Chapter 01

The Changing Role of Managerial Accounting in a Dynamic

Business Environment

True / False Questions

1. Controlling involves the coordination of daily business functions within an organization.

True False

2. Measuring the performance of managers and subunits is not an objective of managerial

accounting.
True False

3. Middle-level managers would likely be considered internal users of accounting information rather
than external users.
True False

4. A controller is normally involved with preparing financial statements.

True False
5. The upper limit on the production of goods and services if everything works perfectly is known as
practical capacity.
True False

Multiple Choice Questions

6. Which of the following statements about managerial accountants is false?
A. Managerial accountants more and more are considered "business partners."
B. Managerial accountants often are part of cross-functional teams.
C. An increasing number of organizations are segregating managerial accountants in separate
managerial-accounting departments.
D. In a number of companies, managerial accountants make significant business decisions and resolve
operating problems.
E. The role of managerial accountants has changed considerably over the past decade.

7. The day-to-day work of management teams will typically comprise all of the following activities
except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.

8. Which of the following functions is best described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.

9. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.
10. Which of the following involves the coordination of daily business functions within an
organization?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Motivating.

11. Taurus Company has set various goals, and management is now taking appropriate action to
ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which
have exceeded budgeted amounts. Which of the following functions best describes this process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.

12. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.
B. Assisting in directing and controlling operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers and subunits.
E. Motivating managers toward the organization's goals.

13. The role of managerial accounting information in assisting management is a(n):

A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.
14. Employee empowerment involves encouraging and authorizing workers to take initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. All of these.

15. The process of encouraging and authorizing workers to take appropriate initiatives to improve the
overall firm is commonly known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.

16. Which of the following business models considers financial, customer, internal operating, and
other measures in the evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).

17. Which of the following perspectives is normally absent in a balanced scorecard?

A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of these.
18. Managerial accounting:
A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.

19. Managerial accounting:

A. is unregulated.
B. produces information that is useful only for manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange Commission (SEC).
E. generally focuses on reporting information about the enterprise in its entirety rather than by
subunits.

20. All of the following entities would have a need for managerial accounting information except:
A. the state of Michigan.
B. Google.
C. Abercrombie & Fitch.
D. H&R Block.
E. None of these responses is correct, as all of these entities would use managerial accounting
information.
21. Which of the following choices correctly depicts whether McDonald's, the University of Wisconsin,
and Apple Inc. would have a need for managerial accounting?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

22. Which of the following would likely be considered an internal user of accounting information
rather than an external user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.

23. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.
B. to parties within an organization.
C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.
24. Which of the following characteristic(s) relate(s) more to managerial accounting than to financial
accounting?
A. A focus on reporting to personnel within an organization.
B. A focus on reporting to external parties.
C. An area of accounting that is heavily regulated.
D. A focus on providing information that is relevant for planning, decision making, directing, and
control.
E. Choices "A" and "D" above.

25. Which of the following statements represents a similarity between financial and managerial
accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's accounting system.
D. Both rely heavily on published financial statements.
E. Both are solely concerned with historical transactions.

26. Which of the following employees at Delta Airlines would not be considered as holding a line
position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.

27. Which of the following employees would be considered as holding a line position?
A. Exxon Corporation's vice-president for government relations.
B. The controller of General Motors.
C. A secretary employed by Verizon Communications.
D. The manager of food and beverage services at Disney's Magic Kingdom.
E. None of these.
28. Which of the following employees at Starbucks would likely be considered as holding a staff
position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Choices "C" and "D" above.

29. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).

30. Which of the following typically does not relate to the role of a controller?
A. A controller supervises the accounting department.
B. A controller safeguards an organization's assets.
C. A controller oversees the preparation of reports required by governmental authorities.
D. A controller normally assumes a narrow role within the organization, often preventing the
individual's rise to top management ranks.
E. Choices "B" and "D" above.

31. A controller is normally involved with:

A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.
32. Which of the following is not a function of the treasurer?
A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit policy.
E. Raising capital.

33. Managerial accountants:

A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found primarily at lower levels of the organizational hierarchy.
D. are found primarily at higher levels of the organizational hierarchy.
E. choices "A" and "B" above.

34. The two dimensions of managerial accounting are:

A. a decision-facilitating dimension and a decision-influencing dimension.
B. a decision-facilitating dimension and a financial-influencing dimension.
C. a decision-influencing dimension and a cost-minimizing dimension.
D. a cost-minimizing dimension and a profit-maximizing dimension.
E. a decision-influencing dimension and a profit-maximizing dimension.

35. Much of managerial accounting information is based on:

A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.
36. Which of the following is not normally considered to be an element of e-business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.
37. Managerial accounting has changed in recent years because of:
A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. All of these factors.

38. Managerial accounting has changed in recent years because of:

A. a growing service economy in the United States.
B. the growing popularity of cross-functional teams.
C. an increase in global competition.
D. time-based competition.
E. All of these factors.

39. Which of the following statement(s) about just-in-time (JIT) inventory management is (are) true?
I. The emphasis of JIT is on "pull" manufacturing.
II. Raw materials are purchased just in time to be used in production.
III. JIT is an inventory technique that focuses on reduction of both inventory and related inventory
costs.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.

40. Idaho Corporation recently implemented a just-in-time (JIT) production system along with a series
of continuous improvement programs. If the firm is now considering adopting a total quality
management (TQM) program, it would likely find that TQM:
A. is consistent with both JIT and continuous improvement.
B. is consistent with JIT but inconsistent with continuous improvement.
C. is consistent with continuous improvement but inconsistent with JIT.
D. is inconsistent with both JIT and continuous improvement.
E. is an antiquated management technique.
41. Kaizen costing is consistent with:
A. cost reduction.
B. continuous improvement.
C. poor quality.
D. financial accounting and income statements.
E. both choices "A" and "B" above.

42. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.

43. The upper limit on the production of goods and services if everything works perfectly is known as:
A. practical capacity.
B. theoretical capacity.
C. utilized capacity.
D. management capacity.
E. capacity maximization.

44. The capacity concept that allows for normal occurrences such as machine downtime and
employee fatigue is known as:
A. practical capacity.
B. theoretical capacity.
C. utilized capacity.
D. management capacity.
E. capacity maximization.
45. The cost of resources supplied but unused is known as:
A. practical capacity costs.
B. the cost of theoretical capacity.
C. the cost of unused capacity.
D. the cost of resources supplied.
E. capacity cost.

46. Given the following information, what is the cost of unused capacity? Cost of material supplied is
$3,200; Cost of material used is $3,000; Cost of material used per cake is $3; Cost of material supplied
per cake is $3.20.
A. $0.20.
B. $200.
C. $2,000.
D. $1,000.
E. There is no unused capacity.

47. Given the following information, what is the cost of unused capacity? Cost of material supplied is
$8,600; Cost of material used is $8,000; Cost of material used per shelf is $8; Cost of material supplied
per shelf is $8.60.
A. $600.
B. $6,000.
C. $0.60.
D. $1,000.
E. There is no unused capacity.

48. The value chain of a manufacturer would tend to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. marketing.
E. All of these.
49. Which of the following choices correctly depicts activities that would be included in a
manufacturer's value chain?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

50. Which of the preceding activities would likely not be considered part of The Gap clothing
company's value chain?
A. Designing a new product line.
B. Locating and then negotiating terms with a clothing manufacturer.
C. Marketing an existing product line.
D. Distributing goods from regional warehouses to local stores.
E. All of these activities would be an element in the company's value chain.

51. The activities performed by a manufacturing organization could be categorized as pre-production

(such as research and development and product design), production-related, and post-production
(such as marketing and customer service). Which activities should the firm focus on if management
understands the value chain concept and desires to meet organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Choices "A", "B", and "C" above.
E. Choices "A" and "B" above.
52. In order for a company to achieve a sustainable competitive advantage, it must perform value
chain activities:
A. at the same quality level as competitors, at the same cost.
B. at the same quality level as competitors, but at a lower cost.
C. at a higher quality level than competitors, at a higher cost.
D. at a higher quality level than competitors, but at no greater cost.
E. Either choice "B" or "D" above.

53. The process of managing the various activities in the value chain, along with the associated costs,
is commonly known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).

54. A company has a bottleneck operation that slows production. Which of the following tools or
approaches could the firm use to determine the most cost-effective ways to eliminate this problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).

55. Which of the following can be linked to a wave of corporate scandals that took place not too long
ago?
A. Greedy corporate executives.
B. Managers who made over-reaching business deals.
C. Lack of oversight by companies' audit boards and boards of directors.
D. Shoddy work by external auditors.
E. All of these.
56. Which of the following acts strives to improve corporate governance and the quality of corporate
accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.

57. Which of the following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for the rash of corporate scandals that occurred
not too long ago.
B. Unethical business behavior can have a negative impact on our economy.
C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.
D. The Robinson-Patman Act strives to improve the overall quality of corporate reporting.
E. Corporate scandals have served as the accounting profession's wake-up call to pay increased
attention to ethical issues in the conduct of business.

58. Which of the following is not an ethical standard of managerial accounting?

A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.

59. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To perform duties in accordance with relevant laws.
C. To perform duties in accordance with relevant technical standards.
D. To refrain from engaging in an activity that would discredit the accounting profession.
E. To prepare clear reports after an analysis of relevant and reliable information.
60. Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will
have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.

Chapter 02
Basic Cost Management Concepts and Accounting for Mass
Customization Operations

True / False Questions

1. Inventoriable costs are expensed when incurred.

True False

2. Finished goods inventory is ordinarily held for sale by a manufacturing company.

True False

3. Indirect labor is not a component of manufacturing overhead.

True False
4. The following equation -- Beginning finished goods + cost of goods manufactured - ending finished
goods -- is used to calculate cost of goods sold during the period.
True False

5. A suitable cost driver for the amount of direct materials used is the number of direct labor hours
worked.
True False

Multiple Choice Questions

6. Which of the following statements is true?
A. The word "cost" has the same meaning in all situations in which it is used.
B. Cost data, once classified and recorded for a specific application, are appropriate for use in any
application.
C. Different cost concepts and classifications are used for different purposes.
D. All organizations incur the same types of costs.
E. Costs incurred in one year are always meaningful in the following year.

7. Product costs are:

A. expensed when incurred.
B. inventoried.
C. treated in the same manner as period costs.
D. treated in the same manner as advertising costs.
E. subtracted from cost of goods sold.

8. Which of the following is a product cost?

A. Glass in an automobile.
B. Advertising.
C. The salary of the vice president-finance.
D. Rent on a factory.
E. Both "A" and "D."

9. Which of the following would not be classified as a product cost?

A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on a manufacturing plant.
E. Sales commissions.
10. The accounting records of Georgia Company revealed the following costs: direct materials used,
$250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative
expenses, $220,000. Georgia's product costs total:
A. $1,050,000.
B. $830,000.
C. $895,000.
D. $1,270,000.
E. some other amount.

11. Costs that are expensed when incurred are called:

A. product costs.
B. direct costs.
C. inventoriable costs.
D. period costs.
E. indirect costs.

12. Which of the following is a period cost?

A. Direct material.
B. Advertising expense.
C. Indirect Labor.
D. Miscellaneous supplies used in production activities.
E. Both "B" and "C."

13. Which of the following is not a period cost?

A. Legal costs.
B. Public relations costs.
C. Sales commissions.
D. Wages of assembly-line workers.
E. The salary of a company's chief financial officer (CFO).
14. The accounting records of Reynolds Corporation revealed the following selected costs: Sales
commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000.
Reynolds's period costs total:
A. $250,000.
B. $440,000.
C. $375,000.
D. $255,000.
E. $185,000.

15. Yang Corporation recently computed total product costs of $567,000 and total period costs of
$420,000, excluding $35,000 of sales commissions that were overlooked by the company's
administrative assistant. On the basis of this information, Yang's income statement should reveal
operating expenses of:
A. $35,000.
B. $420,000.
C. $455,000.
D. $567,000.
E. $602,000.

16. Which of the following entities would most likely have raw materials, work in process, and
finished goods?
A. Exxon Corporation.
B. Macy's Department Store.
C. Wendy's.
D. Southwest Airlines.
E. Columbia University.

17. Selling and administrative expenses would likely appear on the balance sheet of:
A. The Gap.
B. Texas Instruments.
C. Turner Broadcasting System.
D. All of these firms.
E. None of these firms.
18. Which of the following inventories would a discount retailer such as Wal-Mart report as an asset?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Merchandise inventory.
E. All of these.

19. Which of the following inventories would a company ordinarily hold for sale?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Raw materials and finished goods.
E. Work in process and finished goods.

20. Godfrey Corporation engages in mass customization and direct sales, the latter by accepting
customer orders over the Internet. As a result, Godfrey:
A. would probably begin the manufacturing process upon receipt of a customer's order.
B. would typically have fairly low inventory levels for the amount of sales revenue generated.
C. would typically have fairly high inventory levels for the amount of sales revenue generated.
D. would likely find choices "A" and "B" to be applicable.
E. would likely find choices "A" and "C" to be applicable.

21. Companies that engage in mass customization:

A. tend to have a relatively low production volume.
B. tend to have a high production volume that involves highly standardized end-products.
C. tend to have a high production volume, many standardized components, and customer-specified
combinations of components.
D. tend to have a high production volume, many unique components, and customer-specified
combinations of components.
E. could be typified by the refining operations of Shell Oil.
22. Mideast Motors manufactures automobiles. Which of the following would not be classified as
direct materials by the company?
A. Wheel lubricant.
B. Tires.
C. Interior leather.
D. CD player.
E. Sheet metal used in the automobile's body.

23. Which of the following employees of a commercial printer/publisher would be classified as direct
labor?
A. Book binder.
B. Plant security guard.
C. Sales representative.
D. Plant supervisor.
E. Payroll supervisor.

24. Lake Appliance produces washers and dryers in an assembly-line process. Labor costs incurred
during a recent period were: corporate executives, $500,000; assembly-line workers, $180,000;
security guards, $45,000; and plant supervisor, $110,000. The total of Lake's direct labor cost was:
A. $110,000.
B. $180,000.
C. $155,000.
D. $235,000.
E. $735,000.

25. Which of the following employees would not be classified as indirect labor?
A. Plant Custodian.
B. Salesperson.
C. Assembler of wooden furniture.
D. Plant security guard.
E. Choices "B" and "C."
26. Depreciation of factory equipment would be classified as:
A. operating cost.
B. "other" cost.
C. manufacturing overhead.
D. period cost.
E. administrative cost.

27. Which of the following costs is not a component of manufacturing overhead?

A. Indirect materials.
B. Factory utilities.
C. Factory equipment.
D. Indirect labor.
E. Property taxes on the manufacturing plant.

28. The accounting records of Diego Company revealed the following costs, among others:

Costs that would be considered in the calculation of manufacturing overhead total:

A. $149,000.
B. $171,000.
C. $186,000.
D. $442,000.
E. some other amount.
29. Which of the following statements is (are) correct?
A. Overtime premiums should be treated as a component of manufacturing overhead.
B. Overtime premiums should be treated as a component of direct labor.
C. Idle time should be treated as a component of direct labor.
D. Idle time should be accounted for as a special type of loss.
E. Both "B" and "C" are correct.
30. Conversion costs are:
A. direct material, direct labor, and manufacturing overhead.
B. direct material and direct labor.
C. direct labor and manufacturing overhead.
D. prime costs.
E. period costs.

31. Prime costs are comprised of:

A. direct materials and manufacturing overhead.
B. direct labor and manufacturing overhead.
C. direct materials, direct labor, and manufacturing overhead.
D. direct materials and direct labor.
E. direct materials and indirect materials.

32. Which of the following statements is true?

A. Product costs affect only the balance sheet.
B. Product costs affect only the income statement.
C. Period costs affect only the balance sheet.
D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a
true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation).
E. Product costs eventually affect both the balance sheet and the income statement.

33. In a manufacturing company, the cost of goods completed during the period would include which
of the following elements?
A. Raw materials used.
B. Beginning finished goods inventory.
C. Marketing costs.
D. Depreciation of delivery trucks.
E. All of the above.
34. Which of the following equations is used to calculate cost of goods sold during the period?
A. Beginning finished goods + cost of goods manufactured + ending finished goods.
B. Beginning finished goods - ending finished goods.
C. Beginning finished goods + cost of goods manufactured.
D. Beginning finished goods + cost of goods manufactured - ending finished goods.
E. Beginning finished goods + ending finished goods - cost of goods manufactured.

35. Work-in-process inventory is composed of:

A. direct material and direct labor.
B. direct labor and manufacturing overhead.
C. direct material and manufacturing overhead.
D. direct material, direct labor, and manufacturing overhead.
E. direct material only.

36. Holden Industries began July with a finished-goods inventory of $48,000. The finished-goods
inventory at the end of July was $56,000 and the cost of goods sold during the month was $125,000.
The cost of goods manufactured during July was:
A. $104,000.
B. $125,000.
C. $117,000.
D. $133,000.
E. some other amount.

