Chapter 2: Basic Cost Management Concepts
116. Which of the following costs are expensed in the period in which they are incurred?
a. Direct materials costs
b. Product costs
c. Factory overhead costs
d. Nonproduction costs
117. Order-getting costs would NOT include
a. marketing costs.
b. customer service costs.
c. advertising.
d. salaries of sales personnel.
118. Period costs do NOT include
a. order-getting costs.
b. order–filling costs.
c. order-making costs.
d. all of the above are period costs.
119. Prime product costs include
a. only factory overhead.
b. only direct labor.
c. direct labor and factory overhead.
d. direct materials and direct labor.
120. The sum of direct labor and factory overhead is referred to as
a. period costs.
b. conversion costs.
c. prime costs.
d. direct product costs.
Chapter 2: Basic Cost Management Concepts
July 1, 2016
July 31, 2016
Direct materials
$36,000
$42,000
Work in process
75,000
84,000
Finished goods
69,000
57,000
121. Conversion costs do NOT include
a. direct materials.
b. direct labor.
c. factory overhead.
d. any of these costs.
122. Which of the following would NOT be included in the conversion cost of an automobile?
a. screws used in assembly
b. assembly worker wages
c. depreciation on machinery
d. steel
123. Costs that are expensed in the period in which they are incurred are called:
a. Direct materials costs
b. Product costs
c. Noninventoriable costs
d. Inventoriable costs
Figure 2-11
Information from the records of the Abel Corporation for July 2016 was as follows:
Sales
$1,230,000
Selling and administrative expenses
210,000
Direct materials used
264,000
Direct labor
300,000
Factory overhead *
*variable overhead is $205,000, fixed overhead is
$200,000
405,000
Inventories
Chapter 2: Basic Cost Management Concepts
124. Refer to Figure 2-11. The conversion cost is
a. $960,000
b. $1,179,000
c. $705,000
d. $564,000
125. Refer to Figure 2-11. The prime costs are
a. $210,000
b. $264,000
c. $300,000
d. $564,000
126. Refer to Figure 2-11. The variable product costs are
a. $969,000
b. $769,000
c. $764,000
d. $1,179,000
127. Refer to Figure 2-11. The total product cost is
a. $1,179,000
b. $969,000
c. $615,000
d. $764,000
Chapter 2: Basic Cost Management Concepts
Figure 2-12
Information from the records of the Conundrum Company for September 2016 was as follows:
$307,500
52,500
66,000
75,000
50,000
51,250
Inventories
Sept. 1, 2016
Sept 30, 2016
Direct materials
$8,000
$10,500
Work in process
18,750
21,000
Finished goods
17,250
14,250
Conundrum Corporation produced 20,000 units.
128. Refer to Figure 2-12. The prime costs per unit for September were
a. $7.05
b. $8.8125
c. $14.7375
d. $20.00
129. Refer to Figure 2-12. What are the conversion costs per unit?
a. $7.05
b. $8.8125
c. $12.1125
d. $14.7375
Chapter 2: Basic Cost Management Concepts
130. Refer to Figure 2-12. If production increased to 32,000 units next year, what is the effect on variable product
costs per unit and total product costs per unit respectively?
a. remain the same; remain the same
b. remain the same; decrease
c. increase; remain the same
d. decrease; increase
131. Refer to Figure 2-12. What are the total variable costs per unit?
a. $7.05
b. $9.55
c. $2.175
d. $6.25
132. Refer to Figure 2-12. What is the total product cost per unit?
a. $14.7375
b. $12.1125
c. $12.175
d. $12.2375
133. Product costs are converted from cost to expense when
a. units are completed.
b. materials are purchased.
c. units are sold.
d. materials are requisitioned.
134. A company has purchased some steel to use in the production of steel railings. If this steel has NOT been put into
production, it would be classified as
a. finished goods inventory.
b. factory supplies.
c. work-in-process inventory.
d. direct materials inventory.
Chapter 2: Basic Cost Management Concepts
135. The income statement prepared for external reporting is
a. based on a functional classification.
b. referred to as absorption-costing income.
c. called full–costing income.
d. all of the above.
136. Which of the following costs would NOT be included in calculating inventory values under the absorption–costing
basis?
a. direct materials
b. fixed overhead
c. selling and administrative expenses
d. direct labor
137. When calculating the absorption–costing income for external reporting, all
a. manufacturing costs ultimately become nonmanufacturing costs.
b. manufacturing costs are product costs and product costs are never expensed.
c. costs of selling manufactured products are classified as product costs.
d. selling and administrative costs are classified as nonmanufacturing costs.
138. Which of the following accounts would appear on the financial statements of ONLY a manufacturing firm?
a. materials inventory
b. bonds payable
c. prepaid insurance
d. retained earnings
139. Which type of inventory is normally sold to other organizations?
a. direct materials
b. factory supplies
c. work in process
d. finished goods
Chapter 2: Basic Cost Management Concepts
140. The records of Custom Choppers, Inc. for September 2016 shows the following information:
Sales
$820,000
Selling and administrative expenses
140,000
Direct materials purchases
176,000
Direct labor
200,000
Factory overhead
270,000
Direct materials, September 1
24,000
Work in process, September 1
50,000
Finished goods, September 1
46,000
Direct materials, September 30
28,000
Work in process, September 30
56,000
Finished goods, September 30
38,000
The net income for the month of September is
a. $644,000.
b. $36,000.
c. $636,000.
d. $180,000.
141. The merchandise inventory in a merchandising business corresponds most closely to which of the following items in
a manufacturing firm?
a. materials inventory
b. cost of goods available for sale
c. cost of goods manufactured
d. finished goods inventory
142. If beginning work-in–process inventory is $160,000, ending work-in–process inventory is $180,000, cost of goods
manufactured is $500,000, and direct materials used are $130,000, what are the conversion costs?
a. $210,000
b. $320,000
c. $340,000
d. $390,000
Chapter 2: Basic Cost Management Concepts
143. The following information pertains to Steel Wheels, Inc:
Cost of goods manufactured
$350,000
Beginning work–in–process inventory
110,000
Ending work-in-process inventory
80,000
Manufacturing overhead
50,000
What are the prime costs for the year?
a. $360,000
b. $480,000
c. $270,000
d. $300,000
144. Inventory balances for the Beemer Enterprises in April 2016 are as follows:
April 1, 2016
April 30, 2016
Raw materials
$27,000
$21,000
Work in process
48,000
37,200
Finished goods
108,000
90,000
During April, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000 and
$84,000, respectively.
Prime costs for April were
a. $102,000
b. $96,000
c. $87,000
d. $81,000
Chapter 2: Basic Cost Management Concepts
145. Inventory balances for Marshall, Inc., in June 2016 are as follows:
June 1, 2016
June 30, 2016
Raw materials
$1,125
$ 875
Work in process
2,000
1,550
Finished goods
4,500
3,750
During June, purchases of direct materials were $1,500. Direct labor and factory overhead costs were $2,500 and
$3,500, respectively. Conversion costs for June were
a. $8,200.
b. $7,750.
c. $7,500.
d. $6,000.
Figure 2-13
Inventory balances for the Jameson Company in October 2016 are as follows:
October 1, 2106
October 31, 2016
Raw materials
$27,000
$21,000
Work in process
48,000
37,200
Finished goods
108,000
90,000
During October, purchases of direct materials were $36,000. Direct labor and factory overhead costs were $60,000
and $84,000, respectively.
146. Refer to Figure 2-13. What is the cost of materials used in production?
a. $36,000
b. $42,000
c. $47,800
d. $54,000
Chapter 2: Basic Cost Management Concepts
147. Refer to Figure 2-13. What are the total manufacturing costs added to production in the period?
a. $186,000
b. $180,000
c. $144,000
d. $174,200
148. Refer to Figure 2-13. What is the cost of goods manufactured?
a. $180,000
b. $186,000
c. $194,000
d. $196,800
149. The sum of the total additions to work in process during a period is
a. total manufacturing costs added.
b. factory overhead applied.
c. material used.
d. cost of goods manufactured.
