CHAPTER 10: ACCOUNTING SYSTEMS FOR MANUFACTURING
BUSINESSES
1. Managerial accounting reports information primarily for stakeholders that are external to the
company.
a. True
b. False
2. Reporting under managerial accounting is not restricted by specific rules such as generally
accepted accounting principles (GAAP).
a. True
b. False
3. A manufacturing business converts materials into finished products through the use of
machinery and labor.
a. True
b. False
4. Inventories of finished products are reported as current assets on a manufacturer’s balance
sheet.
a. True
b. False
5. The cost of a manufactured product generally consists of direct materials cost, direct labor
cost, and factory overhead cost.
a. True
b. False
6. The cost of materials entering directly into the manufacturing process is classified as factory
overhead cost.
a. True
b. False
7. 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
Chapter 10: Accounting Systems for Manufacturing Businesses
8. For a construction contractor, the wages of carpenters would be classified as direct labor cost.
a. True
b. False
9. For an automotive repair shop, the wages of mechanics would be classified as direct labor
cost.
a. True
b. False
10. Sales commission is an example of factory overhead cost.
a. True
b. False
11. 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
12. 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
13. Conversion cost is the combination of direct labor cost and factory overhead cost.
a. True
b. False
14. Product cost consists of factory overhead.
a. True
b. False
15. Direct materials costs are included in the conversion costs of a product.
a. True
b. False
Chapter 10: Accounting Systems for Manufacturing Businesses
16. 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
17. Indirect labor is included in factory overhead.
a. True
b. False
18. A job order cost system accumulates costs for each of the departments or processes within the
factory.
a. True
b. False
19. 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
20. If the actual overhead incurred is less than the applied factory overhead, it is called
overapplied factory overhead.
a. True
b. False
21. After the goods are completed, their costs are transferred from Work in Process to Finished
Goods.
a. True
b. False
22. In response to materials requisition, materials are transferred from the storeroom to the
factory.
a. True
b. False
Chapter 10: Accounting Systems for Manufacturing Businesses
23. 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
24. Materials inventory consists of the costs of direct and indirect materials that have not yet
entered the manufacturing process.
a. True
b. False
25. 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
26. Depreciation expense on factory equipment is part of factory overhead cost.
a. True
b. False
27. 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
28. Factory overhead is applied to production using a predetermined overhead rate.
a. True
b. False
29. The underapplied factory overhead amount may be transferred to cost of goods sold at the end
of the fiscal year.
a. True
b. False
Chapter 10: Accounting Systems for Manufacturing Businesses
30. If factory overhead applied is less than the actual costs, the overhead is said to be
underapplied.
a. True
b. False
31. Activity-based costing is a method of accumulating and allocating costs by department.
a. True
b. False
32. Non-manufacturing costs are generally classified into two categories: selling and
administrative.
a. True
b. False
33. The current year’s advertising costs are normally considered as product costs.
a. True
b. False
34. Direct labor cost is an example of a product cost.
a. True
b. False
35. Period costs are costs that are incurred for the production requirements of a certain period.
a. True
b. False
36. 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
Chapter 10: Accounting Systems for Manufacturing Businesses
37. 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
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. 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
40. 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
41. Manufacturers implement the philosophy of just-in-time processing to produce products with
high quality, low cost, and instant availability.
a. True
b. False
42. Service companies can effectively use activity-based costing to compute product (service)
costs.
a. True
b. False
Chapter 10: Accounting Systems for Manufacturing Businesses
43. Which of the following statements is true of managerial accounting?
a. Reporting under managerial accounting is constrained by rules such as generally accepted
accounting principles.
b. Managerial accounting is required to be reported annually, also may be reported monthly or
quarterly.
c. Managerial accounting provides information to the external stakeholders of the company.
d. Managerial accounting is primarily concerned with generating information for use by
managers.
44. Which of the following statements is true of financial accounting?
a. Under financial accounting, reports are prepared using generally accepted accounting
principles.
b. Financial accounting focuses on providing information primarily for internal use.
c. Financial accounting includes more subjective data like possibility of competitors’ reactions
to a company’s new sales prices.
d. Information reported by financial accounting is not shared with those outside the company.