37. Carolina Plating Company reported a cost of goods manufactured of $520,000, with the firm's
year-end balance sheet revealing work in process and finished goods of $70,000 and $134,000,
respectively. If supplemental information disclosed raw materials used in production of $80,000,
direct labor of $140,000, and manufacturing overhead of $240,000, the company's beginning work in
process must have been:
A. $130,000.
B. $10,000.
C. $66,000.
D. $390,000.
E. some other amount.
38. The accounting records of Bronco Company revealed the following information:

Bronco's cost of goods manufactured is:

A. $519,000.
B. $522,000.
C. $568,000.
D. $571,000.
E. some other amount.

39. The accounting records of Dolphin Company revealed the following information:

Dolphin's cost of goods sold is:

A. $508,000.
B. $529,000.
C. $531,000.
D. $553,000.
E. some other amount.
40. The accounting records of Brownwood Company revealed the following information:

Brownwood's cost of goods sold is:

A. $721,000.
B. $730,000.
C. $778,000.
D. $787,000.
E. some other amount.

41. For the year just ended, Cole Corporation's manufacturing costs (raw materials used, direct labor,
and manufacturing overhead) totaled $1,500,000. Beginning and ending work-in-process inventories
were $60,000 and $90,000, respectively. Cole's balance sheet also revealed respective beginning and
ending finished-goods inventories of $250,000 and $180,000. On the basis of this information, how
much would the company report as cost of goods manufactured (CGM) and cost of goods sold (CGS)?
A. CGM, $1,430,000; CGS, $1,460,000.
B. CGM, $1,470,000; CGS, $1,540,000.
C. CGM, $1,530,000; CGS, $1,460,000.
D. CGM, $1,570,000; CGS, $1,540,000.
E. Some other amounts.
42. If purchases of raw materials were $135,000 during the year, what was the amount of raw
materials used during the year?
A. $129,200.
B. $140,800.
C. $135,000.
D. $146,600.
E. some other amount.

43. If raw materials used during the year were $135,000 what was the amount of raw materials
purchased during the year?
A. $129,200.
B. $140,800.
C. $135,000.
D. $146,600.
E. some other amount.

44. If direct materials used during the year were $135,000, what was cost of goods manufactured?
A. $140,500.
B. $539,000.
C. $409,500.
D. $544,500.
E. some other amount.
45. If the cost of goods manufactured for the year was $565,000, what was the amount of direct
materials used during the year?
A. $155,500.
B. $140,500.
C. $150,000.
D. $145,500.
E. some other amount.

46. If the cost of goods manufactured for the year was $385,000, what was the cost of goods sold for
the year?
A. $395,400.
B. $385,000.
C. $390,200.
D. $400,600.
E. some other amount.

47. If the cost of goods sold for the year was $427,500, what was the cost of goods manufactured for
the year?
A. $402,100.
B. $422,300.
C. $417,100.
D. $427,500.
E. some other amount.
48. Glass Industries reported the following data for the year just ended: sales revenue, $1,750,000;
cost of goods sold, $980,000; cost of goods manufactured, $560,000; and selling and administrative
expenses, $170,000. Glass' gross margin would be:
A. $940,000.
B. $1,190,000.
C. $1,020,000.
D. $380,000.
E. $770,000.

49. Pumpkin Enterprises began operations on January 1, 20x1, with all of its activities conducted from
a single facility. The company's accountant concluded that the year's building depreciation should be
allocated as follows: selling activities, 20%; administrative activities, 35%; and manufacturing
activities, 45%. If Pumpkin sold 60% of 20x1 production during that year, what percentage of the
depreciation would appear (either directly or indirectly) on the 20x1 income statement?
A. 27%.
B. 45%.
C. 55%.
D. 82%.
E. 100%.

50. An employee accidentally overstated the year's advertising expense by $50,000. Which of the
following correctly depicts the effect of this error?
A. Cost of goods manufactured will be overstated by $50,000.
B. Cost of goods sold will be overstated by $50,000.
C. Both cost of goods manufactured and cost of goods sold will be overstated by $50,000.
D. Cost of goods sold will be overstated by $50,000, and cost of goods manufactured will be
understated by $50,000.
E. None of these.
51. Which of the following would likely be a suitable cost driver for the amount of direct materials
used?
A. The number of units sold.
B. The number of direct labor hours worked.
C. The number of machine hours worked.
D. The number of units produced.
E. The number of employees working in the factory.

52. The choices below depict five costs of Benton Corporation and a possible driver for each cost.
Which of these choices likely contains an inappropriate cost driver?
A. Gasoline consumed; number of miles driven.
B. Manufacturing overhead incurred in a heavily automated facility; direct labor hours.
C. Sales commissions; gross sales revenue.
D. Building maintenance cost; building square footage.
E. Human resources department cost; number of employees.

53. Variable costs are costs that:

A. vary inversely with changes in activity.
B. vary directly with changes in activity.
C. remain constant as activity changes.
D. decrease on a per-unit basis as activity increases.
E. increase on a per-unit basis as activity increases.

54. As activity decreases, unit variable cost:

A. increases proportionately with activity.
B. decreases proportionately with activity.
C. remains constant.
D. increases by a fixed amount.
E. decreases by a fixed amount.
55. As activity increases, unit variable cost:
A. increases proportionately with activity.
B. decreases proportionately with activity.
C. remains constant.
D. increases by a fixed amount.
E. decreases by a fixed amount.

56. Which of the following is not an example of a variable cost?

A. Straight-line depreciation on a machine that has a five-year service life.
B. Wages of manufacturing workers whose pay is based on hours worked.
C. Tires used in the production of tractors.
D. Aluminum used to make patio furniture.
E. Commissions paid to sales personnel.

57. Fixed costs are costs that:

A. vary directly with changes in activity.
B. vary inversely with changes in activity.
C. remain constant on a per-unit basis.
D. remain constant as activity changes.
E. increase on a per-unit basis as activity increases.

58. The fixed cost per unit:

A. will increase as activity increases.
B. will increase as activity decreases.
C. will decrease as activity increases.
D. will remain constant.
E. will exhibit the behavior described in choices "B" and "C."
59. Which of the following is an example of a fixed cost?
A. Paper used in the manufacture of textbooks.
B. Property taxes paid by a firm to the City of Los Angeles.
C. The wages of part-time workers who are paid $8 per hour.
D. Gasoline consumed by salespersons' cars.
E. Surgical supplies used in a hospital's operating room.
60. The true statement about cost behavior is that:
A. variable costs are constant on a per-unit basis and change in total as activity changes.
B. fixed costs are constant on a per-unit basis and change in total as activity changes.
C. fixed costs are constant on a per-unit basis and constant in total as activity changes.
D. variable costs change on a per-unit basis and change in total as activity changes.
E. variable costs are constant on a per-unit basis and are constant in total as activity changes.

