activities
for the year:
Beginning inventory
Sales revenue
Sales commissions
Rent for office
Utilities for the office
Purchases
Ending inventory
$7800
$25,400
$800
$2800
$1600
$6800
$5800
What is gross profit?
A) $15,000
B) $20,800
C) $16,600
D) $11,400
Answer: C
Explanation: C) 25,400 – (7800 + 6800 – 5800) = 16,600
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
43) Company X sells widgets. The following information summarizes the company’s operating activities
for the year:
Beginning inventory
Sales revenue
Sales commissions
Rent for office
Utilities for the office
Purchases
Ending inventory
$7900
$25,300
$900
$2900
$1700
$6900
$5200
What are total operating expenses?
A) $3800
B) $2600
C) $4600
D) $5500
Answer: D
Explanation: D) Calculations: $900 + 2900 + 1700 = $5500
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
93
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44) Porches, Inc. sells lawn furniture. Selected financial information for the most recent year follows.
Beginning merchandise inventory on January 1 was $33,700.
Ending merchandise inventory on December 31 was $35,700.
Purchases during the year were $92,900.
Selling and administrative expenses were $75,500.
Sales for year were $262,200.
What was cost of goods sold?
A) $162,300
B) $94,900
C) $90,900
D) $93,800
Answer: C
Explanation: C) Calculations: $92,900 + $33,700 = $126,600 – $35,700 = $90,900
Diff: 2
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
45) Porches, Inc., sells lawn furniture. Selected financial information for the most recent year follows.
Beginning merchandise inventory on January 1 was $33,200.
Ending merchandise inventory on December 31 was $36,000.
Purchases during the year were $92,800.
Selling and administrative expenses were $75,400.
Sales for year were $262,800.
What was gross profit?
A) $151,400
B) $170,000
C) $187,400
D) $172,800
Answer: D
Explanation: D) Calculations: $92,800 + $33,200 = $126,000 – $36,000 = $90,000. Next $262,800 – $90,000 =
$172,800
Diff: 2
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
94
Copyright © 2018 Pearson Education, Inc.
46) Porches, Inc. sells lawn furniture. Selected financial information for the most recent year is as follows:
Beginning merchandise inventory on January 1 was $33,300.
Ending merchandise inventory on December 31 was $35,000.
Purchases during the year were $92,300.
Selling and administrative expenses were $75,900.
Sales for year were $262,700.
What was operating income for the year?
A) $90,600
B) $96,200
C) $94,500
D) $92,800
Answer: B
Explanation: B) Calculations: $92,300 + $33,300 = $125,600 – $35,000 = $90,600. Next $262,700 – $90,600 =
$172,100 – $75,900 = $96,200
Diff: 2
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
47) Porches, Inc. sells lawn furniture to consumers in the marketplace. The managerial accountant
reported the following financial information that reflects the 20XX data:
Beginning merchandise inventory on January 1: $233,900
Ending merchandise inventory on December 31: $136,000
Purchases:
$952,100
Selling and administrative expenses:
$175,700
Sales revenue for the year:
$2,262,300
Cost of goods sold:
$1,050,000
Salary and wage expenses:
$250,900
Rent and utility expenses:
$75,800
Compute the operating income.
A) 709,900
B) $124,200
C) $184,400
D) $84,500
Answer: A
Explanation: A) Calculations:
Gross Profit: $2,262,300 – $1,050,000 = $1,212,300
Less Operating Expenses: $1,212,300 – $250,900 – $75,800 – $175,700 = $709,900 Operating Income
Diff: 2
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
95
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48) Selected financial information for Brookeville Manufacturing is presented in the following table (000s
omitted).
Sales revenue
Purchases of direct materials
Direct labor
Manufacturing overhead
Operating expenses
Beginning raw materials inventory
Ending raw materials inventory
Beginning work in process inventory
Ending work in process inventory
Beginning finished goods inventory
Ending finished goods inventory
$4300
$500
$460
$710
$690
$220
$200
$390
$420
$280
$250
What was the cost of direct materials used?
A) $720
B) $420
C) $520
D) $500
Answer: C
Explanation: C) Calculations: $220 + $500 = $720 – $200 = 520
Diff: 2
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
96
Copyright © 2018 Pearson Education, Inc.
49) Selected financial information for Brookeville Manufacturing is presented in the following table (000s
omitted).
Sales revenue
Purchases of direct materials
Direct labor
Manufacturing overhead
Operating expenses
Beginning raw materials inventory
Ending raw materials inventory
Beginning work in process inventory
Ending work in process inventory
Beginning finished goods inventory
Ending finished goods inventory
$5000
$480
$520
$670
$720
$290
$200
$380
$460
$270
$250
What was the cost of goods manufactured?
A) $1840
B) $1590
C) 1680
D) $1760
Answer: C
Explanation: C) Calculations: $290 + $480 – $200 = $570 Direct Materials Used
$380 + $570 + $520 + $670 = $2140 – $460 = $1680
Diff: 3
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
97
Copyright © 2018 Pearson Education, Inc.
50) Selected financial information for Brookeville Manufacturing is presented in the following table (000s
omitted).
Sales revenue
Purchases of direct materials
Direct labor
Manufacturing overhead
Operating expenses
Beginning raw materials inventory
Ending raw materials inventory
Beginning work in process inventory
Ending work in process inventory
Beginning finished goods inventory
Ending finished goods inventory
$4500
$490
$520
$630
$740
$240
$200
$330
$470
$270
$280
What was cost of goods sold?
A) $1530
B) $1550
C) $1700
D) $950
Answer: A
Explanation: A) Calculations
Cost of Goods Manufactured: $330 + $520 + $630 + $530 = $2010 – $470 = $1540
Cost of Goods Sold $270 + $1540 = $1810 – $280 = $1530
Diff: 3
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
98
Copyright © 2018 Pearson Education, Inc.
