COST ACCOUNTING REVIEWER

PRELIM

TRUE-FALSE STATEMENTS
1. Full costing is equivalent to absorption costing.

2. In full or absorption costing, all manufacturing costs are charged to the

product.

3. Variable costing is the approach used for external reporting under generally
accepted accounting principles.

4. Fixed manufacturing costs are not charged to the product under variable
costing.

5. The difference between absorption costing and variable costing is the

treatment of fixed manufacturing overhead.

6. Fixed manufacturing overhead is a period cost under absorption costing.

7. Selling and administrative costs are period costs under both absorption and
variable costing.

8. Manufacturing cost per unit will be higher under variable costing than under
absorption costing.

9. Some fixed manufacturing costs of the current period are deferred to future
periods through ending inventory under variable costing.

10. When units produced exceed units sold, income under absorption costing is
higher than income under variable costing.

11.Manufacturing costs that cannot be classified as direct material or direct

labor are classified as operating expenses.

12. Raw materials are equal to direct materials.

13. Raw materials that cannot be conveniently and directly associated with
a finished product, but are used in production, are called indirect
materials.

14. The total cost of a finished product generally contains equal amounts of
material, labor, and manufacturing overhead costs.

15. Direct material costs and direct labor costs are prime costs.

16. An assumption of CVP analysis is that all costs can be classified as

either variable or fixed.
17. In CVP analysis, the term ‘cost’ includes only manufacturing costs.

18. Contribution margin is the amount of profit remaining after deducting

cost of goods sold.

19. The contribution margin per unit is the amount that each unit sold
contributes towards covering fixed and variable costs.

20. The contribution margin ratio is calculated by dividing the unit

contribution margin by the unit sales price.

MULTIPLE CHOICE:

1. How is cost of goods manufactured calculated?

a. Beginning WIP + direct materials used + direct labor +
manufacturing overhead + ending WIP
b. Direct materials used + direct labor + manufacturing overhead –
beginning WIP + ending WIP
c. Beginning WIP + direct materials used + direct labor +
manufacturing overhead – ending WIP
d. Direct materials used + direct labor + manufacturing overhead –
ending WIP – beginning WIP

2. During 2006, "cost of goods manufactured" was less than the amount
of "Total manufacturing costs" for the period. Which statement is true?
a. Ending work in process inventory is greater than beginning work in
process inventory.
b. Ending work in process is less than beginning work in process
inventory.
c. Ending work in process is equal to the cost of goods manufactured.
d. Ending work in process is less than beginning finished goods
inventory.

3. Where would you expect to find depreciation on factory equipment?

a. Included with Depreciation Expense on the income statement
b. In the manufacturing overhead section of the costs of goods
manufactured schedule
c. Only on the income statement as part of cost of goods sold
d. As a period cost in the operating expense section of the income
statement

4. Where would you expect to find ending raw materials inventory?

a. On the costs of goods manufactured schedule as an addition to raw
materials purchases, and on the balance sheet
b. On the costs of goods manufactured schedule as a subtraction from
raw materials available for use, and on the balance sheet
c. Only on the balance sheet
d. Only the costs of goods manufactured schedule
5. Hardigan Manufacturing Company reported the following year-end
information: beginning work in process inventory, $80,000; cost of
goods manufactured, $980,000; beginning finished goods inventory,
$50,000; ending work in process inventory, $70,000; and ending
finished goods inventory, $40,000. How much is Haridgan’s cost of
goods sold for the year?
a. $980,000
b. $990,000
c. $970,000
d. $1,000,000

Use the following information for questions 6–8.

Caltreck Manufacturing Inc.'s accounting records reflect the following
inventories:
Dec. 31, 2005 Dec. 31, 2006
Raw materials inventory $100,000 $ 80,000
Work in process inventory 130,000 145,000
Finished goods inventory 125,000 115,000
During 2006, Caltreck purchased $950,000 of raw materials, incurred direct
labor costs of $125,000, and incurred manufacturing overhead totaling
$160,000.

6.How much is raw materials transferred to production during 2006 for

Caltreck Manufacturing?
a. $1,240,000
b. $970,000
c. $950,000
d. $930,000

7.How much is total manufacturing costs incurred during 2006 for Caltreck?
a. $1,240,000
b. $1,255,000
c. $1,235,000
d. $1,250,000

8.Assume Caltreck Manufacturing’s cost of goods manufactured for 2006

amounted to $1,200,000. How much would it report as cost of goods
sold for the year?
a. $1,210,000
b. $1,250,000
c. $1,325,000
d. $1,190,000

9.Hooter Manufacturing Company reported the following year-end information:

Beginning work in process inventory $23,000
Beginning raw materials inventory 12,000
Ending work in process inventory 25,000
 Ending raw materials inventory 10,000
Raw materials purchased 340,000
Direct labor 120,000
Manufacturing overhead 50,000

