Chapter Eleven
6. Gram Co. develops computer programs to meet customers' special requirements. How should Gram categorize payments to employees who develop these programs?
UDirect costsU UValue-adding costs
a. Yes Yes
b. Yes No
c. No No
d. No Yes
7. Spoilage occurring during a manufacturing process can be considered normal or abnormal. The proper accounting for each of these costs is
UNormalU UAbnormalU
a. Product Period
b. Product Product
c. Period Product
d. Period Period
8. In developing a predetermined factory overhead application rate for use in a process costing system, which of the following could be used in the numerator and denominator?
UNumeratorU UDenominatorU a. Actual factory Actual machine
overhead. hours.
b. Actual factory Estimated machine
overhead. hours.
c. Estimated factory Actual machine
overhead. hours.
d. Estimated factory Estimated machine
overhead. hours.
9. Following are Mill Co.’s production costs for October:
Direct materials $100,000
Direct labor 90,000
Factory overhead 4,000
What amount of costs should be traced to specific products in the production process?
a. $194,000 b. $190,000 c. $100,000 d. $90,000
10. Direct labor cost is a
UConversion costU UPrime costU
a. No No
b. No Yes
c. Yes Yes
d. Yes No
11. What is the normal effect on the numbers of cost pools and allocation bases when an activity-based cost (ABC) system replaces a traditional cost system?
UCost poolsU UAllocation basesU a. No effect No effect
b. Increase No effect
c. No effect Increase
d. Increase Increase
12. Under the two-variance method for analyzing overhead, which of the following variances consists of both variable and fixed overhead elements?
Controllable (budget)
UvarianceU UVolume varianceU
a. Yes Yes
b. Yes No
c. No No
d. No Yes
13. The Forming Department is the first of a two-stage production process. Spoilage is identified when the units have completed the Forming process. Costs of spoiled units are assigned to units completed and transferred to the second department in the period spoilage is identified. The following information concerns Forming's conversion costs in May 1995:
Conversion
UUnitsU UCosts Beginning work-in-process
(50% complete) 2,000 $10,000
Units started during May 8,000 75,500
Spoilage—normal 500
Units completed & transferred 7,000 Ending work-in-process
(80% complete) 2,500
11Q-2
Using the weighted average method, what was Forming's conversion cost transferred to the second production department?
a. $59,850 b. $64,125 c. $67,500 d. $71,250
14. In an activity-based costing system, what should be used to assign a department's manufacturing overhead costs to products produced in varying lot sizes?
a. A single cause and effect relationship.
b. Multiple cause and effect relationships.
c. Relative net sales values of the products.
d. A product's ability to bear cost allocations.
15. During the month of March 1992, Nale Co. used
$300,000 of direct materials. At March 31, 1992, Nale’s direct materials inventory was $50,000 more than it was at March 1, 1992. Direct material purchases during the month of March 1992 amounted to
a. $0 b. $250,000 c. $300,000 d. $350,000
16. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the
a. Increased overall level of activity.
b. Customer’s requirement for early completion of job.
c. Management’s failure to include the job in the production schedule.
d. Management’s requirement that the job be completed before the annual factory vacation closure.
17. The fixed portion of the semivariable cost of electricity for a manufacturing plant is a
UPeriod costU UProduct costU
a. Yes No
b. Yes Yes
c. No Yes
d. No No
18. Baker Co., a manufacturer, had inventories at the beginning and end of its current year as follows:
UBeginningU UEndU
Raw materials $22,000 $30,000
Work in process 40,000 48,000
Finished goods 25,000 18,000
During the year the following costs and expenses were incurred:
Raw materials purchased $300,000
Direct-labor cost 120,000
Indirect factory labor 60,000
Taxes and depreciation on
factory building 20,000
Taxes and depreciation on salesroom
and office 15,000
Salesmen's salaries 40,000
Office salaries 24,000
Utilities (60% applicable to factory,
20% to salesroom, 20% to office) 50,000 Baker's cost of goods sold for the year is
a. $514,000.
b. $521,000.
c. $522,000.
d. $539,000.
19. When should process-costing techniques be used in assigning costs to products?
a. If the product is manufactured on the basis of each order received.
b. When production is only partially completed during the accounting period.
c. If the product is composed of mass-produced homogeneous units.
d. In situations where standard costing techniques should not be used.
20. Nile Co.’s cost allocation and product costing procedures follow activity-based costing principles.
Activities have been identified and classified as being either value-adding or nonvalue-adding as to each product. Which of the following activities, used in Nile production process, is nonvalue-adding?
a. Design engineering activity.
b. Heat treatment activity.
c. Drill press activity.
d. Raw materials storage activity.
21. A job order cost system uses a predetermined factor overhead rate based on expected volume and expected fixed cost. At the end of the year, underapplied overhead might be explained by which of the following situations?
UActual volumeU UActual fixed costsU a. Greater than Greater than
expected expected
b. Greater than Less than expected expected
c. Less than expected Greater than expected
d. Less than expected Less than expected
22. In order to compute equivalent units of production using the FIFO method of process costing, work for the period must be broken down to units
a. Completed during the period and units in ending inventory.
b. Completed from beginning inventory, started and completed during the month, and units in ending inventory.
c. Started during the period and units transferred out during the period.
d. Processed during the period and units completed during the period.
23. A process costing system was used for a department that began operations in January 1991.
Approximately the same number of physical units, at the same degree of completion, were in work in process at the end of both January and February.
Monthly conversion costs are allocated between ending work in process and units completed.
Compared to the FIFO method, would the weighted average method use the same or a greater number of equivalent units to calculate the monthly allocations?
Equivalent units for weighted
Uaverage compared to FIFOU
UJanuaryU UFebruaryU
a. Same Same
b. Greater number Greater number c. Greater number Same
d. Same Greater number
24. Walton, Incorporated, had 8,000 units of work in process in Department A on October 1, 19X8. These units were 60% complete as to conversion costs.
Materials are added in the beginning of the process.
During the month of October, 34,000 units were started and 36,000 units completed. Walton had 6,000 units of work in process on October 31, 19X8.
These units were 80% complete as to conversion costs. By how much did the equivalent units for the month of October using the weighted-average method exceed the equivalent units for the month of October using the first-in, first-out method?
Conversion
UMaterialsU UCostsU
a. 0 3,200
b. 0 4,800
c. 8,000 3,200
d. 8,000 4,800
25. Information for the month of May concerning Department A, the first stage of Wit Corporation's production cycle, is as follows:
Conversion
UMaterialsU U CostsU Work in process,
beginning $ 4,000 $ 3,000
Current costs U 20,000U U 16,000U
Total costs $24,000 $19,000
Equivalent units based on
average method 100,000 95,000
Average unit costs $ 0.24 $0.20
Goods completed 90,000 units
Work in process, end 10,000 units Material costs are added at the beginning of the process. The ending work in process is 50%
complete as to conversion costs. How would the total costs accounted for be distributed, using the weighted-average method?
Goods Work in
UCompletedU UProcess, EndU
a. $39,600 $3,400
b. $39,600 $4,400
c. $43,000 $0
d. $44,000 $3,400
11Q-4