51) Selected financial information for Brookeville Manufacturing is presented in the following table (000s
omitted).
Sales revenue
Purchases of direct materials
Direct labor
Manufacturing overhead
Operating expenses
Beginning raw materials inventory
Ending raw materials inventory
Beginning work in process inventory
Ending work in process inventory
Beginning finished goods inventory
Ending finished goods inventory
$4700
$440
$520
$640
$730
$280
$230
$320
$430
$330
$260
What was operating income?
A) $2730
B) $4700
C) $3970
D) $2360
Answer: D
Explanation: D) Calculations: $4700 – $1610 = $3090 – $730 = $2360
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
99
Copyright © 2018 Pearson Education, Inc.
52) Selected financial information for Greek Food Producers is presented in the following table (000s
omitted).
Beginning raw materials inventory
Ending raw materials inventory
Direct labor
Operating expenses
Purchases of direct materials
Beginning work in process inventory
Ending work in process inventory
Sales revenue
Manufacturing overhead
Beginning finished goods inventory
Ending finished goods inventory
$390
$210
$270
$730
$350
$400
$620
$4600
$780
$330
$300
What was the cost of direct materials used?
A) $740
B) $530
C) $180
D) $350
Answer: B
Explanation: B) Calculations: $390 + $350 = $740 – $210 = $530
Diff: 2
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
100
Copyright © 2018 Pearson Education, Inc.
53) Selected financial information for Greek Food Producers is presented in the following table (000s
omitted).
Beginning raw materials inventory
Ending raw materials inventory
Direct labor
Operating expenses
Purchases of direct materials
Beginning work in process inventory
Ending work in process inventory
Sales revenue
Manufacturing overhead
Beginning finished goods inventory
Ending finished goods inventory
$320
$230
$260
$710
$360
$320
$670
$5000
$790
$350
$350
What was cost of goods manufactured?
A) $1480
B) $1110
C) $2000
D) $1150
Answer: D
Explanation: D) Calculations: $320 + 360 – 230 = $450 + 320 + 260 + 790 – 670 = $1150
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
101
Copyright © 2018 Pearson Education, Inc.
54) Selected financial information for Greek Food Producers is presented in the following table (000s
omitted).
Beginning raw materials inventory
Ending raw materials inventory
Direct labor
Operating expenses
Purchases of direct materials
Beginning work in process inventory
Ending work in process inventory
Sales revenue
Manufacturing overhead
Beginning finished goods inventory
Ending finished goods inventory
$300
$200
$250
$740
$400
$330
$610
$4500
$750
$350
$280
What was cost of goods sold?
A) $1080
B) $1290
C) $750
D) $1280
Answer: B
Explanation: B) Calculations:
Direct Materials: 300 + $400 = $700 – $200 = $500
COGM: $330 +$250 + $500 + $750 = $1830 – $610 = $1220
COGS: $350 + $1220 = $1570 – $280 = $1290
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
102
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55) Selected financial information for Greek Food Producers is presented in the following table (000s
omitted).
Beginning raw materials inventory
Ending raw materials inventory
Direct labor
Operating expenses
Purchases of direct materials
Beginning work in process inventory
Ending work in process inventory
Sales revenue
Manufacturing overhead
Beginning finished goods inventory
Ending finished goods inventory
$390
$240
$300
$720
$350
$400
$600
$4600
$740
$330
$320
What was operating income?
A) $3970
B) $4600
C) $3070
D) $2530
Answer: D
Explanation: D) Calculations: $4600 – 1350 = 3250 – 720 = $2530
Diff: 3
LO: 2-5
EOC: E2-26A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
103
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56) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Beginning work in process inventory
Cost of goods manufactured
Direct materials used
Direct labor
Ending work in process inventory
$340
$660
$220
$140
$140
What was manufacturing overhead for the quarter?
A) $520
B) $100
C) $860
D) $140
Answer: B
Explanation: B) Calculations: $660 + 140 = $800 – 340 – 140 – 220 = $100
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
57) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Direct labor
Beginning work in process inventory
Ending work in process inventory
Cost of goods manufactured
Manufacturing overhead
$580
$320
$340
$1560
$870
What was the cost of direct materials used for the quarter?
A) $130
B) $530
C) $1540
D) $870
Answer: A
Explanation: A) Calculations: $1560 + 340 – 320 = 1580 – 580 – 870 = $130
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
104
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58) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Operating expenses
Gross profit
Sales revenue
Ending finished goods inventory
Cost of goods manufactured
$650
$2420
$3070
$290
$1650
What was cost of goods sold?
A) $1290
B) $650
C) $1000
D) $770
Answer: B
Explanation: B) Calculations: $3070 – 2420 = $650
Diff: 2
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
59) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Operating expenses
Gross profit
Sales revenue
Ending finished goods inventory
Cost of goods manufactured
$770
$2430
$4070
$320
$1220
What was the beginning finished goods inventory?
A) $2080
B) $450
C) $740
D) $770
Answer: C
Explanation: C) Calculations: $4070 – 2430 = 1640 + 320 = 1960 – 1220 = $740
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
105
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60) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Sales revenue
Beginning raw materials inventory
Direct materials used
Purchases of direct materials
Direct labor
Manufacturing overhead
$4050
$290
$470
$420
$460
$650
What was the ending raw materials inventory?
A) $470
B) $780
C) $240
D) $890
Answer: C
Explanation: C) Calculations: $290 + 420 = 710 – 470 = $240
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
61) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Ending work in process inventory
Cost of goods manufactured
Direct labor
Direct materials used
Beginning work in process inventory
$710
$800
$500
$190
$310
What was manufacturing overhead for the quarter?
A) $110
B) $400
C) $690
D) $510
Answer: D
Explanation: D) Calculations: $800 + 710 = 1510 – 310 – 500 – 190 = $510
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
106
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62) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Ending work in process inventory
Manufacturing overhead
Cost of goods manufactured
Beginning work in process inventory
Direct labor
$480
$910
$1400
$330
$560
What was the cost of direct materials used for the quarter?
