Beruflich Dokumente
Kultur Dokumente
to accompany
Accounting
8th Edition
by
John Hoggett, Lew Edwards
John Medlin and Matthew Tilling
Prepared by
Barbara Burns
Chapter 8:
Multiple Choice
ANSWER C
Section 8.1
2. Costs which are not directly required to produce a product but are expensed in the income
statement in the period in which they are incurred are called:
a. Product costs
b. Period costs
c. Variable costs
d. Fixed costs
ANSWER B
Section 8.2
3. Product costs are integral to the production of a product and are expensed in the period in
which:
a. The related units are sold
b. The related units are produced
c. The costs are paid
d. The costs are incurred
ANSWER A
Section 8.2
ANSWER D
Section 8.2
d. No No Yes
ANSWER A
Section 8.1
ANSWER D
Section 8.2
ANSWER A
Section 8.2
ANSWER B
Section 8.3
ANSWER A
Section 8.3
10. Issues that must be resolved in accounting for factory overhead are all of the following
except:
a. The allocation of common costs between activities
b. The assignment of service department costs to production departments
c. How to assign factory overhead costs as product costs
ANSWER D
Section 8.3
11. As manufacturing overhead costs cannot be traced to products a method must be developed
for assigning them to products. Common bases for assignment are all of the following
except:
a. Direct labour cost
b. Direct labour hours
c. Machine hours
d. Direct labour hours plus direct machine hours
ANSWER D
Section 8.3
12. If projected factory overhead is $150 000 p.a. and projected direct labour hours are 30 000
hours p.a., the overhead application rate is:
a. $5 per Direct labour Hour
b. $30 per Direct labour Hour
c. 20c per Direct labour Hour
d. $150 000
ANSWER A
Section 8.3
13. What is the correct order in which the flow of costs in a manufacturing organisation
occurs?
1. Charge raw materials, direct labour and factory overhead to work in process
2. Purchase stocks of raw materials
3. Transfer finished goods to cost of sales
4. Transfer finished goods to stock of finished goods
a. 1, 2, 3, 4
b. 2, 1, 4, 3
c. 2, 1, 3, 4
d. 4, 3, 2, 1
ANSWER B
Section 8.3
14. Direct material costs plus direct labour costs are known as:
a. Prime costs
b. Conversion costs
c. Fixed costs
d. Period costs
ANSWER A
Section 8.3
a. Assigning the overhead on a basis that closely relates it to the work performed
b. Adding up the overhead
c. Directly tracing the overhead to products
d. Passing on the overhead costs to customers in the price charged
ANSWER A
Section 8.3
16. If expected factory overhead costs are $400 000 and expected direct labour hours are 40
000, what is the overhead application rate per direct labour hour?
a. $10
b. $100
c. $1 000
d. $16
ANSWER A
Section 8.3
17. Direct labour costs plus factory overhead costs are known as:
a. Prime costs
b. Conversion costs
c. Direct costs
d. Variable costs
ANSWER B
Section 8.3
ANSWER D
Section 8.4
19. If total fixed costs are $25 000 what is the per unit overhead cost for R Co if 50 000 units
are produced? Assume units of production are used as the basis for applying overhead to
product.
a. $50
b. $5
c. $0.50
d. $0.05
ANSWER C
Section 8.4
ANSWER B
Section 8.4
21. What type of business would calculate cost of sales in the income statement as stock of
finished goods at start + purchases stock of finished goods at end?
a. A service business
b. A manufacturer
c. A retailer
d. Partnership
ANSWER C
Section 8.5
22. For a manufacturer, if cost of goods manufactured is $652 000, stock of finished goods at
start is $36 000 and stock of finished goods at end is $40 000, calculate the cost of sales.
a. $656 000
b. $648 000
c. $728 000
d. Cannot be calculated with the information available
ANSWER B
Section 8.5
23. When preparing a Cost of Goods Manufactured Statement from the following information
the total cost of goods manufactured is:
Direct materials $8
Advertising expenses 3
Indirect labour 1
Indirect materials 5
Direct labour 2
Other manufacturing overhead 4
a. $23
b. $20
c. $17
d. $16
ANSWER B
$8 + $1 + $5 + $2 + $4
Section 8.5
24. These figures have been extracted from the trial balance of ABC Ltd for June 2011:
Direct Materials $5 000
Light and Power Factory 14 000
Freight Outwards 2 000
Office Salaries 11 000
Depreciation on Factory Plant 6 000
Directors' Fees 7 000
ANSWER B
$14 000 + $6 000 + $10 000
Section 8.5
ANSWER B
$50 + $30 + $20
Section 8.5
26. Mc Manufacturing reports the following information for a recent year. Determine the cost of
finished goods manufactured. $
Work in process 1 January 7 000
Work in process 31 December 10 000
Finished goods inventory 1 January 5 000
Finished goods inventory 31 December 6 000
Direct materials used 3 000
Direct labour 2 000
Factory overhead 2 000
Selling expenses 3 000
General and administrative expenses 4 000
a. $4000
b. $3000
c. $5000
d. $6000
ANSWER A
$7000 - $10 000 + $3 000 + $2 000 + $2 000
Section 8.5
ANSWER C
$35 000 + $7 500 - $12 700 - $8 900 - $11 500
Section 8.5
ANSWER A
$10 000 + $13 000 - $15 000
Section 8.5
29. Before the application of overhead costs Veccio Corporation has the following costs traced
to production:
Direct Materials Direct Labour
Charged to production $30 000 $40 000
Assuming that overhead is applied at the rate of 100% of direct labour cost what is the
amount of inventory finished for the period (assume no work in process)?
a. $30 000
b. $40 000
c. $80 000
d. $110 000
ANSWER D
$30 000 + $40 000 + OH $40 000
Section 8.5
30. In relation to the cost of goods manufactured report which is not a correct statement?
a. It is prepared to calculate the cost of goods completed in the period
b. The total of direct materials, direct labour and factory overhead represent the
manufacturing costs for the period
c. The ending work in process is subtracted to obtain the cost of completed goods
manufactured for the period
d. Cost of goods manufactured is transferred to the cost of sales account
ANSWER D
Section 8.5
ANSWER C
$100 000 [$5000 + $50 000 + $80 000 - $90 000]
Section 8.5
32. In the general ledger the accounts used to determine the cost of goods manufactured are
closed to the manufacturing summary account which is then closed to the:
a. Income summary account
b. Cost of sales account
c. Gross profit account
d. Profit account
ANSWER A
Section 8.6
ANSWER B
Section 8.7
34. How many of the following are reasons why managers need information on manufacturing
costs?
i. Inventory valuation
ii. Profit determination
iii. Pricing
iv. Future planning
a. 1
b. 2
c. 3
d. 4
ANSWER D
Section 8.1
ANSWER D
Section 8.2
1. The factory office and the quality control departments are known as s_____________
departments and are considered to be part of the manufacturing process.
2. P_______________ costs are expensed in the income statement in the period when they
are incurred.
ANSWER Period
Section 8.2
3. The cost of a finished product consists of three basic elements: raw materials,
d______________ l______________, and factory overhead.
4. All manufacturing costs, except direct materials and direct labour, are included in factory
_________________.
ANSWER overhead
Section 8.3
ANSWER overhead
Section 8.3
6. If budgeted overhead is $20,000 and estimated direct labour hours are 2000, the
overhead recovery rate is $_________ per direct labour hour.
ANSWER $10
Section 8.3
7. Fixed costs per unit vary (directly/inversely) __________ with the level of activity.
ANSWER inversely
Section 8.4
8. For a manufacturing firm, at the end of the accounting period, all manufacturing costs
are closed to the M________________ S_____________ ledger account.
ANSWER purchases
Section 8.5
10. Deficiencies of using a periodic inventory system for a manufacturer increase with the
number of products and production departments, consequently such a system can only
be used satisfactorily by a s_______ manufacturing entity.
ANSWER small
Section 8.6
QUESTION 8.1
REQUIRED:
Question 8.2
During the first month of the current accounting period, Carlo Limited experienced a
devastating loss due to a fire. Many of the accounting records were lost and the company is
now trying to re-create the lost information. Fragments of data include the following:
A portion of the budget indicates that the manufacturing overhead rate was $10 per direct
labour hour.
Job 44 was in process and had incurred $9,600 of direct materials and $14,000 of direct
labour (1,000 hours). The company has a single hourly wage rate.
4,500 direct labour hours were worked during the month.
Actual manufacturing overhead costs were $48,000. No indirect materials were used.
The materials inventory account had a beginning balance of $28,000 and an ending
balance of $18,000.
The finished goods inventory account had a beginning balance of $12,000 and an ending
balance of $26,000.
The work in progress inventory account had a beginning balance of $17,000.
The cost of sales is $171,000
REQUIRED
a)
Mungo and Associates
$
Total manufacturing costs 69,000
c)
$
Cost of sales 70,000
d)
$
Profit after tax 4,000
Sales 108,000
Less cost of sales 70,000
Gross margin 38,000
Less advertising and admin expenses 32,000
Income before taxes 6,000
Less income tax expense 2,000
Profit after tax $ 4,000
b)
Cost of goods completed = $185,000
Ending finished goods inventory + cost of sales - beginning finished goods inventory
= $26,000 + $171,000 - $12,000
c)
d)
Direct materials purchased = $83,600
Ending materials inventory + direct materials used - beginning materials inventory
= $18,000 + $93,600 - $28,000