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Indicate whether the statement is true or false.
1. Direct labor cost is an example of a product cost.
a. True
b. False
2. If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as factory
overhead cost.
a. True
b. False
3. Product cost consists of factory overhead.
a. True
b. False
4. If factory overhead applied is less than the actual costs, the overhead is said to be underapplied.
a. True
b. False
5. In a job order cost system, materials and supply costs for a service business are normally included as part of overhead
cost.
a. True
b. False
6. The current year’s advertising costs are normally considered as product costs.
a. True
b. False
7. A manufacturing business converts materials into finished products through the use of machinery and labor.
a. True
b. False
8. Inventories of finished products are reported as current assets on a manufacturer’s balance sheet.
a. True
b. False
9. A manufacturing business reports three types of inventory on its balance sheet: direct materials, products in the process
of being manufactured, and finished products.
a. True
b. False
10. Period costs are costs that are incurred for the production requirements of a certain period.
a. True
b. False
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11. The underapplied factory overhead amount may be transferred to cost of goods sold at the end of the fiscal year.
a. True
b. False
12. The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.
a. True
b. False
13. Non-manufacturing costs are generally classified into two categories: selling and administrative.
a. True
b. False
14. A job order cost system provides for a separate record of the costs for each particular quantity of product that is
manufactured.
a. True
b. False
15. Factory overhead is applied to production using a predetermined overhead rate.
a. True
b. False
16. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory overhead
cost.
a. True
b. False
17. The costs of materials and labor that do not enter directly into the finished product are classified as cost of goods sold.
a. True
b. False
18. Sales commission is an example of factory overhead cost.
a. True
b. False
19. Service companies can effectively use activity-based costing to compute product (service) costs.
a. True
b. False
20. Direct materials costs are included in the conversion costs of a product.
a. True
b. False
21. For a construction contractor, the wages of carpenters would be classified as direct labor cost.
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a. True
b. False
22. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on the
balance sheet as inventory.
a. True
b. False
23. After the goods are completed, their costs are transferred from Work in Process to Finished Goods.
a. True
b. False
24. Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying within
expected ranges.
a. True
b. False
25. A company may use a job order cost system for some of its products and a process cost system for other products.
a. True
b. False
26. Indirect labor is included in factory overhead.
a. True
b. False
27. In response to materials requisition, materials are transferred from the storeroom to the factory.
a. True
b. False
28. Conversion cost is the combination of direct labor cost and factory overhead cost.
a. True
b. False
29. Reporting under managerial accounting is not restricted by specific rules such as generally accepted accounting
principles (GAAP).
a. True
b. False
30. Activity-based costing is a method of accumulating and allocating costs by department.
a. True
b. False
31. Manufacturers implement the philosophy of just-in-time processing to produce products with high quality, low cost,
and instant availability.
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a. True
b. False
32. Using the job order cost system, service business are able to bill clients on a weekly or monthly basis, even when the
job has not been completed.
a. True
b. False
33. A job order cost system accumulates costs for each of the departments or processes within the factory.
a. True
b. False
34. Depreciation expense on factory equipment is part of factory overhead cost.
a. True
b. False
35. Managerial accounting reports information primarily for stakeholders that are external to the company.
a. True
b. False
36. If the actual overhead incurred is less than the applied factory overhead, it is called overapplied factory overhead.
a. True
b. False
37. For an automotive repair shop, the wages of mechanics would be classified as direct labor cost.
a. True
b. False
38. The direct labor and overhead costs of providing services to clients are accumulated in a Work-in-Process account.
a. True
b. False
39. In job order cost accounting system, perpetual inventory records are maintained in controlling accounts and subsidiary
ledgers for materials, work in process, and finished goods.
a. True
b. False
40. If the cost of materials is not a significant portion of the total product cost, the materials may be classified as a part of
factory overhead cost.
a. True
b. False
41. Materials inventory consists of the costs of direct and indirect materials that have not yet entered the manufacturing
process.