A) $1060
B) $1250
C) $580
D) $80
Answer: D
Explanation: D) Calculations: $1400 + 480 – 330 = 1550 – 560 – 910 = $80
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
63) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Cost of goods manufactured
Gross profit
Operating expenses
Ending finished goods inventory
Sales revenue
$1610
$3010
$520
$430
$4080
What was cost of goods sold?
A) $1090
B) $1950
C) $2560
D) $1070
Answer: D
Explanation: D) Calculations: $4080 – 3010 = $1070
Diff: 2
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
107
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64) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Cost of goods manufactured
Gross profit
Operating expenses
Ending finished goods inventory
Sales revenue
$1590
$2630
$4050
$480
$6080
What was the beginning finished goods inventory?
A) $2340
B) $440
C) $560
D) $2460
Answer: A
Explanation: A) Calculations: $6080 – 2630 = $3450 + 480 = 3930 – 1590 = $2340
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
65) Selected information regarding a company’s most recent quarter follows (all data in thousands).
Purchases of direct materials
Sales revenue
Manufacturing overhead
Direct materials used
Direct labor
Beginning raw materials inventory
$310
$3600
$520
$450
$290
$190
What was the ending raw materials inventory?
A) $760
B) $450
C) $50
D) $330
Answer: C
Explanation: C) Calculations: $190 + 310 = 500 – 450 = $50
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
108
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66) Gross profit is calculated by
A) subtracting cost of goods sold from sales.
B) adding sales to operating expenses.
C) subtracting operating expenses from sales.
D) adding profit to sales.
Answer: A
Diff: 1
LO: 2-5
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
67) Sales minus cost of goods sold equals gross profit.
Answer: TRUE
Diff: 1
LO: 2-5
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
68) Cost of goods manufactured reflects
A) goods sold during the period.
B) goods completed during the period.
C) goods still in the factory at the end of the period.
D) goods not yet started at the end of the period.
Answer: B
Diff: 2
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
69) Direct materials used reflects
A) materials used to package the finished product for distribution/shipping to the customers.
B) all materials used throughout the company including but not limited to office materials, shipping
materials, all raw materials, etc.
C) materials directly traced to the finished product that are requisitioned into the factory to be used in
production.
D) materials acquired for use in production but that have not been requisitioned by the production
supervisor yet.
Answer: C
Diff: 2
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
109
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70) Direct materials used is the same thing as raw materials.
Answer: FALSE
Diff: 1
LO: 2-5
AACSB: Reflective thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
71) Zoolander Inc. manufacturers high end fashion accessories and has provided the following data for
the latest quarter ended March 31st:
Beginning Inventory for Raw Materials
$60,000
Ending Inventory for Raw Materials
$44,600
Beginning Inventory for Work in Process
$83,000
Ending Inventory for Work in Process
$92,000
Beginning Inventory for Finished Goods
$45,000
Ending Inventory for Finished Goods
$51,000
Purchases of Raw Materials
$40,000
Wags paid to assembly line workers
$115,000
Wages paid to factory supervisor
$25,000
Property insurance paid on factory
$4,500
Utilities for the factory
$9,000
Indirect materials used in production
$3,000
Sales Revenue
$525,000
General & Administrative Expenses
$135,000
Calculate direct materials used for Zoolander Inc.’s first quarter.
A) $55,400
B) $40,000
C) $24,600
D) $31,000
Answer: A
Explanation: A) Beg Inv. RM $60,000 + Purchases $40,000 – End Inv. RM $44,600 = DM Used $55,400
Diff: 3
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
110
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72) Zoolander Inc. manufacturers high end fashion accessories and has provided the following data for
the latest quarter ended March 31st:
Beginning Inventory for Raw Materials
$60,000
Ending Inventory for Raw Materials
$44,600
Beginning Inventory for Work in Process
$83,000
Ending Inventory for Work in Process
$92,000
Beginning Inventory for Finished Goods
$45,000
Ending Inventory for Finished Goods
$51,000
Purchases of Raw Materials
$40,000
Wags paid to assembly line workers
$115,000
Wages paid to factory supervisor
$25,000
Property insurance paid on factory
$4,500
Utilities for the factory
$9,000
Indirect materials used in production
$3,000
Sales Revenue
$525,000
General & Administrative Expenses
$135,000
Calculate cost of goods manufactured for Zoolander Inc.’s first quarter.
A) $199,900
B) $202,900
C) $187,500
D) $197,000
Answer: B
Explanation: B) Beg Inv. RM $60,000 + Purchases $40,000 – End Inv. RM $44,600 = DM Used $55,400
Beg. Inv. WIP $83,000 + DM Used $55,400 + DL $115,000 + MOH ($25,000 + $4,500 + $9,000 + $3,000) – End.
Inv. WIP $92,000 = $202,900 CGM
Diff: 3
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
111
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73) Zoolander Inc. manufacturers high end fashion accessories and has provided the following data for
the latest quarter ended March 31st:
Beginning Inventory for Raw Materials
$60,000
Ending Inventory for Raw Materials
$44,600
Beginning Inventory for Work in Process
$83,000
Ending Inventory for Work in Process
$92,000
Beginning Inventory for Finished Goods
$45,000
Ending Inventory for Finished Goods
$51,000
Purchases of Raw Materials
$40,000
Wags paid to assembly line workers
$115,000
Wages paid to factory supervisor
$25,000
Property insurance paid on factory
$4,500
Utilities for the factory
$9,000
Indirect materials used in production
$3,000
Sales Revenue
$525,000
General & Administrative Expenses
$135,000
Calculate cost of goods sold for Zoolander Inc.’s first quarter.
