Question 1

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

Accepted Answer

A) True 
 B)False

Question 2

Select the incorrect statement regarding service companies.

Accepted Answer

A)  Service companies do not maintain a Finished Goods Inventory account. 
B)  Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers. 
C)  Service companies may have raw material costs. 
D)  Understanding the cost of providing a service is just as important as knowing the cost of making a product. 
A)  Service companies do not maintain a Finished Goods Inventory account. 
B)  Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers. 
C)  Service companies may have raw material costs. 
D)  Understanding the cost of providing a service is just as important as knowing the cost of making a product.

Question 3

Lewes Company produced 8,000 units of inventory and sold 6,000.The company incurred the following production costs: Variable manufacturing cost: $12.00 per unit
Fixed manufacturing overhead cost: $60,000
Assuming the company sells its product at a price of $25 per unit,and incurred $10,000 in selling and administrative cost,what is the amount of net income under variable costing?

Accepted Answer

A)  $107,000 
B)  $68,000 
C)  $23,000 
D)  $8,000 
A)  $107,000 
B)  $68,000 
C)  $23,000 
D)  $8,000

Question 4

Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year.At the end of the year,manufacturing overhead had been underapplied by $5,310.As a result:

Accepted Answer

A)  cost of goods sold increases. 
B)  manufacturing overhead increases. 
C)  cost of goods sold decreases. 
D)  none of these. 
A)  cost of goods sold increases. 
B)  manufacturing overhead increases. 
C)  cost of goods sold decreases. 
D)  none of these.

Question 5

The Work in Process inventory account is debited when raw materials are placed into production.

Accepted Answer

A) True 
 B)False

Question 6

McDonnell Industries estimated manufacturing overhead for the year at $290,000.Manufacturing overhead for the year was underapplied by $12,000.The company applied $235,000 to work in process.The amount of actual overhead would have been:

Accepted Answer

A)  $247,000. 
B)  $278,000. 
C)  $223,000. 
D)  none of these. 
A)  $247,000. 
B)  $278,000. 
C)  $223,000. 
D)  none of these.

Question 7

Burke Company produced 8,000 units of inventory and sold 6,000 of them.The company incurred the following production costs: Variable manufacturing cost: $6.00 per unit
Fixed manufacturing overhead cost: $24,000
Assuming the company sells its product at a price of $15 per unit,and incurred $10,000 in selling and administrative costs,what is the amount of net income under absorption costing?

Accepted Answer

A)  $38,000 
B)  $14,000 
C)  $24,000 
D)  $26,000 
A)  $38,000 
B)  $14,000 
C)  $24,000 
D)  $26,000

Question 8

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

Accepted Answer

A)  Work in Process Inventory 
B)  Manufacturing Overhead 
C)  Raw Materials Inventory 
D)  Supplies Inventory 
A)  Work in Process Inventory 
B)  Manufacturing Overhead 
C)  Raw Materials Inventory 
D)  Supplies Inventory

Question 9

The reporting method that includes in the cost of inventory (and cost of goods sold)all product costs,including both fixed and variable costs is known as:

Accepted Answer

A)  variable costing. 
B)  total costing. 
C)  direct costing. 
D)  absorption costing. 
A)  variable costing. 
B)  total costing. 
C)  direct costing. 
D)  absorption costing.

Question 10

Service companies generally do not have Work in Process and Finished Goods inventory accounts.

Accepted Answer

A) True 
 B)False

Question 11

Generally accepted accounting principles require that a company use variable costing for financial reporting.

Accepted Answer

A) True 
 B)False

Question 12

Company X manufactures 3-ring notebooks.All of the following are considered indirect costs except:

Accepted Answer

A)  cardboard used in production of the notebooks. 
B)  depreciation on manufacturing equipment. 
C)  factory utilities. 
D)  salaries for production supervisors. 
A)  cardboard used in production of the notebooks. 
B)  depreciation on manufacturing equipment. 
C)  factory utilities. 
D)  salaries for production supervisors.

Question 13

Orlando Company paid $100 cash to purchase production supplies.How does this transaction affect the financial statements? $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}
\hline {\text { Assets }} & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \
\hline \begin{array}{l|c|c}
\text { Cash } & + & \text { Prod. } \
&&\text { Supplies } \
\end{array} & & & & & & & & & \
\hline
\end{array}$

Accepted Answer

A) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline (100)&+&NA &=&NA&+&(100)&NA&-&100&=&(100)\
\hline
\end{array}$ 
B) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline NA&+&100&=&100&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$ 
C) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline(100)&+&100&=& NA&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$ 
D) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline(100)&+&NA&=& (100)&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$ 
A) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline (100)&+&NA &=&NA&+&(100)&NA&-&100&=&(100)\
\hline
\end{array}$ 
B) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline NA&+&100&=&100&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$ 
C) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline(100)&+&100&=& NA&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$ 
D) 
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|}
\hline(100)&+&NA&=& (100)&+&NA&NA&-&NA&=&NA\
\hline
\end{array}$

Question 14

Hutton Company reported a $750 unfavorable overhead variance on a recent performance report.This means that factory overhead was underapplied during the period.

Accepted Answer

A) True 
 B)False

Question 15

The credit to the Finished Goods Inventory account represents the cost of goods manufactured.

