1) What is the best way to handle manufacturing overhead costs in order to get the most timely job cost information?
- The company should add actual manufacturing overhead costs to jobs as soon as the overhead costs are incurred.
- The company should determine an allocation rate as soon as the actual costs are known, and then apply manufacturing overhead to jobs.
- The company should account for only the direct production costs.
- The company should apply overhead using an estimated rate throughout the year.
2) At the end of the year, manufacturing overhead has been overapplied. What occurred to create this situation?
- The company incurred more manufacturing overhead costs than the manufacturing overhead assigned to jobs.
- The actual manufacturing overhead costs were less than the manufacturing overhead assigned to jobs.
- The company incurred more total job costs than the amount budgeted for the job.
- Estimated manufacturing overhead was less than actual manufacturing overhead costs.
3) Luca Company overapplied manufacturing overhead during 2006. Which one of the following is part of the year end entry to dispose of the overapplied amount assuming the amount is material?
- A decrease to work in process inventory
- A decrease to applied overhead
- An increase to finished goods
- An increase to cost of goods sold
4) Which of the following would be accounted for using a job order cost system?
- The production of textbooks
- The production of town homes
- The pasteurization of milk
- The production of cans of spinach
5) Which one of the following is NEVER part of recording the issuance of raw materials in a job order cost system?
- Debit Manufacturing Overhead
- Debit Finished Goods Inventory
- Debit Work in Process Inventory
- Credit Raw Materials Inventory
6) What is unique about the flow of costs in a job order cost system?
- It involves accumulating material, labor, and manufacturing overhead costs as they are incurred in order to determine the job cost.
- Each job is costed separately in a Work in Process subsidiary ledger.
- Job costs cannot be measured until all overhead costs are determined.
- There are no costs remaining in Work in Process at year end.
7) Which one of the following costs would be included in manufacturing overhead of a lawn mower manufacturer?
- The cost of the fuel lines that run from the motor to the gas tank
- The cost of the wheels
- Depreciation on the testing equipment
- The wages earned by motor assemblers
8) What broad functions do the management of an organization perform?
- Planning, directing, and controlling
- Directing, manufacturing, and controlling
- Planning, directing, and selling
- Planning, manufacturing, and controlling
9) Which of the following represents the correct order in which inventories are reported on a manufacturer’s balance sheet?
- Work in process, finished goods raw materials
- Raw materials, work in process, finished goods
- Finished goods, work in process, raw materials
- Work in process, raw materials, finished goods
10) In traditional costing systems, overhead is generally applied based on
- machine hours
- direct labor
- direct material dollars
- units of production
11) An activity that has a direct cause-effect relationship with the resources consumed is a(n)
- overhead rate
- product activity
- cost driver
- cost pool
12) A well-designed activity-based costing system starts with
- computing the activity-based overhead rate
- analyzing the activities performed to manufacture a product
- identifying the activity-cost pools
- assigning manufacturing overhead costs for each activity cost pool to products
13) Which of the following factors would suggest a switch to activity-based costing?
- Overhead costs constitute a significant portion of total costs.
- Production managers use data provided by the existing system.
- Product lines similar in volume and manufacturing complexity.
- The manufacturing process has been stable.
14) All of the following statements are correct EXCEPT that
- the objective of installing ABC in service firms is different than it is in a manufacturing firm
- the general approach to identifying activities and activity cost pools is the same in a service company as in a manufacturing company
- activity-based costing has been widely adopted in service industries
- a larger proportion of overhead costs are company-wide costs in service industries
15) What sometimes makes implementation of activity-based costing difficult in service industries is
- identifying activities, activity cost plus, and cost drivers
- attempting to reduce or eliminate nonvalue-added activities
- the labeling of activities as value-added
- that a larger proportion of overhead costs are company-wide costs
16) One of Astro Company’s activity cost pools is machine setups, with estimated overhead of $150,000. Astro produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?
17) Poodle Company manufactures two products, Mini A and Maxi B. Poodle’s overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini AMaxi B
Direct labor hours15,00025,000
Overhead applied to Mini A using activity-based costing is
18) Poodle Company manufactures two products, Mini A and Maxi B. Poodle’s overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:
Mini A Maxi B
Direct labor hours15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Maxi B using activity-based costing is
19) Seran Company has contacted Truckel Inc. with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $11 per unit. Fixed costs are $12 per unit; however, $5 per unit is avoidable. Should Truckel make or buy the wickets?
- Buy; savings = $10,000
- Make; savings = $20,000
- Make; savings = $10,000
- Buy; savings = $25,000
20) Rosen, Inc. has 10,000 obsolete calculators, which are carried in inventory at a cost of $20,000. If the calculators are scrapped, they can be sold for $1.10 each (for parts). If they are repackaged, at a cost of $15,000, they could be sold to toy stores for $2.50 per unit. What alternative should be chosen, and why?
- Repackage; revenue is $5,000 greater than cost.
- Scrap; incremental loss is $9,000.
- Repackage; receive profit of $10,000.
- Scrap; profit is $1,000 greater.
21) The cost to produce Part A was $10 per unit in 2005. During 2006, it has increased to $11 per unit. In 2006, Supplier Company has offered to supply Part A for $9 per unit. For the make-or-buy decision,
- incremental costs are $1 per unit
- net relevant costs are $1 per unit
- differential costs are $2 per unit
- incremental revenues are $2 per unit
22) Hartley, Inc. has one product with a selling price per unit of $200, the unit variable cost is $75, and the total monthly fixed costs are $300,000. How much is Hartley’s contribution margin ratio?
23) Which statement describes a fixed cost?
- The amount per unit varies depending on the activity level.
- It varies in total at every level of activity.
- It remains the same per unit regardless of activity level.
- Its total varies proportionally to the level of activity.
24) Disney’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by how much will the company’s net income increase?
25) Variable costing
- is required under GAAP
- is used for external reporting purposes
- is also known as full costing
- treats fixed manufacturing overhead as a period cost
26) Which cost is NOT charged to the product under variable costing?
- Direct labor
- Direct materials
- Fixed manufacturing overhead
- Variable manufacturing overhead
27) Orbach Company sells its product for $40 per unit. During 2005, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $10, direct labor $6, and variable overhead $2. Fixed costs are: $480,000 manufacturing overhead, and $60,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is
28) Which of the following is NOT considered an advantage of using standard costs?
- Standard costs can be useful in setting prices for finished goods.
- Standard costs can reduce clerical costs.
- Standard costs can make employees “cost-conscious.”
- Standard costs can be used as a means of finding fault with performance.
29) The difference between a budget and a standard is that
- a budget expresses management’s plans, while a standard reflects what actually happened
- standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system
- a budget expresses a total amount while a standard expresses a unit amount
- a budget expresses what costs were, while a standard expresses what costs should be
30) If a company is concerned with the potential negative effects of establishing standards, they should
- offer wage incentives to those meeting standards
- set tight standards in order to motivate people
- not employ any standards
- set loose standards that are easy to fulfill
31) The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000 units of product. The direct materials quantity variance for last month was
- $2,400 favorable
- $5,600 unfavorable
- $3,200 unfavorable
- $3,200 favorable
Materials quantity variance = SP * (AQ – SQ) = $4 * (11,200 – 12,000) = – $ 3,200 (Favorable)
32) The standard number of hours that should have been worked for the output attained is 8,000 direct labor hours and the actual number of direct labor hours worked was 8,400. If the direct labor price variance was $8,400 unfavorable, and the standard rate of pay was $18 per direct labor hour, what was the actual rate of pay for direct labor?
- $15 per direct labor hour
- $18 per direct labor hour
- $19 per direct labor hour
- $17 per direct labor hour
33) The total variance is $10,000. The total materials variance is $4,000. The total labor variance is twice the total overhead variance. What is the total overhead variance?
34) Manufacturing overhead costs are applied to work in process on the basis of
- standard hours allowed
- actual overhead costs incurred
- ratio of actual variable to fixed costs
- actual hours worked
35) The overhead volume variance relates only to
- variable overhead costs
- both variable and fixed overhead costs
- all manufacturing costs
- fixed overhead costs
36) If the standard hours allowed are less than the standard hours at normal capacity,
- the overhead volume variance will be unfavorable
- the overhead controllable variance will be favorable
- variable overhead costs will be overapplied
- variable overhead costs will be underapplied
37) Gottberg Mugs is planning to sell 2,000 mugs and produce 2,200 mugs during April. Each mug requires 2 pounds of resin and a half hour of direct labor. Resin costs $1 per pound and employees of the company are paid $12.50 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Gottberg has 2,000 pounds of resin in beginning inventory and wants to have 2,400 pounds in ending inventory. How much is the total amount of budgeted direct labor for April?
38) Lewis Hats is planning to sell 600 straw hats. Each hat requires a half pound of straw and a quarter hour of direct labor. Straw costs $0.20 per pound and employees of the company are paid $22 per hour. Lewis has 80 pounds of straw and 40 hats in beginning inventory and wants to have 50 pounds of straw and 60 hats in ending inventory. How many units should Lewis Hats produce in April?
39) At January 1, 2004, Barry, Inc. has beginning inventory of 4,000 widgets. Barry estimates it will sell 35,000 units during the first quarter of 2004 with a 10% increase in sales each quarter. Barry’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each widget costs $1 and is sold for $1.50. How much is budgeted sales revenue for the third quarter of 2004?
40) In most cases, prices are set by the
- largest competitor
- selling company
- competitive market
41) A company must price its product to cover its costs and earn a reasonable profit in
- all cases
- its early years
- the long run
- the short run
42) The cost-plus pricing approach’s major advantage is
- it considers customer demand
- that sales volume has no effect on per unit costs
- it is simple to compute
- it can be used to determine a product’s target cost