A) $181,500
B) $196,900
C) $187,500
D) $193,000
Answer: B
Explanation: B) Beg Inv. RM $60,000 + Purchases $40,000 – End Inv. RM $44,600 = DM Used $55,400
Beg. Inv. WIP $83,000 + DM Used $55,400 + DL $115,000 + MOH ($25,000 + $4,500 + $9,000 + $3,000) – End.
Inv. WIP $92,000 = $202,900 CGM
Beg. Inv. FG $45,000 + CGM $202,900 – End. Inv. FG $51,000 = CGS $196,900
Diff: 3
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
112
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74) Zoolander Inc. manufacturers high end fashion accessories and has provided the following data for
the latest quarter ended March 31st:
Cost of Goods Manufactured
$197,300
Cost of Goods Sold
$163,750
Property insurance paid on factory
$4,500
Utilities for the factory
$9,000
Indirect materials used in production
$3,000
Sales Revenue
$650,000
Operating Expenses
$205,000
Calculate gross profit for Zoolander Inc.’s first quarter.
A) $281,250
B) $445,000
C) $452,700
D) $486,250
Answer: D
Explanation: D) Sales Revenue $650,000 – CGS $163,750 = GP $486,250
Diff: 2
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
75) Zoolander Inc. manufacturers high end fashion accessories and has provided the following data for
the latest quarter ended March 31st:
Cost of Goods Manufactured
$197,300
Cost of Goods Sold
$163,750
Property insurance paid on factory
$4,500
Utilities for the factory
$9,000
Indirect materials used in production
$3,000
Sales Revenue
$650,000
Operating Expenses
$205,000
Calculate operating income for Zoolander Inc.’s first quarter.
A) $281,250
B) $445,000
C) $452,700
D) $486,250
Answer: A
Explanation: A) Sales Revenue $650,000 – CGS $163,750 = GP $486,250 – Operating Expenses $205,000 =
$281,250
Diff: 3
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
113
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76) The main difference between the current assets on the balance sheet of a service company and a
manufacturer is that a manufacturer has
A) inventory and a service company does not.
B) cost of goods sold and a service company does not.
C) accounts receivable and a service company does not.
D) accounts payable and a service company does not.
Answer: A
Diff: 1
LO: 2-5
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
77) Use the appropriate letter(s) to indicate if the following costs would be found on the income statement
of a
A. service company.
B. merchandising company.
C. manufacturing company.
You may use more than one letter for each answer.
________ Revenue
________ Salaries expense
________ Customer service expense
________ Cost of goods manufactured
________ Cost of goods sold
Answer:
A, B, C
A, B, C
A, B, C
C
B, C
Revenue
Salaries expense
Customer service expense
Cost of goods manufactured
Cost of goods sold
Diff: 2
LO: 2-5
EOC: E2-22A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
114
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78) Compute the missing amounts.
Sales
Cost of Goods Sold
Beginning Inventory
Purchases and Freight-In
Cost of goods available for sale
Ending inventory
Cost of goods sold
Gross Margin
Selling and Administrative Expenses
Operating Income
Miami Company
$300,000
Orlando Company
(D)
(A)
119,000
(B)
5,000
115,000
185,000
(C)
32,000
65,000
(E)
192,000
3,000
(F)
124,000
90,000
(G)
Answer:
(A) 120,000 – 119,000 = 1,000
(B) 115,000 + 5,000 = 120,000
(C) 185,000 – 32,000 = 153,000
(D) 124,000 + 189,000 = 313,000
(E) 192,000 – 65,000 = 127,000
(F) 192,000 – 3,000 = 189,000
(G) 124,000 – 90,000 = 34,000
Diff: 3
LO: 2-5
EOC: E2-27A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
115
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79) Kitch Company sells collectibles. The following information summarizes Kitch Company’s operating
activities for the most recent year:
Merchandise inventory, beginning
Merchandise inventory, ending
Purchases
Operating expenses
Sales revenue
$12,000
6,000
97,000
62,000
195,000
Required: Prepare an income statement for the most recent year.
Answer:
Diff: 3
LO: 2-5
EOC: E2-23A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
116
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80) Swirzoff Company sells office supplies. The following information summarizes Swirzoff’s operating
activities for the past year:
Utilities for store
Rent for store
Sales commissions
Purchases of merchandise
Inventory, ending
Inventory, beginning
Sales revenue
7,000
6,500
2,500
65,000
21,500
28,000
120,000
Required: Prepare an income statement for Swirzoff Company, a merchandiser, for the year ended
December 31.
Answer:
Diff: 3
LO: 2-5
EOC: E2-23A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
117
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81) North Pacific Company used $65,000 of direct materials and incurred $43,000 of direct labor costs
during the most recent year. Indirect labor amounted to $1,700 while indirect materials used totaled
$1,800. Other operating costs pertaining to the factory included utilities of $4,300; maintenance of $6,800;
supplies of $1,500; depreciation expense of $8,900; and property taxes of $2,400. There was no beginning
or ending finished goods inventory, but work in process inventory began the year with a $6,400 balance
and ended the year with a $7,800 balance.
Required: Prepare a schedule of cost of goods manufactured for North Pacific Company for the year
ended December 31.
Answer:
Diff: 3
LO: 2-5
EOC: E2-25A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
118
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82) The following amounts were taken from the general ledger of the Excellent Manufacturing Company.
Compute the cost of goods manufactured and the cost of goods sold for the company for the year.
Raw materials inventory –
beg. of year
Raw materials inventory –
end of year
Work in process inv. – beg. of year
Work in process inv. – end of year
Finished goods inv. – beg. of year
Finished goods inv. – end of year
Purchase of direct materials
Answer:
Depreciation –
plant & equipment
$28,000
46,000 Repairs and maintenance – plant
110,000
Insurance on plant
85,000 General and administration exp.