Accepted Answer

A) True 
 B)False

Question 16

Paying for factory utilities used during the current month is a(n):

Accepted Answer

A)  asset exchange transaction. 
B)  asset use transaction. 
C)  asset source transaction. 
D)  claims exchange transaction. 
A)  asset exchange transaction. 
B)  asset use transaction. 
C)  asset source transaction. 
D)  claims exchange transaction.

Question 17

Redmond Manufacturing Company began operations on January 1.The Company was affected by the following events during its first year of operation:
a)Company issued stock to owners for $100,000 cash.
b)Purchased materials,$8,000 for cash.
c)Transferred $4,000 of direct materials to production (Job #1: $3,000;Job #2: $1,000).
d)Paid direct labor costs,$5,000 (Job #1: $2,500;Job #2: $2,500).
e)Paid $3,000 cash for various actual overhead costs.
f)Allocated overhead to work in process at 60% of direct labor cost.
g)Completed Job #1 and transferred it to Finished Goods.
h)Sold Job #1 for $8,400 cash.
i)Paid $200 cash for selling and administrative expenses.
Required:
1)Record the above events in the T-accounts provided.Label your transactions (a)- (i).
2)Determine the ending balance in the work in process account.
3)Prepare a schedule of cost of goods manufactured and sold.
4)Compute the amount of gross profit earned on Job #1.

Accepted Answer

Answers will vary
1)Posted T-accounts: @#IMG-DLM&

Question 18

During February,Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings.This overhead cost should be allocated to units completed during the month it was paid.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a valid reason for using variable costing?

Accepted Answer

A)  Fixed production cost should be ignored when costing units of inventory since it is not essential to the production process. 
B)  Absorption costing recognizes fixed costs as expense regardless of volume of production. 
C)  Absorption costing may motivate managers to overproduce in order to increase profits. 
D)  Under variable costing managers can increase profitability by increasing the volume of production. 
A)  Fixed production cost should be ignored when costing units of inventory since it is not essential to the production process. 
B)  Absorption costing recognizes fixed costs as expense regardless of volume of production. 
C)  Absorption costing may motivate managers to overproduce in order to increase profits. 
D)  Under variable costing managers can increase profitability by increasing the volume of production.

Question 20

Pinkston Company completed 12,000 units of product at a total cost of $28,000.The recording of the product completed would include a decrease to:

Accepted Answer

A)  Manufacturing Overhead. 
B)  Cost of Goods Manufactured. 
C)  Finished Goods Inventory. 
D)  Work In Process Inventory. 
A)  Manufacturing Overhead. 
B)  Cost of Goods Manufactured. 
C)  Finished Goods Inventory. 
D)  Work In Process Inventory.

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

Select the incorrect statement regarding service companies.

Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year.At the end of the year,manufacturing overhead had been underapplied by $5,310.As a result:

The Work in Process inventory account is debited when raw materials are placed into production.

McDonnell Industries estimated manufacturing overhead for the year at $290,000.Manufacturing overhead for the year was underapplied by $12,000.The company applied $235,000 to work in process.The amount of actual overhead would have been:

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

The reporting method that includes in the cost of inventory (and cost of goods sold)all product costs,including both fixed and variable costs is known as:

Service companies generally do not have Work in Process and Finished Goods inventory accounts.

Generally accepted accounting principles require that a company use variable costing for financial reporting.

Company X manufactures 3-ring notebooks.All of the following are considered indirect costs except:

Orlando Company paid $100 cash to purchase production supplies.How does this transaction affect the financial statements? Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash + Prod. Supplies

Hutton Company reported a $750 unfavorable overhead variance on a recent performance report.This means that factory overhead was underapplied during the period.

The credit to the Finished Goods Inventory account represents the cost of goods manufactured.

Paying for factory utilities used during the current month is a(n):

During February,Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings.This overhead cost should be allocated to units completed during the month it was paid.

Which of the following is a valid reason for using variable costing?

Pinkston Company completed 12,000 units of product at a total cost of $28,000.The recording of the product completed would include a decrease to:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 11: Product Costing in Service and Manufacturing Entities

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

Select the incorrect statement regarding service companies.

Kelly Company's manufacturing overhead costs totaled $2,871,400 during the year.At the end of the year,manufacturing overhead had been underapplied by $5,310.As a result:

The Work in Process inventory account is debited when raw materials are placed into production.

McDonnell Industries estimated manufacturing overhead for the year at $290,000.Manufacturing overhead for the year was underapplied by $12,000.The company applied $235,000 to work in process.The amount of actual overhead would have been:

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

The reporting method that includes in the cost of inventory (and cost of goods sold)all product costs,including both fixed and variable costs is known as:

Service companies generally do not have Work in Process and Finished Goods inventory accounts.

Generally accepted accounting principles require that a company use variable costing for financial reporting.

Company X manufactures 3-ring notebooks.All of the following are considered indirect costs except:

Orlando Company paid $100 cash to purchase production supplies.How does this transaction affect the financial statements? Assets = Liab. + Equity Rev. - Exp. = Net Inc. Cash + Prod. Supplies

Hutton Company reported a $750 unfavorable overhead variance on a recent performance report.This means that factory overhead was underapplied during the period.

The credit to the Finished Goods Inventory account represents the cost of goods manufactured.

Paying for factory utilities used during the current month is a(n):

During February,Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings.This overhead cost should be allocated to units completed during the month it was paid.

Which of the following is a valid reason for using variable costing?

Pinkston Company completed 12,000 units of product at a total cost of $28,000.The recording of the product completed would include a decrease to:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters