Finance Chapter 14 Explain the distinguishing features of managerial

subject Type Homework Help
subject Pages 14
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subject Authors Paul Kimmel; Jerry Weygandt; Donald Kieso

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CHAPTER 14
MANAGERIAL ACCOUNTING
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
14 - 2
Completion Statements
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sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
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Learning Objective 1
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Managerial Accounting
14 - 3
Learning Objective 6
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Note: TF = True-False BE = Brief Exercise C = Completion
MC = Multiple Choice Ex = Exercise
CHAPTER LEARNING OBJECTIVES
1. Explain the distinguishing features of managerial accounting. The primary users of
managerial accounting reports are internal users, who are officers, department heads,
managers, and supervisors in the company. Managerial accounting issues internal reports as
frequently as the need arises. The purpose of these reports is to provide special-purpose
information for a particular user for a specific decision. The content of managerial accounting
reports pertains to subunits of the business may be very detailed, and may extend beyond the
double-entry accounting system. The reporting standard is relevance to the decision being
made. No independent audits are required in managerial accounting.
2. Identify the three broad functions of management. The three functions are planning,
directing, and controlling. Planning requires management to look ahead and to establish
objectives. Directing involves coordinating the diverse activities and human resources of a
company to produce a smooth-running operation. Controlling is the process of keeping the
activities on track.
3. Define the three classes of manufacturing costs. Manufacturing costs are typically
classified as either (1) direct materials, (2) direct labor, or (3) manufacturing overhead. Raw
materials that can be physically and directly associated with the finished product during the
manufacturing process are called direct materials. The work of factory employees that can be
physically and directly associated with converting raw materials into finished goods is
considered direct labor. Manufacturing overhead consists of costs that are indirectly
associated with the manufacture of the finished product.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
14 - 4
4. Distinguish between product and period costs. Product costs are costs that are a
necessary and integral part of producing the finished product. Product costs are also called
inventoriable costs. Under the expense recognition principle, these costs do not become
expenses until the company sells the finished goods inventory. Period costs are costs that are
identified with a specific time period rather than with a salable product. These costs relate to
nonmanufacturing costs and therefore are not inventoriable costs.
5. Explain the difference between a merchandising and a manufacturing income statement.
The difference between a merchandising and a manufacturing income statement is in the cost
of goods sold section. A manufacturing cost of goods sold section shows beginning and
ending finished goods inventories and the cost of goods manufactured.
6. Indicate how cost of goods manufactured is determined. Companies add the cost of the
beginning work in process to the total manufacturing costs for the current year to arrive at the
total cost of work in process for the year. They then subtract the ending work in process from
the total cost of work in process to arrive at the cost of goods manufactured.
7. Explain the difference between a merchandising and a manufacturing balance sheet.
The difference between a merchandising and a manufacturing balance sheet is in the current
assets section. The current assets section of a manufacturing company's balance sheet
presents three inventory accounts: finished goods inventory, work in process inventory, and
raw materials inventory.
8 Identify trends in managerial accounting. Managerial accounting has experienced many
changes in recent years. Improved practices include a focus on managing the value chain
through techniques such as just-in-time inventory, total quality management, activity-based
costing, and theory of constraints. The balanced scorecard is now used by many companies
in order to attain a more comprehensive view of the company's operations. Finally, companies
are now evaluating their performance with regard to their corporate social responsibility.
TRUE-FALSE STATEMENTS
1. Reports prepared in financial accounting are general-purpose reports, whereas reports
prepared in managerial accounting are usually special-purpose reports.
2. Managerial accounting information generally pertains to an entity as a whole and is highly
aggregated.
3. Managerial accounting applies to all forms of business organizations.
4. Determining the unit cost of manufacturing a product is an output of financial accounting.
FSA
5. Managerial accounting internal reports are prepared more frequently than are classified
financial statements.
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Managerial Accounting
14 - 5
6. The management function of organizing and directing is mainly concerned with setting
goals and objectives for the entity.
7. The Sarbanes-Oxley Act replaces generally accepted accounting principles in a
manufacturing company.
8. Controlling is the process of determining whether planned goals are being met.
9. Decision-making is an integral part of the planning, directing, and controlling functions.
10. Direct materials costs and indirect materials costs are manufacturing overhead.
11. Manufacturing costs that cannot be classified as direct materials or direct labor are
classified as manufacturing overhead.
12. Raw materials are equal to direct materials minus indirect materials.
13. Raw materials that can be conveniently and directly associated with a finished product are
called materials overhead.
14. The total cost of a finished product does not generally contain equal amounts of materials,
labor, and overhead costs.
15. Both direct labor cost and indirect labor cost are product costs.
16. Period costs include selling and administrative expenses.
17. Indirect materials and indirect labor are both inventoriable costs.
18. Direct materials and direct labor are the only product costs.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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19. Total period costs are deducted from total cost of work in process to calculate cost of
goods manufactured.
20. Period costs are not inventoriable costs.
21. Ending finished goods inventory appears on both the balance sheet and the income
statement of a manufacturing company.
22. The beginning work in process inventory appears on both the balance sheet and the cost
of goods manufactured schedule of a manufacturing company.
23. In calculating gross profit for a manufacturing company, the cost of goods manufactured is
deducted from net sales.
24. Finished goods inventory does not appear on a cost of goods manufactured schedule.
25. If the ending work in process inventory is greater than the beginning work in process
inventory, then the cost of goods manufactured will be less than total manufacturing costs
for the period.
26. Finished goods inventory for a manufacturing company is equivalent to merchandise
inventory for a merchandising company.
27. Raw materials inventory shows the cost of completed goods available for sale to
customers.
28. The balanced scorecard approach attempts to maintain as little inventory on hand as
possible.
29. The supply chain is all the activities associated with providing a product or service.
30. Many companies have significantly lowered inventory levels and costs using just-in-time
inventory methods.
31. Managerial accounting is primarily concerned with managers and external users.
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Managerial Accounting
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32. Planning involves coordinating the diverse activities and human resources of a company
to produce a smooth running operation.
33. When the physical association of raw materials with the finished product is too small to
trace in terms of cost, they are usually classified as indirect materials.
34. Product costs are also called inventoriable costs.
35. Direct materials become a cost of the finished goods manufactured when they are
acquired, not when they are used.
36. The sum of the direct materials costs, direct labor costs, and beginning work in process is
the total manufacturing costs for the year.
37. In a manufacturing company balance sheet, manufacturing inventories are reported in the
current assets section in the order of their expected use in production.
Answers to True-False Statements
MULTIPLE CHOICE QUESTIONS
38. Managerial accounting applies to each of the following types of businesses except
a. service firms.
b. merchandising firms.
c. manufacturing firms.
d. Managerial accounting applies to all types of firms.
39. Managerial accounting information is generally prepared for
a. stockholders.
b. creditors.
c. managers.
d. regulatory agencies.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
14 - 8
40. Managerial accounting information
a. pertains to the entity as a whole and is highly aggregated.
b. pertains to subunits of the entity and may be very detailed.
c. is prepared only once a year.
d. is constrained by the requirements of generally accepted accounting principles.
41. The major reporting standard for presenting managerial accounting information is
a. relevance.
b. generally accepted accounting principles.
c. the cost principle.
d. the current tax law.
42. Managerial accounting is also called
a. management accounting.
b. controlling.
c. analytical accounting.
d. inside reporting.
43. Which of the following is not an internal user?
a. Creditor
b. Department manager
c. Controller
d. Treasurer
44. Managerial accounting does not encompass
a. calculating product cost.
b. calculating earnings per share.
c. determining cost behavior.
d. profit planning.
45. Managerial accounting is applicable to
a. service entities.
b. manufacturing entities.
c. not-for-profit entities.
d. all of these.
46. Management accountants would not
a. assist in budget planning.
b. prepare reports primarily for external users.
c. determine cost behavior.
d. be concerned with the impact of cost and volume on profits.
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Managerial Accounting
14 - 9
47. Internal reports must be communicated
a. daily.
b. monthly.
c. annually.
d. as needed.
48. Financial statements for external users can be described as
a. user-specific.
b. general-purpose.
c. special-purpose.
d. managerial reports.
49. Managerial accounting reports can be described as
a. general-purpose.
b. macro-reports.
c. special-purpose.
d. classified financial statements.
50. The reporting standard for external financial reports is
a. industry-specific.
b. company-specific.
c. generally accepted accounting principles.
d. department-specific.
51. Which of the following statements about internal reports is not true?
a. The content of internal reports may extend beyond the double-entry accounting
system.
b. Internal reports may show all amounts at market values.
c. Internal reports may discuss prospective events.
d. Most internal reports are summarized rather than detailed.
52. In an analogous sense, external user is to internal user as generally accepted accounting
principles are to
a. timely.
b. special-purpose.
c. relevance to decision.
d. SEC.