26,000
Indirect labor
54,000
Direct labor
37,000
Marketing expenses
4,000
12,000
29,000
27,000
178,000
62,000
$52,000
Diff: 3
LO: 2-5
EOC: E2-24A
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
119
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83) Lighthouse Merchandise Group is a global operation that sells lighthouse merchandise to consumers
and groups in the marketplace. The managerial accountant reported the following information:
Compute the cost of goods available for sale at Lighthouse Merchandise Group. What is the cost of goods
sold?
Answer: To compute the cost of goods available for sale: $25,000 + $250,000 = $275,000
Cost of Goods Sold: $275,000 – $75,000 = $200,000
Diff: 2
LO: 2-5
EOC: S-10
AACSB: Analytical thinking
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement for different
types of organizations.
2.6 Describe costs that are relevant and irrelevant for decision making
1) Over the long-term, all costs are uncontrollable.
Answer: FALSE
Diff: 1
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2) Differential cost is the difference in cost between two alternatives.
Answer: TRUE
Diff: 1
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
3) Decision making is guided only by differential costs.
Answer: FALSE
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
120
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4) Irrelevant factors should not be considered when making decisions.
Answer: TRUE
Diff: 1
LO: 2-6
EOC: S2-14
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
5) You are trying to decide whether or not to sell back your accounting textbook at the end of the class.
The cost you paid for the book is not relevant to your decision.
Answer: TRUE
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
6) Sunk costs are irrelevant to the decision making process.
Answer: TRUE
Diff: 1
LO: 2-6
EOC: S2-14
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
7) Costs that remain the same among alternatives are
A) sunk costs.
B) irrelevant costs.
C) controllable costs.
D) uncontrollable costs.
Answer: B
Diff: 1
LO: 2-6
EOC: S2-14
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
8) Which of the following types of information differs between alternatives and can affect the future?
A) Historical
B) Irrelevant
C) Relevant
D) Predictable
Answer: C
Diff: 1
LO: 2-6
EOC: S2-14
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
121
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9) Which of the following represents a sunk cost?
A) A historical cost that is always relevant
B) A historical cost that is never relevant
C) An outlay expected to be incurred in the future
D) A cost that is relevant to any decision
Answer: B
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
10) Subtracting the costs of one alternative from the costs of the other alternative would be called the
________ cost.
A) sunk
B) imported
C) alternative
D) differential
Answer: D
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
11) When deciding to buy a new computer, all of the following should be considered except for the
A) cost of the new computer.
B) cost of the old computer.
C) games that come with the new computer.
D) warranty on the new computer.
Answer: B
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
12) When making a decision to buy a new computer, all of the following should be considered except
A) differential costs.
B) relevant costs.
C) qualitative characteristics.
D) sunk costs.
Answer: D
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
122
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13) A company is deciding whether to purchase production equipment that can produce units more
quickly than the current equipment. Which of the following costs would be relevant to its decision?
A) The cost of the new equipment
B) The salary of the factory manager
C) The cost of raw materials
D) The original purchase price of the current machinery
Answer: A
Diff: 1
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
14) A company is deciding whether to purchase production equipment that can produce units more
quickly than the current equipment. Which of the following costs would be relevant to its decision?
A) The original purchase price of the current machinery
B) The additional labor required to run the new equipment
C) The accumulative repairs costs of the current machinery over the years
D) The cost of raw materials
Answer: B
Diff: 1
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
15) A restaurant is facing a decision about whether it should bake its own apple pies or whether it should
continue to purchase the pies from a local bakery. Which of the following costs would be relevant to its
decision?
A) The salary of the restaurant manager
B) The price the restaurant sells the apple pies for
C) The purchase price of the apple pies purchased from the local bakery
D) The original purchase price of the current machinery
Answer: C
Diff: 1
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
123
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16) A company is deciding whether to purchase hybrid cars for its salespeople or gasoline-engine cars.
All of the following costs would be relevant to its decision except
A) the total estimated cost of gas to be used by each vehicle.
B) the purchase price of the hybrid model.
C) the book value of the current fleet of sales vehicles.
D) the purchase price of the gasoline-engine model.
Answer: C
Diff: 1
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
17) An example of a controllable cost is
A) property taxes.
B) advertising.
C) depreciation on headquarters building.
D) property insurance.
Answer: B
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
18) An example of an uncontrollable cost is
A) property taxes.
B) property insurance.
C) depreciation on factory equipment.
D) all of the above.
Answer: D
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
19) Controllable costs are those costs that the management has immediate control over such as
depreciation on factory equipment.
Answer: FALSE
Diff: 2
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
124
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20) Controllable costs include all the following except
A) employee development.
B) research and development.
C) real estate taxes of the corporate headquarters building.
D) advertising.
Answer: C
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
21) A relevant cost in determining whether to take the train to Phoenix or fly to Phoenix would be
A) the cost of a housesitter for your pets.
B) the cost of the plane ticket.
C) the cost of the hotel room in Phoenix.
D) the cost of the rental car in Phoenix.
Answer: B
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
22) A ________ cost is always irrelevant.
A) conversion
B) differential
C) sunk
D) manufacturing
Answer: C
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
23) An example of a sunk cost is
A) the purchase price of new equipment being considered for purchase.
B) maintenance costs of new equipment.
C) the cost of installation of the new equipment.
D) the purchase price of the old equipment.
Answer: D
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
125
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24) Chilton Corporation is analyzing its controllable costs to see where it can save money. Which of the
following costs should it ignore during this analysis?
A) employee development
B) factory property insurance
C) employee bonuses
D) advertising
Answer: B
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
25) Stallard Corporation is analyzing its controllable costs to see where it can save money in the coming
year. All of the following costs except ________ should be analyzed.
A) factory real estate taxes
B) charitable contributions
C) paid internship program
D) employee raises
Answer: A
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
26) Factory property taxes, factory property insurance, and depreciation on current equipment are all
examples of uncontrollable costs.
Answer: TRUE
Diff: 1
LO: 2-6
AACSB: Reflective thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
126
Copyright © 2018 Pearson Education, Inc.
