21) What is the gross margin for 2015?
A) $163,000
B) $177,000
C) $170,000
D) $167,000
22) What is the operating income for 2015?
A) $75,000
B) $55,000
C) $62,000
D) $68,000
Answer the following questions using the information below:
Beginning finished goods, 1/1/2015 $ 46,000
Ending finished goods, 12/31/2015 38,000
Cost of goods sold 250,000
Sales revenue 488,000
Operating expenses 112,000
23) What is the cost of goods manufactured for 2015?
A) $242,000
B) $252,000
C) $245,000
D) $250,000
24) What is gross margin for 2015?
A) $243,000
B) $238,000
C) $318,000
D) $228,000
25) What is operating income for 2015?
A) $116,000
B) $137,000
C) $126,000
D) $144,000
26) A company reported revenues of $375,000, cost of goods sold of $118,000, selling expenses of $11,000,
and total operating costs of $70,000. Gross margin for the year is ________.
A) $257,000
B) $246,000
C) $176,000
D) $252,000
27) Operating income is sales revenue minus operating expenses.
28) Conversion costs include all direct manufacturing costs.
29) Designing, marketing, customer services, research and development expenses are operating costs.
30) Because costs that are inventoried are not expensed until the units associated with them are sold, a
manager can produce more units than are expected to be sold in a period without reducing a firm’s net
income.
31) Indirect costs such as rent, telephone, and depreciation are always costs of the period in which they
are incurred and are not associated with inventories.
Objective 2.7
1) Which of the following is a manufacturing overhead cost?
A) cost of conversion of direct materials to finished goods
B) labor cost that can be traced to individual products
C) cost of materials that can be traced to individual products
D) overtime premiums paid to plant workers
2) Flyers Inc., had the following activities during 2015:
Direct materials:
Beginning inventory $ 22,000
Purchases 61,600
Ending inventory 10,800
Direct manufacturing labor 18,000
Manufacturing overhead 11,500
Beginning work-in-process inventory 1,000
Ending work-in-process inventory 3,500
Beginning finished goods inventory 25,000
Ending finished goods inventory 19,000
Required:
a. What is the cost of direct materials used during 2015?
b. What is cost of goods manufactured for 2015?
c. What is cost of goods sold for 2015?
d. What amount of prime costs was added to production during 2015?
e. What amount of conversion costs was added to production during 2015?
3) Product cost for reimbursement under government contracts includes ________.
A) marketing costs
B) design costs
C) production costs
D) research and development costs
4) On the assembly floor, Crystal is paid $20 an hour for straight-time assuming 8 working hours a day
and five working days in a week. She is paid $30 an hour for overtime. One week she worked 52 hours.
Required:
a. What is Crystal’s total compensation for the week?
b. What amount of compensation would be reported as direct manufacturing labor?
c. What amount of compensation would be reported as manufacturing overhead?
5) In the manufacturing plant, Alex is paid $40 an hour for straight-time and $60 an hour for overtime.
One week she worked 54 hours, which included 8 hours of overtime, and 6 hours of idle time caused by
material shortages.
Required:
a. What is Alex’s total compensation for the week?
b. What amount of compensation would be reported as direct manufacturing labor?
c. What amount of compensation would be reported as manufacturing overhead?
6) Bosely Manufacturing Co. wants to classify costs for the product produced at its facility. The company
produces only one product at the facility and operates continually. The cost categories are:
Product cost
Prime cost
Conversion cost
Period cost
The following costs are found in the accounting records:
a. Quality control inspection wages
b. Raw material purchases
c. Sales commissions
d. Factory depreciation
e. Assembly wages
Required:
Assign each of the above costs to the most appropriate cost categories.
7) Which of the following is included in product cost for pricing and product-mix decisions?
A) design costs
B) sunk costs
C) opportunity costs
D) cost of capital
8) Under GAAP, only ________ can be assigned to inventories in the financial statements.
A) manufacturing costs
B) period costs
C) cost of goods sold
D) historical costs
9) Product costs for financial statements may refer to ________.