53. Internal reports are generally
a. aggregated.
b. detailed.
c. regulated.
d. unreliable.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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54. A distinguishing feature of managerial accounting is
a. external users.
b. general-purpose reports.
c. very detailed reports.
d. quarterly and annual reports.
55. What activities and responsibilities are not associated with management's functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
56. Planning is a function that involves
a. hiring the right people for a particular job.
b. coordinating the accounting information system.
c. setting goals and objectives for an entity.
d. analyzing financial statements.
57. The managerial function of controlling
a. is performed only by the controller of a company.
b. is only applicable when the company sustains a loss.
c. is concerned mainly with operating a manufacturing segment.
d. includes performance evaluation by management.
58. Which of the following is not a management function?
a. Constraining
b. Planning
c. Controlling
d. Directing
59. A manager that is establishing objectives is performing which management function?
a. Controlling
b. Directing
c. Planning
d. Constraining
60. The management function that requires managers to look ahead and establish objectives
is
a. controlling.
b. directing.
c. planning.
d. constraining.
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Managerial Accounting
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61. In determining whether planned goals are being met, a manager is performing the function
of
a. planning.
b. follow-up.
c. directing.
d. controlling.
62. Which of the following is not a separate management function?
a. Planning
b. Directing
c. Decision-making
d. Controlling
63. Directing includes
a. providing a framework for management to have criteria to terminate employees when
needed.
b. running a department under quality control standards universally accepted.
c. coordinating a company's diverse activities and human resources to produce a
smooth-running operation.
d. developing a complex performance ranking system to give certain high performers
good raises.
64. Both direct materials and indirect materials are
a. raw materials.
b. manufacturing overhead.
c. merchandise inventory.
d. sold directly to customers by a manufacturing company.
65. The work of factory employees that can be physically and directly associated with
converting raw materials into finished goods is
a. manufacturing overhead.
b. indirect materials.
c. indirect labor.
d. direct labor.
66. Which one of the following would not be classified as manufacturing overhead?
a. Indirect labor
b. Direct materials
c. Insurance on factory building
d. Indirect materials
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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67. Manufacturing costs include
a. direct materials and direct labor only.
b. direct materials and manufacturing overhead only.
c. direct labor and manufacturing overhead only.
d. direct materials, direct labor, and manufacturing overhead.
68. Which one of the following is not a direct material?
a. A tire used for a lawn mower
b. Plastic used in the covered case for a home PC
c. Steel used in the manufacturing of steel-radial tires
d. Lubricant for a ball-bearing joint for a large crane
69. Which one of the following is not a cost element in manufacturing a product?
a. Manufacturing overhead
b. Direct materials
c. Office salaries
d. Direct labor
70. A manufacturing process requires small amounts of glue. The glue used in the production
process is classified as a(n)
a. period cost.
b. indirect material.
c. direct material.
d. miscellaneous expense.
71. The wages of a timekeeper in the factory would be classified as
a. a period cost.
b. direct labor.
c. indirect labor.
d. compliance costs.
72. Which one of the following is not considered as material costs?
a. Partially completed motor engines for a motorcycle plant
b. Bolts used in manufacturing the compressor of an engine
c. Rivets for the wings of a new commercial jet aircraft
d. Lumber used to build tables
73. Which of the following is not a manufacturing cost category?
a. Cost of goods sold
b. Direct materials
c. Direct labor
d. Manufacturing overhead
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74. As current technology changes manufacturing processes, it is likely that direct
a. labor will increase.
b. labor will decrease.
c. materials will increase.
d. materials will decrease.
75. For the work of factory employees to be considered as direct labor, the work must be
conveniently and
a. materially associated with raw materials conversion.
b. periodically associated with raw materials conversion.
c. physically associated with raw materials conversion.
d. promptly associated with raw materials conversion.
76. Which of the following is not classified as direct labor?
a. Bottlers of beer in a brewery
b. Copy machine operators at a copy shop
c. Wages of supervisors
d. Bakers in a bakery
77. Cotter pins and lubricants used irregularly in a production process are classified as
a. miscellaneous expense.
b. direct materials.
c. indirect materials.
d. nonmaterial materials.
78. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
79. Because of automation, which component of product cost is declining?
a. Direct labor
b. Direct materials
c. Manufacturing overhead
d. Advertising
80. The product cost that is most difficult to associate with a product is
a. direct materials.
b. direct labor.
c. manufacturing overhead.
d. advertising.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
14 - 14
81. Manufacturing costs that cannot be classified as either direct materials or direct labor are
known as
a. period costs.
b. nonmanufacturing costs.
c. selling and administrative expenses.
d. manufacturing overhead.