27) Label each item below as relevant or irrelevant in making a decision.
A. ________ cost of insurance on a new vehicle when evaluating purchase of new vehicle
B. ________ cost of roof repair made on rental property last year when evaluating sale of rental property
C. ________ original cost of old equipment that is being evaluated for replacement
D. ________ cost of new equipment that is under evaluation to replace used equipment
E. ________ accumulated depreciation on old equipment being evaluated for replacement
F. ________ cost of previous year’s insurance policy on old equipment being evaluated for replacement
Answer:
A. relevant
B. irrelevant
C. irrelevant
D. relevant
E. irrelevant
F. irrelevant
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
28) Differentiate between relevant and irrelevant costs and give an example using both.
Answer: When making a decision, those costs that differ between alternatives are relevant costs. Costs
that do not differ between alternatives are irrelevant. For example, when deciding to buy a new car, the
cost of the cars under consideration is relevant as is the insurance cost for each car. If they both have the
same fuel economy ratings, then the cost of gasoline is irrelevant to the decision.
Diff: 2
LO: 2-6
EOC: E2-28A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
29) On the line in front of each statement, enter the letter corresponding to the term that best fits that
statement. You may use a letter more than once and some letters may not be used at all.
A.
B.
C.
D.
E.
Direct costs
Marginal cost
Average cost
Conversion costs
Prime costs
F.
G.
H.
I.
Variable costs
Indirect cost
Sunk cost
Differential cost
________ The combination of direct materials and direct labor.
________ Costs that change in total in direct proportion to changes in volume.
________ A cost that relates to the cost object, but cannot be traced to it.
________ A cost that has already been incurred.
Answer: E, F, G, H
Diff: 2
LO: 2-6
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
127
Copyright © 2018 Pearson Education, Inc.
30) Sally wants to purchase a new sofa because she purchased a new home at the beach. Sally visited two
stores and she narrowed down her choices to a red sofa and a blue sofa. Sally owns pets so she considers
the cost of insurance to insure each sofa. Sally compiled the following data and she realizes that the sales
tax to purchase the sofa is 10% in her state.
Price
Insurance
Red Sofa
$8,000
$950
Blue Sofa
$8,400
$350
Which sofa should Sally purchase? What costs are relevant in her decision? Why?
Answer:
Red Sofa
Blue Sofa
Differential Cost
Price
$8,000
$8,400
($400)
Sales Tax (10%)
$800
$840
($40)
Insurance
$950
$350
$600
Total Relevant Cost
$9,750
$9,590
$160
Which sofa should Sally purchase? Why?
Answer: Sally should purchase the blue sofa. The costs that are relevant in her decision include the price
of the sofa, the taxes, and the cost of the insurance to insure the sofa. Although the cost and taxes
associated with the blue sofa are higher, the cost to purchase insurance on the blue sofa is more cost
effective compared to the red sofa.
Diff: 3
LO: 2-6
EOC: P2-45A
AACSB: Analytical thinking
Learning Outcome: Describe the basics of managerial accounting and its function within an organization.
2.7 Classify costs as fixed or variable and calculate total and average costs at different
volumes
1) Variable costs per unit decrease as production volume increases.
Answer: FALSE
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
2) Fixed costs vary in total over a wide range of activity levels.
Answer: FALSE
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
128
Copyright © 2018 Pearson Education, Inc.
3) All costs contain both a fixed and a variable portion.
Answer: FALSE
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
4) The total cost of a product equals the total fixed costs plus the total variable costs.
Answer: TRUE
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
5) A marginal cost is the cost of making one more unit of a product.
Answer: TRUE
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
6) To forecast total costs at a given level of production, management would use which of the following
calculations?
A) Average cost × total units predicted
B) Total fixed cost × total units predicted
C) Total fixed cost + (variable cost per unit × total units predicted)
D) Total fixed cost + variable cost per unit
Answer: C
Diff: 1
LO: 2-7
EOC: E2-29A
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
7) Average variable costs
A) remain the same as production decreases.
B) remain the same as production increases.
C) remain the same no matter if production increases or decreases.
D) go down as production decreases.
Answer: C
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
129
Copyright © 2018 Pearson Education, Inc.
8) What is the cost of making one more unit called?
A) Unit cost
B) Marginal cost
C) Variable cost
D) None of the above
Answer: B
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
9) Plowin’ Supply plans to make 15,000 tractors at its plant. Fixed costs are $540,000 and variable costs are
$200 per tractor. What is the average cost per tractor?
A) $200
B) $2700
C) $236
D) $36
Answer: C
Explanation: C) Calculations: ($540,000 + ($200 × 15,000))/15,000 = $236
Diff: 1
LO: 2-7
EOC: E2-47B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
10) A(n) ________ cost is one whose total amount changes in direct proportion to a change in volume.
A) fixed
B) irrelevant
C) variable
D) mixed
Answer: C
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
11) An example of a fixed cost for a manufacturer would be which of the following?
A) Sales commissions
B) Salary of plant manager
C) Direct materials
D) Delivery costs
Answer: B
Diff: 1
LO: 2-7
EOC: S2-16
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
130
Copyright © 2018 Pearson Education, Inc.
12) Which of the following is an example of a fixed cost for a manufacturer?
A) Income Taxes
B) Machine Repair Expense
C) Fire Insurance on buildings
D) Delivery Fuel Expense
Answer: C
Diff: 1
LO: 2-7
EOC: S2-16
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
13) How do variable costs per unit behave?
A) They decrease as production increases.
B) They increase as production decreases.
C) They decrease as production decreases.
D) They remain the same throughout production levels within the relevant range.
Answer: D
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
14) How do total variable costs behave?
A) They decrease as production decreases.
B) They remain the same throughout production levels within the relevant range.
C) They decrease as production increases.
D) They increase as production decreases.
Answer: A
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
15) Which of the following describes the way in which total fixed costs behave?
