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Cost Accounting: A Managerial Emphasis, 6e Chapter 2 An Introduction to Cost Terms and Purposes
Chapter 2 An Introduction to Cost Terms and Purposes 2.1 Identify and distinguish between two manufacturing cost classification systems: direct and indirect prime and con!ersion.
1" #Cost# is defined by accountants as a resource sacrificed or foregone to achie!e a specific ob$ecti!e. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 2" Costs of *ales is another way of phrasing Cost of 0oods *old. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 1" An actual cost is a predicted cost. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 2" 3early all accounting systems accumulate forecasted costs. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 4" A cost ob$ect is anything for which a separate measurement of costs is desired. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 5" Indirect costs cannot be economically traced directly to the cost ob$ecti!e. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1
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8" (eli!ery charges are typically considered to be an indirect cost because it cannot be traced to each customer. Answer: )A.*' (iff: 2 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/1 9" A cost is classified as a direct or indirect cost based on the applicable cost ob$ect. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 :" Cost tracing assigns indirect costs to the chosen cost ob$ect. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 17" )actors affecting direct;indirect cost classifications are the materiality of the cost in <uestion the information/ gathering technology used and the operations. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 11" A firm=s strategy and mission are usually the same. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 12" 0o!ernance refers to a company=s relationship with all le!els of go!ernment. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 11" A !alue proposition is a distinct benefit for which customers will pay. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1
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12" %ent for the building that contains the manufacturing and engineering departments can all be charged as manufacturing o!erhead costs. Answer: )A.*' (iff: 2 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/1 14" The plant super!isor=s salary is a direct labour cost. Answer: )A.*' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 15" In!entoriable costs are reported as an asset when incurred and e>pensed on the income statement when the product is sold. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 18" Period costs are ne!er included as part of in!entory. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 19" Con!ersion costs include all direct manufacturing costs. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 1:" -!ertime premium consists of wages paid to all wor+ers in e>cess of their straight/time wage rates. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 27" Prime costs consist of direct and indirect manufacturing labour. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1
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21" Con!ersion costs are all manufacturing costs other than direct materials. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 22" -!ertime premium is always a component of direct labour. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 21" Products ser!ices departments and customers may be cost ob$ects. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 22" Costs are accounted for in two basic stages: assignment followed by accumulation. Answer: )A.*' '>planation: Costs are accounted for in two basic stages: accumulation followed by assignment. (iff: 1 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/1 24" A cost ob$ect is always either a product or a ser!ice. Answer: )A.*' '>planation: A cost ob$ect could be anything management wishes to determine the cost of for e>ample a department. (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 25" Assigning direct costs poses more problems than assigning indirect costs. Answer: )A.*' '>planation: Tracing direct costs is <uite straightforward whereas assigning indirect costs to a number of different cost ob$ects can be !ery challenging. (iff: 2 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/1 28" A department could be considered a cost ob$ect. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1
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29" Impro!ements in information/gathering technologies are ma+ing it possible to trace more costs as direct. Answer: T%&' (iff: 2 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/1 2:" Anything for which a separate measurement of costs is desired is +nown as A" a cost item. ?" a cost ob$ect. C" a fi>ed cost item. (" a !ariable cost ob$ect. '" a cost dri!er. Answer: ? (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 17" Ahich of the following is a cost ob$ectB A" direct materials ?" customers C" con!ersion costs (" cost assignments '" indirect labour Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 11" Ahich of the following is an indirect production costB A" materials placed into production ?" calibrating factory e<uipment C" labour placed into production (" cost of shipping a product to the customer '" ad!ertising Answer: ? (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1
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12" Actual costs are defined as A" costs incurred. ?" direct costs. C" indirect costs. (" predicted costs. '" sun+ costs. Answer: A (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 11" Ahether a company traces costs directly to an output unit or not depends upon A" the materiality of the contribution a cost ma+es to the total cost per output unit. ?" the amount of similar costs in the cost assignment. C" the effect of cost tracing on o!erhead. (" the employment of cost management. '" the amount of customer satisfaction. Answer: A (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 12" Ahich one of the following items is typically an e>ample of an indirect cost of a cost ob$ectB A" courier charges for shipment deli!ery ?" manufacturing plant electricity C" direct manufacturing labour (" wood used for furniture manufacture '" refundable sales ta> on direct materials Answer: ? (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/1 14" Prime costs can include A" con!ersion costs. ?" direct material costs. C" indirect manufacturing labour. (" machine set up costs. '" ad!ertiCing costs. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1
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15" Ahich one of the following e>amples could be classified as a direct costB A" The costs of an entire factory=s electricity related to a productD the product line is the cost ob$ect. ?" The printing costs incurred for payroll che<ue processingD the payroll che<ue processing is the cost ob$ect. C" The salary of a maintenance super!isor in the manufacturing plantD Product A is the cost ob$ect. (" The costs incurred for electricity in the officeD the accounting office is the cost ob$ect. '" The cost of ad!ertising the products. Answer: ? (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/1 18" The determination of a cost as being either direct or indirect depends upon A" the accounting system. ?" the allocation system. C" the cost tracing system. (" only the cost ob$ect chosen to determine its indi!idual costs. '" the choice of the cost ob$ect and the materiality of the cost in <uestion. Answer: ' (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 19" Cost assignment is A" always arbitrary. ?" lin+ing actual costs to cost ob$ects. C" the same as cost accumulation. (" finding the difference between budgeted and actual costs. '" the same as cost con!ersion. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 1:" Aages paid to machine operators on an assembly line are an e>ample of which type of costB A" direct manufacturing labour costs ?" direct manufacturing o!erhead costs C" direct materials costs (" indirect manufacturing o!erhead costs '" indirect material costs Answer: A (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/1
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27" Ahich of the following is true concerning prime costsB A" Prime costs are direct manufacturing costs. ?" They include indirect direct manufacturing labour. C" They e<ual the sum of direct manufacturing costs plus con!ersion costs. (" They e<ual the sum of fi>ed manufacturing costs plus con!ersion costs. '" They are indirect manufacturing costs. Answer: A (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 21" Ahich statement about con!ersion costs is correct using the three/part classification of costsB A" They include only direct manufacturing labour costs. ?" They include only indirect manufacturing costs. C" They include both direct manufacturing labour costs and manufacturing o!erhead costs. (" They include indirect manufacturing labour costs but not manufacturing o!erhead costs. '" They include indirect manufacturing costs and direct manufacturing labour costs. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 22" Cost tracing is A" the assignment of direct costs to the chosen cost ob$ect. ?" a function of cost allocation. C" the process of trac+ing both direct and indirect costs associated with a cost ob$ect. (" the process of determining the actual cost of the cost ob$ect. '" the assignment of both direct and indirect costs associated with a cost ob$ect. Answer: A (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 21" Cost allocation is A" the process of trac+ing both direct and indirect costs associated to a cost ob$ect. ?" the process of determining the actual cost of the cost ob$ect. C" the assignment of indirect costs to the chosen cost ob$ect. (" a function of cost tracing. '" the assignment of direct costs to the chosen cost ob$ect. Answer: C (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1
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22" The components of prime costs in the three/part classification include A" only direct materials costs. ?" only direct manufacturing labour costs. C" both direct materials and direct manufacturing labour costs. (" only con!ersion costs. '" direct materials direct manufacturing labour and con!ersion costs. Answer: C (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 24" Classifying a cost as either direct or indirect depends upon A" the beha!iour of the cost in response to !olume changes. ?" whether the cost is e>pensed in the period in which it is incurred. C" whether the cost can be identified with the cost ob$ect. (" whether an e>penditure is a!oidable or not in the future. '" the in!entory classification system. Answer: C (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/1 25" A manufacturing plant produces two product lines: football e<uipment and hoc+ey e<uipment. (irect costs for the football e<uipment line are the A" be!erages pro!ided daily in the plant brea+ room. ?" monthly lease payments for a specialiCed piece of e<uipment needed to manufacture the football helmet. C" salaries of the clerical staff that wor+ in the company administrati!e offices. (" utilities paid for the manufacturing plant. '" ad!ertising costs. Answer: ? (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/1 28" A manufacturing plant produces two product lines: football e<uipment and hoc+ey e<uipment. An indirect cost for the hoc+ey e<uipment line is the A" material used to ma+e the hoc+ey stic+s. ?" labour to bind the shaft to the blade of the hoc+ey stic+. C" shift super!isor for the hoc+ey line. (" plant super!isor. '" salesperson tra!elling e>penses. Answer: ( (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/1
