Quiz 3: Basic Cost Management Concepts

Since indirect cost cannot be conveniently or economically traced directly to a cost pool or cost object, the management accountant will: A)Assign them by means of cost allocation. B)Assign them where needed. C)Assign them randomly to even out these costs. D)Not assign them at all. E)None of the above.

All indirect manufacturing costs are commonly combined into a single cost pool called: A)Activity cost pools. B)Value streams. C)Resources. D)Overhead. E)Other manufacturing costs.

Variable costs within the relevant range for a firm are assumed: A)Not to vary per unit. B)Not to vary in total. C)To be nonlinear. D)To be curvilinear. E)None of the above are correct.

How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production level rises? A)It will remain constant. B)It will increase in direct proportion to the production increase. C)It will increase, but inversely with the production increase. D)It will decrease inversely and in direct proportion to the production increases. E)It will decrease, but not in direct proportion to the production increase.

Structural cost drivers are to executional cost drivers as: A)Long-term is to short-term. B)Fixed is to variable. C)Total is to partial. D)Direct is to indirect.

Theoretically, a decision maker would probably be willing to buy cost management information if: A)It is accurate. B)It is consistent with management objectives. C)It is timely. D)Its value is equal to or greater than its cost.

Any product, service, or organizational unit to which costs are assigned for some management purpose is a (n): A)Cost object. B)Direct cost. C)Indirect cost. D)Cost driver. E)Allocation base.

Which one of the following is not a type of cost driver? A)Structural cost driver. B)Executional cost driver. C)Volume-Based cost driver. D)Differential cost driver. E)Activity-Based cost driver.

The range of the cost driver in which the actual value of the cost driver is expected to fall is called the: A)Actual cost range. B)Driver range. C)Activity range. D)Expected cost range. E)Relevant range.

The change in total cost associated with each change in the quantity of the cost driver is: A)Average cost. B)Controllable cost. C)Variable cost. D)Unit cost.

The additional cost incurred as the cost driver increases by one unit is: A)Average cost. B)Controllable cost. C)Variable cost. D)Unit cost.

Strategic analysis uses which of the following to help a firm improve its competitive position through an analysis of product and production complexity? A)Differential cost drivers. B)Discretionary cost drivers. C)Structural cost drivers. D)Marginal cost drivers.

Which one of the following would not be found in a merchandising company? A)Beginning inventory. B)Cost of goods sold. C)Ending inventory. D)Gross profit. E)Work-in-process.

The cost of goods that were finished and transferred out of work-in-process during the current period is: A)Cost of goods sold. B)Cost of goods available for use. C)Cost of goods manufactured. D)Cost of goods available for sale. E)Cost of goods purchased.

Which of the following tend to be non-differential in the short term since they cannot be changed, but are more likely to be differential in the long term? A)Fixed costs. B)Variable costs. C)Mixed costs. D)Semivariable costs.

Direct labor used is calculated to be: A)$306,000. B)$26,000. C)$110,000. D)$84,000. E)$111,000.

Factory overhead is calculated to be: A)$306,000. B)$26,000. C)$110,000. D)$84,000. E)$111,000.

Total manufacturing cost is calculated to be: A)$306,000. B)$26,000. C)$110,000. D)$331,000. E)$111,000.

Cost of goods manufactured is calculated to be: A)$289,000. B)$348,000. C)$314,000. D)$297,000. E)$323,000.

Materials purchases are calculated to be: A)$143,000. B)$156,000. C)$91,000. D)$169,000. E)$140,000.

Cost of goods sold is calculated to be: A)$890,000. B)$896,000. C)$883,000. D)$877,000. E)$870,000.

Cost of goods sold is calculated to be: A)$32,000. B)$30,000. C)$33,000. D)$38,000. E)$27,000.

Cost of goods manufactured is calculated to be: A)$32,000. B)$30,000. C)$33,000. D)$38,000. E)$27,000.

Selling and administrative expenses are calculated to be: A)$4,000. B)$9,000. C)$11,000. D)$12,000. E)$16,000.