A) They will decrease as production increases.
B) They will decrease as production decreases.
C) They will remain the same throughout production levels within the relevant range.
D) They will increase as production decreases.
Answer: C
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
131
Copyright © 2018 Pearson Education, Inc.
16) How do fixed costs per unit behave?
A) They remain the same throughout production levels within the relevant range.
B) They decrease as production decreases.
C) They increase as production decreases.
D) They increase as production increases.
Answer: C
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
17) Variable costs
A) are fixed per unit and vary in total as production levels change.
B) are fixed in total as production levels change.
C) decrease per unit as production volume increases.
D) vary per unit of output as production levels change.
Answer: A
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
18) A company has monthly fixed costs of $115,500. The variable costs are $5.00 per unit. If the sales price
of a unit is $15.00 and we sell 7700 units, the company’s average fixed costs per unit will be
A) $10.00 per unit.
B) $5.00 per unit.
C) $20.00 per unit.
D) $15.00 per unit.
Answer: D
Explanation: D) Calculations: 115,500 / 7700 = 15
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
19) A company has monthly fixed costs of $96,000. The variable costs are $8.00 per unit. If the sales price
of a unit is $14.00 and we sell 8000 units, the company’s total variable costs will be
A) $96,000.
B) $64,000.
C) $112,000.
D) $48.
Answer: B
Explanation: B) Calculations: 8000 × $8.00 = $64,000
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
132
Copyright © 2018 Pearson Education, Inc.
20) A company has monthly fixed costs of $96,000. The variable costs are $8.00 per unit. If the sales price
of a unit is $14.00 and we sell $8000 units, the total sales revenue will be
A) $48.
B) $96,000.
C) $112,000.
D) $95,950.
Answer: C
Explanation: C) Calculations: $14.00 × 8000 = $112,000
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
21) London Plastics has monthly fixed costs of $87,000, while its variable costs are $4.60 per unit. If the
sales price of a unit is $14.00 and London Plastics sell 15,000 units, the company’s average fixed costs per
unit will be
A) $5.80 per unit.
B) $10.40 per unit.
C) $4.60 per unit.
D) $9.40 per unit.
Answer: A
Explanation: A) Calculations: 87,000 / 15,000 = $5.80
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
22) London Plastics has monthly fixed costs of $84,000, while its variable costs are $4.70 per unit. If the
sales price of a unit is $15.50 and London Plastics sell $14,000 units, the company’s total variable costs will
be
A) $151,200.
B) $65,800.
C) $217,000.
D) $84,000.
Answer: B
Explanation: B) Calculations: $4.70 × 14,000 = $65,800
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
133
Copyright © 2018 Pearson Education, Inc.
23) London Plastics has monthly fixed costs of $92,500, while its variable costs are $4.10 per unit. If the
sales price of a unit is $14.25 and London Plastics sell 14,800 units, the company’s total sales revenue will
be
A) $150,220.
B) $210,900.
C) $92,500.
D) $179,080.
Answer: B
Explanation: B) Calculations: 14,800 × $14.25 = $210,900
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
24) A company has fixed costs of $60,000 per month. If sales double from 6,000 to 12,000 units during the
month, fixed costs in total will
A) double.
B) remain the same.
C) be cut in half.
D) be none of the above.
Answer: B
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
25) A company produces toy airplanes at a variable cost of $24 per toy. If 7090 toys are produced at a total
variable cost of $170,160, the total variable cost at 4540 toys will be
A) $170,160.
B) $24.
C) $108,960.
D) $279,120.
Answer: C
Explanation: C) Calculations: $24 × 4540 = $108,960
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
134
Copyright © 2018 Pearson Education, Inc.
26) Kramer Manufacturing produces blenders. Its total fixed costs are $30,000. Its variable costs are $55.00
per blender. As production of blenders increases (within the relevant range), fixed costs will
A) stay the same per unit.
B) decrease as production increases.
C) decrease per unit as production increases.
D) increase as production decreases.
Answer: C
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
27) A company’s total costs are calculated by
A) subtracting total fixed costs from total variable costs.
B) subtracting total variable costs from total fixed costs.
C) subtracting total fixed costs and total variable costs from sales.
D) adding total fixed costs to total variable costs.
Answer: D
Diff: 1
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
28) Marginal cost is essentially variable cost because fixed costs do not change in total.
Answer: TRUE
Diff: 2
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
29) Harper Inc. has fixed costs of $600,000 when it produces 300,000 units. Its total variable costs are
$150,000. When Harper Inc. produces 400,000 units which is within the relevant range, fixed costs will be
A) $600.000.
B) $800,000.
C) $200,000.
D) $225,000.
Answer: A
Explanation: A) fixed costs do not change in total
Diff: 2
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
135
Copyright © 2018 Pearson Education, Inc.
30) Harper Inc. has fixed costs of $600,000 when it produces 300,000 units. Its total variable costs are
$150,000. When Harper Inc. produces 400,000 units, its variable cost per unit will be
A) $2.00.
B) $0.38.
C) $2.50.
D) $0.50.
Answer: D
Explanation: D) $150,000 / 300,000 units = $0.50 per unit
Diff: 2
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
31) Harper Inc. has fixed costs of $600,000 when it produces 300,000 units. Its total variable costs are
$150,000. When Harper Inc. produces 400,000 units, its total variable cost per unit will be
A) $152,000.
B) $225,000.
C) $200,000.
D) $150,000.
Answer: C
Explanation: C) $150,000 / 300,000 units = $0.50 per unit X 400,000 units = $200,000
Diff: 2
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
32) How do fixed costs react in total and on a per unit basis?
A) Fixed costs remain constant in total and decrease per unit as production increases.
B) Fixed costs remain constant in total and on a per unit basis as production increases.
C) Fixed costs increase in total as production increases and remain constant on a per unit basis.
D) Fixed costs increase in total and on a per until basis.