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29" *heen @anufacturing has three cost ob$ects that it uses to assign costs in its manufacturing plants. They are: Cost ob$ect E1 Cost ob$ect E2 Cost ob$ect E1 The e>istence of buildings and e<uipment The use of buildings and e<uipment The a!ailability and use of manufacturing labour
The following manufacturing o!erhead costs categories are found in the accounting records: 1. 2. 1. 2. 4. 5. 8. 9. :. 17. 11. AmortiCation on buildings and e<uipment )ringe benefits Idle time wages .ubricants for machines 3ight security -!ertime premiums Property insurance Property ta>es *afety hats and shoes *uper!isor=s salaries &tilities
%e<uired: Assign each of the cost categories to the one cost ob$ect you consider most appropriate. Answer: Cost ob$ect E 1 includes categories 1 4 8 and 9. Cost ob$ect E 2 includes categories 2 and 11. Cost ob$ect E 1 includes categories 2 1 5 : and 17. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1
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2:" 'ichhorn Company=s Process 'ngineering department has the responsibility of rearranging the indi!idual wor+ tas+s for each assembly line wor+er with the goal of utiliCing each wor+er as much as possible. Currently on a!erage each assembly line wor+er only has tas+s that re<uire 28 minutes per hour and the plant manager wants this increased by at least 17 F. The company builds the 'ichhorn %oc+et %oadster which is selling out of dealers= showrooms faster than the company=s assembly plants can produce them. If production can=t be increased then sales will soon suffer. %e<uired: '>plain the effect on total costs of production using the number of engineering changes Gfrom Process 'ngineering" and at least two other cost dri!ers. Choose the cost dri!er that you thin+ is most logical in the circumstances and begin your answer with a brief e>planation of a cost dri!er. Answer: A cost dri!er is any factor that affects total costs. Ahen a new engineering change has to be implemented ob!iously there will be down time for staff to learn the new wor+ processes and for any physical changes re<uired on the assembly line that may result in rearranging the wor+load tas+s Gsuch as material handling changes". These costs would ha!e to be balanced against the e>pected sa!ings by being able to utiliCe the production wor+er=s time more efficiently. The costs of the engineer=s time would not be rele!ant. A second cost dri!er would be the units of production. As the wor+ers time utiliCation becomes more efficient production should increase so total !ariable costs will increase. Total fi>ed costs will not increase assuming no problems with the rele!ant range. The direct manufacturing labour costs would increase in total but as indicated abo!e we e>pect decreased !ariable direct manufacturing labour cost per unit. Another possible cost dri!er is the number of setups. To the e>tent that the number of setups is increased by the engineering changes then total costs will increase and these costs would ha!e to be considered when contemplating the engineering changes. In this situation it appears that production must be increased and that the plant manager is most concerned with achie!ing this through reducing the direct labour re<uired per unit rather than by reducing labour costs per unit. Therefore the most li+ely cost dri!er in this situation would be the number of units produced. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1
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47" -ffice *upply Company manufactures office furniture. %ecently the company decided to de!elop a formal cost accounting system. The company is currently con!erting all costs into classifications as related to its manufacturing processes. %e<uired: )or the following items label each as being appropriate for H direct cost tracing of the finished furniture H indirect cost allocation of an indirect manufacturing cost to the finished furniture or H as a nonmanufacturing item. Item Carpenter wages AmortiCation / office building 0lue for assembly .athe department super!isor .athe amortiCation .athe maintenance .athe operator wages .umber *ales staff wages @etal brac+ets for drawers Aashroom supplies Answer: Item Carpenter wages AmortiCation / office building 0lue for assembly .athe department super!isor .athe amortiCation .athe maintenance .athe operator wages .umber *ales staff wages @etal brac+ets for drawers Aashroom supplies (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1 (irect Cost Tracing J J J J J J J J J J J Indirect Cost Allocation 3onmanu/ facturing (irect Cost Tracing IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII Indirect Cost Allocation IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII 3onmanu/ facturing IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII
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41" .ucas @anufacturing has three cost ob$ects that it uses to accumulate costs for its manufacturing plants. They are: Cost ob$ect E1: Cost ob$ect E2: Cost ob$ect E1: The physical buildings and e<uipment The use of buildings and e<uipment The a!ailability and use of manufacturing labour
The following manufacturing o!erhead cost categories are found in the accounting records: a. (epreciation on buildings and e<uipment b. .ubricants for machines c. Property insurance d. *uper!isors= salaries e. )ringe benefits f. Property ta>es g. &tilities %e<uired: Assign each of the abo!e costs to the most appropriate cost ob$ect. Answer: Cost ob$ect E 1 includes categories a c and f. Cost ob$ect E 2 includes categories b and g. Cost ob$ect E 1 includes categories d and e. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1
2.2 (ifferentiate fi>ed from !ariable cost beha!iour and e>plain the relationship of cost beha!iour to direct and indirect cost classifications.
1" A rele!ant range is the range of the cost dri!er in which a specific relationship between cost and dri!er is !alid. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 2" Changes in particular cost dri!ers automatically result in decreases in o!erall costs. Answer: )A.*' (iff: 2 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/2 1" A fi>ed cost is a cost that changes per unit as a cost dri!er changes. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2
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2" Total !ariable costs change in direct proportion to changes in cost dri!ers. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 4" Ahen defining !ariable and fi>ed costs it is assumed that there is only one cost dri!er. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 5" The !ariable cost per unit of a product should stay the same throughout the rele!ant range of production. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 8" An appropriate cost dri!er for shipping costs might be the number of units shipped. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 9" Competition places an increased emphasis on cost reductions. )or an organiCation to reduce costs it must focus on A" ma>imiCing the cost allocation system. ?" reporting non/!alue added costs separately from !alue/added costs. C" efficiently managing the use of the cost dri!ers in those !alue/added acti!ities. (" the cost allocation process. '" reducing the number of cost dri!ers. Answer: C (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 :" Ahich of the following statements about cost management is trueB A" It re<uires that managers acti!ely stri!e to increase re!enues. ?" It only focuses on in!entoriable costs. C" It is not affected by the organiCation=s customers. (" It only applies to period costs. '" It re<uires efficient management of the use of the cost dri!ers in the !alue/added acti!ities. Answer: ' (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2
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17" Ahich one of the following is a !ariable cost in a grocery storeB A" rent ?" president=s salary C" in!entory of !egetables (" property ta>es '" administrati!e salaries Answer: C (iff: 1 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 11" Ahich of the following statements is a fi>ed cost in a clothing storeB A" store manager=s salary ?" electricity C" sales commissions (" in!entory '" paper for the cash register Answer: A (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 12" If each furnace re<uired a hose that costs K27 and 2 777 furnaces are produced for the month the K27 777 total cost for hoses A" is considered to be a direct fi>ed cost. ?" is considered to be a direct !ariable cost. C" is considered to be an indirect fi>ed cost. (" is considered to be an indirect !ariable cost. '" is considered to be !ariable or fi>ed depending on the rele!ant range. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2
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Use the information below to answer the following question(s). @acadamia Co. produced and sold 27 777 units last year. Per unit re!enue and costs were as follows: %e!enue Cost of 0oods *old: (irect @aterials (irect .abour Lariable @anufacturing -!erhead )i>ed @anufacturing -!erhead Total Cost of 0oods *old 0ross @argin *elling and Administrati!e Costs: *ales Commissions G17F of *ales" Administrati!e *alaries Total *elling and Administrati!e -perating Income M.ossN K177.77 K14.77 17.77 27.77 17.77 K84.77 K24.77 K17.77 27.77 K17.77 MK4.77N
)i>ed manufacturing o!erhead and administrati!e salaries are fi>ed costs. The per unit amounts are based on last year=s production. 11" Calculate last year=s operating income when the company produced and sold 27 777 units. A" K7 ?" KM277 777N C" KM477 777N (" KM977 777N '" KM1 777 777N Answer: ? '>planation: ?" 27 777 O P177 / G14 Q 17 Q 27 Q 17"R / P27 777 O G27 Q 17"R S KM277 777N (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 12" Calculate this year=s operating income if the company plans to produce and sell 47 777 units. A" K47 777 ?" K7 C" KM247 777N (" KM447 777N '" K247 777 Answer: A '>planation: A" 47 777 O P177 / G14 Q 17 Q 27 Q 17"R / P27 777 O G27 Q 17"R S K47 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2
