Chapter 06 – Fundamentals of Product and Service Costing
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_____ 1. A system that provides information about the costs of processes, products, and
services used and produced by an organization.
_____ 2. Represents the cost per unit of the allocation base used to charge manufacturing
overhead to products and is calculated from the budgeted data.
_____ 3. The process of first allocating costs to intermediate cost pools and then to the
individual cost objects using different allocation bases.
_____ 4. Units of a product that are easily distinguishable from other units.
_____ 5. A system that generally mass-produces a single, homogeneous output in a continuing
process.
_____ 6. A standardized method or technique of making a product that is repetitively
performed.
_____ 7. An accounting system used when identical units are produced through a series of
uniform production steps.
_____ 8. A hybrid costing system often used in manufacturing goods that have some common
characteristics plus some individual characteristics.
_____ 9. An accounting system that traces costs to individual units or to specific jobs, contracts,
or batches of goods.
Answers
Chapter 06 – Fundamentals of Product and Service Costing
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7. H
8. F
9. D
Multiple Choice
1. Which of the following statements is correct?
a. A cost flow diagram is helpful by providing a graphical representation of the product
costing process.
b. Manufacturing overhead can be directly traced to products.
c. The cost system should be tailored to the needs of accountants.
d. The benefits of accurate cost information always outweigh the costs of the information
system.
2. Which of the following statements regarding the design of the cost systems is correct?
a. Cost systems should have a decision focus.
b. Different cost information is used for different purposes.
c. Cost information for managerial purposes must meet the cost-benefit test.
d. All of the above.
3. In June, 30,000 bushels of corn are 70% completed in the ending work-in-process inventory.
What are the equivalent units of production?
a. 18,000 bushels.
b. 19,500 bushels.
c. 21,000 bushels.
d. 24,000 bushels.
The following information is for questions 4 – 7.
Company B produces two products, P1 and P2, at its two departments: Machining and Assembly.
The accountant tries to allocate overhead costs to the two products.
Overhead
P1
P2
Total
Machining
$300,000
1,200 machine hours
800 machine hours
2,000 machine hours
Assembly
150,000
600 labor hours
900 labor hours
1,500 labor hours
Total
$450,000
4. If the accountant decides to allocate overhead based on machine hours, what is P2’s share of
the total overhead costs?
a. $180,000.
Chapter 06 – Fundamentals of Product and Service Costing
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b. $200,000.
c. $220,000.
d. $240,000
5. If the accountant decides to allocate overhead based on labor hours, what is P1’s share of the
total overhead costs?
a. $180,000.
b. $200,000.
c. $220,000.
d. $240,000.
6. If the accountant chooses machine hours for Machining and labor hours for Assembly as
allocation bases, what is the overhead rate at Machining?
a. $100 per labor hour.
b. $140 per labor hour.
c. $120 per machine hour.
d. $150 per machine hour.
7. If the accountant chooses machine hours for Machining and labor hours for Assembly as
allocation bases, what is P1’s share of the total overhead costs?
a. $180,000.
b. $240,000.
c. $270,000.
d. $300,000.
8. For a two-stage allocation system,
a. The first stage is the most difficult to accomplish.
b. Cost pools ideally consist of homogeneous cost items.
c. Exactly two overhead rates are required.
d. The allocation bases bear no relationship with the overhead costs.
9. Which of the following statements is false?
a. Jobs are indistinguishable from each other.
b. Companies that produce customized products use job costing methods.
c. Companies that generally mass-produce a single, homogeneous output in a continuing
process adopt the continuous flow processing.
d. Operation is a standardized method of making a product.
10. Operations costing
a. Is a hybrid costing system.
b. Is suitable when different products use the same production process and different
materials for input.
c. Combines features from both job and process costing.
d. All of the above.
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11. Job order system and process system are similar in the sense that
a. Both use the same inventory costing method.
b. Both keep track of prime costs, but not overhead items.
c. Both use the same manufacturing technique.
d. Both require inputs of direct materials, direct labor, and overhead.
12. The basic inventory equation can be represented by
a. BB + TI = TO + EB.
b. BB – TI = TO + EB.
c. BB + EB = TI + TO.
d. BB + TO – TI = EB.
Answers
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