Chapter 2—Product Costing: Manufacturing Processes, Cost Terminology, and Cost
Flows
MULTIPLE CHOICE
1. Which of the following types of organizations is most likely to have a raw materials inventory
account?
a.
A retailer.
b.
A manufacturer.
c.
A service provider.
d.
A wholesaler.
2. Which of the following statements about manufacturing in a traditional environment is true?
a.
Factories are organized so that machines that are dissimilar are grouped together.
b.
It is not desirable to accumulate raw materials inventory to serve as buffers in case of
unexpected demand for products.
c.
The process begins with a customer order and products are “pulled” through the
manufacturing process.
d.
Partially completed inventory is accumulated in a work in process inventory account.
3. A traditional manufacturing environment does not have which of the following?
a.
An automated production process.
b.
Trained employees.
c.
Extremely low levels of work in process inventory.
d.
Product cost information available.
4. Which of the following statements is true about manufacturing companies over the past 20 years?
a.
The grouping of machines into “manufacturing cells” has increased.
b.
Carrying large amounts of inventory is often less costly than carrying small amounts of
inventory.
c.
They have moved from a “pull” approach to more of a “push” approach.
d.
The basic production process has changed very little over the past 20 years.
5. Which of the following statements regarding the traditional manufacturing environment is not true?
a.
Machines are often put into “manufacturing cells” whereby dissimilar machines are
grouped together.
b.
Raw material is “pushed” to the next production area in anticipation of customer demand.
c.
Manufacturers often have raw material, work in process, and finished goods inventory on
hand.
d.
Buffers of inventory may result in workers being less efficient.
6. Under ideal conditions, companies operating in a ____ environment would reduce inventories of raw
materials, work in process and finished goods to very low levels or even zero.
a.
volatile
b.
just-in-time
c.
traditional manufacturing
d.
favorable
7. Companies that operate in a lean production and just-in-time manufacturing environment are more
likely to experience which of the following?
a.
Reduced manufacturing flexibility.
b.
Increased levels of raw materials inventory.
c.
Increased production time.
d.
Increased product quality.
8. A “manufacturing cell” is defined as:
a.
grouping of all the machinery and equipment that are needed to make a product being
available in one area of the factory.
b.
restructuring of the factory so that the companies are able to manufacture products
quickly.
c.
an area in the warehouse where similar raw materials are grouped together.
d.
grouping of all the factories that are engaged in manufacturing similar products.
9. In a just-in-time environment, the production process often begins when:
a.
products are moved from raw materials to work in process.
b.
a customer places an order.
c.
the product is delivered to a customer.
d.
products are moved from work in process to finished goods.
10. Which of the following is an advantage of lean production and just–in-time (JIT) manufacturing
systems?
a.
Deliver the product to the customer on time, even if the workers go on a strike.
b.
Improved product quality and reduced processing time.
c.
Reduced reliance on highly skilled employees
d.
Increased reliance on more suppliers.
11. Which of the following is a disadvantage of lean production and just–in-time (JIT) manufacturing
systems?
a.
Increased customer delivery time
b.
Increased product defects
c.
Decreased flexibility of manufacturing facilities
d.
Increased reliance on fewer suppliers
12. Which of the following statements is true regarding the lean production and just–in-time (JIT)
manufacturing systems?
a.
Customers are often less satisfied with the purchased product.
b.
The number of product defects often increases.
c.
The number of suppliers the company can purchase raw materials from, often increases.
d.
The factory is often restructured where dissimilar machines are grouped together.
13. Which of the following is a characteristic of a lean production and just–in-time (JIT) manufacturing
environment but not of a traditional manufacturing environment?
a.
Increased inventory levels
b.
Increased product defects
c.
Increased reliance on a select number of suppliers
d.
Increased production time
14. Which of the following is a effect of using a traditional production environment but not of a lean
production and just-in-time (JIT) manufacturing environment?
a.
Increase in the need for highly skilled labor.
b.
Increase in the need for highly reliable suppliers.
c.
Reduction in the motivation of the work force.
d.
Reduction in the processing time.
15. Which of the following is a risk that would more likely be seen in a lean production and just–in-time
(JIT) manufacturing environment than in a traditional production environment?
a.
Reduced customer satisfaction due to product quality.
b.
Reduced raw material supply bringing the production process to a halt.
c.
Increased inventory storage costs.
d.
Increased production time resulting in lost sales.
16. Lean production is focused on eliminating waste associated with all of the following except:
a.
moving products farther than required.
b.
down time caused by people waiting for work to do.
c.
providing excessive customer service.
d.
over-processing a product.
17. Which of the following statements is true regarding manufacturing costs?
a.
They will be appear on the income statement as the product is made.
b.
They will not appear on the income statement or the balance sheet until the product is
completed.
c.
They will appear on the balance sheet as an inventory cost until the product is sold.
d.
They will appear on the balance sheet as an inventory cost after the product is sold.
18. Which of the following statements is false regarding nonmanufacturing costs?
a.
They are incurred outside the factory.
b.
They include selling and administrative costs.
c.
They are not directly incurred to make a product.
d.
They include indirect materials and indirect labor costs.
19. Which of the following types of employees would most likely have their wage be classified as direct
labor?
a.
Factory maintenance worker
b.
Factory supervisor
c.
Managerial accountant
d.
Assembly-line factory worker
20. Which of the following types of employees would most likely have their wage be classified as indirect
labor?
a.
Factory supervisor
b.
Managerial accountant
c.
Salesperson
d.
Machine operator
21. Manufacturing overhead includes:
a.
advertising costs.
b.
indirect materials.
c.
sales commissions.
d.
shipping charges for finished goods.
22. Which of the following is not an example of a manufacturing overhead cost?
a.
Shipping charges on finished products
b.
Indirect materials
c.
Indirect labor
d.
Depreciation on factory equipment
23. Which of the following is an example of a manufacturing overhead cost?
a.
Supplies used by administrative staff.
b.
Supplies used by a salesperson.
c.
Materials easily traced to a specific product.
d.
Lubricants used by factory maintenance workers.
24. Which of the following is not an example of manufacturing overhead costs?
a.
Fringe benefits paid to assembly-line workers
b.
Depreciation of factory machinery
c.
Overtime pay to factory supervisors
d.
Insurance on factory machinery
25. Which of the following is a product cost?
a.
Insurance on factory machinery
b.
Insurance on delivery trucks
c.
Lease expense on office computer
d.
Advertising costs
Jasper Corporation
Jasper Corporation incurred the following costs which includes salaries and wages in April:
Salesperson’s salaries
$32,000
Factory maintenance
$25,000
Factory insurance
10,000
Administrative utilities
4,000
Factory supervisor salary
30,000
Administrative supplies
1,500
Advertising
10,000
Delivery truck insurance
5,000
Factory machine operator
22,000
Factory machine depreciation
5,500
Direct materials used
30,000
Receptionist salary
17,500
26. Refer to the Jasper Corporation information above. Total product costs are:
a.
$132,500
b.
$154,500
c.
$122,500
d.
$127,500
27. Refer to the Jasper Corporation information above. Total period costs are:
a.
$65,000
b.
$60,000
c.
$38,000
d.
$70,000
28. Which of the following is not a manufacturing cost?
a.
Direct material costs
b.
Administrative costs
c.
Factory overhead costs
d.
Direct labor costs
29. In general, costs incurred in the factory those do not qualify as either direct material or direct labor are
called:
a.
manufacturing costs.
b.
manufacturing overhead.
c.
nonmanufacturing costs.
d.
selling and administrative costs.
30. Manufacturing costs typically consist of:
a.
direct materials, direct labor, and administrative costs.
b.
production and shipping costs.
c.
direct materials, direct labor, and manufacturing overhead.
d.
manufacturing overhead and selling costs.
31. Materials that can be directly traced to a particular product and become an integral part of the finished
product are called:
a.
indirect materials.
b.
direct materials.
c.
supplies.
d.
product materials.
32. When nonmanufacturing costs are subtracted from gross margin, the result is called:
a.
cost of goods sold.
b.
net operating income.
c.
sales.
d.
nonmanufacturing income.
Michael’s Manufacturing, Inc.