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a. True
b. False
42. The summary of the time tickets at the end of each month is the basis for recording the direct and indirect labor costs
incurred in production.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
43. Finished goods inventory includes _____.
a. telephone charges
b. advertising expenses
c. factory overhead
d. director’s fees
44. The finished goods account is a controlling account for the subsidiary _____.
a. sales ledger
b. materials ledger
c. work-in-process ledger
d. stock ledger
45. Which of the following is a product cost?
a. Administrative cost
b. Direct labor cost
c. Selling cost
d. Opportunity cost
46. One of the ways in which just-in-time processing is accomplished in manufacturing and non-manufacturing processes
is by _____.
a. moving a product from process to process as each function is completed
b. combining processing functions into work centers and cross-training workers to perform more than one function
c. having production supervisors attempt to enter enough materials into manufacturing to keep all manufacturing
departments operating
d. having workers typically perform one function on a continuous basis
47. The cost of wages paid to employees directly involved in the manufacturing process of converting materials into
finished product is classified as _____.
a. factory overhead cost
b. direct labor cost
c. wages expense
d. direct materials cost
48. An activity-based costing system allocates factory overhead rates to products or services using:
a. a single plantwide overhead rate.
b. the cost of activities based on an activity rate times the number of activity-based usage quantities.
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c. an allocation of budgeted revenues produced by a product or service.
d. an end-of-year allocation of costs to products or services.
49. Which of the following is an example of direct materials cost for an automobile manufacturer?
a. Cost of oil lubricants for factory machinery
b. Cost of wages of assembly worker
c. Varnish for coating
d. Cost of interior upholstery
50. Which of the following is an example of direct labor cost for an airplane manufacturer?
a. Cost of wages of janitors
b. Cost of wages of assembly workers
c. Salary of plant supervisor
d. Salary of the chairman
51. Which of the following is an example of a factory overhead cost?
a. Repair and maintenance cost on the administrative building
b. Factory heating and lighting cost
c. Insurance premiums on salespersons’ automobiles
d. President’s salary
52. Which of the following is most likely to be a product cost?
a. Salary of the vice president of sales
b. Advertising for a particular product
c. Drill bits for a drill press used in the plant assembly area
d. Salary of the company receptionist
53. The recording of the jobs shipped and customers billed would increase _____.
a. Accounts Payable
b. Cash
c. Finished Goods
d. Cost of Goods Sold
54. Which of the following techniques is used by just-in-time manufacturing?
a. It provides specialized training so that employees only do one task and work individually to improve efficiencies
in the department.
b. It organizes the plant in such a way as to reduce product movement from station to station.
c. It encourages management to make all operating decisions regarding the manufacturing process rather than the
line employees in order to streamline the process.
d. It emphasizes push manufacturing.
55. Which of the following businesses is most likely to use a job order costing system?
a. A paper mill
b. A swimming pool installer
c. A company that manufactures chlorine for swimming pools
d. An oil refinery
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56. Which of the following best explains a job order cost system?
a. It provides product costs for each manufacturing department or process.
b. It is often used by companies that manufacture custom products for customers or batches of similar products.
c. It is often used by companies that manufacture units of a product that are indistinguishable from each other.
d. It is used by companies that manufacture units of a product using a continuous production process.
57. Which of the following information is provided by job cost sheets?
a. Cost of depreciation on office computers
b. Managerial salary
c. Cost of utilities
d. Cost impact of materials changes
58. Depreciation on factory equipment is an example of a_____.
a. period cost
b. product cost
c. selling cost
d. prime cost
59. The following information is available for the first month of operations for Bluemoon, Inc.:
Sales $850,000
Gross profit 330,000
Indirect labor 35,000
Indirect materials 14,000
Other factory overhead 9,000
Materials purchased 360,000
Total manufacturing costs 670,000
Materials inventory, end of period 20,000
Based on the information provided for Bluemoon, Inc., calculate direct materials cost used in production.
a. $326,000
b. $340,000
c. $360,000
d. $346,000
60. Upon completing a job, direct materials totaled $4,500; direct labor, $2,500; and factory overhead, $3,500. Units
produced totaled 2,100. What is the per unit cost?
a. $2
b. $1
c. $3
d. $5
61. Which of the following statements is true of a traditional production process?
a. It focuses on reducing time and cost and eliminating poor quality.
b. It emphasizes on continually improving the manufacturing process and product quality.
c. In a traditional production process, supervisors enter materials into manufacturing so as to keep all the
manufacturing departments (processes) operating.