A) inventoriable costs for external reporting purposes
B) exchange cost incurred during transportation
C) only the costs incurred along the supply chain
D) opportunity costs incurred for the decisions forgone
10) Under GAAP, for the purposes of calculating inventory costs, product costs include ________.
A) all costs incurred along the value chain
B) design costs
C) only inventoriable costs
D) only research and development costs
11) Product costs used for government contracts generally include ________.
A) marketing costs, and customer service costs
B) design costs and production costs
C) all the costs for pricing and product-mix decisions
D) production costs, distribution costs, marketing costs, and customer service costs
12) Product costs used for external reporting generally include ________.
A) manufacturing costs only
B) design costs plus manufacturing costs
C) all costs incurred along the value chain
D) research and development costs along with production costs
13) Which of the following is common for reporting product cost under financial reporting and product
cost
for reimbursement under government contracts?
A) marketing cost
B) distribution costs
C) customer service
D) research and development costs
14) For external reporting ________.
A) costs are classified as either inventoriable or period costs
B) costs reflect current values
C) there are no prescribed rules since no one is exactly sure how investors and creditors will use these
numbers
D) costs include amounts that reflect both current and future benefits
15) Which of the following statements is true?
A) Product costs and design costs are interchangeable terms.
B) Inventoriable costs are assigned to inventories under GAAP.
C) Manufacturing costs are a special case of period costs.
D) Intangible costs refer to a particular cost of a product.
16) Debated items that some companies include as direct manufacturing labor include ________.
A) fringe benefits
B) overtime
C) idle time
D) plant supervisor’s salary
17) Mario Garcia is paid $20 an hour for straight-time and $30 an hour for overtime. One week she
worked 42 hours, which included 2 hours of overtime. What is the overhead incurred to the company?
A) $60
B) $10
C) $30
D) $20
18) Dave Rigby is paid $30 an hour for straight-time and $40 an hour for overtime. One week he worked
45 hours, which included 5 hours of overtime, and 3 hours of idle time caused by material shortages.
What is the direct labor cost incurred to the company?
A) $1,260
B) $1,400
C) $1,310
D) $1,210
19) Tony worked 48 hours last week for Bread Works Manufacturing. Of the 48 hours 5 hours were
considered overtime, and also Tony was idle for 4 of the 48 hours due to an equipment malfunction. Tony
makes $50 per hour and is paid $75 an hour (time and a half) for overtime. Tony‘s total compensation for
that week would be ________, and assuming Bread Works charges overtime premium and idle time to
indirect labor, the amount of this compensation credited to indirect labor would be ________.
A) $2,950; $325
B) $2,900; $280
C) $2,750; $300
D) $2,500; $350
20) Idle time wages consists of the wages paid to all workers (for both direct labor and indirect labor) in
excess of their straight-time wage rates.
21) Rework labor time is considered an overhead cost and not a direct labor cost.
22) For external reporting purposes, indirect manufacturing costs must be allocated to individual units.
23) Overtime premium is normally considered as a component of direct labor.
24) If a worker is paid for 40 hours, but is idle for 5 of those 40 hours, the 5 hour of idle time would be
considered a component of direct labor.
25) When should an overtime premium of direct manufacturing labor be considered an indirect
manufacturing cost? A direct manufacturing cost?
26) In determining product cost, what concerns does a manufacturing firm have when contracting with a
government agency?
Objective 2.8
1) Which of the following influences the make or buy decision to the company?
A) opportunity cost
B) sunk cost
C) historical cost
D) plant depreciation
2) Budgeting often plays a major role in affecting behavior and decisions.
3) Cost accounting and cost management include calculating various costs, obtaining financial and
nonfinancial information, and analyzing relevant information for decision making.
4) An efficient management accounting system traces direct costs and allocates indirect costs to products.
5) Management accountants help managers identify what information is relevant and what information is
irrelevant that help in decision making.
6) When making strategic decisions about which products and how much to produce, managers must
need to distinguish fixed costs from variable costs.
7) A company is considering buying a product at $15 per unit, the in-house manufacturing of the same
product is $17. The fixed cost per unit is $3 is included in the $17 in-house product manufacturing cost.
What should the company do in this scenario?