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14" Calculate this year=s operating income if the company plans to produce and sell 57 777 units. A" K147 777 ?" K7 C" KM177 777N (" KM547 777N '" K177 777 Answer: ' '>planation: '" 57 777 O P177 / G14 Q 17 Q 27 Q 17"R / P27 777 O G27 Q 17"R S K47 777 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2 15" Cost beha!iour refers to A" how costs react to a change in the le!el of acti!ity. ?" whether a cost is incurred in a manufacturing merchandising or ser!ice company. C" classifying costs as either in!entoriable or period costs. (" whether a particular e>pense has been ethically incurred. '" how costs react to a change in selling price. Answer: A (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 18" A mi>ed cost is A" a fi>ed cost. ?" a cost with fi>ed and !ariable elements. C" a !ariable cost. (" always an indirect cost. '" a cost with direct and indirect elements. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 19" Lariable costs A" are always indirect costs. ?" increase in total when the actual le!el of acti!ity increases. C" include most personnel costs and depreciation on machinery. (" can always be traced directly to the cost ob$ect. '" change in relation to selling price. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2
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1:" The rele!ant range is important because A" it specifies which costs should be used for a gi!en decision. ?" it pro!ides a basis for determining a range of acceptable cost alternati!es. C" it is re<uired to determine in!entoriable costs under Canadian 0AAP. (" it specifies the limits beyond which the relationship of cost to cost dri!ers may not be !alid. '" it determines the time horiCon. Answer: ( (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 27" Ahich of the following statements about the +ey features of cost accounting and cost management is trueB A" Ahen ma+ing decisions about what products to produce managers need to +now how re!enue and costs !ary with changes in output le!els. ?" @anagers need to understand that period costs remain the same from one period to the ne>t. C" The costing system allocates direct costs and traces indirect costs to products. (" Ahen ma+ing decisions managers must understand that all re!enue and costs are rele!ant. '" Cost accounting is used for managerial decision ma+ing not for financial statements. Answer: A (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 21" )i>ed costs A" may include either direct or indirect costs. ?" !ary with production or sales !olumes. C" include parts and materials used to manufacture a product. (" can be ad$usted in the short run to meet actual demands. '" remain fi>ed regardless of the rele!ant range of production. Answer: A (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 22" )i>ed costs depend on the A" amount of resources used. ?" amount of resources ac<uired. C" !olume of production. (" !olume of sales. '" allocation method. Answer: ? (iff: 1 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2
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21" Ahich one of the following is a !ariable cost for an insurance companyB A" rent ?" president=s salary C" sales commissions (" property ta>es '" amortiCation on the office e<uipment Answer: C (iff: 1 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 22" Ahich of the following is a fi>ed cost for an automobile manufacturing plantB A" amortiCation on factory e<uipment ?" electricity used by assembly/line machines C" sales commissions (" windows for each car produced '" labour cost of assembly line wor+ers Answer: A (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2
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24" ?oone Tospital wants to determine to the e>tent possible the actual cost for each patient stay. It is a general health care facility with all basic ser!ices but does not perform specialiCed ser!ices such as organ transplants. %e<uired: Complete the following table by a. Classifying each cost as a direct or indirect cost with respect to each patient. b. Classifying each item as fi>ed or !ariable with respect to the number of patient days Gsum of days each patient was in hospital" the hospital incurs. Cost Cleaning acti!ities 'lectronic monitoring .ab test charges @eals for patients @edicine 3urses= salaries -perating room usage Par+ing maintenance *ecurity Answer: Cost Cleaning acti!ities 'lectronic monitoring .ab test charges @eals for patients @edicine 3urses= salaries -perating room usage Par+ing maintenance *ecurity (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/2 25" Ahippany manufacturing wants to estimate costs for each product they produce at its Troy plant. The Troy plant produces three products at this plant and runs two fle>ible assembly lines. 'ach assembly line can produce all three products. %e<uired: a. Classify each of the following costs as either direct or indirect for each product. b. Classify each of the following costs as either fi>ed or !ariable with respect to the number of units produced of each product.
Direct
Indirect
Fixed
Variable
Direct J J J J J J
Indirect J
Fixed
Variable J J J J J
J J J J J J
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Direct Assembly line labour wages Plant manager=s wages (epreciation on the assembly line e<uipment Component parts for the product Aages of security personnel for the factory Answer: Direct Assembly line labour wages Plant manager=s wages (epreciation on the assembly line e<uipment Component parts for the product Adhesi!e to hold the parts together and is an insignificant part of the final cost of the product (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/2 J
Indirect
Fixed
Variable
Indirect
Fixed
Variable J
J J J J
J J J J
2/21
28" Combs Inc. reports the following information for *eptember sales: *ales Lariable costs )i>ed costs -perating income K14 777 1 777 2 777 K9 777
%e<uired: If sales double in -ctober what is the pro$ected operating incomeB Answer: GK14 777 O 2" / GK1 777 O 2" / K2 777 S K27 777 (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2 29" A new employee in the accounting department is ha!ing difficulty understanding two sets of accounting termsU !ariable and fi>ed costs as opposed to period and product costs. Te understands that !ariable costs change during an accounting period while fi>ed costs do not. Towe!er he e>plains that a period cost implies that it is for a period of time and is therefore also fi>ed. (oes his assumption imply that all product costs are then !ariableB %e<uired: As part of your responsibility to train new staff e>plain the difference between these terms. Answer: )irst you should e>plain that all costs should be first classified as either !ariable or fi>ed. This concept deals with cost beha!iour and not with what the costs are associated in the organiCation. @any decisions are made about costs because of the type of beha!iour they e>hibit. *econd a cost can be assigned to #why you are in business# acti!ities Gproduct costs" of the organiCation or to #support# acti!ities Gperiod costs" of the organiCation. )or a manufacturing firm period costs are all costs which ha!e no direct relationship to the manufacturing process. Period costs are always e>penses during the accounting period while product costs are in!entoriable because they can be assigned to the products being produced. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/2
2/22
2:" ?utler Tospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic ser!ices and not specialiCed ser!ices such as organ transplants. %e<uired: a. Classify each of the following costs as either direct or indirect with respect to each patient. b. Classify each of the following costs as either fi>ed or !ariable with respect to hospital costs per day. Direct 'lectronic monitoring @eals for patients 3urses= salaries Par+ing maintenance *ecurity Answer: 'lectronic monitoring @eals for patients 3urses= salaries Par+ing maintenance *ecurity (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/2 IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII Direct J J J J J J J J Indirect IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII Indirect Fixed IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII Fixed Variable IIIIIIII IIIIIIII IIIIIIII IIIIIIII IIIIIIII Variable J J
17" A manufacturing company contracts with the labour union to guarantee full employment for all employees with at least 17 years seniority. The Company e>pects to be wor+ing at capacity for the ne>t 2 years Gthe life of the contract" so this was seen as a bargaining concession without any cost to the company. -n a!erage an employee earns K17 per hour including benefits. The wor+ force consists of 977 employees with seniority ranging from 1 year to 19 years. %e<uired: AnalyCe the direct labour cost in term of !ariable costs fi>ed costs and the rele!ant range. Answer: &sually we thin+ of direct labour as a !ariable cost since it increases in proportion to the increases in output. Towe!er in this case the manufacturer has con!erted a portion of the direct labour cost into a fi>ed cost since the union contract appears to re<uire the company to pay full wages to all employees with at least 17 years seniority regardless of the le!el of production. The direct labour costs in e>cess of this amount would still be a !ariable cost. The rele!ant range would be the number of employees with at least 17 years seniority times the wage for a regular wor+ wee+. This will be the case until the contract e>pires. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/2
2/21
11" Ahat is the meaning of the term #cost ob$ect#B 0i!e an e>ample of a cost ob$ect that would be used in a manufacturing company a merchandising company and a ser!ice sector companyB Answer: A cost ob$ect is anything for which a measurement of costs is desired. An e>ample of a cost ob$ect for a manufacturing company might be the cost of manufacturing a particular product. An e>ample of a cost ob$ect for a merchandising company might be a particular department of a retail store. An e>ample of a cost ob$ect for a ser!ice sector company might be the cost to ser!e or supply a particular customer. (iff: 1 Type: '* *+ill: ,nowledge -b$ecti!e: .- 2/2 12" Ahat are the differences between direct costs and indirect costsB 0i!e an e>ample of each. Answer: Direct costs are costs that can be traced easily and economically to the product manufactured or the ser!ice rendered. '>amples of direct costs include direct materials and direct manufacturing labour used in a product. Indirect costs cannot be easily identified in a cost efficient manner Geconomically"with indi!idual products or ser!ices rendered and are usually assigned using allocation formulas. In a plant that manufactures multiple products e>amples of indirect costs include the plant super!isor=s salary and the cost of machines used to produce more than one type of product. (iff: 2 Type: '* *+ill: ,nowledge -b$ecti!e: .- 2/2 11" (escribe a !ariable cost. (escribe a fi>ed cost. '>plain why the distinction between !ariable and fi>ed costs is important in cost accounting. Answer: Total variable costs increase with increased production or sales !olumesD Unit variable cost remains constant no matter the le!el of acti!ityD all within the rele!ant range. Fi ed costs are not influenced by fluctuations in production or sales !olumes. Unit !i ed costs will decrease as acti!ity le!el increasesD within the rele!ant range. Aithout the +nowledge of cost beha!iors budgets and other forecasting tools will be inaccurate and unreliable. &nderstanding whether a cost beha!es as a !ariable or a fi>ed cost is essential to estimating and planning for business success. (iff: 2 Type: '* *+ill: ,nowledge -b$ecti!e: .- 2/2