Answer: A
Diff: 2
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
33) Average cost can be used to calculate total cost at a new level of production.
Answer: FALSE
Diff: 1
LO: 2-7
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
136
Copyright © 2018 Pearson Education, Inc.
34) Which of the following costs would be considered variable?
A) direct materials
B) sales commission
C) hourly wages of employees
D) all of the above
Answer: D
Diff: 1
LO: 2-7
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
35) An example of a fixed cost would be
A) rent.
B) direct materials.
C) hourly wages.
D) sales commission.
Answer: A
Diff: 1
LO: 2-7
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
36) All of the following are considered fixed costs except
A) property taxes.
B) property insurance.
C) tires used in production of cars.
D) rent on the factory storage for finished goods.
Answer: C
Diff: 1
LO: 2-7
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
37) All of the following are considered variable costs except
A) cost of sugar used to produce chocolate candy bars.
B) salary of the factory supervisor.
C) shipping costs of an online retailer.
D) cost of chicken nuggets used at a fast food chain.
Answer: B
Diff: 1
LO: 2-7
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
137
Copyright © 2018 Pearson Education, Inc.
38) On the line in front of each statement, enter the letter corresponding to the term that best fits that
statement. You may use a letter more than once and some letters may not be used at all.
A.
B.
C.
D.
Direct costs
Marginal cost
Average cost
Conversion costs
E.
F.
G.
H.
Variable costs
Indirect cost
Sunk cost
Differential cost
________ The total cost divided by the total volume.
________ The difference in cost between two alternative courses of action.
________ The combination of direct labor and manufacturing overhead costs.
________ The cost of producing one more unit.
________ Costs that can be traced to the cost object.
Answer: C, H, D, B, A
Diff: 2
LO: 2-7
EOC: E2-29A
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
39) Differentiate between fixed and variable costs and give an example of each.
Answer: Fixed costs stay constant in total over a wide range of activity levels. For instance, the rent on a
factory is the same whether 10,000 products are produced each month or 1,000 products are produced.
Variable costs change in total in direct proportion to changes in volume. If the variable cost of producing
one item is $1, and if 10,000 units are produced, the cost will be $10,000 and if only 1,000 units are
produced, the cost will be only $1,000.
Diff: 2
LO: 2-7
EOC: S2-15
AACSB: Reflective thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
138
Copyright © 2018 Pearson Education, Inc.
40) Getting to school for your 8 a.m. class doesn’t leave much time for breakfast, and you are quite
hungry by the time class ends. It is a long walk to the cafeteria, the lines are long once you get there, and
you find yourself having to decide between having breakfast and getting to your next class on time.
Many of your friends have expressed the same problem. The administration has agreed to let you set up a
table just outside the building where you will sell various snacks for $1 each. You have agreed to pay the
administration $400 per month and salaries to your friends to run the business will be another $400 per
month. It will cost you 60 cents each to buy the pre-packaged snacks. You believe you can sell 2,500 snack
packs per month.
a. What are the total fixed costs per month?
b. What are the total variable costs per month?
c. What is the fixed cost per snack pack?
d. What is the variable cost per snack pack?
e. What is the average cost per snack pack?
f. What is the average profit margin per snack pack?
g. Based on your analysis, should you start the snack pack business?
Answer:
a. $800 ($400 + $400)
b. $1,500 (60 cents × 2,500 snack packs)
c. 32 cents ($800/2,500 snack packs)
d. 60 cents (given in the problem)
e. $.92
f. $0.08 ($1 – 60 cents – 32 cents)
g. Yes, I will make 8 cents per snack pack and if I sell 2,500 I will make a profit of $200.
Diff: 2
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
41) How are average cost and marginal cost computed?
Answer: The average cost is the total cost divided by the number of units produced. Marginal cost is the
cost of making one more unit.
Diff: 1
LO: 2-7
EOC: S2-15
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
139
Copyright © 2018 Pearson Education, Inc.
42) Sydney’s Barbecue manufactures barbecue equipment for consumers and businesses in the
marketplace. The managerial accountant at Sydney’s Barbecue reported the following data:
Sydney’s Barbecue
Period Ending December 31, 20XX
Manufacturing costs
Units manufactured
Beginning inventory
Note: 45,000 units sold during year at $270 per unit
4,900,000
70,000
0
What is the average manufacturing cost per unit at Sydney’s Barbecue? (Round your answer)
A) $70.00
B) $80.00
C) $87.00
D) $97.00
E) $107.00
Answer: A
Explanation: A) The average manufacturing cost per unit is $70.00. $4,900,000 / 70,000 = $70.00.
Diff: 3
LO: 2-7
EOC: E2-41B
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
43) Sydney’s Barbecue reported the following information:
Sydney’s Barbecue
Period Ending December 31, 20XX
Manufacturing costs
Units manufactured
Beginning inventory
Note: 45,100 units sold during year at $270 per unit
4,200,000
60,000
0
What is the amount of ending finished goods inventory for the period ending December 31, 20XX?
A) $1,023,000
B) $1,033,000
C) $1,043,000
D) $1,053,000
E) $1,063,000
Answer: C
Explanation: C) 60,000 units – 45,100 units = 14,900 units × $70 per unit = $1,043,000
Diff: 3
LO: 2-7
EOC: P2-43A
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
140
Copyright © 2018 Pearson Education, Inc.
44) Stacy’s Manufacturing Company manufactures parts to accommodate the needs of bicycle shops. The
managerial accountant reported the following data:
Compute the average manufacturing cost per unit. What is the amount of ending finished goods
inventory?
Answer: The average manufacturing cost per unit: $2,250,000 / 50,000 = $45.00.
The amount of finished goods inventory: 50,000 units – 30,000 = 20,000 units × $45 = $900,000
Diff: 3
LO: 2-7
EOC: P2-43A
AACSB: Analytical thinking
Learning Outcome: Define and distinguish among variable, fixed and mixed costs.
141
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