7) Grip Manufacturing currently produces 1,000 tires per month. The following per unit data for 1,000
tires apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead 8
Fixed manufacturing overhead 12
Total manufacturing costs $55
The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the
total cost of producing 2,000 tires?
A) $110,000
B) $98,000
C) $68,000
D) $88,000
8) XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually.
Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next
year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given
this change?
A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also increase.
9) Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply
for sales to regular customers:
Direct materials $50
Direct manufacturing labor 8
Variable manufacturing overhead 12
Fixed manufacturing overhead 15
Total manufacturing costs $85
The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What
is the per unit cost of producing 2,000 bicycles?
A) $78.50 per unit
B) $170 per unit
C) $72.50 per unit
D) $77.50 per unit
Answer the following questions using the information below:
Buildz Manufacturing currently produces 1,000 tables per month. The following per unit data for 1,000
tables apply for sales to regular customers:
Direct materials $50
Direct manufacturing labor 10
Variable manufacturing overhead 15
Fixed manufacturing overhead 30
Total manufacturing costs $105
10) The plant has capacity for 3,000 tables and is considering expanding production to 3,000 tables. What
is the total cost of producing 3,000 tables?
A) $255,000
B) $225,000
C) $175,000
D) $235,000
11) What is the per unit cost when producing 3,000 tables?
A) $58.33
B) $175.00
C) $85.00
D) $125.45
Answer the following questions using the information below:
Pederson Company reported the following:
Manufacturing costs $150,000
Units manufactured 5,000
Units sold 4,700 units sold for $75 per unit
Beginning inventory 100 units
12) What is the average manufacturing cost per unit?
A) $40.00
B) $42.00
C) $30.00
D) $32.00
13) What is the manufacturing cost for the ending finished goods inventory?
A) $12,000
B) $8,000
C) $11,000
D) $5,000
Answer the following questions using the information below:
The following information pertains to Razor’s Corp:
Manufacturing costs $135,000
Units manufactured 15,000
Units sold 12,000 units sold for $15 per unit
Beginning inventory $3,500
14) What is the average manufacturing cost per unit?
A) $11.00
B) $9.00
C) $11.25
D) $11
15) What is the manufacturing cost for the ending finished goods inventory?
A) $42,500
B) $25,500
C) $18,500
D) $30,500
16) When making decisions for product mix or and pricing, the focus should be on total costs and not unit
costs.
17) Although unit costs are regularly used in financial reports and for making product mix and pricing
decisions, managers should think in terms of total costs rather than unit costs for making decisions.
18) A unit cost is computed by dividing total cost by the number of units.
19) A unit cost is also called an average cost.
20) Samiera, Inc., reports the following information for September sales:
Sales $60,000
Variable costs 12,000
Fixed costs 16,000
Operating income $ 32,000
Promotional expenses for September were $1,000.
Required:
If sales double in October, what is the impact on the variable costs?
21) Glass House Manufacturing currently produces 1,000 glasses per month. The following per unit data
for thousand apply for sales to regular customers:
Direct materials $250
Direct manufacturing labor 40
Variable manufacturing overhead 70
Fixed manufacturing overhead 50
Total manufacturing costs $410
The plant has capacity for 2,000 glasses. Plant supervisor’s salary is $15,000.
Required:
a. What is the total cost of producing 1,000 glasses?
b. What is the total cost of producing 1,500 glasses?
c. What is the per unit cost when producing 1,500 glasses?
22) During 2015, Fly High Corporation incurred manufacturing expenses of $200,000 to produce 40,000
finished units. It was determined that 35,000 units were sold by November end while 5,000 units
remained in ending inventory. The storage cost for December is $0.5 per unit.
Required:
a. What is the cost of producing one unit?
b. What is the amount that will be reported on the income statement for cost of goods sold?
c. What is the cost incurred for storing the inventory?
Objective 2.5
1) Pederson Company reported the following:
Manufacturing costs $2,000,000
Units manufactured 50,000
Units sold 47,000 units sold for $75 per unit
Beginning inventory 0 units
What is the amount of gross profit margin?
A) $1,750,000
B) $3,525,000
C) $5,405,000
D) $1,645,000
2) ________ sector companies purchase materials and components and convert them into finished goods.
A) Merchandising
B) Service
C) Manufacturing
D) Professional
3) Merchandising-sectors ________.
A) purchase and then sell tangible products without changing their basic form
B) provide intangible products
C) purchase materials and components and convert them into finished goods
D) purchase and then sell tangible products by changing their basic form
4) Service-sector companies ________.
A) provide intangible products
B) purchase and then sell tangible products without changing their basic form
C) purchase and then sell tangible products by changing their basic form
D) purchase materials and components and convert them into finished goods
5) Wages paid to machine operators on an assembly line are classified as a ________.
A) direct material cost
B) direct manufacturing labor cost
C) manufacturing overhead cost
D) period cost
6) The following information pertains to Alleigh’s Mannequins:
Manufacturing costs $1,500,000
Units manufactured 30,000
Units sold 29,500 units sold for $85 per unit
Beginning inventory 0 units
What is the amount of gross margin?