2.1 Interpret unitiCed fi>ed costs appropriately when ma+ing cost management decisions.
1" A unit cost is computed by di!iding a total cost by some number of units. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1
2/22
2" &nit costs are considered to be an a!erage cost per unit. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 1" Ahen a manager is ma+ing a decision based on cost figures it is preferable that he Gshe" thin+s in terms of unit costs. Answer: )A.*' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 2" Ahen 47 777 units are produced the fi>ed costs are K17 per unit. Therefore when 177 777 units are produced fi>ed costs will remain at K17 per unit. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 4" &nit costs and a!erage costs are really the same thing. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/1 5" Aheel and Tire @anufacturing currently produces 1 777 tires per month. The following per unit data apply for sales to regular customers: (irect materials (irect manufacturing labour Lariable manufacturing o!erhead )i>ed manufacturing o!erhead Total manufacturing costs K27 1 5 17 K1:
The plant has capacity for 1 777 tires and is considering e>panding production to 2 777 tires. Ahat is the total cost of producing 2 777 tiresB A" K1: 777 ?" K89 777 C" K59 777 (" K52 777 Answer: C '>planation: C" PGK27 Q K1 Q K5" O 2 777 unitsR Q GK17 O 1 777 units" S K59 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1
2/24
8" Christi @anufacturing pro!ided the following information for last month: *ales Lariable costs )i>ed costs -perating income K17 777 1 777 4 777 K2 777
If sales double ne>t month what is the pro$ected operating incomeB A" K2 777 ?" K8 777 C" K: 777 (" K12 777 Answer: C '>planation: C" GK17 777 O 2" / GK1 777 O 2" / K4 777 S K: 777 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/1 9" ,ym @anufacturing pro!ided the following information for last month: *ales Lariable costs )i>ed costs -perating income K12 777 2 777 1 777 K8 777
If sales double ne>t month what is the pro$ected operating incomeB A" K12 777 ?" K14 777 C" K19 777 (" K1: 777 Answer: ? '>planation: ?" GK12 777 O 2" / GK2 777 O 2" / K1 777 S K14 777 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/1
2/25
:" *pringfield @anufacturing produces electronic storage de!ices and uses the following three/part classification for its manufacturing costs: direct materials direct manufacturing labour and indirect manufacturing costs. Total indirect manufacturing costs for Vanuary were K177 million and were allocated to each product on the basis of direct manufacturing labour costs of each line. *ummary data for Vanuary for the most popular electronic storage de!ice the ?ig ?ertha was: (irect manufacturing costs (irect manufacturing labour costs Indirect manufacturing costs &nits produced Big Bertha K: 777 777 K1 777 777 K9 477 777 27 777
%e<uired: a. Compute the total manufacturing cost per unit for each product produced in Vanuary. b. *uppose production will be reduced to 17 777 units in )ebruary. If indirect manufacturing costs include fi>ed costs then e>plain if the total cost per unit be higher or lower than in Vanuary. Answer: a. &nit costs for Vanuary were: GK: 777 777 Q K1 777 777 Q K9 477 777" ; 27 777 S K412.47 per unit b. &nit costs will be higher in )ebruary if only 17 777 units are to be produced. *ince fewer units are e>pected to be produced in )ebruary total fi>ed costs will be spread o!er fewer units. This will result in an increase in total cost per unit since !ariable costs per unit will most li+ely not change with the decreased production. (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/1
2/28
17" Things are not going well for the widget industry this year. The well/+nown cyclical nature of widget sales is in a downturn and your plant has been ordered to cut costs by its American parent corporation. The plant manager e>plains that he has shown the lead by negotiating a K1.47 hourly wage decrease with the production wor+ers based on a formula that pegs a K1.47 per hour wage increase;decrease to sales !olume and since sales are down this year so are hourly wage costs. In the <uarterly management meeting the sales manager complained that sales could ha!e been higher but that somehow costs had increased at least that=s what the reports out of your office in management accounting indicated. The Purchasing manager assured e!eryone that she was able to obtain raw materials at the same price as last year and unfortunately you as the management accountant were not in attendance at the meeting. Wour assistant a new employee attended in your place and promised at the meeting to redo the reports and find the errors. Wour assistant has come to you as he cannot find any errors in the reports. Conse<uently the plant manager wants you to redo the reports find the error reports produced by your department for the last <uarter and to e>plain to your boss the plant manager why a!erage costs ha!e increased. %e<uired: Assuming there are no errors in the cost reports e>plain to the plant manager how direct labour costs could be decreased and direct materials costs could be the same as last year and yet the selling price cannot be lowered without sacrificing net income for the plant. Answer: The +ey to the problem lies in recogniCing the difference between !ariable and fi>ed costs and understanding the implication that declining !olume has on a!erage costs. Part of the solution may be due to indirect materials but one would assume this is a minor factor. The ma$or factor is that there are fewer units of widgets to absorb the fi>ed costs. -n a per widget basis the plant is sa!ing say K1.47 per hour in labour costs but each widget has to absorb more of the fi>ed costs. If the K1.47 per hour component is not a significant part of the cost compared to the fi>ed cost per unit at that le!el of production for e>ample if the direct labour per widget is only 5 minutes then the sa!ings in !ariable cost per widget is only K7.14. This isn=t much in sa!ings when the fi>ed costs per unit ha!e to increase. The ne>t point is that setting the sales price perhaps should not consider actual fi>ed cost burden but the plant could consider using a budgeted amount and lower the sales price somewhat in hopes that this would increase sales. (iff: 1 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1
2/29
11" The !ice president of production has $ust completed the Vanuary meeting with all production department heads. '!eryone is upset that the production !ariances for the month were unfa!ourable. They do not understand why e!erything was unfa!ourable. Vanuary is typically the company=s lowest production month of the year. The company uses annual a!erage unit costs for production e!aluation purposes. The a!erage costs are based on the prior year=s actual performance with ad$ustments for any predicted changes in the coming year. ?oth production and economic items are considered in setting the a!erages for each new year. %e<uired: '>plain the problems with using a!erage costs in e!aluating production. Answer: -ne of the problems with a!erage unit costs is that actual costs may ne!er be a!erage. The probable shortcoming with the situation presented is that the costs included a fi>ed cost element and with the production low the fi>ed costs were a!eraged using a denominator that was smaller than the year=s a!erage which caused the unit a!erages to increase. (iff: 2 Type: '* *+ill: Comprehension -b$ecti!e: .- 2/1
2.2 Apply cost information to produce a 0AAP/compliant income statement showing proper cost of goods sold and a balance sheet showing proper in!entory !aluation.
