61. 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
NARRBEGIN: Jones Manufacturing1
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:
Beginning
Ending
Raw materials
$ 5,000
$ 8,000
Work-in-process
60,000
55,000
Finished goods
17,250
9,200
Number of units produced
20,000 units
Number of units sold
(sales price of $25 per unit)
21,400 units
NARREND
62. Refer to the Jones Manufacturing Inc. information above. Cost of goods manufactured in November is:
a.
$ 91,000
b.
$115,000
c.
$155,000
d.
$143,000
63. Refer to the Jones Manufacturing Inc. information above. The product cost per unit in November is:
a.
$4.55
b.
$7.75
c.
$5.75
d.
$5.37
64. Refer to the Jones Manufacturing Inc. information above. Net income for November is: (ignore taxes)
a.
$371,950
b.
$411,950
c.
$369,150
d.
$382,000
65. 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
66. 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
67. 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 income for March?
a.
$529,000
b.
$473,800
c.
$451,000
d.
$469,000
Managerial ACCT Test Bank Chapter 2 16
68. 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 income.
NARRBEGIN: Franklin Street
Franklin Street Manufacturing
Franklin Street Manufacturing has the following cost information available for 2009:
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.
NARREND
69. Refer to the Franklin Street Manufacturing information above. What is cost of goods sold for 2009?
a.
$55,000
b.
$52,250
c.
$61,750
d.
$65,000
70. Refer to the Franklin Street Manufacturing information above. What is net income for 2009?
a.
$127,750
b.
$137,750
c.
$125,000
d.
$128,250
71. 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
SHORT ANSWER
1. Provide specific examples of why accurate product or service costing information is important for
internal purposes.
2. Briefly compare a traditional manufacturing environment with a lean production and just–in-time (JIT)
manufacturing environment.
3. Describe the cost accumulation process in a traditional manufacturing environment versus a just–in–
time (JIT) environment.
4. Identify at least two characteristics of a lean production and just–in-time (JIT) manufacturing
environment.
5. Identify some of the benefits and risks of a lean production and just–in-time (JIT) environment.
Managerial ACCT Test Bank Chapter 2 19
6. Describe each of the following as either a product or period cost.
a.
factory depreciation
f.
direct materials
b.
indirect labor
g.
indirect materials
c.
administrative salaries
h.
advertising
d.
direct labor
i.
factory insurance
e.
utilities used in the factory
j.
utilities used in the administrative offices
a.
product
product
b.
product
g.
product
c.
period
h.
period
d.
product
i.
product
e.
product
period
7. Briefly describe the difference between a manufacturing and a nonmanufacturing cost.
8. Identify with an “X” the following costs as either a manufacturing (product) or nonmanufacturing
(period) cost. If it is a manufacturing cost, further identify it as either direct material (DM), direct labor
(DL), or overhead (OH).
Manufacturing Cost
Nonmanufacturing Cost
DM
DL
OH
Indirect labor
Factory supplies
Material easily traced to product
Administrative salaries
Factory rent
Indirect materials
Managerial ACCT Test Bank Chapter 2 20
Shipping costs
Administrative building utilities
Factory equipment depreciation
Machine operator
9. Classify the following as either direct labor (DL), indirect labor (IL), or a period cost (P).
a.
factory maintenance worker
b.
company president
c.
assembly-line worker
d.
salesperson working on commission
e.
factory supervisor
f.
administrative assistant
g.
machine operator
a.
b.
P
c.
d.
P
e.
P
g.
10. Classify each of the following as either a direct material (DM), indirect material (IM), or period cost
(P).
a.
wood used to build custom bookshelves
b.
sandpaper, glue, and nails used to build customer bookshelves.
c.
paper supplies used in the administrative offices.
d.
computer chips used in computer
e.
cleaning supplies used in the factory
Indirect labor
Factory supplies
Material easily traced to product
Administrative salaries
Factory rent
Indirect materials
Shipping costs
Administrative building utilities
Factory equipment depreciation
Machine operator
DM
b.
P
d.
DM
PROBLEM
1. Capital Manufacturing produces a unique souvenir product for various museums around the country.
During the year, the company incurred the following costs:
Direct material used
$50,000
Direct labor
80,000
Manufacturing overhead
30,000
Marketing expenses
10,000
Administrative expenses
20,000
During the year, 25,000 units were produced out of which 20,000 units were sold for $15 each.
Required:
A.
Calculate the total product costs incurred for the year.