A) $1,475,000
B) $1,500,000
C) $2,507,500
D) $1,032,500
7) Which of the following companies is part of the service sector of our economy?
A) Target
B) Ernst & Young
C) Nokia
D) Amazon.com
8) Which of the following companies is part of the merchandising sector of our economy?
A) Jaguar
B) Hewlett Packard
C) Arrow Electronics
D) Michael Toback Accounting Firm
9) Which of the following companies is part of the manufacturing sector of our economy?
A) Nike
B) Barnes & Noble
C) Corvette Law Firm
D) Sears, Roebuck, and Company
10) Yahoo, an Internet search firm, would be classified as a(n) ________.
A) manufacturing-sector company
B) merchandising-sector company
C) service-sector company
D) financial services
11) Service-sector companies report ________.
A) work-in-process inventory, and finished goods inventory accounts
B) only finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D) no inventory accounts
12) Manufacturing-sector companies report ________.
A) only merchandise inventory
B) only finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D) direct materials inventory and finished goods inventory accounts only
13) For a manufacturing company, direct material costs may be included in ________.
A) direct materials inventory only
B) merchandise inventory only
C) both work-in-process inventory and finished goods inventory
D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
14) For a manufacturing company, direct labor costs may be included in ________.
A) direct materials inventory only
B) merchandise inventory only
C) both work-in-process inventory and finished goods inventory
D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
15) For a manufacturing company, indirect manufacturing costs may be included in ________.
A) direct materials inventory only
B) merchandise inventory only
C) both work-in-process inventory and finished goods inventory
D) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
16) For a manufacturing-sector company, the cost of factory depreciation is classified as a ________.
A) direct material cost
B) direct manufacturing labor cost
C) manufacturing overhead cost
D) period cost
17) Which of the following cost is included in cost of goods sold?
A) customer service cost
B) manufacturing labor cost
C) distribution cost
D) marketing cost
18) Manufacturing overhead costs in an automobile manufacturing plant most likely include ________.
A) labor costs of the painting department
B) indirect material costs such as lubricants
C) leather seat costs
D) tyre costs
19) Manufacturing overhead costs are also referred to as ________.
A) indirect manufacturing costs
B) prime costs
C) direct manufacturing costs
D) direct material
20) Target reports ________.
A) only merchandise inventory
B) only finished goods inventory
C) direct materials inventory, work-in-process inventory, and finished goods inventory accounts
D) no inventory accounts
21) Direct materials inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) products in their original form intended to be sold without changing their basic form
22) Work-in-process inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) goods returned after being sold to be re-worked on further improvements and quality
23) Finished goods inventory would normally include ________.
A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) goods returned after being sold to be re-worked on further improvements and quality
24) Which of the following is a period cost?
A) sales promotion expenses
B) direct material cost
C) direct labor cost
D) indirect manufacturing costs like plant insurance
25) ________ are the acquisition costs of all materials that eventually become part of the cost object and
can be traced to the cost object.
A) Sales taxes paid to acquire materials
B) Wages paid to assembly-line workers
C) Plant depreciation incurred
D) Property taxes on plant
26) Which of the following is a direct manufacturing cost?
A) plant maintenance
B) plant rent
C) fringe benefits paid to machine operators
D) property taxes on plant
27) ________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost
object.
A) Indirect manufacturing costs
B) Marketing costs incurred
C) Variable manufacturing costs
D) Custom duties paid for the materials
28) The income statement of a manufacturing firm reports ________.
A) sales promotion costs only
B) inventoriable costs only
C) cost of goods sold
D) only manufacturing overhead costs
29) The income statement of a service-sector firm reports ________.
A) period costs only
B) inventoriable costs only
C) both period and inventoriable costs
D) direct labor costs
30) Which of the following is an inventoriable cost?
A) manufacturing overhead cost
B) customer service costs
C) distribution costs
D) marketing costs
31) Inventoriable costs ________.
A) include administrative and marketing costs
B) are expensed in the accounting period in which the products are sold
C) are expensed in the accounting period in which the products are manufactured
D) are also referred to as nonmanufacturing costs
32) Inventoriable costs are expensed on the income statement ________.
A) when direct materials for the product are purchased
B) after the products are manufactured
C) when the products are sold
D) when the goods move from work-in process to finished goods account
33) Costs that are initially recorded as assets and expensed when goods sold are called ________.
A) period costs
B) inventoriable costs
C) irrelevant costs
D) research and development costs
34) For merchandising companies, inventoriable costs include ________.
A) sales costs
B) incoming freight costs
C) distribution costs
D) outgoing freight costs
35) For manufacturing firms, inventoriable costs include ________.
A) plant supervisor salaries
B) research and development costs
C) costs of dealing with customers after the sale
D) distribution costs
36) A plant manufactures several different products. The wages of the plant supervisor can be classified
as a(n) ________.