1" @anufacturing/sector companies purchase materials and other resources for con!ersion into !arious finished goods. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 2" @anufacturing firms ha!e three types of in!entory: direct materials wor+ in process and merchandise. Answer: )A.*' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 1" (irect materials in!entory is products held for resale. Answer: )A.*' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 2" Aor+/in/process consists of partially completed goods not yet ready for sale. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2
2/2:
4" -perating income does not include interest e>pense and income ta>es. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 5" *er!ice/sector companies pro!ide ser!ices or intangible products to their customers. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 8" @erchandising companies purchase products and sell them to customers without changing their basic form. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2 9" @anufacturing sector firms normally hold three types of in!entory: direct materials in!entory wor+/in/process in!entory and finished goods in!entory. Answer: T%&' (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/2
2/17
Use the information below to answer the following question(s). Consider the following data of the Lancou!er Company for the year 27J2: *andpaper/Plant @aterials handling/Plant Coolants/Plant Indirect manufacturing labour (irect manufacturing labour (irect materials 1;1;J2 )inished goods 1;1;J2 )inished goods 12;11;J2 AIP 1;1;J2 AIP 12;11;J2 Administration costs K17 777 .easing costs / plant 177 777 AmortiCation/ e<uip. 8 777 Property ta>es / e<uip. 95 777 )ire insurance / e<uip. 597 777 (irect material purchases 127 777 (irect materials 12;11;J2 217 777 *ales 277 777 *ales commissions 17 777 *ales salaries 27 777 Ad!ertising costs 247 777 K127 777 87 777 17 777 4 777 :97 777 95 777 2 777 777 277 777 197 777 147 777
:" Ahat is the unit cost for the direct materials for 27J2 assuming direct materials costs are for the production of 1 712 777 unitsB A" K7.97 ?" K7.:4 C" K1.77 (" K1.79 '" K1.11 Answer: C '>planation: C" GK127 777 Q K:97 777 / K95 777" ; 1 712 777 units S K1.77 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2 17" Ahat is the unit cost for the plant leasing costs for 27>2 assuming plant leasing costs are for the production of 1 712 777 unitsB A" K7.11: ?" K7.119 C" K7.117 (" K7.:77 '" K7.:21 Answer: ? '>planation: ?" K127 777 ; 1 712 777 units S.1191211 or .119 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/11
11" Ahat is the unit cost for the direct materials for 27J2 assuming direct materials are for the production of 478 777 unitsB A" K7.97 ?" K7.:4 C" K2.77 (" K1.79 '" K1.17 Answer: C '>planation: C" GK127 777 Q K:97 777 / K95 777" ; 478 777 units S K2.77 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2 12" Ahat is the unit cost for the plant leasing cost for 27>2 assuming plant leasing costs are for the production of 2 777 777 unitsB A" 7.14 ?" 7.19 C" 7.12 (" 7.75 '" 7.72 Answer: ( '>planation: (" K127 777 ; 2 777 777 units S K7.75 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2 Use the information below to answer the following question(s). The following information pertains to Payton=s *hoe @anufacturing: @anufacturing costs *hoes manufactured ?eginning in!entory K1 777 777 177 777 7 pairs
:: 477 pairs of shoes are sold during the year for K19. 11" Ahat is Payton=s manufacturing cost per pair of shoesB A" K17.77 ?" K17.74 C" K177.77 (" K19.77 '" K:.:4 Answer: A '>planation: A" K1 777 777 ; 177 777 S K17.77 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/12
12" Ahat is the amount of Payton=s ending finished goods in!entoryB A" K:: 477 ?" K9 777 C" K4 777 (" K477 '" K7 Answer: C '>planation: C" G177 777 / :: 477" O K17.77 S K4 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 14" Ahat is the amount of Payton=s gross profitB A" K::4 777 ?" K1 777 777 C" K1 8:1 777 (" K8:5 777 '" K9:5 777 Answer: ( '>planation: (" :: 477 O GK19 / K17" S K8:5 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 15" The following information pertains to the *tratford Company: ?eginning finished goods in!entory Cost of goods manufactured 'nding finished goods in!entory K57 777 217 777 12 777
Ahat is the cost of goods soldB A" K215 777 ?" K192 777 C" K185 777 (" K115 777 '" K222 777 Answer: A '>planation: A" K57 777 Q K217 777 / K12 777 S K215 777 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/11
Use the information below to answer the following question(s). @ontreal Industries Inc. had the following acti!ities during the year:: (irect materials: ?eginning in!entory Purchases 'nding in!entory (irect manufacturing labour @anufacturing o!erhead 'nding wor+/in/process in!entory ?eginning wor+/in/process in!entory 'nding finished goods in!entory ?eginning finished goods in!entory K47 777 142 777 25 777 27 777 17 777 17 777 2 777 27 777 57 777
18" Ahat is @ontreal=s cost of direct materials used during the yearB A" K272 777 ?" K189 777 C" K129 777 (" K22 777 '" K219 777 Answer: ? '>planation: ?" K47 777 Q K142 777 / K25 777 S K189 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 19" Ahat is @ontreal=s cost of goods manufactured during the yearB A" K259 777 ?" K229 777 C" K227 777 (" K219 777 '" K257 777 Answer: C '>planation: C" K189 777 Q K27 777 Q K17 777 Q K2 777 / K17 777 S K227 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/12
1:" Ahat is @ontreal=s cost of goods sold during the yearB A" K257 777 ?" K212 777 C" K227 777 (" K277 777 '" K227 777 Answer: A '>planation: A" K57 777 Q K227 777 / K27 777 S K257 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 27" @anufacturing/sector companies A" purchase materials and con!ert them to finished goods. ?" buy goods and resell them. C" pro!ide ser!ices or intangible products. (" ha!e only period costs. '" ha!e one classification of in!entory. Answer: A (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 21" @erchandising/sector companies A" purchase materials and con!ert them to finished goods. ?" buy goods and resell them. C" pro!ide ser!ices or intangible products. (" ha!e only !ariable costs. '" ha!e period and some manufacturing costs. Answer: ? (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 22" @anufacturing/sector companies report on the balance sheet A" only merchandise in!entory. ?" only finished goods in!entory. C" direct materials in!entory wor+/in/process in!entory and finished goods in!entory accounts. (" no in!entory accounts. '" only wor+ in progress in!entory. Answer: C (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2
2/14
21" )or a manufacturing company direct material costs may be included in A" direct materials in!entory only. ?" merchandise in!entory only. C" both wor+/in/process in!entory and finished goods in!entory. (" direct materials in!entory wor+/in/process in!entory and finished goods in!entory accounts. '" period costs. Answer: ( (iff: 1 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 22" Ahich of the following statements would be correct in a manufacturing businessB A" Completed goods are not normally included in the finished goods in!entory. ?" Completed goods are part of the wor+ in process category. C" Aor+/in/process in!entory at the end of the accounting period includes direct materials but not direct labour. (" @aterials put into production are classified as wor+/in/process in!entory. '" There can be no beginning finished goods in!entory. Answer: ( (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 24" 0oods a!ailable for sale that are not in ending in!entory A" are included in goods a!ailable for sale in the ne>t year. ?" are included in the wor+/in/process in!entory at the end of the year. C" are not accounted for until the ne>t year. (" are incorporated in the cost of goods sold amount. '" are included in beginning in!entory. Answer: ( (iff: 1 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2
2/15