82. Which one of the following is an example of a period cost?
a. A change in benefits for the union workers who work in the New York plant of a
Fortune 1000 manufacturer
b. Workers' compensation insurance on factory workers' wages allocated to the factory
c. A box cost associated with computers
d. A manager's salary for work that is done in the corporate head office
83. Which one of the following costs would not be inventoriable?
a. Period costs
b. Factory insurance costs
c. Indirect materials
d. Indirect labor costs
84. Direct materials and direct labor of a company total $8,000,000. If manufacturing
overhead is $4,000,000, what is direct labor cost?
a. $4,000,000
b. $8,000,000
c. $0
d. Cannot be determined from the information provided
85. Which of the following are period costs?
a. Raw materials
b. Direct materials and direct labor
c. Direct labor and manufacturing overhead
d. Selling expenses
86. Sales commissions are classified as
a. overhead costs
b. period costs.
c. product costs.
d. indirect labor.
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87. Product costs consist of
a. direct materials and direct labor only.
b. direct materials, direct labor, and manufacturing overhead.
c. selling and administrative expenses.
d. period costs.
88. Which one of the following represents a period cost?
a. The VP of Sales' salary and benefits
b. Overhead allocated to the manufacturing operations
c. Labor costs associated with quality control
d. Fringe benefits associated with factory workers
89. Product costs are also called
a. direct costs.
b. overhead costs.
c. inventoriable costs.
d. capitalizable costs.
90. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
b. the product must be expensed based on its percentage-of-completion.
c. the product to which they attach must be sold.
d. all accounts payable must be settled.
91. As inventoriable costs expire, they become
a. selling expenses.
b. gross profit.
c. cost of goods sold.
d. sales revenue.
92. A manufacturing company calculates cost of goods sold as follows:
a. Beginning FG inventory + cost of goods purchased ending FG inventory.
b. Ending FG inventory cost of goods manufactured + beginning FG inventory.
c. Beginning FG inventory cost of goods manufactured ending FG inventory.
d. Beginning FG inventory + cost of goods manufactured ending FG inventory.
93. A manufacturing company reports cost of goods manufactured as a(n)
a. current asset on the balance sheet.
b. administrative expense on the income statement.
c. component in the calculation of cost of goods sold on the income statement.
d. component of the raw materials inventory on the balance sheet.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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94. The subtotal, "Cost of goods manufactured" appears on
a. a merchandising company's income statement.
b. a manufacturing company's income statement.
c. both a manufacturing and a merchandising company's income statement.
d. neither a merchandising nor a manufacturing company's income statement.
95. Cost of goods manufactured in a manufacturing company is analogous to
a. ending inventory in a merchandising company.
b. beginning inventory in a merchandising company.
c. cost of goods available for sale in a merchandising company.
d. cost of goods purchased in a merchandising company.
96. Cost of goods sold
a. only appears on merchandising companies' income statements.
b. only appears on manufacturing companies' income statements.
c. appears on both manufacturing and merchandising companies' income statements.
d. is calculated exactly the same for merchandising and manufacturing companies.
97. Kushman Combines, Inc. has $20,000 of ending finished goods inventory as of December
31, 2013. If beginning finished goods inventory was $10,000 and cost of goods sold was
$50,000, how much would Kushman report for cost of goods manufactured?
a. $70,000
b. $10,000
c. $60,000
d. $40,000
98. Cost of goods manufactured is calculated as follows:
a. Beginning WIP + direct materials used + direct labor + manufacturing overhead +
ending WIP.
b. Direct materials used + direct labor + manufacturing overhead beginning WIP +
ending WIP.
c. Beginning WIP + direct materials used + direct labor + manufacturing overhead
ending WIP.
d. Direct materials used + direct labor + manufacturing overhead ending WIP
beginning WIP.
99. If the amount of "Cost of goods manufactured" during a period exceeds the amount of
"Total manufacturing costs" for the period, then
a. ending work in process inventory is greater than or equal to the amount of the
beginning work in process inventory.
b. ending work in process is greater than the amount of the beginning work in process
inventory.
c. ending work in process is equal to the cost of goods manufactured.
d. ending work in process is less than the amount of the beginning work in process
inventory.
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100. On the costs of goods manufactured schedule, depreciation on factory equipment
a. is not listed because it is included with Depreciation Expense on the income
statement.
b. appears in the manufacturing overhead section.
c. is not listed because it is not a product cost.
d. is not an inventoriable cost.
101. On the costs of goods manufactured schedule, the item raw materials inventory (ending)
appears as a(n)
a. addition to raw materials purchases.
b. addition to raw materials available for use.
c. subtraction from raw materials available for use.
d. subtraction from raw materials purchases.
102. Dolan Company's accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
The total raw materials available for use during 2013 for Dolan Company is
a. $910,000.
b. $460,000.
c. $550,000.
d. $860,000.
103. Dolan Company's accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
Dolan Company's total manufacturing costs incurred in 2013 amounted to
a. $1,530,000.
b. $1,490,000.
c. $1,390,000.
d. $1,580,000.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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104. Dolan Company's accounting records reflect the following inventories:
Dec. 31, 2013 Dec. 31, 2012
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2013, $600,000 of raw materials were purchased, direct labor costs amounted to
$500,000, and manufacturing overhead incurred was $480,000.
If Dolan Company's cost of goods manufactured for 2013 amounted to $1,390,000, its
cost of goods sold for the year is
a. $1,500,000.
b. $1,250,000.
c. $1,350,000.
d. $1,430,000.
105. What is work in process inventory generally described as?
a. Costs applicable to units that have been started in production but are only partially
completed
b. Costs associated with the end stage of manufacturing that are almost always
complete and ready for customers
c. Costs strictly associated with direct labor
d. Beginning stage production costs associated with labor costs dealing with bringing in
raw materials from the shipping docks
106. Worth Company reported the following year-end information: beginning work in process
inventory, $180,000; cost of goods manufactured, $816,000; beginning finished goods
inventory, $252,000; ending work in process inventory, $220,000; and ending finished
goods inventory, $264,000. Worth Company's cost of goods sold for the year is
a. $804,000.
b. $828,000.
c. $776,000.
d. $552,000.
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107. Laflin Company reported the following year-end information:
Beginning work in process inventory $1,080,000
Beginning raw materials inventory 300,000
Ending work in process inventory 900,000
Ending raw materials inventory 480,000
Raw materials purchased 960,000
Direct labor 800,000
Manufacturing overhead 720,000
Laflin Company's cost of goods manufactured for the year is
a. $2,300,000.
b. $2,480,000.
c. $2,120,000.
d. $2,660,000.
108. Benson Inc.'s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000
During 2013, Benson purchased $1,160,000 of raw materials, incurred direct labor costs
of $200,000, and incurred manufacturing overhead totaling $128,000.
How much raw materials were transferred to production during 2013 for Benson?
a. $1,392,000
b. $1,176,000
c. $1,160,000
d. $1,144,000
109. Benson Inc.'s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000
During 2013, Benson purchased $1,060,000 of raw materials, incurred direct labor costs
of $200,000, and incurred manufacturing overhead totaling $128,000.
How much is total manufacturing costs incurred during 2013 for Benson?
a. $1,392,000
b. $1,404,000
c. $1,388,000
d. $1,400,000
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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110. Benson Inc.'s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $ 80,000 $ 64,000
Work in process inventory 104,000 116,000
Finished goods inventory 100,000 92,000
During 2013, Benson purchased $1,160,000 of raw materials, incurred direct labor costs
of $200,000, and incurred manufacturing overhead totaling $128,000.
Assume Benson’s cost of goods manufactured for 2013 amounted to $1,360,000. How
much would it report as cost of goods sold for the year?
a. $1,368,000
b. $1,400,000
c. $1,460,000
d. $1,352,000
111. Walker Company reported the following year-end information:
Beginning work in process inventory $ 46,000
Beginning raw materials inventory 24,000
Ending work in process inventory 50,000
Ending raw materials inventory 20,000
Raw materials purchased 830,000
Direct labor 240,000
Manufacturing overhead 100,000
How much is Walker’s cost of goods manufactured for the year?
a. $834,000
b. $1,174,000
c. $1,170,000
d. $1,178,000
112. Ogleby Inc.'s accounting records reflect the following inventories:
Dec. 31, 2012 Dec. 31, 2013
Raw materials inventory $120,000 $ 96,000
Work in process inventory 156,000 174,000
Finished goods inventory 150,000 138,000
During 2013, Ogleby purchased $840,000 of raw materials, incurred direct labor costs of
$150,000, and incurred manufacturing overhead totaling $192,000.
How much is total manufacturing costs incurred during 2013 for Ogleby?
a. $1,188,000
b. $1,206,000
c. $1,182,000
d. $1,200,000

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