45. Which of the following costs is included in the cost of manufacturing a product?
a. Administrative cost
b. Period cost
c. Factory overhead cost
d. Opportunity cost
46. The cost of materials entering directly into the manufacturing process is classified as:
a. direct labor cost.
b. factory overhead cost.
c. burden cost.
d. direct materials cost.
47. 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
Chapter 10: Accounting Systems for Manufacturing Businesses
48. If the cost of direct materials is not a significant portion of the total product cost, it may be
classified as:
a. direct labor costs.
b. selling and administrative costs.
c. miscellaneous costs.
d. factory overhead costs.
49. 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.
50. 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
51. 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 worker
c. Salary of plant supervisor
d. Salary of the chairman
52. 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
Chapter 10: Accounting Systems for Manufacturing Businesses
53. Which of the following is a product cost?
a. Administrative cost
b. Direct labor cost
c. Selling cost
d. Opportunity cost
54. 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
55. 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
56. Compute factory overhead cost from the following costs:
Depreciation on factory buildings
$20,000
Depreciation on office equipment
25,000
Direct materials used
70,000
Indirect labor
3,000
a. $23,000
b. $43,000
c. $70,000
d. $113,000
57. 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
Chapter 10: Accounting Systems for Manufacturing Businesses
58. 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
59. For which of the following businesses would the job order cost system be most appropriate?
a. Custom cabinet manufacturer
b. Automobile manufacturer
c. Lumber mill
d. Meat processor
60. 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
61. Which of the following businesses is most likely to use process cost accounting system?
a. Custom cabinet manufacturer
b. Dress designer
c. Lumber mill
d. Printing firm
62. Which of the following costs is included in the finished goods inventory?
a. Commission to sales person
b. Company president’s salary
c. Factory Overhead
d. Interest on bank loan
Chapter 10: Accounting Systems for Manufacturing Businesses
63. 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.
64. Which of the following products would most likely be manufactured using a job order costing
system?
a. Number 2 pencils
b. Computer monitors
c. Wedding invitations
d. Paper
65. In a job order cost accounting system, the effect of the flow of direct materials into production
will be:
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.
66. A summary of the materials requisitions completed during a period serves as the basis for
transferring the cost of the materials from the Materials account to:
a. Work-in-Process and Cost of Goods Sold.
b. Work-in-Process and Factory Overhead.
c. Finished Goods and Cost of Goods Sold.
d. Work-in-Process and Finished Goods.
67. Job order costing and process costing are:
a. pricing systems.
b. cost accounting systems.
c. cost flow systems.
d. inventory tracking systems.
Chapter 10: Accounting Systems for Manufacturing Businesses
68. In a job order cost accounting system, when goods that have been ordered are received, the
receiving department personnel inspects the goods and completes the:
a. purchase order.
b. sales invoice.
c. receiving report.
d. purchase requisition.
69. 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
70. Which of the following is not true about why a service firm will use the job order costing
system?
a. To help control cost.
b. To determine client billing.
c. To determine department costs within the firm.
d. To determine profit.
71. The basis for recording direct and indirect labor costs incurred is a summary of the period’s:
a. job order cost sheets.
b. time tickets.
c. employees’ earnings records.
d. clock cards.
72. Recording direct labor costs in a job order cost accounting 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.
Chapter 10: Accounting Systems for Manufacturing Businesses
73. Increase in the Work-in–Process account occur 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.
74. At the end of the fiscal year, if the balance in Factory Overhead is small, it would normally be:
a. transferred to Work-in–Process.
b. transferred to Cost of Goods Sold.
c. transferred to Finished Goods.
d. allocated between Work-in–Process and Finished Goods.
75. Each account in the subsidiary ledger for work in process is called a:
a. finished goods sheet.
b. stock record.
c. materials requisition.
d. job cost sheet.
76. The recording of the factory labor costs incurred for general factory use would include a debit
to:
a. Factory Overhead.
b. Wages Payable.
c. Wages Expense.
d. Cost of Goods Sold.
77. Applying of factory overhead costs to jobs would decrease:
a. Factory Overhead.
b. Wages Payable.
c. Work-in-Process.
d. Cost of Goods Sold.