How much is Hooter Manufacturing’s cost of goods manufactured for

the year?
a. $342,000
b. $512,000
c. $510,000
d. $514,000

10.What amount is given by the sum of direct materials, direct labor, and
manufacturing overhead incurred?
a. Total cost of work in process
b. Cost of goods available for sale
c. Total manufacturing costs
d. Cost of goods manufactured

11. Which one of the following is an activity index?

a. The volume of activity
b. A contribution activity
c. A relevant range
d. A margin of safety

22. For what purpose might a company utilize a cost activity index?
a. To identify the behavior of costs
b. To eliminate fixed costs
c. To identify the relevant range of activity
d. To compute the margin of safety

13. Which one of the following is a cost classification?

a. Mixed cost
b. Activity index
c. CVP cost
d. Analysis cost

14. What happens to total costs if the activity level increases 10%?
a. They remain the same.
b. They increase by less than 10%.
c. They decrease by less than 10%.
d. They increase 10%.
15. Which of the following costs are variable?
Cost 2,000 Units 2,500 Units
1 $100,000 $125,000
2 40,000 75,000
3 80,000 100,000
4 60,000 60,000
a. 1 and 2
b. 1, 2 and 3
c. 1 and 3
d. 1 and 4

16. Wardley Corporation sells its product for $40. The variable costs are
$18 per unit. Fixed costs are $16,000. The company is considering the
purchase of an automated machine that will result in a $2 reduction in
unit variable costs and an increase of $5,000 in fixed costs. Which of
the following is true about the break-even point in units?
      a.   It will remain unchanged.
      b.   It will decrease.
      c.   It will increase.
      d.   It cannot be determined from the information provided.

17. Martin Worldwide sells a single product with a contribution margin of

$12 per unit and fixed costs of $24,000. How much is Martin’s break
even point?
a. 2,500 units
b. $12,000
c. $24,000
d. 2,000 units  

18. Weed, Inc. variable costs are 25% of sales. Its selling price is $95 per
unit. If Weed sells one unit more than break even units, how much will
profit increase?
a. $71.25
b. $23.75
c. $32.50
d. $380.00

19. Saver Company produces only one product. Monthly fixed expenses
are $12,000, monthly unit sales are 2,000, and the unit contribution
margin is $10. How much is monthly net profit?
a.   $20,000
b.   $32,000
c.   $0
d.   $8,000

20. Passenger Company’s accountants use the high-low method to

estimate costs. They provided the following information for its sales
and production of one product:
  Monthly amounts: January Februar March April May
y
Volume direct labor-hours 40,000 50,000 60,000 70,000 80,000
Total cost $15,00 $14,900 $18,000 $23,000 $22,800
0

Which month’s data will the accountants use to estimate costs?

a.    January and May
b.    February and April
c.    January and April
d.    February and May

31. Which cost is not charged to the product under variable costing?
a. direct materials.
b. direct labor.
c. variable manufacturing overhead.
d. fixed manufacturing overhead.

32. Which cost is not charged to the product under absorption costing?
a. direct materials.
b. direct labor.
c. variable manufacturing overhead.
d. fixed administrative expenses.

33. Which cost is charged to the product under variable costing?

a. variable manufacturing overhead.
b. fixed manufacturing overhead.
c. variable administrative expenses.
d. fixed administrative expenses.

34. Variable costing

a. is used for external reporting purposes.
b. is required under GAAP.
c. treats fixed manufacturing overhead as a period cost.
d. is also known as full costing.

Use the following information for items 35 – 39

Orbach Company sells its product for $40 per unit. During 2005, it produced
60,000 units and sold 50,000 units (there was no beginning inventory). Costs
per unit are: direct materials $10, direct labor $6, and variable overhead $2.
Fixed costs are: $480,000 manufacturing overhead, and $60,000 selling and
administrative expenses.

35. The per unit manufacturing cost under absorption costing is:
a. $16.
b. $18.
c. $26.
d. $27.

36. The per unit manufacturing cost under variable costing is:
a. $16.
b. $18.
 c. $26.
d. $27.

37. Cost of goods sold under absorption costing is:

a. $ 900,000.
b. $1,080,000.
c. $1,300,000.
d. $1,560,000.

38. Ending inventory under variable costing is:

a. $ 180,000.
b. $ 260,000.
c. $ 400,000.
d. $ 900,000.

39. Under absorption costing, what amount of fixed overhead is deferred to a

future period?
a. $ 20,000.
b. $ 80,000.
c. $ 100,000.
d. $ 480,000.

40. Net income under absorption costing is gross profit less:

a. cost of goods sold.
b. fixed manufacturing overhead and fixed selling and administrative
expenses.
c. fixed manufacturing overhead and variable manufacturing overhead.
d. variable selling and administrative expenses and fixed selling and
administrative expenses.

KEY MC THEORIES AND PROBLEMS

1. c
2. a
3. b
4. b
5. b
6. b
7. b
8. a
9. c
10. c
11. a
12. a
13. a
14. b
15. c
16. c
17. d
18. a

19. d
20. a

31. d
32. d
33. a
34. c
35. c
36. b
37. c
38. a
39. b
40. d