Work in process inventory, beginning, is calculated to be: A)$4,000. B)$9,000. C)$11,000. D)$12,000. E)$16,000.

For the month of April, prime cost incurred was: A)$75,000. B)$66,000. C)$65,000. D)$62,000.

For the month of April, conversion cost incurred was: A)$75,000. B)$66,000. C)$70,000. D)$39,000.

The three attributes of cost information include accuracy, timeliness, and A)reliability. B)relevance. C)cost-benefit. D)understandability.

When cost relationships are linear, total variable costs will vary in proportion to changes in: A)Direct labor hours. B)Total material cost. C)Total overhead cost. D)Volume of production. E)Machine hours.

The term relevant range as used in cost accounting means the range over which: A)Costs may fluctuate. B)Cost relationships are approximately linear. C)Production may vary. D)Relevant costs are incurred.

If the volume of production is increased over the level planned, the cost per unit would be expected to: A)Decrease for fixed costs and remain unchanged for variable costs. B)Remain unchanged for fixed costs and increase for variable costs. C)Decrease for fixed costs and increase for variable costs. D)Increase for fixed costs and increase for variable costs.

When production levels are expected to decline within a relevant range, what effects would be anticipated with respect to each of the following? A)Option A B)Option B C)Option C D)Option D

Which of the following is normally considered to be a product cost? A)Insurance on a factory building. B)Selling expenses. C)President's salary. D)Miscellaneous office expense.

The Gray Company has a staff of five clerks in its general accounting department. Three clerks who work during the day perform sundry accounting tasks; the two clerks who work in the evening are responsible for (1) collecting the cost data for the various jobs in process, (2) verifying manufacturing material and labor reports, and (3) supplying production reports to the supervisors by the next morning. The salaries of these two clerks who work at night should be classified as: A)Period costs. B)Direct costs. C)Product costs. D)Indirect costs.

A manufacturer of machinery currently produces equipment for a single client. The client supplies all required raw material on a no-cost basis. The manufacturer contracts to complete the desired units from this raw material. The total production costs incurred by the manufacturer are correctly identified as: A)Prime costs. B)Conversion costs. C)Variable production costs. D)Factory overhead.

Certain workers are assigned the task of unpacking production materials received from suppliers. These workers place the material in a storage area pending subsequent use in the production process. The labor cost of such workers is normally classified as: A)Direct labor. B)Direct materials. C)Indirect labor. D)Indirect materials.

Prime cost and conversion cost share what common element of total cost? A)Direct labor. B)Direct materials. C)Variable overhead. D)Fixed overhead.

What is the amount of direct materials used? A)$23,500. B)$28,500. C)$31,000. D)$36,000.

What is the amount of direct materials purchased? A)$23,500. B)$28,500. C)$31,000. D)$36,000.

What is the amount in the finished goods inventory at the beginning of the year? A)$10,500. B)$15,000. C)$20,000. D)$25,000.

What is the amount of total manufacturing cost? A)$50,500. B)$52,000. C)$56,400. D)$58,500.

What is the amount of net sales? A)$68,500. B)$94,000. C)$72,500. D)$75,000.

What should be the amount of direct materials used? A)$15,000. B)$29,000. C)$20,000. D)$24,000.

What should be the amount of direct materials purchased? A)$28,000. B)$19,000. C)$15,000. D)$12,000.

What should be the amount in the finished goods inventory at December 31, 2013? A)$55,500. B)$35,000. C)$43,000. D)$49,000.

What should be the amount of total manufacturing cost? A)$83,000. B)$94,000. C)$104,000. D)$75,000.

What should be the amount of direct materials used? A)$112,000. B)$183,000. C)$189,000. D)$204,000.

What should be the amount of direct materials available for use? A)$112,000. B)$183,000. C)$189,000. D)$204,000.

What should be the amount in the finished goods inventory at the beginning of the year? A)$15,000. B)$45,000. C)$55,000. D)$61,000.