Answer the following question using the information below. Pederson Company reported the following: @anufacturing costs &nits manufactured &nits sold ?eginning in!entory K2 777 777 47 777 28 777 units sold for K84 per unit 7 units
25" Ahat is the amount of gross marginB A" K1 847 777 ?" K1 424 777 C" K1 274 777 (" K1 524 777 '" K1 424 777 Answer: ( '>planation: (" 28 777 O GK84 / GK2 777 777 ; K47 777"" S K1 524 777 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2 Answer the following question(s) using the information below. The following information pertains to Alleigh=s @anne<uins: @anufacturing costs &nits manufactured &nits sold ?eginning in!entory K1 477 777 17 777 2: 477 units sold for K94 per unit 7 units
28" Ahat is the a!erage manufacturing cost per unitB A" K47.77 ?" K47.94 C" K18.54 (" K94.77 '" K2:.47 Answer: A '>planation: A" K1 477 777 ; 17 777 S K47.77 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/18
29" Ahat is the amount of ending finished goods in!entoryB A" K22 477 ?" K22 847 C" K24 777 (" K24 224 '" K22 477 Answer: C '>planation: C" G17 777 / 2: 477" O GK1 477 777 ; K17 777" S K24 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 2:" Ahat is the amount of gross marginB A" K1 284 777 ?" K1 477 777 C" K1 728 247 (" K1 712 477 '" K1 778 224 Answer: ( '>planation: (" 2: 477 O GK94 / GK1 477 777 ; K17 777"" S K1 712 477 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/19
Use the information below to answer the following question(s). )raCer Inc. had the following acti!ities in the year: (irect materials: ?eginning in!entory Purchases 'nding in!entory (irect manufacturing labour @anufacturing o!erhead 'nding wor+ in process in!entory ?eginning wor+ in process in!entory 'nding finished goods in!entory ?eginning finished goods in!entory K177 777 179 777 42 777 97 777 57 777 27 777 2 777 97 777 127 777
17" Ahat is )raCer=s cost of goods manufacturedB A" K415 777 ?" K2:5 777 C" K297 777 (" K285 777 '" K412 777 Answer: C '>planation: C" GK177 777 Q K179 777 / K42 777" Q K97 777 Q K57 777 Q K2 777 / K27 777 S K297 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2 11" Ahat is )raCer=s cost of goods soldB A" K427 777 ?" K252 777 C" K227 777 (" K277 777 '" K415 777 Answer: A '>planation: A" K127 777 Q K297 777 / K97 777 S K427 777 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/1:
12" Ahich of the following formulae would determine costs of goods sold in a merchandising entityB A" Purchases / 'nding in!entory ?" ?eginning in!entory Q Purchases / 'nding in!entory C" ?eginning in!entory / Purchases Q 'nding in!entory (" ?eginning in!entory / 'nding in!entory / Purchases '" 'nding In!entory / ?eginning in!entory / Purchases Answer: ? (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 11" Ahich of the following formulae would determine cost of goods sold in a manufacturing entityB A" ?eginning in!entory Q 'nding in!entory / Cost of goods manufactured ?" Cost of goods manufactured Q 'nding in!entory Q ?eginning in!entory C" ?eginning in!entory / 'nding in!entory / Cost of goods manufactured. (" Cost of goods manufactured / 'nding in!entory Q ?eginning in!entory '" 'nding in!entory / ?eginning in!entory / Cost of goods manufactured Answer: ( (iff: 2 Type: @C *+ill: Comprehension -b$ecti!e: .- 2/2 12" The following information pertains to Tom=s Country Aood *hop: ?eginning finished goods 1;1;J2 'nding finished goods 12;11;J2 Cost of goods sold *ales -perating e>penses K14 777 : 477 45 777 112 477 24 777
Ahat is the cost of goods manufactured for 27J2B A" K45 477 ?" K11 477 C" K47 477 (" K51 477 '" K55 477 Answer: C '>planation: C" K45 777 Q K: 477 / K14 777 S K47 477 (iff: 1 Type: @C *+ill: Application -b$ecti!e: .- 2/2
2/27
14" Ahich of the following is true of period costsB A" They are also called fi>ed costs. ?" They are part of the cost of goods sold. C" They are e>pected to benefit future periods. (" They are costs incurred to generate re!enue in a specific time period e>cept the cost of manufacturing accumulated as cost of goods sold. '" )or merchandising sector companies they include all costs not related to the cost of goods purchased for resale. Answer: ( (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 15" 0enerally costs which are initially recorded as an asset and subse<uently become an e>pense are called A" in!entoriable costs. ?" non/manufacturing costs. C" manufacturing costs. (" non/capitaliCed costs. '" non/in!entoriable costs. Answer: A (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 18" )inished goods in!entory would normally include A" direct materials in stoc+ and awaiting use in the manufacturing process. ?" goods partially wor+ed on but not yet fully completed. C" goods fully completed but not yet sold. (" products in their original form intended to be sold without changing their basic form. '" goods completed and sold. Answer: C (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2 19" In!entoriable costs A" include administrati!e and mar+eting costs. ?" are e>pensed in the accounting period in which the products are sold. C" are particularly useful in management accounting. (" are also referred to as nonmanufacturing costs. '" are similar to period costs. Answer: ? (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/2
2/21
Answer the following question(s) using the information below. The *inger Company manufactures se!eral different products. &nit costs associated with Product ICT171 are as follows: (irect materials (irect manufacturing labour Lariable manufacturing o!erhead )i>ed manufacturing o!erhead *ales commissions G2F of sales" Administrati!e salaries Total K57 17 19 12 2 15 K127
1:" Ahat are the !ariable costs per unit associated with Product ICT171B A" K19 ?" K22 C" K99 (" K:2 '" K29 Answer: ( '>planation: (" K57 Q K17 Q K19 Q K2 S K:2 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2 27" Ahat are the fi>ed costs per unit associated with Product ICT171B A" K172 ?" K29 C" K42 (" K12 '" K15 Answer: ? '>planation: ?" K12 Q 15 S K29 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2 21" Ahat are the in!entoriable costs per unit associated with Product ICT171B A" K127 ?" K127 C" K47 (" K99 '" K87 Answer: A '>planation: A" K57 Q K17 Q K19 Q K12 S K127 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2 22" Ahat are the period costs per unit associated with Product ICT171B A" K2 ?" K15 C" K27 (" K42 Answer: C '>planation: C" K2 Q 15 S K27 (iff: 2 Type: @C
2/22
*+ill: Application -b$ecti!e: .- 2/1 2 Answer the following question(s) using the information below. The Aest Company manufactures se!eral different products. &nit costs associated with Product -%(271 are as follows: (irect materials (irect manufacturing labour Lariable manufacturing o!erhead )i>ed manufacturing o!erhead *ales commissions G2F of sales" Administrati!e salaries Total K27 9 12 21 5 : K:9
21" Ahat are the !ariable costs per unit associated with Product -%(271B A" K57 ?" K91 C" K55 (" K29 '" K12 Answer: C '>planation: C" K27 Q K9 Q K12 Q K5 S K55 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2 22" Ahat are the in!entoriable costs per unit associated with Product -%(271B A" K57 ?" K55 C" K29 (" K91 '" K:2 Answer: ( '>planation: (" K27 Q K9 Q K12 Q K21 S K91 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2
2/21
24" Ahat are the fi>ed costs per unit associated with Product -%(271B A" K21 ?" K12 C" K14 (" K22 '" K19 Answer: ? '>planation: ?" K21 Q : S K12 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2 25" Ahat are the period costs per unit associated with Product -%(271B A" K14 ?" K5 C" K: (" K28 '" K29 Answer: A '>planation: A" K5 Q : S K14 (iff: 2 Type: @C *+ill: Application -b$ecti!e: .- 2/1 2
2/22
28" @acadamia Co. produced and sold 27 777 units last year. Per unit re!enue and costs were as follows: %e!enues Cost of 0oods *old: (irect @aterials (irect .abour Lariable @anufacturing -!erhead )i>ed @anufacturing -!erhead Total Cost of 0oods *old 0ross @argin *elling and Administrati!e Costs: *ales Commissions G17F of *ales" Administrati!e *alaries Total *elling and Administrati!e -perating Income M.ossN K127.77 K14.77 27.77 17.77 5.77 41.77 K5:.77 K12.77 4.77 18.77 K42.77