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d. In a traditional production process, service activities may be assigned to individual work centers, rather than to
centralized service departments.
62. For which of the following businesses would the job order costing system be most appropriate?
a. Custom cabinet manufacturer
b. Automobile manufacturer
c. Lumber mill
d. Meat processor
63. Which of the following is considered a part of factory overhead cost?
a. Sales commissions
b. Depreciation of factory buildings
c. Depreciation of office equipment
d. Direct materials used
64. The amount of time spent by each employee and the labor costs incurred for each individual job or for factory
overhead are recorded on the _____.
a. employees’ earnings records
b. in-and-out board
c. time tickets
d. receiving order
65. Which of the following is the subsidiary ledger for work in process?
a. The finished goods ledger
b. Job cost sheets
c. Materials requisitions
d. The materials ledger
66. Which of the following items would be classified as a part of prime cost?
a. Direct labor cost
b. Factory overhead cost
c. Selling cost
d. Administrative cost
67. Compute factory overhead cost from the following costs:
Depreciation on factory buildings $ 45,950
Depreciation on office equipment 32,980
Direct materials used 96,840
Indirect labor $ 6,580
a. $73,000
b. $52,530
c. $96,840
d. $78,930
68. The direct labor and overhead costs of providing services to clients are accumulated in _____.
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a. finished services expense
b. work in process
c. administrative salaries expense
d. overhead
69. Elite, Inc., has estimated total factory overhead costs of $900,000 and 25,000 direct labor hours for the current fiscal
year. If the direct labor hours for Job N41 are 2,000, calculate the total factory overhead applied to this job.
a. $40,000
b. $25,000
c. $4,000
d. $72,000
70. Which of the following businesses is most likely to use a process cost accounting system?
a. Custom cabinet manufacturer
b. Dress designer
c. Lumber mill
d. Printing firm
71. In job order cost accounting system used by a service business, which of the following items would normally not be
included as part of overhead?
a. Materials
b. Direct labor
c. Rent
d. Supplies
72. In which of the following cost accounting systems is perpetual inventory records maintained for materials, work-in–
process, and finished goods inventories?
a. Process costing
b. Batch costing
c. Activity based costing
d. Job order costing
73. The following information is available for the first month of operations for Bluemoon, Inc.:
Sales $850,000
Gross profit 330,000
Indirect labor 35,000
Indirect materials 14,000
Other factory overhead 9,000
Materials purchased 360,000
Total manufacturing costs 670,000
Materials inventory, end of period 20,000
Based on the information provided for Bluemoon, Inc., calculate the cost of goods sold.
a. $670,000
b. $418,000
c. $520,000
d. $650,000
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74. Recording direct labor costs in a job order costing system _____.
a. increases Factory Overhead and decreases Work in Process
b. increases Finished Goods and increases Wages Payable
c. increases Work in Process and increases Wages Payable
d. increases Factory Overhead and increases Wages Payable
75. The recording of the jobs completed would decrease _____.
a. Factory Overhead
b. Finished Goods
c. Work in Process
d. Cost of Goods Sold
76. A(n) _____ provides product costs for each quantity of a product that is manufactured.
a. process costing
b. job order costing
c. activity based costing
d. DuPont costing
77. Robbson Manufacturers has estimated total factory overhead costs of $184,000 and 25,000 direct labor hours for the
current fiscal year. If job number 115 incurred 1,200 direct labor hours, the Work-in-Process account will be increased
and factory overhead will be decreased by _____.
a. $25,000
b. $8,832
c. $7,022
d. $153
78. An increase in the Work-in–Process account occurs when _____.
a. materials are received into the storeroom
b. factory overhead costs are incurred
c. direct labor is recorded from the time sheets
d. materials are ordered
79. Which of the following statements is a difference between financial accounting and managerial accounting?
a. Under financial accounting, reports are prepared using GAAP, whereas under managerial accounting, information
that is useful to management for its decision making is not recorded using GAAP.
b. Financial accounting focuses on providing information for internal use, whereas managerial accounting focuses
on providing information for external use.
c. Under financial accounting, reports are prepared as and when management needs them, whereas under managerial
accounting, reports are prepared on a monthly basis.
d. Financial accounting has a subjective approach, whereas managerial accounting has an objective approach.