61. The true statement about cost behavior is that:

A. variable costs change on a per-unit basis and change in total as activity changes.
B. fixed costs are constant on a per-unit basis and change in total as activity changes.
C. fixed costs are constant on a per-unit basis and constant in total as activity changes.
D. fixed costs change on a per-unit basis and are constant in total as activity changes.
E. variable costs are constant on a per-unit basis and are constant in total as activity changes.

62. The variable costs per unit are $6 when a company produces 12,000 units of product. What are the
variable costs per unit when 14,000 units are produced?
A. $4.50.
B. $5.00.
C. $5.50.
D. $6.00.
E. Some other amount.

63. The fixed costs per unit are $10 when a company produces 10,000 units of product. What are the
fixed costs per unit when 8,000 units are produced?
A. $12.50.
B. $10.00.
C. $8.00.
D. $6.50.
E. $5.50.
64. Total costs are $180,000 when 10,000 units are produced; of this amount, variable costs are
$64,000. What are the total costs when 13,000 units are produced?
A. $199,200.
B. $214,800.
C. $234,000.
D. Some other amount.
E. Total costs cannot be calculated based on the information presented.

65. When 5,000 units are produced variable costs are $35 per unit and total costs are $200,000. What
are the total costs when 8,000 units are produced?
A. $200,000.
B. $305,000.
C. $240,000.
D. Some other amount.
E. Total costs cannot be calculated based on the information presented.

66. Baxter Company, which pays a 10% commission to its salespeople, reported sales revenues of
$210,000 for the period just ended. If fixed and variable sales expenses totaled $56,000, what would
these expenses total at sales of $168,000?
A. $16,800.
B. $35,000.
C. $44,800.
D. $51,800.
E. Some other amount.

67. Which of the following would not be characterized as a cost object?

A. An automobile manufactured by General Motors.
B. The New York Fire Department.
C. A Burger King restaurant located in Cleveland, Ohio.
D. A Delta Airlines flight from Atlanta to Miami.
E. All of these are examples of cost objects.
68. Costs that can be easily traced to a specific department are called:
A. direct costs.
B. indirect costs.
C. product costs.
D. manufacturing costs.
E. processing costs.

69. Which of the following would not be considered a direct cost with respect to the service
department of a new car dealership?
A. Wages of repair technicians.
B. Property taxes paid by the dealership.
C. Repair parts consumed.
D. Salary of the department manager.
E. Depreciation on new equipment used to analyze engine problems.

70. Indirect costs:

A. can be traced to a cost object.
B. cannot be traced to a particular cost object.
C. are not important.
D. are always variable costs.
E. may be indirect with respect to Disney World but direct with respect to one of its major
components, Epcot Center.

71. The salary that is sacrificed by a college student who pursues a degree full time is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. opportunity cost.
D. differential cost.
E. marginal cost.
72. The tuition that will be paid next semester by a college student who pursues a degree is a(n):
A. sunk cost.
B. out-of-pocket cost.
C. indirect cost.
D. average cost.
E. marginal cost.

73. Which of the following costs should be ignored when choosing among alternatives?
A. Opportunity costs.
B. Sunk costs.
C. Out-of-pocket costs.
D. Differential costs.
E. None of these.

74. If the total cost of alternative A is $50,000 and the total cost of alternative B is $34,000, then
$16,000 is termed the:
A. opportunity cost.
B. average cost.
C. sunk cost.
D. out-of-pocket cost.
E. differential cost.

Wee Care is a nursery school for pre-kindergarten children. The school has determined that the
following biweekly revenues and costs occur at different levels of enrollment:
75. The marginal cost when the twenty-first student enrolls in the school is:
A. $55.
B. $155.
C. $300.
D. $3,045.
E. $3,255.

76. The average cost per student when 16 students enroll in the school is:
A. $100.
B. $125.
C. $175.
D. $300.
E. $400.

77. The costs that follow all have applicability for a manufacturing enterprise. Which of the choices
listed correctly denotes the costs' applicability for a service provider?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

Chapter 03
Product Costing and Cost Accumulation in a Batch
Production Environment
 True / False Questions

1. Manufacturing overhead is a pool of indirect production costs that must somehow be attached to
each unit manufactured.
True False

2. Electricity costs that were incurred by a company's production processes should be debited to
Utilities Expense.
True False

3. The final step in recognizing the completion of production requires a company to debit Finished-
Goods Inventory and credit Work-in-Process Inventory.
True False

4. Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited

to Work-in-Process Inventory.
True False

5. The term "normal costing" refers to the use of job-costing systems.

True False
Multiple Choice Questions
6. Product costing in a manufacturing firm is the process of:
A. accumulating the company's period costs.
B. allocating costs among the firm's departments.
C. placing a value on the company's fixed assets.
D. assigning costs to the firm's inventory.
E. assigning costs to the company's managers.

7. Which of the following statements is true?

A. Service firms have little need for determining the cost of their services.
B. The concept of product costing is relevant only for manufacturing firms.
C. The cost of year-end inventory appears on the balance sheet as an expense.
D. Service companies use cost information for planning and control purposes.
E. Mining and petroleum companies have no inventoriable costs.

8. Which of the following manufacturers would most likely use job-order costing?
A. Chemical manufacturers.
B. Microchip processors.
C. Custom-furniture manufacturers.
D. Gasoline refiners.
E. Fertilizer manufacturers.

9. A custom-home builder would likely utilize:

A. job-order costing.
B. process costing.
C. mass customization.
D. process budgeting.
E. joint costing.
10. Which of the following types of companies would most likely use process costing?
A. Aircraft manufacturers.
B. Textile manufacturers.
C. Textbook publishers.
D. Custom-machining firms.
E. Shipbuilders.
11. A manufacturing firm produces goods in accordance with customer specifications, commencing
production upon receipt of a purchase order. To accumulate the cost of each order, the company
would use a:
A. job-cost record.
B. cost allocation matrix.
C. production log.
D. overhead sheet.
E. manufacturing cost record.

12. A typical job-cost record would provide information about all of the following items related to an
order except:
A. the cost of direct materials used.
B. administrative costs.
C. direct labor costs incurred.
D. applied manufacturing overhead.
E. direct labor hours worked.

13. Which of the following statements about material requisitions is false?

A. Material requisitions are often computerized.
B. Material requisitions are a common example of source documents.
C. Material requisitions contain information that is useful to the cost accounting department.
D. Material requisitions authorize the transfer of materials from the production floor to the raw
materials warehouse.
E. Material requisitions are routinely linked to a bill of materials that lists all of the materials needed
to complete a job.

14. Pruitt Company has developed an integrated system that coordinates the flow of all goods,
services, and information into and out of the organization, working with raw material vendors as well
as customers to improve service and reduce costs. The firm is said to be using:
A. participative management.
B. top-down management.
C. strategic cost management.
D. supply chain management.
E. management by objectives (MBO).
15. The assignment of direct labor cost to individual jobs is based on:
A. an estimate of the total time spent on the job.
B. actual total payroll cost divided equally among all jobs in process.
C. estimated total payroll cost divided equally among all jobs in process.
D. the actual time spent on each job multiplied by the wage rate.
E. the estimated time spent on each job multiplied by the wage rate.

16. When using normal costing, the total production cost of a job is composed of:
A. direct material and direct labor.
B. direct material, direct labor, manufacturing overhead, and outlays for selling costs.
C. direct material, direct labor, manufacturing overhead, and outlays for both selling and
administrative costs.
D. direct material, direct labor, and applied manufacturing overhead.
E. direct material, direct labor, and actual manufacturing overhead.

17. Manufacturing overhead:

A. includes direct materials, indirect materials, indirect labor, and factory depreciation.
B. is easily traced to jobs.
C. includes all selling costs.
D. should not be assigned to individual jobs because it bears no obvious relationship to them.
E. is a pool of indirect production costs that must somehow be attached to each unit manufactured.

18. As production takes place, all manufacturing costs are added to the:
A. Work-in-Process Inventory account.
B. Manufacturing-Overhead Inventory account.
C. Cost-of-Goods-Sold account.
D. Finished-Goods Inventory account.
E. Production Labor account.
19. Which of the following statements regarding work in process is not correct?
A. Work in process is partially completed inventory.
B. Work in process consists of direct labor, direct material, and manufacturing overhead.
C. Work-in-Process Inventory is debited to record direct material used and direct labor incurred.
D. Work-in-Process Inventory appears on the year-end balance sheet.
E. Work-in-Process Inventory is credited when goods are sold.

20. Which of the following statements about manufacturing cost flows is false?
A. Direct materials, direct labor, and manufacturing overhead are entered in the Work-in-Process
Inventory account.
B. The Finished-Goods Inventory account will contain entries that reflect the cost of goods sold during
the period.
C. The cost of units sold during the period will typically appear on the income statement.
D. When a company sells goods that cost $54,000 for $60,000, the firm will enter $6,000 in an account
entitled Profit on Sale.
E. Units are normally transferred from Work-in-Process Inventory to Finished-Goods Inventory.

21. Which of the following statements about materials is false?

A. Acquisitions of materials are normally charged to the Purchases account.
B. The use of direct materials gives rise to a debit to Work-in-Process Inventory.
C. The use of indirect materials gives rise to a debit to Manufacturing Overhead.
D. The use of indirect materials gives rise to a credit to Manufacturing Supplies Inventory.
E. Direct materials are accounted for in a different manner than indirect materials.

22. Summers Corporation recently used $75,000 of direct materials and $9,000 of indirect materials in
production activities. The journal entries reflecting these transactions would include:
A. a debit to Manufacturing Overhead for $9,000.
B. a debit to Manufacturing Overhead for $84,000.
C. a debit to Raw-Material Inventory for $75,000.
D. a debit to Work-in-Process Inventory for $84,000.
E. a credit to Manufacturing Overhead for $9,000.
23. A review of a company's Work-in-Process Inventory account found a debit for materials of
$67,000. If all procedures were performed in the correct manner, this means that the firm:
A. also recorded a credit to Raw-Material Inventory.
B. also recorded a credit to Manufacturing Supplies Inventory.
C. was accounting for the usage of direct materials.
D. was accounting for the usage of indirect materials.
E. Both A and C are correct

24. Othello Manufacturing incurred $106,000 of direct labor and $11,000 of indirect labor. The proper
journal entry to record these events would include a debit to Work in Process for:
A. $0 because Work in Process should be credited.
B. $0 because Work in Process is not affected.
C. $11,000.
D. $106,000.
E. $117,000.

25. The following information relates to October:

Production supervisor's salary: $3,500
Factory maintenance wages: 250 hours at $10 per hour
The journal entry to record the preceding information is:

A.

B.

C.

D.

E.
26. Electricity costs that were incurred by a company's production processes should be debited to:
A. Utilities Expense.
B. Accounts Payable.
C. Cash.
D. Manufacturing Overhead.
E. Work-in-Process Inventory.

27. The journal entry needed to record $5,000 of advertising for Westwood Manufacturing would
include:
A. a debit to Advertising Expense.
B. a credit to Advertising Expense.
C. a debit to Manufacturing Overhead.
D. a credit to Manufacturing Overhead.
E. a debit to Projects-in-Process.

28. Reynardo Company incurred $90,000 of depreciation for the year. Eighty percent relates to the
firm's production facilities, and 20% relates to sales and administrative offices. If all items are handled
in the proper manner, a review of the company's accounting records should reveal a:
A. debit to Depreciation Expense for $90,000.
B. debit to Manufacturing Overhead for $90,000.
C. debit to Manufacturing Overhead for $72,000.
D. debit to Work-in-Process Inventory for $18,000.
E. credit to Cash for $90,000.

29. The process of assigning overhead costs to the jobs that are worked on is commonly called:
A. service department cost allocation.
B. overhead cost distribution.
C. overhead application.
D. transfer costing.
E. overhead cost apportionment.
30. Which of the following is the correct method to calculate a predetermined overhead rate?
A. Budgeted total manufacturing cost  budgeted amount of cost driver.
B. Budgeted overhead cost  budgeted amount of cost driver.
C. Budgeted amount of cost driver  budgeted overhead cost.
D. Actual overhead cost  budgeted amount of cost driver.
E. Actual overhead cost  actual amount of cost driver.

31. Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In deriving this
figure, the company's accountant used:
A. a denominator of budgeted machine hours for the current accounting period.
B. a denominator of actual machine hours for the current accounting period.
C. a denominator of actual machine hours for the previous accounting period.
D. a numerator of budgeted machine hours for the current accounting period.
E. a numerator of actual machine hours for the current accounting period.

32. Strong Company applies overhead based on machine hours. At the beginning of 20x1, the
company estimated that manufacturing overhead would be $500,000, and machine hours would total
20,000. By 20x1 year-end, actual overhead totaled $525,000, and actual machine hours were 25,000.
On the basis of this information, the 20x1 predetermined overhead rate was:
A. $0.04 per machine hour.
B. $0.05 per machine hour.
C. $20 per machine hour.
D. $21 per machine hour.
E. $25 per machine hour.
33. Dixie Company, which applies overhead at the rate of 190% of direct material cost, began work on
job no. 101 during June. The job was completed in July and sold during August, having accumulated
direct material and labor charges of $27,000 and $15,000, respectively. On the basis of this
information, the total overhead applied to job no. 101 amounted to:
A. $0.
B. $28,500.
C. $51,300.
D. $70,500.
E. $79,800.
34. Huxtable charges manufacturing overhead to products by using a predetermined application rate,
computed on the basis of machine hours. The following data pertain to the current year:
Budgeted manufacturing overhead: $480,000
Actual manufacturing overhead: $440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
Overhead applied to production totaled:
A. $352,000.
B. $384,000.
C. $550,000.
D. $600,000.
E. some other amount.

35. Simone uses a predetermined overhead application rate of $8 per direct labor hour. A review of
the company's accounting records for the year just ended discovered the following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone's actual labor hours worked totaled:
A. 48,100.
B. 49,100.
C. 49,900.
D. 50,900.
E. cannot be determined based on the information presented.

36. Trenton worked on four jobs during its first year of operation: nos. 401, 402, 403, and 404. A
review of job no. 403's cost record revealed direct material charges of $40,000 and total
manufacturing costs of $50,000. If Trenton applies overhead at 150% of direct labor cost, the
overhead applied to job no. 403 must have been:
A. $0.
B. $6,000.
C. $4,000.
D. $3,333.
E. $5,000.
37. The left side of the Manufacturing Overhead account is used to accumulate:
A. actual manufacturing overhead costs incurred throughout the accounting period.
B. overhead applied to Work-in-Process Inventory.
C. underapplied overhead.
D. predetermined overhead.
E. overapplied overhead.

38. Throughout the accounting period, the credit side of the Manufacturing Overhead account is used
to accumulate:
A. actual manufacturing overhead costs.
B. overhead applied to Work-in-Process Inventory.
C. overapplied overhead.
D. underapplied overhead.
E. predetermined overhead.

39. An accountant recently debited Work-in-Process Inventory and credited Manufacturing Overhead
at a company that uses normal costing. The accountant was:
A. applying a predetermined overhead amount to production.
B. recognizing receipt of the factory utilities bill.
C. recording a year-end adjustment for an insignificant amount of underapplied overhead.
D. recognizing actual overhead incurred during the period.
E. recognizing the completion of production.

40. The final step in recognizing the completion of production requires a company to:
A. debit Finished-Goods Inventory and credit Work-in-Process Inventory.
B. debit Work-in-Process Inventory and credit Finished-Goods Inventory.
C. add direct labor to Work-in-Process Inventory.
D. add direct materials, direct labor, and manufacturing overhead to Work-in-Process Inventory.
E. add direct materials to Finished-Goods Inventory.
41. Job no. C12 was completed in November at a cost of $28,500, subdivided as follows: direct
material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The journal entry to
record the completion of the job is:

A.

B.

C.

D.

E.

42. If a company sells goods that cost $80,000 for $92,000, the firm will:
A. reduce Finished-Goods Inventory by $80,000.
B. reduce Finished-Goods Inventory by $92,000.
C. report sales revenue on the balance sheet of $92,000.
D. reduce Cost of Goods Sold by $80,000.
E. follow more than one of the above procedures.

43. Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The journal entries
to record this transaction would include:
A. a credit to Work-in-Process Inventory for $35,000.
B. a debit to Sales Revenue for $45,000.
C. a credit to Profit on Sale for $10,000.
D. a debit to Finished-Goods Inventory for $35,000.
E. a credit to Sales Revenue for $45,000.
44. A computer manufacturer recently shipped several laptops to a customer (cost: $25,000) and
billed the customer $30,000. Which of the following options correctly expresses the accounts that are
debited and credited to record this transaction?
A. Debits: Accounts Receivable, Finished-Goods Inventory; credits: Sales Revenue, Cost of Goods Sold.
B. Debits: Accounts Receivable, Cost of Goods Sold; credits: Sales Revenue, Finished-Goods Inventory.
C. Debits: Sales Revenue, Cost of Goods Sold; credits: Accounts Receivable, Finished-Goods Inventory.
D. Debits: Sales Revenue, Finished-Goods Inventory; credits: Accounts Receivable, Cost of Goods Sold.
E. Debits: Accounts Receivable; credits: Finished-Goods Inventory, Profit on Sale.