150. The following information for the Sutton Glass Company has been provided:
Cost of goods manufactured
$100,000
Work in process:
Beginning
15,000
Ending
20,000
Direct labor
30,000
Direct materials used
?
Factory overhead
45,000
What is the amount of direct materials used?
a. $25,000
b. $30,000
c. $35,000
d. $100,000
Chapter 2: Basic Cost Management Concepts
151. The ending work–in–process inventory is deducted on the
a. balance sheet.
b. income statement.
c. statement of cost of goods manufactured.
d. statement of cash flows.
152. Cost of goods sold equals cost of goods manufactured
a. when finished goods inventories remain constant.
b. when work-in-process inventories remain constant.
c. plus beginning work–in–process inventory minus ending work–in–process inventory.
d. when materials inventories remain constant.
153. Inventory balances for Spiritlight Ventures for November 2016 are as follows:
November 1, 2016
November 30, 2016
Materials
$ 9,000
$ 7,000
Work in process
16,000
12,400
Finished goods
36,000
30,000
During November, purchases of direct materials were $18,000. Direct labor and factory overhead costs were
$20,000 and $28,000, respectively.
The cost of goods manufactured in November was
a. $68,000.
b. $77,600.
c. $74,000.
d. $71,600.
Chapter 2: Basic Cost Management Concepts
154. Selected data concerning the past year’s operations of the Motor City Corporation are as follows:
Selling and administrative expenses $225,000
Direct materials used 467,500
Direct labor (50,000 hours) 450,000
Factory overhead application rate 8 per DLH
Inventories
Beginning Ending
Direct material $75,000 $67,500
Work in process 112,500 135,000
Finished goods 60,000 37,500
The cost of direct materials purchased is
a. $467,500.
b. $460,000.
c. $437,500.
d. $445,000.
Chapter 2: Basic Cost Management Concepts
Beginning
Ending
Direct materials
$50,000
$45,000
Work in process
75,000
90,000
Finished goods
40,000
25,000
Figure 2-14
The following is the data for Lauren Enterprises:
Selling and administrative expenses $75,000
Direct materials used 265,000
Direct labor (25,000 hours) 300,000
Factory overhead application rate $16 per DLH
Inventories
155. Refer to Figure 2-14. What is the cost of goods manufactured?
a. $1,115,000
b. $965,000
c. $955,000
d. $950,000
156. Refer to Figure 2-14. What is the cost of goods sold?
a. $565,000
b. $950,000
c. $965,000
d. $980,000
157. The cost of units completed during a period is called
a. cost of goods sold.
b. cost of goods manufactured.
c. current manufacturing costs.
d. finished goods inventory.
Chapter 2: Basic Cost Management Concepts
158. The records for the previous year for Sarasota Boat Builders, Inc., shows the following data::
Selling and administrative expenses $300,000
Direct materials used 530,000
Direct labor (100,000 hours) 600,000
Factory overhead application rate $5 per DLH
Inventories
Beginning Ending
Work in process $150,000 $160,000
Finished goods 80,000 50,000
The cost of goods sold is
a. $1,630,000.
b. $1,880,000.
c. $1,600,000.
d. $1,650,000.
159. The following information has been provided for Hopen Enterprises:
Cost of goods manufactured
$7,500
Work in process
Beginning
1,200
Ending
1,400
Direct labor
4,000
Materials placed in production
1,500
Factory overhead
?
What is the amount of factory overhead?
a. $2,000
b. $2,200
c. $1,400
d. $5,500
Chapter 2: Basic Cost Management Concepts
160. The following information is from the records of Stretch Limousines, Inc.:
Net direct materials purchase cost
$225,000
Total direct materials used
275,000
Beginning direct materials inventory
125,000
The ending direct materials inventory is
a. $175,000.
b. $75,000.
c. $50,000.
d. $100,000.
161. The Sumter Company recently had a fire in its accounting office, destroying most of its records. Only the following
information could be salvaged for 2016:
Direct labor
$400,000
Factory overhead
200,000
Cost of goods sold
800,000
Work in process, January 1
80,000
Finished goods, January 1
160,000
Work in process, December 31
100,000
Finished goods, December 31
120,000
The cost of direct materials used in production during 2016 is
a. $140,000.
b. $180,000.
c. $200,000.
d. $260,000.