80. Predetermined factory overhead rate is calculated as _____.
a. Estimated total factory overhead costs + estimated activity base
b. Estimated total factory overhead costs – estimated activity base
c. Estimated total factory overhead costs × estimated activity base
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d. Estimated total factory overhead costs ÷ estimated activity base
81. The document authorizing the issuance of materials from the storeroom for use in manufacturing is called _____.
a. materials requisition
b. purchase requisition
c. receiving report
d. purchase order
82. Which of the following would be a period costs for a textbook printing company?
a. Wages of a press operator
b. Utility costs of the factory
c. Advertising expenses
d. Paper costs
83. During the year, Bright Corporation applied factory overhead costs of $330,000 to production. At the end of the year,
total overapplied factory overhead is $13,000. What was the amount of actual factory overhead cost incurred during the
year?
a. $343,000
b. $300,000
c. $330,000
d. $317,000
84. Which of the following is true of just-in-time processing?
a. In just-in-time processing, supervisors enter materials into manufacturing so as to keep all the manufacturing
departments (processes) operating.
b. In just-in-time processing, a worker typically performs only one function.
c. It assigns service activities to centralized service departments.
d. It is a management approach that focuses on reducing time and cost and eliminating poor quality.
85. The sale of a finished good on account would _____.
a. decrease cost of goods sold and increase finished goods
b. increase cost of goods sold and decrease finished goods; increase accounts receivable and increase sales
c. increase sales expense and decrease finished goods; decrease cash and decrease accounts receivable
d. increase work in process and decrease finished goods; increase accounts receivable and increase sales
86. Which of the following are the two main types of cost accounting systems for manufacturing operations?
a. Process cost and general accounting systems
b. Job order cost and process cost systems
c. Job order cost and general accounting systems
d. Process cost and replacement cost systems
87. In a job order cost accounting system, the effect of the flow of direct materials into production will be a(n) _____.
a. increase in Work in Process and decrease in Materials Inventory
b. increase in Materials Inventory and decrease in Work in Process
c. increase in Factory Overhead and decrease in Materials Inventory
d. increase in Work in Process and decrease in Supplies
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88. Which of the following would be classified as direct materials for an auto manufacturer?
a. Factory light bulbs
b. Material used for door panels
c. Drill bits
d. Steel
89. The recording of the jobs completed would increase _____.
a. Factory Overhead
b. Finished Goods
c. Work in Process
d. Cost of Goods Sold
90. When a job is completed and the client is billed, the costs are transferred to an account called the _____.
a. Work-in-Process account
b. Cost of Services account
c. Expenses account
d. Applied Overhead account
91. Which of the following manufacturing costs is an indirect cost of producing a product?
a. Oil lubricants used for factory machinery
b. Commissions for sales personnel
c. Hourly wages of an assembly worker
d. Memory chips for a microcomputer manufacturer
92. The following information is available for the first month of operations for Brandt, Inc.:
Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 5,000
Other factory overhead 37,000
Direct materials cost 390,000
Total manufacturing costs 658,000
Calculate direct labor cost for Brandt, Inc.
a. $226,000
b. $206,000
c. $231,000
d. $218,000
93. Hudson, Inc., has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the current
fiscal year. If direct labor hours for the year total 18,000, and actual factory overhead totals $350,000, what is the amount
of overapplied or underapplied overhead for the year?
a. $10,000 overapplied
b. $10,000 underapplied
c. $50,000 underapplied
d. $50,000 overapplied