Michael’s Manufacturing, Inc. has the following information available for the month of July:
Beginning
Ending
Raw materials inventory
$40,000
$ 62,000
Work-in-process inventory
85,000
45,000
Finished goods inventory
20,000
37,000
Raw materials purchased
$150,000
Direct labor costs
50,000
Overhead costs
45,000
33. Refer to the Michael’s Manufacturing, Inc. information above. Raw materials used for July is:
a.
$150,000
b.
$128,000
c.
$190,000
d.
$172,000
34. Refer to the Michael’s Manufacturing, Inc. information above. Cost of goods manufactured for July is:
a.
$183,000
b.
$206,000
c.
$263,000
d.
$223,000
35. Refer to the Michael’s Manufacturing, Inc. information above. Cost of goods sold for July is:
a.
$246,000
b.
$206,000
c.
$280,000
d.
$263,000
Nate’s Novelties, Inc.
Nate’s Novelties, Inc. has the following information available for July:
Beginning
Ending
Raw materials inventory
$12,000
$ 9,000
Work-in-process inventory
35,000
20,000
Finished goods inventory
20,000
44,000
Raw materials purchased
$25,000
Direct labor costs
55,000
Overhead costs
35,000
36. Refer to the Nate’s Novelties, Inc. information above. Raw materials used for July is:
a.
$21,000.
b.
$22,000.
c.
$25,000.
d.
$28,000.
37. Refer to the Nate’s Novelties, Inc. information above. Cost of goods manufactured for July is:
a.
$153,000.
b.
$103,000.
c.
$130,000.
d.
$133,000.
38. Refer to the Nate’s Novelties, Inc. information above. Cost of goods sold for July is:
a.
$106,000.
b.
$157,000.
c.
$129,000.
d.
$109,000.
39. Thompson Inc. has the following selected information available for 2011:
Cost of goods manufactured
$220,000
Cost of goods sold
150,000
Direct labor costs incurred
65,000
Raw material purchased
90,000
Raw material used
100,000
Beginning work in process
23000
Ending work in process
11000
Manufacturing overhead costs in 2011 amounted to:
a.
$67,000.
b.
$55,000.
c.
$43,000.
d.
$53,000.
40. Products and their costs flow through a production facility in the following order:
a.
work in process, finished goods, cost of goods sold
b.
raw materials, work in process, finished goods, cost of goods sold
c.
work in process, raw materials, cost of goods sold, finished goods
d.
work-in-process, cost of goods manufactured, cost of goods sold
41. In a traditional manufacturing environment, as the cost of goods sold account increases, which account
is most likely decreasing?
a.
Work in process inventory
b.
Finished goods inventory
c.
Raw materials inventory
d.
Cash
42. Brenda’s Bakery has the following information available for October:
Beginning
Ending
Raw materials
$ 4,000
$ 2,000
Work-in-process
32,000
17,000
Finished goods
5,000
3,000
Cost of goods manufactured
88,000
Cost of goods sold
90,000
Direct labor costs
35,000
Factory rent and depreciation
10,000
Selling expenses
3,000
How much raw material was purchased in October?
a.
$23,000
b.
$25,000
c.
$26,000
d.
$28,000
43. Johnson Manufacturing has the following selected information available for the year:
Direct material purchased
$ 40,000
Direct material used
45,000
Direct labor incurred
75,000
Manufacturing overhead incurred
50,000
Cost of goods manufactured
100,000
In addition, the cost of the finished goods inventory increased by $10,000 from the beginning to the
end of the year. Cost of goods sold for the year is:
a.
$ 80,000.
b.
$170,000.
c.
$ 90,000.
d.
$110,000.
Franklin Street Manufacturing
Franklin Street Manufacturing has the following cost information available for 2011:
Direct materials used
$10,000
Direct labor costs
25,000
Factory overhead
20,000
Marketing expenses
4,000
Administrative expenses
6,000
20,000 units were produced during the year out of which 19,000 units were sold for $10 each.
44. Refer to the Franklin Street Manufacturing information above. What is cost of goods sold for 2011?
a.
$55,000
b.
$52,250
c.
$61,750
d.
$65,000
45. Refer to the Franklin Street Manufacturing information above. What is net operating income for 2011?
(Ignore taxes)
a.
$127,750
b.
$137,750
c.
$125,000
d.
$128,250
46. Which of the following increases the work in process account?
a.
Cost of goods sold
b.
Sales commission
c.
Administrative costs
d.
Raw material used
47. Which of the following decreases the work in process account?
a.
Transferring raw materials to work in process account.
b.
Transferring cost of goods manufactured from work in process account.
c.
Transferring cost of goods sold from work in process account.
d.
Transferring raw materials from work in process account.
48. Product costs that are transferred into finished goods inventory are called:
a.
cost of goods manufactured.
b.
cost of goods sold.
c.
period costs.
d.
raw materials used.
49. Product costs that are transferred out of finished goods are called:
a.
work in process.
b.
cost of goods manufactured.
c.
cost of goods sold.
d.
period costs.
50. Which of the following types of companies would not have the following cost pattern?
Raw materials → Work-in-process → Finished goods → Cost of goods sold
a.
Tire manufacturer
b.
Automotive manufacturer
c.
Retailer / merchandiser
d.
Construction company
51. Clyde Retailers is a local merchandiser which buys vintage clothing and sells it to local college
students. Clyde began the year with inventory costing $60,000. During the year inventory costing
$300,000 was purchased. At the end of the year, inventory costing $45,000 still remained. What was
Clyde’s cost of goods sold for the year?
a.
$255,000
b.
$285,000
c.
$300,000
d.
$315,000
52. In the books of a manufacturing company, the journal entry to record raw materials used would
include a:
a.
debit to finished goods.
b.
debit to raw materials.
c.
debit to work in process.
d.
debit to cost of goods sold.
53. In 2011 Bradshaw Inc. incurred $40,000 of manufacturing overhead costs which will be paid for in
2012. Which of the following would be the correct journal entry to record this transaction?
a.
Cost of Goods Sold 40,000
Accounts Payable 40,000
b.
Finished Goods Inventory 40,000
Accounts Payable 40,000
c.
Overhead Expenses 40,000
Accounts Payable 40,000
d.
Work in Process Inventory 40,000
Accounts Payable 40,000
54. In the books of a manufacturing company, the journal entry to record cost of goods manufactured
would include a:
a.
credit to work in process.
b.
credit to finished goods.
c.
debit to work in process.
d.
debit to cost of goods sold.
55. When the cost of a product is matched with its sales revenue, the result (difference) is called:
a.
net operating income.
b.
gross margin.
c.
cost of goods sold.
d.
cost of goods manufactured.
56. Clapton Inc. would like to prepare an income statement for March. Their production department
records show that total product costs in March were $225,000 when 50,000 units were produced. Their
sales department records show that 46,000 units were sold for $16 each. Monthly administrative and
marketing expenses totaled $60,000. What should be net operating income for March? (Ignore taxes)
a.
$529,000
b.
$473,800
c.
$451,000
d.
$469,000
57. Which of the following statements is true regarding period costs?
a.
They “attach” themselves to the product.
b.
They will appear the balance sheet until the product is sold.
c.
They will appear on the income statement in the year they are incurred.
d.
They will not impact gross margin or net operating income.
58. Chancellor Industries, a manufacturing company, prepays its insurance coverage for a two-year period.
The premium for two-year’s worth of coverage is $14,400 and is paid at the beginning of the first year.
Two-thirds of the premium relates to factory operations and one-third relates to selling and
administrative activities.
The amount of premium that should be recorded as a product cost for the first year is:
a.
$ 4,800.
b.
$ 2,400.
c.
$ 9,600.
d.
$14,400.
Jones Manufacturing Inc.
Jones Manufacturing Inc. incurred the following costs in November:
Direct labor
$50,000
Advertising costs
$ 3,000
Indirect labor
20,000
Factory rent
10,000
Administrative salaries
25,000
Factory depreciation
6,000
Direct materials purchased
23,000
Administrative rent
5,000
Indirect materials used
4,000
Administrative depreciation
7,000
In addition, the following information is also available: