Chapter 4 Job Costing

1) A ________ is a grouping of individual indirect cost items.

A) cost allocation base
B) cost assignment
C) cost pool
D) job-costing system
Answer: C

2) Each indirect-cost pool of a manufacturing firm ________.

A) utilizes a separate cost-allocation rate
B) is a subset of total direct costs
C) relates to multiple cost centres
D) utilizes the same cost-allocation rate for all costs incurred
Answer: A

3) Direct costs ________.

A) are anything for which a measurement of costs is desired
B) are costs related to a particular cost object that can be traced to that cost object in a cost-effective manner
C) focus specifically on the costing needs of the CFO
D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective manner
Answer: B

4) In a costing system, ________.

A) cost tracing allocates indirect costs
B) cost allocation assigns direct costs
C) a cost-allocation base can be either financial or nonfinancial
D) a cost object should be a product and not a department or a geographic territory
Answer: C

5) Assigning direct costs to a cost object is called ________.

A) cost allocation
B) cost assignment
C) cost pooling
D) cost tracing
Answer: D

6) ________ is the process of distributing indirect costs to products.

A) Cost allocation
B) Job cost recording
C) Cost pooling
D) Cost tracing
Answer: A

7) A ________ links an indirect cost to a cost object.

A) cost-allocation base
B) cost pool
C) cost assignment
D) cost tracing
Answer: A

8) Direct costs are allocated to the cost object using a cost-allocation method.
Answer: FALSE
Explanation: Indirect costs are allocated to the cost object using a cost-allocation method.

9) A cost object is anything for which a measurement of costs is desired.

Answer: TRUE

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10) Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an
economically feasible (cost-effective) way.
Answer: FALSE
Explanation: Direct costs of a cost object — costs related to a particular cost object that can be traced to that cost object in an
economically feasible (cost-effective) way.

11) Cost objects may be jobs, products, or customers.

Answer: TRUE

12) The cost driver of an indirect cost is often used as the cost-allocation base.
Answer: TRUE

13) Which of the following differentiates job costing from process costing?
A) Job costing is used when each unit of output is identical, and process costing deals with unique products.
B) Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique
products produced on large scale.
C) Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in
batches.
D) Job costing is used by manufacturing industries, and process costing is used by service industries.
Answer: C

14) Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual
quantity of the cost-allocation base.
Answer: FALSE
Explanation: Actual costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times
the actual quantity of the cost-allocation base.

15) The actual indirect-cost rate is calculated by ________.

A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base
B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base
C) dividing the actual total quantity of the cost allocation base by actual total indirect costs
D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs
Answer: A

16) Each cost pool may have multiple cost allocation bases.
Answer: FALSE
Explanation: There is only one cost-allocation base for each cost pool.

17) Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual
quantities of the direct-cost inputs.
Answer: TRUE

18) All costs other than direct materials and direct manufacturing labor are classified as indirect costs.
Answer: TRUE

19) The budgeted indirect-cost rate is calculated ________.

A) at the beginning of the year
B) during the year
C) at the end of each quarter
D) at the end of the year
Answer: A

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20) Which of the following statements about normal costing is true?
A) Direct costs and indirect costs are traced using an actual rate.
B) Direct costs and indirect costs are traced using budgeted rates.
C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.
Answer: D

21) When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate
and the ________ quantity of the allocation base.
A) budgeted; actual
B) budgeted; budgeted
C) actual; budgeted
D) actual; actual
Answer: A

22) Actual costing helps managers get information earlier and take corrective measures to improve labor efficiency.
Answer: FALSE
Explanation: Normal costing helps managers get information earlier and take corrective measures to improve labor efficiency.

23) Direct costs are traced the same way for actual costing and normal costing.
Answer: TRUE

24) Normal costing assigns indirect costs based on an actual indirect-cost rate.
Answer: FALSE

25) For normal costing, even though the indirect-cost rate is based on actuals, indirect costs are allocated to products based on the
normal capacity of the cost-allocation base.
Answer: FALSE
Explanation: For normal costing, even though the indirect-cost rate is based on estimates, indirect costs are allocated to products
based on the actual quantity of the cost-allocation base.

26) The ending balance in the Work-in-Process Control account represents the costs of all jobs that ________.
A) have not been completed
B) have been completed but not sold
C) have been completed and sold to customers
D) are reported on the income statement
Answer: A

27) Which of the following statements regarding manufacturing overhead allocation is true?
A) It includes all manufacturing costs that cannot be directly traced to a product or service.
B) The costs can be grouped only as a single indirect-cost pool.
C) Total costs are unknown at the end of the accounting period.
D) Allocated amounts are debited to Manufacturing Overhead Control.
Answer: A

28) During an accounting period, job costs are computed on an ongoing basis by the use of ________.
A) actual allocation rates
B) budgeted indirect-cost rates
C) overallocated indirect-cost rates
D) underallocated indirect-cost rates
Answer: B

29) The advantage of using normal costing instead of actual costing is ________.
A) indirect costs are assigned at the end of the year when they are known
B) the job cost is more accurate under normal costing
C) indirect costs are assigned to a job on a timely basis
D) normal costing provides a higher gross profit margin Answer: C
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30) The Cost of Goods Sold account tracks job costs from the time jobs are started until they are completed.
Answer: FALSE
Explanation: The Work-in-Process Control account tracks job costs from the time jobs are started until they are completed.

31) The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed.
Answer: TRUE

32) The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods
sold is called ________.
A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) the weighted-average cost approach
Answer: B

33) The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than
budgeted cost rates is called ________.
A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) the weighted-average cost approach
Answer: A

34) When the allocated amount of indirect costs are less than the actual amount, indirect costs have been ________.
A) within budget
B) overallocated
C) underallocated
D) perfectly allocated
Answer: C

35) One reason indirect costs may be overapplied is because ________.

A) the actual allocation base quantity exceeds the budgeted quantity
B) budgeted indirect costs exceed actual indirect costs
C) requisitioned direct materials exceed budgeted material costs
D) Both A and B are correct.
Answer: B

36) The ________ adjusts individual job-cost records to account for underallocated or overallocated overhead.
A) adjusted allocation-rate
B) proration approach
C) write-off to cost of goods sold approach
D) weighted-average cost approach
Answer: A

37) The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.
A) adjusted allocation-rate approach
B) proration approach
C) write-off to cost of goods sold approach
D) adjusted write-off approach
Answer: C

38) The ________ approach carries the underallocated or overallocated amounts to overhead accounts in the following year.
A) adjusted allocation-rate
B) proration
C) write-off to cost of goods sold
D) None of these answers are correct.
Answer: D
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39) Proration is the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and
costs of goods sold.
Answer: TRUE
Chapter 5 Activity-Based Costing and Activity-Based Management

1) Activity based costing system differs from traditional costing systems in the treatment of ________.
A) direct labor costs
B) direct material costs
C) prime costs
D) indirect costs
Answer: D

2) ABC systems ________.

A) highlight the different levels of activities
B) limit cost drivers to units of output
C) allocate costs based on the overall level of activity
D) generally undercost complex products
Answer: A

3) Which of the following statements is true of activity-based costing?

A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs.
B) Activity based costing is more suited to companies with high product diversity than companies with single product line.
C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services.
D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the
products.
Answer: B

4) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________.
A) establish a cause-and-effect relationship with the activities performed
B) use single cost pool for all overhead costs, thereby enabling simplicity
C) use a broad average to allocate all overhead costs
D) never consider interactions between different departments in assigning support costs
Answer: A

Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that
although production requirements are identical, S5 requires 45 minutes less setup time than CP8.

5) According to an ABC system, CP8 is ________ under the traditional system.

A) undercosted
B) overcosted
C) fairly costed
D) accurately costed
Answer: A

6) ABC assumes all costs are ________ because over the long run management can adjust the amount of resources employed.
A) fixed
B) variable
C) committed
D) nondiscretionary
Answer: B

7) ABC systems attempt to trace more costs as indirect costs.

Answer: FALSE
Explanation: ABC systems attempt to trace more costs as direct costs.

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8) Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs
of a product.
Answer: TRUE

9) For service organizations, activity-based cost systems may be used to clarify appropriate cost assignments.
Answer: TRUE

10) It only makes sense to implement an ABC system when ________.

A) a single product is produced in bulk
B) its benefits exceed its implementation costs
C) it traces more costs as direct costs
D) production process is labor-intensive
Answer: B

11) Which of the following statements is true of ABC systems?

A) ABC system will always result in higher product costs.
B) ABC system employs multiple activity-cost drivers.
C) ABC system is least suited for service companies.
D) ABC system is simpler compared to traditional systems.
Answer: B

12) ABC and traditional systems are quite similar in ________.

A) the treatment of direct costs
B) the allocation of overheads
C) evaluating performance
D) the identification of cost pools
Answer: A

13) A well-designed, activity-based cost system helps managers make better decisions because information derived from an ABC
analysis ________.
A) can be used to eliminate nonvalue-added activities
B) is easy to analyze and interpret
C) takes the choices and judgment challenges away from the managers
D) emphasizes how managers can achieve higher sales
Answer: A

14) The unique feature of an ABC system is the emphasis on ________.

A) costing individual jobs
B) department indirect-cost rates
C) multiple-cost pools
D) individual activities
Answer: D

15) Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of
________ costs.
A) prime
B) factory
C) indirect
D) committed
Answer: C

16) ABC systems provide greater insight than traditional systems into the management of indirect costs.
Answer: TRUE

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 Chapter 17 Process Costing
1) Costing systems that are used for the costing of like or similar units of products in mass production are called ________.
A) inventory-costing systems
B) job-costing systems
C) process-costing systems
D) weighted-average costing systems
Answer: C

2) Process costing should be used to assign costs to products when ________.

A) the units produced are similar
B) cost reduction is the top most priority
C) the units produced are dissimilar
D) cost reduction is not the primary objective
Answer: A

3) Which of the following statements is true of conversion costs?

A) In process costing, they include all the factors of production.
B) They include all manufacturing costs including direct materials, direct labor, and other direct and indirect manufacturing costs.
C) In process costing, they are usually considered to be added evenly throughout the production process.
D) They include only direct materials and excludes all other manufacturing and non-manufacturing costs.
Answer: C

4) Which of the following statements best describes conversion costs?

A) Conversion costs are all manufacturing and nonmanufacturing cost.
B) Conversion costs are all manufacturing costs other than direct materials costs.
C) Conversion costs are all nonmanufacturing costs including marketing costs.
D) Conversion costs are all nonmanufacturing costs other than fixed selling and distribution costs.
Answer: B

5) If two different direct materials—such as the circuit board and microphone—are added to the process at different times, a
company will need two different direct-materials categories to assign direct materials cost.
Answer: TRUE

6) Conversion costs include direct materials and direct labor but exclude all other manufacturing and non-manufacturing costs.
Answer: FALSE
Explanation: Conversion costs are all manufacturing costs other than direct material costs, including manufacturing labor,
energy, plant depreciation, and so on.

7) The purpose of the equivalent-unit computation is to ________.

A) convert completed units into the amount of partially completed output units that could be made with that quantity of input
B) assist the business in determining the cost assigned to ending inventory and work-in-process inventory
C) predict the future production capabilities of the organization
D) satisfy the GAAP requirements which requires all partially completed goods to be reported as equivalent-units
Answer: B

8) In a process-costing system, the calculation of equivalent units is used for calculating ________.
A) the dollar amount of sales affected during the period
B) the dollar amount of the cost of goods sold for the accounting period
C) the dollar price earned for a particular job
D) the dollar amount of revenue for the period including the revenue estimated to be received from the sale of equivalent units
Answer: B

9) The last step in a process-costing system is to compute cost per equivalent unit.
Answer: FALSE
Explanation: The last step in a process-costing system is to assign total costs to units completed and to units in ending work in
process.

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10) When calculating the equivalent units, we should only focus on dollar amounts of inventory.
Answer: FALSE
Explanation: When calculating the equivalent units, we should disregard dollar amounts and focus should be on quantities.