Chapter 2: Basic Cost Management Concepts
June 1, 2016
June 30, 2016
Direct materials
$1,200
$1,400
Work in process
2,500
2,800
Finished goods
2,300
1,900
Figure 2-15
Information from the records of Chrome Ponies Enterprises for June 2016 is as follows:
Sales
$41,000
Direct labor
10,000
Selling and administrative expenses
7,000
Direct materials purchases
6,000
Factory overhead
13,500
Inventories
162. Refer to Figure 2-15. What was the cost of materials used in production?
a. $ 6,200
b. $ 6,000
c. $5,800
d. $19,500
163. Refer to Figure 2-15. Chrome Ponies Enterprises’ cost of goods manufactured in June is
a. $29,300.
b. $29,700.
c. $29,200.
d. $29,000.
164. Refer to Figure 2-15. What are the total manufacturing costs added?
a. $18,500
b. $19,300
c. $29,000
d. $29,300
Chapter 2: Basic Cost Management Concepts
165. Refer to Figure 2-15. What is the gross margin (profit)?
a. $11,500
b. $11,600
c. $4,500
d. $4,600
166. Refer to Figure 2–15. What is the cost of goods sold?
a. $36,500
b. $28,600
c. $29,400
d. $29,500
167. Morton Manufacturing shows cost of goods sold for the month of March was $90,000. The finished goods
inventory was $15,000 on March 1 and $17,500 on March 31. Beginning and ending work–in–process inventories
were $20,000 and $25,000, respectively. What was the cost of goods manufactured during March?
a. $92,500
b. $90,000
c. $87,500
d. $97,500
168. Assume the following information for the Blue Knights Corporation for the year ended December 31, 2016:
Sales
$2,250
Cost of goods manufactured for the year
1,350
Beginning finished goods inventory
450
Ending finished goods inventory
495
Selling and administrative expenses
300
What is the cost of goods sold for the year ended December 31, 2016?
a. $1,305
b. $1,605
c. $1,350
d. $1,650
Chapter 2: Basic Cost Management Concepts
169. Rebel Yell, Inc., recorded the following data for April:
Beginning finished goods inventory
$60,000
Beginning work–in–process inventory
40,000
Ending work-in-process inventory
80,000
Ending finished goods inventory
50,000
Factory overhead costs
200,000
Direct materials used
160,000
Direct labor
100,000
What is the cost of goods manufactured for April?
a. $470,000
b. $420,000
c. $460,000
d. $430,000
170. The records of the Williamson Company show the following information:
Direct materials used
$90,000
Direct labor
130,000
Factory overhead
150,000
Beginning work–in–process inventory
15,000
Beginning finished goods inventory
20,000
Ending work-in-process inventory
42,000
Selling and administrative expenses
37,500
What was the cost of goods manufactured during the year?
a. $370,000
b. $365,000
c. $343,000
d. $333,000
Chapter 2: Basic Cost Management Concepts
171. Which of the following is NOT an example of a difference between the income statement of a service
organization and the income statement of a manufacturing organization?
a. A service company will never have work in process.
b. The service company will not have a finished goods inventory.
c. Fulfillment costs may be added to cost of goods sold of a service company.
d. Research and development expenses are not usually a major component of a service organization.
172. Which of the following items would NOT appear on an income statement of a service organization?
a. selling expenses
b. cost of goods sold
c. administrative expenses
d. gross margin
173. Which of the following items is NEVER relevant to the cost flows of a service organization?
a. finished goods inventory
b. materials inventory
c. work-in-process inventory
d. all of the above are always relevant.
174. Assume the following data for Rodriguez Services, an accounting firm, for November:
Beginning materials inventory
$20,000
Beginning work–in–process inventory
40,000
Ending work-in-process inventory
50,000
Ending materials inventory
10,000
Actual overhead costs
100,000
Direct materials used
60,000
Direct labor
200,000
What is the cost of services sold for November?
a. $370,000
b. $350,000
c. $360,000
d. $330,000