The )i>ed @anufacturing -!erhead pro!ides a capacity of 47 777 units. The Production @anager has proposed leasing a new machine at a cost of K97 777 per year. This will reduce (irect .abour by 17F and impro!e <uality so the the selling price per unit can be increased by K17. Production and sales are e>pected to remain the same as last year. %e<uired: Prepare a statement of operating income assuming the leasing proposal is accepted. Answer: %e!enue GK127 Q K17" Cost of goods sold (@ (. K27 O G1 / 17F" L@-T )@-T GK5 O 27 777 Q K97 777";27 777 0ross Profit *elling X Administration Costs *ales Commissions G17F of *ales" Administration *alaries -perating Income 1 unit K117 K14 12 17 9 K577 777 457 777 277 777 127 777 27 777 units K4 277 777
28 K91
1 997 777 K1 127 777
K11 4
19 K54
K427 777 277 777
827 777 K2 577 777
%ecommendation: Accept the leasing proposal as it raises -I by K11 per unit or K427 777. (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/24
29" ?ig ?ird Pet *tore had the following financial acti!ities for Vune. %e!enue was K957 777 with cost of goods sold e<ualling K227 777. *alaries and wages of all employees were K177 777. )ringe benefits were 14 percent of salaries and wages. %ent on the building was K177 777 and e<uipment amortiCation was K25 777. -ffice supplies and utilities totalled K29 777. Income ta>es withheld from employees totalled K25 777 for the month while ending accounts payable were K22 597. Cash flows from accounts recei!able totalled K997 777. %e<uired: &sing an income statement format determine the operating income of the store. Answer: ?ig ?ird Pet *tore Income *tatement )or the @onth of Vune %e!enues Cost of 0oods *ol *alaries and Aages )ringe ?enefits %ent '<uipment AmortiCation -ffice supplies and utilitie -perating Income M.ossN (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2 K957 77 K227 777 177 777 14 777 177 777 25 777 29 777
82: 777 K111 777
2/25
2:" Ames Power Point had sales in -ctober of K29 777 777 for its three stores in Toronto. The beginning merchandise in!entories for -ctober and 3o!ember were K4 777 777 and K2 777 777 respecti!ely. -ctober purchases totalled K1: 777 777. All sales are on account Gterms 2;14 net 17 days" and are collected 47 percent in the month of the sale and 47 percent in the following month. -ne/half of all sales discounts are ta+en for a total of K254 777. *eptember sales totalled K24 777 777 while 3o!ember sales were K17 777 777. Additional information for -ctober is as follows: *upplies used *alaries and benefits @aintenance AmortiCation &tilities Principal payment on maturing bonds %e<uired: &sing an appropriately formatted income statement determine the operating income of the company. Answer: Ames Power Point Company Income *tatement )or the @onth of -ctober *ales .ess: *ales (iscounts 3et *ales Cost of 0oods *old ?eginning in!entory Purchases Cost of 0oods A!ailable for sale 'nding in!entory 0ross @argin -ther costs *upplies AmortiCation *alaries X benefits @aintenance &tilities Total other costs -perating Income M.ossN (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2 K29 777 777 254 777 K28 814 777 K1 777 777 1 477 777 24 777 : 777 14 777 2 777 777
K4 777 777 1: 777 777 K22 777 777 2 777 777
27 777 777 K8 814 777
K1 777 777 : 777 1 477 777 24 777 14 777 2 49: 777 K4 125 777
2/28
47" 'schliman @anufacturing Company had the following account balances for the <uarter ending *eptember 17 unless otherwise noted: AmortiCation of manufacturing e<uipment AmortiCation of office e<uipment (irect manufacturing labour (irect materials used )inished goods in!entory GVuly 1" )inished goods in!entory G*eptember 17" 0eneral office e>penses Indirect manufacturing labour Indirect materials used @ar+eting distribution costs @iscellaneous plant o!erhead Plant utilities Property ta>es on plant building Property ta>es on salespersons= company !ehicles Aor+/in/process in!entory GVuly 1" Aor+/in/process in!entory G*eptember 17" K99 777 21 277 157 777 125 777 197 777 187 777 171 977 52 777 29 777 17 777 24 777 17 977 : 577 2 777 25 977 48 777
%e<uired: a. Prepare a cost of goods manufactured schedule for the <uarter. b. Prepare a cost of goods sold schedule for the <uarter. Answer: a. 'schliman @anufacturing Company Cost of 0oods @anufactured *chedule )or the Yuarter 'nding *eptember 17 (irect materials used (irect manufacturing labour @anufacturing o!erhead AmortiCation of mfg. e<uip. Indirect mfg. labour Indirect materials @iscellaneous plant o!erhead Plant utilities Property ta>es on building @anufacturing costs incurred Add beginning wor+/in/process in!entory Total manufacturing costs .ess: ending wor+/in/process in!entory Cost of goods manufactured K125 777 157 777 K99 777 52 777 29 777 24 777 17 977 : 577
251 277 K42: 277 25 977 K4:5 277 48 777 K41: 277
2/29
b. 'schliman @anufacturing Company Cost of 0oods *old *chedule )or the Yuarter 'nding *eptember 17 ?eginning finished goods in!entory Cost of goods manufactured Cost of goods a!ailable for sale 'nding finished goods in!entory Cost of goods sold (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2 K197 777 41: 277 K81: 277 187 777 K42: 277
2/2:
41" The following information is ta+en from the records of ?ritton Company for @arch: Purchases: (irect materials K: 777 777 Indirect materials 277 777 -ffice supplies 227 777 *ales 15 777 777 *alaries and ?enefits: *elling and administrati!e 2 777 777 (irect manufacturing labour 5 777 777 %entZ 2 777 777 &tilitiesZ 1 277 777 Ad!ertising 877 777 In!entories: (irect materials Indirect materials -ffice supplies )inished goods @arch 1 K2 277 777 477 777 147 777 22 777 777 @arch 11 K1 577 777 577 777 197 777 15 777 777
Z -f these costs 57 percent are assigned to manufacturing and 27 percent to selling and administration. %e<uired: a. Prepare a schedule of cost of goods manufactured. b. Prepare an income statement for the month. c. Compute the prime costs using a two/part production costing system con!ersion costs and indirect manufacturing costs. Answer: a. ?ritton Company Cost of 0oods @anufactured *chedule )or @arch (irect materials: ?eginning in!entory Purchases of direct materials Cost of direct materials a!ailable 'nding in!entory (irect materials used (irect manufacturing labour @anufacturing o!erhead: %ent G57F" &tilities G57F" Indirect materials GK277 777 Q K477 777 / K577 777" Cost of goods manufactured K2 277 777 : 777 777 K11 277 777 1 577 777 K11 977 777 5 777 777 K2 277 777 827 777 177 777 1 227 777 K21 727 777
2/47
b. ?ritton Company Income *tatement )or the @onth of @arch *ales Cost of goods sold ?eginning in!entory Cost of goods manufactured Cost of goods a!ailable for sale 'nding in!entory 0ross margin -ther costs *upplies GK227 777 Q K147 777 / K197 777" *elling and administrati!e salaries %ent G27F" &tilities G27F" Ad!ertising -perating Income M.ossN K15 777 777 K22 777 777 21 727 777 K24 727 777 15 777 777
2: 727 777 K5 :97 777
K1:7 777 2 777 777 1 577 777 297 777 877 777
8 187 777 KG1:7 777"
c. Prime costs K11 977 777 Con!ersion costs K1 227 777 Q K5 777 777 S K: 227 777 Indirect manufacturing costs S K1 227 777 (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/1 2
2/41
42" )arley @uffler Inc. recei!ed the following monthly report from its newly hired accountant who <uit after only a wee+ on the $ob. )arley @uffler Inc. Cost of 0oods *old *chedule )inished 0oods In!entory Gbeginning" Aor+/in/Process In!entory Gbeginning" Total Current @anufacturing Costs: *alaries and wages: (irect manufacturing labour Indirect manufacturing labour *ales salaries Administrati!e K14 777 1 777 K19 777
K4 777 2 777 2 777 1 777
K12 777
-ther: @anufacturing supplies K1 477 @anufacturing amortiCation 1 477 Insurance on showroom 1 777 @iscellaneous factory o!erhead 5 477 Total Aor+ in Process 'nding Aor+/in/Process and )inished 0oods In!entory Cost of 0oods *old )arley @uffler Inc. Income *tatement *ales .ess direct materials 0ross profit .ess other e>penses: Cost of goods sold -ffice supplies @anufacturing utilities -ffice utilities 3et Income %e<uired: a. Prepare a cost of goods manufactured schedule. b. Prepare an income statement in good form.