45. Blarney Company applies manufacturing overhead by using a predetermined rate of 50% of direct
labor cost. The data that follow pertain to job no. 764:

If Blarney adds a 40% markup on total cost to generate a profit, which of the following choices depicts
a portion of the accounting needed to record the sale of job no. 764?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
46. Armada Company applies manufacturing overhead by using a predetermined rate of 150% of
direct labor cost. The data that follow pertain to job no. 831:

If Armada adds a 30% markup on total cost to generate a profit, which of the following choices depicts
a portion of the accounting needed to record the credit sale of job no. 831?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

47. Media, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional
labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated
to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Media
incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and
actual direct labor cost of $222,000. By year-end, the firm's overhead was:
A. $1,000 underapplied.
B. $1,000 overapplied.
C. $4,000 underapplied.
D. $4,000 overapplied.
E. $5,000 underapplied.
48. Mahler, Inc., applies manufacturing overhead at the rate of $40 per machine hour. Budgeted
machine hours for the current period were anticipated to be 120,000; however, a lengthy strike
resulted in actual machine hours being worked of only 90,000. Budgeted and actual manufacturing
overhead figures for the year were $4,800,000 and $4,180,000, respectively. On the basis of this
information, the company's year-end overhead was:
A. overapplied by $580,000.
B. underapplied by $580,000.
C. overapplied by $1,200,000.
D. underapplied by $1,200,000.
E. underapplied by $900,000.

49. Tiffany charges manufacturing overhead to products by using a predetermined application rate,
computed on the basis of labor hours. The following data pertain to the current year:

Which of the following choices is the correct status of manufacturing overhead at year-end?
A. Overapplied by $10,000.
B. Underapplied by $10,000.
C. Overapplied by $35,000.
D. Underapplied by $35,000.
E. Overapplied by $45,000.

50. Sting Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at ye ar-end.
On the basis of this information, one can conclude that:
A. budgeted overhead exceeded actual overhead.
B. budgeted overhead exceeded applied overhead.
C. budgeted overhead was less than applied overhead.
D. actual overhead exceeded applied overhead.
E. actual overhead was less than applied overhead.
51. Howard Manufacturing's overhead at year-end was underapplied by $5,800, a small amount given
the firm's size. The year-end journal entry to record this amount would include:
A. a debit to Cost of Goods Sold.
B. a debit to Manufacturing Overhead.
C. a debit to Work-in-Process Inventory.
D. a credit to Cost of Goods Sold.
E. a credit to Work-in-Process Inventory.

52. Fogg Company, which uses labor hours to apply overhead to manufacturing, may have increased
amounts of underapplied overhead at month-end if:
A. suppliers of direct materials have an across-the-board price increase.
B. an accountant failed to record the period's charges for plant maintenance and security.
C. employees are hit hard with a widespread outbreak of the flu.
D. direct laborers are granted a wage increase.
E. outlays for advertising expenditures are increased.

53. The estimates used to calculate the predetermined overhead rate will virtually always:
A. prove to be correct.
B. result in a year-end balance of zero in the Manufacturing Overhead account.
C. result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
D. result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
E. result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is
immaterial in amount.

54. Under- or overapplied manufacturing overhead at year-end is most commonly:

A. charged or credited to Work-in-Process Inventory.
B. charged or credited to Cost of Goods Sold.
C. charged or credited to a special loss account.
D. prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E. ignored because there is no effect on the Cash account.
55. When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned
to which of the following accounts?
A. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor.
B. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.
C. Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold.
D. Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E. Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.

56. Fletcher, Inc. disposes of under- or overapplied overhead at year-end as an adjustment to cost of
goods sold. Prior to disposal, the firm reported cost of goods sold of $590,000 in a year when
manufacturing overhead was underapplied by $15,000. If sales revenue totaled $1,400,000, determine
(1) Fletcher's adjusted cost of goods sold and (2) gross margin.

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

57. The term "normal costing" refers to the use of:

A. job-costing systems.
B. computerized accounting systems.
C. targeted overhead rates.
D. predetermined overhead rates.
E. actual overhead rates.
58. The primary difference between normalized and actual costing methods lies in the determination
of a job's:
A. direct material costs.
B. direct labor costs.
C. manufacturing overhead costs.
D. selling costs.
E. administrative costs.

59. Which of the following statements about the use of direct labor as a cost driver is false?
A. Direct labor is the most commonly used cost driver when calculating a predetermined overhead
rate.
B. Direct labor is gaining importance in many manufacturing applications with respect to being a
significant cost driver.
C. Direct labor is an inappropriate cost driver to use if a company is highly automated.
D. If direct labor is a good cost driver, increases in direct labor are matched with increases in
manufacturing overhead.
E. Companies can use either direct labor cost or direct labor hours as a cost driver.

60. If the amount of effort and attention to products varies substantially throughout a company's
various manufacturing operations, the company might consider the use of:
A. a plant-wide overhead rate.
B. departmental overhead rates.
C. actual overhead rates instead of predetermined overhead rates.
D. direct labor hours to determine the overhead rate.
E. machine hours to determine the overhead rate.

61. In the two-stage cost allocation process, costs are assigned:

A. from jobs, to service departments, to production departments.
B. from service departments, to jobs, to production departments.
C. from service departments, to production departments, to jobs.
D. from production departments, to jobs, to service departments.
E. from the balance sheet (when goods are produced), to the income statement (when goods are
sold).
62. Which of the following entities would not likely be a user of job-costing systems?
A. Custom-furniture manufacturers.
B. Repair shops.
C. Hospitals.
D. Accounting firms.
E. None of these, because all are likely users.

63. Which of the following would not likely be used by service providers to accumulate job costs?
A. Projects.
B. Contracts.
C. Clients.
D. Processes.
E. All of these, because service providers cannot use job-costing systems.

64. At the Nassau Advertising Agency, partner and staff compensation cost is a key driver of agency
overhead. In light of this fact, which of the following is the correct expression to determine the
amount of overhead applied to a particular client job?
A. (Budgeted overhead  budgeted compensation)  budgeted compensation cost on the job.
B. (Budgeted overhead  budgeted compensation)  actual compensation cost on the job.
C. (Budgeted compensation  budgeted overhead)  budgeted compensation cost on the job.
D. (Budgeted compensation  budgeted overhead)  actual compensation cost on the job.
E. None of these, because service providers do not apply overhead to jobs.