B.
What is the product cost per unit?
C.
What is cost of goods sold for the year?
D.
What is net income for the year?
A.
Total product costs = $160,000 ($50,000 + $80,000 + $30,000)
B.
Product cost per unit = $6.40 ($160,000/25,000 units)
Cost of goods sold = $128,000 ($6.40 per unit 20,000 units sold)
Net income = $142,000 [(20,000 $15) − 128,000 − 30,000]
Managerial ACCT Test Bank Chapter 2 22
2. McClintock Manufacturing Inc. has the following information available for the month of July:
Beginning
Ending
Raw materials inventory
$12,000
$ 8,000
Work-in-process inventory
45,000
55,000
Finished goods inventory
9,000
11,000
Raw materials purchased
$45,000
Direct labor costs
80,000
Overhead costs
30,000
Selling and administrative costs
20,000
Required:
A.
Calculate raw materials used for July.
B.
Calculate cost of goods manufactured for July.
C.
Calculate cost of goods sold for July
D.
Assume that sales revenue totaled $250,000, calculate net income for July. (ignore taxes)
3. Pearce Manufacturing Inc. incurred the following costs in February:
Direct labor
$40,000
Advertising costs
$1,000
Indirect labor
15,000
Factory rent
4,000
Administrative salaries
8,000
Factory depreciation
2,000
Raw materials purchased
10,000
Administrative rent
3,000
Indirect materials used
4,000
Administrative depreciation
1,000
In addition, the following information is also available:
Beginning
Ending
Raw materials
$ 2,000
$ 4,000
Work-in-process
25,000
18,000
Finished goods
4,000
12,000
Number of units produced
10,000 units
Number of units sold
(sales price of $25 per unit)
9,000 units
Raw materials used = $49,000 ($12,000 + $45,000 − $8,000)
$55,000)
Net Income = $83,000 ($250,000 − $147,000 − $20,000)
Managerial ACCT Test Bank Chapter 2 23
Required:
A.
Calculate total period costs.
B.
Calculate raw materials used.
C.
Calculate cost of goods manufactured.
D.
Calculate the product cost per unit.
E.
Calculate cost of goods sold.
F.
Calculate net income. (ignore taxes)
4. Creative Products Inc. incurred the following costs (in alphabetical order) during 2005 related to one
of its products:
Administrative costs
$ 2,000
Advertising costs
1,000
Direct material used
8,000
Direct labor
20,000
Factory equipment depreciation
1,000
Factory rent
5,000
Indirect labor
3,000
Indirect materials
2,000
During the year, 3,000 units were produced out of which 2,750 units were sold for $30 each.
Raw Material used = $8,000 (2,000 + 10,000 − 4,000)
C.
Cost of goods manufactured = $80,000
(25,000 + 8,000 + 40,000 + 15,000 + 4,000 + 4,000 + 2,000 − 18,000)
D.
Product cost = $8.00 per unit ($80,000/10,000 units)
Cost of goods sold = $72,000 (9,000 units sold $8.00)
NI = $140,000 [(9,000 $25) − 72,000 − 13,000]
Managerial ACCT Test Bank Chapter 2 24
Required:
A.
Calculate the total product costs incurred for the year.
B.
What is the product cost per unit?
C.
What is cost of goods sold for the year?
D.
What is net income for the year?
5. The following information is available for the Brown Company for the month ended July 31:
Direct materials purchased
$ 21,000
Direct labor (2,500 hrs@$12)
30,000
Indirect labor
3,000
Indirect materials
2,500
Office supplies expense
100
Factory equipment depreciation
2,000
Office Equipment depreciation
750
Administrative expenses
20,000
Office utilities
75
Factory utilities
200
Marketing expense
2,500
Sales revenue
150,000
Sales commissions expense
1,500
Beginning
Ending
Direct materials inventory
$27,000
$ 24,500
Work in process inventory
25,000
29,000
Finished Goods inventory
22,000
15,000
Required:
A.
Determine the direct materials used in July.
B.
Determine cost of goods manufactured in July.
C.
Determine cost of goods sold for July.
D.
Prepare an income statement for July. (ignore taxes)
A.
Total product costs = $39,000 (8,000 + 20,000 + 5,000 + 3,000 + 2,000 + 1,000)
B.
Product cost per unit = $13.00 ($39,000/3,000)
Net Income = 43,750 [($30 2,750) − 35,750 − 2,000 − 1,000)