What should be the amount of total manufacturing cost? A)$340,000. B)$350,000. C)$380,000. D)$395,000.

If finished goods inventory has increased during the period, which of the following is always true? A)Cost of goods sold is less than cost of goods manufactured. B)Cost of goods sold is more than cost of goods manufactured. C)Cost of goods manufactured is more than total manufacturing costs. D)Cost of goods manufactured is less than total manufacturing costs.

Manufacturing firms use which of the following three inventory accounts? A)Materials, Work-in-process, Transferred-out. B)Materials, Work-in-process, Finished goods. C)Materials, Finished goods, Transferred-out. D)Work-in-process, Finished goods, Transferred-out.

Barnes Co. incurred the following costs during July: What was the amount of direct materials used and direct labor for July? A)Option A B)Option B C)Option C D)Option D

Woodcarving Co. incurred the following costs during May: What was the amount of direct materials and direct labor used in May? A)Option A B)Option B C)Option C D)Option D

Jeffrey's Bottling Co. incurred the following costs during November: If direct materials cost was $140,000 in November, what was the conversion cost for November? A)$255,000 B)$240,000 C)$215,000 D)$235,000

Furniture Co. incurred the following costs during 2013: What was the amount of direct materials and direct labor used for the year? A)Option A B)Option B C)Option C D)Option D

Factory overhead costs for a given period were 3 times as much as the direct material costs. Prime costs totaled $2,000. Conversion costs totaled $3,280. What are the direct labor costs for the period? A)$1,220. B)$1,360. C)$1,410. D)$1,540.

Factory overhead costs for a given period were 2 times as much as the direct material costs. Prime costs totaled $8,000. Conversion costs totaled $11,350. What are the direct labor costs for the period? A)$4,650. B)$3,560. C)$4,200. D)$3,860.

Factory overhead costs for a given period were 1.5 times as much as the direct material costs. Prime costs totaled $15,500. Conversion costs totaled $22,725. What are the direct labor costs for the period? A)$1,200. B)$1,050. C)$1,075. D)$1,155.

Consider the following for Columbia Street Manufacturing: What are the cost of goods manufactured and cost of goods sold? A)Option A B)Option B C)Option C D)Option D

Consider the following for Guardian Manufacturing Company: What are the cost of goods manufactured and cost of goods sold? A)Option A B)Option B C)Option C D)Option D

In order to assure that accounting information is accurate and to avoid potentially costly mistakes in the decision making process, firms should: A)Design and monitor an effective system of internal accounting controls. B)Have the internal auditors and controller each check the accounting data before it is released to management. C)Purchase an accounting system that is designed specifically for the industry in which the firm conducts business. D)None of the above.

Which of the following best describes a fixed cost? A)It may change in total when such change is unrelated to changes in production volume. B)It may change in total when such change is related to changes in production volume. C)It is constant per unit of change in production volume. D)It may change in total when such change depends on production volume within the relevant range.

The income statement for a manufacturing company includes: A)Indirect Labor, Factory Overhead, and Total Manufacturing Cost B)Total Manufacturing Cost and Cost of Goods Sold. C)Indirect Materials, Factory Overhead, and Cost of Goods Manufactured. D)Indirect Labor, Indirect Materials and Cost of Goods Sold. E)None of the above.

The income statement for a merchandising company includes: A)Direct Labor. B)Factory Overhead. C)Total Manufacturing Cost. D)Cost of Goods Sold. E)None of the above.

Which of the following should be considered a structural cost driver? A)Scale. B)Experience. C)Complexity. D)Technology. E)All of the above.

A manager of a small manufacturing firm is interested in knowing what the company's product costs are. Which of the following would be considered a product cost for the manager's company? A)Direct materials. B)Product design cost. C)Office expenses. D)Selling expenses. E)Advertising expense.

A manager of a large retail firm is interested in knowing what the company's product costs are. Which of the following would be considered a product cost for the manager's company? A)Direct materials. B)Direct labor. C)Factory overhead. D)Transportation costs paid by the retailer to transport the purchased product to its distribution location. E)None of the above.

The main objective(s) of internal accounting controls is/are: A)To increase customer satisfaction. B)To increase revenue. C)To prevent or detect errors and fraudulent acts. D)To facilitate new product lines. E)To increase employee morale.

Direct materials and direct labor costs total $70,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #333, what is the total manufacturing cost for Job #333? A)$20,000 B)$70,200 C)$70,000 D)$90,000 E)$100,000

Direct materials and direct labor costs total $40,000 and factory overhead costs total $100 per machine hour. If 200 machine hours were used for Job #202, what is the total manufacturing cost for Job #202? A)$95,000 B)$75,000 C)$65,000 D)$60,000 E)$55,000

Which of the following would not be considered a cost pool? A)Inventory manager B)Revenue C)Engineering department D)Direct materials cost

A group of related products may be referenced as: A)Cost objects B)Cost drivers C)Value streams D)Cost pools

There is no convenient or economical way to trace a(n) _______ from the cost to the cost pool or from the cost pool to the cost object. A)Direct cost B)Indirect cost C)Cost assignment D)Cost allocation

Which of the following is not a correct pair between the activity and the potential cost driver? A)Provide cashier service-number of customers B)Process loan applications-number of loan applications processed C)Mail customer statements-number of accounts by customer type and size D)Advise customers on banking services-number of ATM transactions

Which of the following is an example of an indirect cost? A)Cost of downtime B)Cost of labor C)Cost of materials D)Cost of packaging materials

Which of the following is not a product cost? A)Direct materials costs B)Selling costs C)Direct labor costs D)Factory overhead costs

Complete the inventory formula: Beginning Inventory + ______ = ________ + Ending Inventory A)Cost added; cost transferred out B)Cost transferred out; cost added C)Cost of goods sold; cost added D)Cost added; cost of goods manufactured

Which of the following is not an example of a product cost? A)Salary of manufacturing supervisor B)Power for equipment C)Depreciation on company-owned sales outlets D)Depreciation on company-owned manufacturing plant

The total manufacturing cost consists of the costs for materials used, labor, and ________. A)Overhead cost B)Average cost C)Step cost D)Prime cost

The emphasis on effective _________ has ________ significantly in recent years in response to SEC requirements imposed by the Sarbanes-Oxley Act of 2002. A)Cost allocation; decreased B)Internal accounting controls; increased C)Profitability; increased D)Cost drivers; decreased

Williams Company is an East Coast producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that Williams sells for $270. Six weeks after increasing production to supply the increased orders, the assistant controller notices some unusual unit cost data in the monthly report she is preparing. Prior and current month unit values are given below: Required: (1) Suggest some possible causes for the decline in average total cost. (2) Assume now the opposite change has occurred, namely, average total cost has risen $3.96 per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to explain these changes.

Roadmaster Equipment is an up-scale, higher-priced, specialty road construction equipment maker based in Irvine, California. The management accountant for Roadmaster compiled information for various levels of output in units: Required: Rounding all calculations to the nearest dollar, fill in the blanks with the correct figures.

Choco Chocolata is a cookie company in Juarez, Mexico that produces and sells American-style chocolate chip cookies with extremely high quality and service. The owner would like to identify the various costs incurred during each year in order to plan and control the costs in the business. Chocolata's costs are the following (in thousands of pesos): Required: (1) What is the total amount of product costs? (2) What is the total amount of period costs?

Young Fashions Company produces children's clothing. During 2013, the company incurred the following costs: Inventories for the year were: Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

The following costs are incurred by the Oakland Company, a manufacturer of furniture. 1) wood and fabric used in furniture 2) depreciation on machinery 3) property taxes on the factory 4) labor costs to manufacture the furniture 5) electricity cost to operate the machinery 6) factory rent 7) production supervisor's salary 8) sandpaper and other supplies 9) fire insurance on factory 10) commissions paid to salespersons Required Classify each cost as either variable or fixed.

A portion of the costs incurred by business organizations is designated as direct labor cost. As used in practice, the term direct labor cost has a wide variety of meanings. Unless the meaning intended in a given context is clear, misunderstanding and confusion are likely to ensue. If a user does not understand the elements included in direct labor cost, erroneous interpretations of the numbers might occur and could result in poor management decisions. Measurement of direct labor costs has two aspects: (1) the quantity of labor effort that is to be included, that is, the types of hours or other units of time that are to be counted; and (2) the unit price by which each of these quantities is multiplied to arrive at a monetary cost. Required: 1) Distinguish between direct labor and indirect labor. 2) Presented below are labor cost elements that a company has been classified as direct labor, factory overhead, or either direct labor or factory overhead depending upon the situation. Direct labor-Included in the company's direct labor are cost production efficiency bonuses and certain benefits for direct labor workers such as FICA (employer's portion), group life insurance, vacation pay, and workers' compensation insurance. Factory overhead-The company's calculation of manufacturing overhead includes the cost of the following: wage continuation plans, the company sponsored cafeteria, the personnel department, and recreational facilities. Direct labor or factory overhead-The costs that the company includes in this category are maintenance expense, overtime premiums, and shift premiums. Explain the reasoning used by the company in classifying the cost elements in each of the three categories.

Lester-Sung, Inc. is a large general construction firm in the commercial building industry. The following is a list of costs incurred by this company: 1) The cost of an employee for 8 hours at $6.00 an hour. 2) The cost of insurance for the employees. 3) The cost of 1,000 board feet of 2 x 4 lumber. 4) The CEO's salary. Required: Classify each cost above using the following categories: (a) General, selling and administrative cost (b) Direct material (c) Direct labor (d) Overhead cost

Advanced Technical Services, Ltd. has many products and services in the medical field. The Clinical Division of the company does research and testing of consumer products on human participants in controlled clinical studies. Required: Determine for each cost below whether it is best classified as a fixed, variable, or step-fixed cost. (1) Director's salary (2) Part-time help (3) Payment on purchase of medical equipment (4) Allocation of company-wide advertising (5) Patches used on participants' arms during the study (6) Stipends paid to participants

The following data relates to the Solar Products Company: Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

The following information applies to the Johnson Tools Company for the year. Required: Prepare a statement of cost of goods manufactured and an income statement for the year.

A computer virus destroyed some of the accounting records for Hampton Furniture Company for the periods of 2011-2013. The following information was salvaged from the computer system. Required: Determine the correct amounts for A through P.

Dave's Lighting Inc. produces lamps for the construction industry. During the year, the company incurred the following costs: Inventories for the year were: Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

The following information applies to the McAdoo Company for the year. Required: Prepare a statement of cost of goods manufactured and an income statement for the year.

Consider the following information for Blue Water Equipment, Inc., a manufacturer of sailboat rigging, blocks, and cordage. Required: Prepare a statement of cost of goods manufactured and an income statement for Blue Water Equipment, Inc. for the year.

Greenbelt Hospital has the following activities in its value chain of providing service to each inpatient admission: 1. Schedule patient. 2. Verify insurance. 3. Admit patient. 4. Prepare patient's room. 5. Review doctor's report. 6. Feed patient. 7. Order tests. 8. Move to/from laboratory. 9. Administer lab tests. 10. Order pharmaceuticals. 11. Complete patient report. 12. Check patient's vital signs. 13. Prepare patient for operation. 14. Move to/from operating room. 15. Operate. 16. Collect charges. 17. Discharge patient. 18. Bill insurance. Required: Assume that the cost object is the individual patient. Determine the appropriate cost driver(s) for each activity.

The following information pertains to the Petrie Company: Required: Determine the cost of goods manufactured.

The following information was taken from the accounting records of Tomek Manufacturing Company. Unfortunately, some of the data were destroyed by a computer malfunction. Required: Calculate the unknowns indicated by question marks.