11) In the computation of the cost per equivalent unit, the weighted-average method of process costing considers all the costs
________.
A) entering work in process from the units in beginning inventory plus the costs for the work completed during the current
accounting period
B) costs that have entered work in process from the units started or transferred in during the current accounting period
C) that have entered work in process during the current accounting period from the units started or transferred in minus the costs
associated with ending inventory
D) that have entered work in process during the current accounting period from the units started or transferred in plus the costs
associated with ending inventory
Answer: A

12) Under the weighted-average method, the stage of completion of beginning work in process ________.
A) is relevant in determining the equivalent units
B) must be combined with the work done during the current period to determine the equivalent units
C) is irrelevant in determining the equivalent-unit calculation
D) can almost always be determined with a high degree of precision
Answer: C

13) A distinct feature of the FIFO process-costing method is that the ________.
A) work done on beginning inventory before the current period is blended with the work done during the current period in the
calculation of equivalent units
B) work done on beginning inventory before the current period is kept separate from the work done during the current period in
the calculation of equivalent units
C) work done on ending inventory is kept separate from the work done during the current period in the calculation of equivalent
units and is usually not included in the calculation
D) FIFO process-costing method is only minimally different from the weighted-average process-costing method
Answer: B

14) On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of costs
being transferred to the next department. Which of the following scenarios would have that result?
A) when the beginning and ending inventories are equal in terms of unit numbers
B) when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials, and
conversion costs
C) when there is no ending inventory
D) when there is no beginning inventory
Answer: D

15) An assumption of the FIFO process-costing method is that ________.

A) the units in beginning inventory are not necessarily assumed to be completed by the end of the period
B) the units in beginning inventory are assumed to be completed first
C) ending inventory will always be completed in the next accounting period
D) no calculation of conversion costs is possible
Answer: B

16) A major advantage of using the FIFO process-costing method is that ________.
A) FIFO makes the unit cost calculations simpler
B) in contrast with the weighted-average method, FIFO is considered GAAP
C) FIFO provides managers with information about changes in the costs per unit from one period to the next
D) in the period of rising prices, it leads to lower operating income and lower tax payments, saving the company cash and
increasing the company's value
Answer: C

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17) The weighted-average process costing method does not distinguish between units started in the previous period but
completed during the current period and units started and completed during the current period.
Answer: TRUE

18) In the weighted-average costing method, the costs of direct materials in beginning inventory are NOT included in the cost per
unit calculation since direct materials are almost always added at the start of the production process.
Answer: FALSE
Explanation: The costs of the direct materials are included in the cost per unit calculation.

19) Partially completed units in ending work in process are 100 percent complete with regard to their direct materials costs if the
direct materials are introduced at the beginning of the process.
Answer: TRUE

20) The weighted-average cost is the total of all costs entering the Work-in-Process account (whether they are from beginning
work-in-process or from work started during the current period) divided by total equivalent units of work done to date.
Answer: TRUE

21) Weighted-average cost per equivalent unit is obtained by dividing the sum of costs for beginning work in process plus costs
for work done in the current period by total equivalent units of work done to date.
Answer: TRUE

22) The cost of units completed can differ materially between the weighted average and the FIFO methods of process costing.
Answer: TRUE

23) A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current
period is kept separate from work done in the current period.
Answer: TRUE

24) In calculating cost per equivalent unit, the FIFO method of process costing merges the work and the costs of the beginning
inventory with the work and the costs done during the current period.
Answer: FALSE
Explanation: In calculating cost per equivalent unit, the FIFO method of process costing only includes the work and the costs
done during the current period.

25) The first-in, first-out process-costing method assumes that the earliest equivalent units in work in process are completed first.
Answer: TRUE

26) Which of the following best describes transferred-in costs in process costing?
A) These costs are incurred in previous departments that are carried forward to subsequent departments.
B) These costs are transferred in to the company by an external vendor.
C) These costs are incurred in transferring raw materials and labor from the place of availability to the factory.
D) These costs cannot be controlled by an organization as they are transferred to the organization from the market participants.
Answer: A

27) Transferred-in costs are treated as if they are ________.

A) conversion costs added at the beginning of the process
B) costs of beginning inventory added at the beginning of the process
C) direct labor costs added at the beginning of the process
D) a separate direct material added at the beginning of the process
Answer: D

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