A) direct cost
B) inventoriable cost
C) variable cost
D) period cost
37) R&D costs are treated as period costs because ________.
A) these costs may increase revenues in the current period
B) these costs may increase revenues in the future period
C) these costs may decrease revenues in the current period
D) these costs are expensed when the goods are sold
38) For an automobile manufacturer, period costs include the cost of ________.
A) the dashboard
B) labor used for assembly
C) advertising
D) assembly-line equipment
39) Period costs ________.
A) include only fixed costs
B) seldom influence financial success or failure
C) include the cost of selling, delivering, and after-sales support for customers
D) should be treated as an indirect cost rather than as a direct manufacturing cost
40) Period costs ________.
A) are treated as expenses in the period they are incurred
B) are directly traceable to products
C) are treated as expenses in the following period they are incurred
D) are also referred to as manufacturing overhead costs
41) Inventoriable costs are costs of a product that are ________.
A) costs of a product that are considered assets in a company’s balance sheet when the costs are incurred
and that are expensed as cost of goods sold only when the product is sold
B) considered liabilities in a company’s balance sheet when the costs are incurred and that are expensed
only when the product is sold
C) considered as assets in a company’s income statement when the costs are capitalized and that are
expensed as cost of goods sold only when the product is sold
D) considered as liabilities in a company’s income statement when the costs are capitalized and that are
expensed only when the product is sold
42) Costs expensed on the income statement in the accounting period incurred are called ________.
A) direct costs
B) indirect costs
C) period costs
D) inventoriable costs
43) In the cost classification system used by manufacturing firms, assembly workers’ wages would be
included in ________.
A) irrelevant cost
B) direct manufacturing costs
C) indirect manufacturing costs
D) period cost
44) Total manufacturing costs is comprised of ________.
A) direct materials costs and period costs
B) direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs
C) indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs
D) prime costs and period costs
36
45) What are the inventoriable costs per unit associated with Product DCT121?
A) $137
B) $140
C) $143
D) $88
46) What are the period costs per unit associated with Product DCT121?
A) $4
B) $16
C) $21
D) $52
Answer the following questions using the information below:
The East Company manufactures several different products. Unit costs associated with Product ORD210
are as follows:
Direct materials $54
Direct manufacturing labor 8
Variable manufacturing overhead 11
Fixed manufacturing overhead 25
Sales commissions (2% of sales) 5
Administrative salaries 12
Total $115
47) What are the inventoriable costs per unit associated with Product ORD210?
A) $73
B) $87
C) $98
D) $62
48) What are the period costs per unit associated with Product ORD203?
A) $5
B) $12
C) $17
D) $18
49) Leslie Manufacturing reported the following:
Revenue
$450,000
Beginning inventory of direct materials, January 1, 2015
20,000
Purchases of direct materials
156,000
Ending inventory of direct materials, December 31, 2015
18,000
Direct manufacturing labor
21,000
Indirect manufacturing costs
42,000
Beginning inventory of finished goods, January 1, 2015
40,000
Cost of goods manufactured
114,000
Ending inventory of finished goods, December 31, 2015
45,000
Operating costs
150,000
How much of the above would be considered period costs for Leslie Manufacturing?
A) $104,000
B) $140,000
C) $150,000
D) $147,000
50) Insurance companies provide services or intangible products to their customers.
51) Department stores, such as Target, are examples of a merchandising company.
52) Merchandising companies purchase products and sell them to customers without changing their basic
form.
53) Merchandising companies hold only one type of inventory: direct material.
54) Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-
in-process inventory, and finished goods inventory.
55) Work-in-process inventory are goods partially worked on but not yet completed.
56) Direct material costs are the acquisition costs of all materials that eventually become part of the cost
object and cannot be traced to the cost object in an economically feasible way.
57) Acquisition costs of direct materials include freight-in charges, sales taxes, and custom duties.
58) Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced
to the cost object in an economically feasible way.
59) Direct manufacturing labor includes plant rent and salaries paid to plant supervisors.
60) Inventoriable costs are reported as a liability in balance sheet when incurred and expensed on the
income statement when the product is sold.
61) All manufacturing costs are period costs.
62) All costs reported on the income statement of a service-sector company are inventoriable costs.
63) Period costs are included in the cost of goods sold.
64) Indirect manufacturing costs are also referred to as manufacturing overhead costs or factory overhead
costs.
65) Whippany manufacturing wants to estimate costs for each product they produce at its Troy plant. The
Troy plant produces three products at this plant, and runs two flexible assembly lines. Each assembly line
can produce all three products.
Required:
a. Classify each of the following costs as either direct or indirect for each product.
b. Classify each of the following costs as either fixed or variable with respect to the number of units
produced of each product.
Direct Indirect Fixed Variable
Assembly line labor wages ________ ________ ________ ________
Plant manager’s wages ________ ________ ________ ________
Depreciation on the assembly
line equipment ________ ________ ________ ________
Component parts for the product ________ ________ ________ ________
Wages of security personnel for the
factory ________ ________ ________ ________