12 477 7
25 477 K22 477 K22 477
K177 777 27 777 K97 777 K22 477 247 1 777 247
25 777 K12 777
2/42
Answer: a. )arley @uffler Inc. Cost of 0oods @anufactured *chedule (irect materials (irect @anufacturing labour Indirect manufacturing cost: &tilities *upplies AmortiCation Indirect manufacturing labour @iscellaneous factory o!erhead @anufacturing cost incurred Add beginning wor+ in process in!entory Total manufacturing costs .ess ending wor+ in process in!entory Cost of goods manufactured b. )arley @uffler Inc. Income *tatement *ales Cost of goods sold: ?eginning finished goods in!entory Cost of goods manufactured Cost of goods a!ailable for sale 'nding finished goods in!entory Cost of goods sold 0ross margin -ther costs: -ffice supplies -ffice utilities *ales salaries and wages Administrati!e salaries and wages Insurance on showroom -perating income (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2 K177 777 K14 777 22 477 K48 477 7 48 477 K22 477 K247 247 2 777 1 777 1 777 K27 777 4 777 K1 777 1 477 1 477 2 777 5 477
12 477 K1: 477 1 777 K22 477 7 K22 477
9 477 K12 777
2/41
41" )ind the re<uired amounts assuming each is an independent case. a. (irect @aterials ?eginning balance 'nding balance Purchases (irect materials used Cost of goods manufactured 'nding balance Cost of goods sold ?eginning balance 'nding ?alance Cost of goods manufactured ?eginning balance Current manufacturing costs Purchases Cost of goods sold ?eginning balance 'nding balance K12 777 29 777 :5 777 B 122 777 27 777 122 777 B 22 777 22 777 15 777 B 227 777 225 777 92 777 B
b. )inished 0oods In!entory
c. Aor+ in Process In!entory
d. @erchandise In!entory
Answer: a. (irect materials used K12 777 Q K:5 777 / K29 777 S K92 777 b. ?eginning balance of finished goods in!entory K27 777 Q K122 777 / K122 777 S K19 777 c. Current manufacturing costs K22 777 Q K22 777 / K15 777 S K87 777 d. 'nding balance of merchandise in!entory K92 777 Q K227 777 / K225 777 S K45 777 (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/42
42" '!ans Inc. had the following acti!ities during 2712: (irect materials: ?eginning in!entory Purchases 'nding in!entory (irect manufacturing labour @anufacturing o!erhead ?eginning wor+/in/process in!entory 'nding wor+/in/process in!entory ?eginning finished goods in!entory 'nding finished goods in!entory K27 777 121 277 27 977 12 777 22 777 1 577 9 777 29 777 12 777
%e<uired: a. Ahat is the cost of direct materials used during 2712B b. Ahat is cost of goods manufactured for 2712B c. Ahat is cost of goods sold for 2712B Assume that '!ans uses a two/part classification system for prime and con!ersion costs. d. Ahat amount of prime costs was added to production during 2712B e. Ahat amount of con!ersion costs was added to production during 2712B Answer: a. K27 777 Q K121 277 /K27 977 S K122 277 b. K122 277 Q K12 777 Q K22 777 Q K1 577 / K9 777 S K1:2 777 c. K1:2 777 Q K29 777 / K12 777 S K279 777 d. K122 277 Q K12 777 S K182 277 e. K12 777 Q K22 777 S K45 777 (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/44
44" '>plain the difference between an in!entoriable cost and a period cost. Ahat potential problems does an inaccurate classification of product and period costs causeB Answer: In!entoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and which become cost of goods sold only when the product is sold. Period costs are treated as e>penses of the accounting period in which they are incurred. An inaccurate classification of in!entoriable and period costs could lead to !iolations of the matching principle which states that costs used in producing re!enue should be matched on the income statement when the re!enue is recogniCed. In e>treme cases net income for a gi!en period might be significantly misstated if proper matching does not occur. (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/45
45" 'ach of the following items pertains to one of these companies: ?edell 'lectronics Ga manufacturing company" 0regory )ood %etailers Ga merchandising company" and .arson %eal 'state Ga ser!ice sector company". Classify each item as either in!entoriable GI" costs or period GP" costs. in!entoriable GI" costs or period GP" costs a. b. c. d. e. f. g. h. i. *alary of ?edell 'lectronics president (epreciation on ?edell 'lectronics assembly e<uipment. *alaries of ?edell=s assembly line wor+ers Purchase of froCen food for sale to customers by 0regory )ood %etailers *alaries of froCen food personnel at 0regory )ood %etailing (epreciation on freeCers at 0regory )ood %etailing *alary of a receptionist at .arson %eal 'state (epreciation on a computer at .arson %eal 'state *alary of a real estate agent at .arson %eal 'state in!entoriable GI" costs or period GP" costs *alary of ?edell 'lectronics president P (epreciation on ?edell 'lectronics assembly e<uipment. I *alaries of ?edell=s assembly line wor+ers I Purchase of froCen food for sale to customers by 0regory I )ood %etailers *alaries of froCen food personnel at 0regory )ood P %etailing (epreciation on freeCers at 0regory )ood %etailing P *alary of a receptionist at .arson %eal 'state P (epreciation on a computer at .arson %eal 'state P *alary of a real estate agent at .arson %eal 'state P
Answer:
a. b. c. d. e. f. g. h. i.
(iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/48
48" @essinger @anufacturing Company had the following account balances for the <uarter ending @arch 11 unless otherwise noted: Aor+/in/process in!entory GVanuary 1" Aor+/in/process in!entory G@arch 11" )inished goods in!entory GVanuary 1" )inished goods in!entory G@arch 11" (irect materials used Indirect materials used (irect manufacturing labour Indirect manufacturing labour Property ta>es on manufacturing plant building *alespersons= company !ehicle costs AmortiCation of manufacturing e<uipment AmortiCation of office e<uipment @iscellaneous plant o!erhead Plant utilities 0eneral office e>penses @ar+eting distribution costs K127 277 181 777 427 777 417 777 189 777 92 777 297 777 195 777 29 977 12 777 252 777 121 577 114 777 :2 277 174 277 17 777
%e<uired: a. Prepare a cost of goods manufactured schedule for the <uarter. b. Prepare a cost of goods sold schedule for the <uarter. Answer: a. @essinger @anufacturing Company Cost of 0oods @anufactured *chedule )or <uarter ending @arch 11 (irect materials used (irect manufacturing labour @anufacturing o!erhead AmortiCation of manufacturing e<uipment Indirect manufacturing labour Indirect materials @iscellaneous plant o!erhead Plant utilities Property ta>es on building @anufacturing costs incurred Add beginning wor+/in/process in!entory Total manufacturing costs .ess ending wor+/in/process in!entory Cost of goods manufactured K189 777 297 777 K252 777 195 777 92 777 114 777 :2 277 29 977
8:7 277 K1 529 277 127 277 K1 899 577 181 777 K1 518 577
2/49
b. @essinger @anufacturing Company Cost of 0oods *old *chedule )or the <uarter ending @arch 11 ?eginning finished goods in!entory Cost of goods manufactured Cost of goods a!ailable for sale 'nding finished goods in!entory Cost of goods sold (iff: 2 Type: '* *+ill: Application -b$ecti!e: .- 2/2 K427 777 1 518 577 2 148 577 G417 777" K1 528 577
49" Telmer *porting 0oods Company manufactured 177 777 units in 27J4 and reported the following costs: *andpaper @aterials handling Coolants X lubricants Indirect manufacturing labour (irect manufacturing labour (irect materials 1;1;J4 )inished goods 1;1;J4 )inished goods 12;11;J4 Aor+/in/process 1;1;J4 Aor+/in/process 12;11;J4 K12 777 127 777 22 277 284 277 2 185 777 192 777 582 777 1 297 777 :5 777 52 777 .easing costs/plant AmortiCation/e<uipment Property ta>es/e<uipment )ire insurance/e<uipment (irect material purchases (irect materials 12;11;J4 *ales re!enue *ales commissions *ales salaries Ad!ertising costs Administration costs K192 777 222 777 12 777 15 777 1 115 777 284 277 12 977 777 527 777 485 777 297 777 977 777
%e<uired: a. Ahat is the cost of direct materials used during 27J4B b. Ahat manufacturing costs were added to AIP during 27J4B c. Ahat is cost of goods manufactured for 27J4B d. Ahat is cost of goods sold for 27J4B Answer: a. K192 777 Q K1 115 777 / K284 277 S K1 222 977 b. K1 222 977 Q K2 185 777 Q K12 777 Q K127 777 Q K22 277 Q K284 277 Q K192 777 Q K222 777 Q K12 777 Q K15 777 S K5 825 277 c. K5 825 277 Q K:5 777 / K52 777 S K5 849 277 d. K5 849 277 Q K582 777 / K1 297 777 S K5 147 277 (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/2
2/4:
2.4 '>plain cost identification classification and management systems and their use within the decision framewor+.
1" Product costs are the sum of the costs assigned to a product for a specific purpose. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/4 2" )or purposes of calculating in!entory costs under 0AAP only production costs can be used. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/4 1" Ahen producing for a go!ernment contract all costs allowed by the producer will be paid by the go!ernment. Answer: )A.*' (iff: 1 Type: T) *+ill: Comprehension -b$ecti!e: .- 2/4 2" -!ertime premium is normally considered as a component of direct labour. Answer: )A.*' '>planation: -!ertime premium is normally considered as part of indirect labour since it is usually not associated with a particular $ob. (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/4 4" If a wor+er is paid for 9 hours but is idle for 1 of those 9 hours the 1 hour of idle time would be considered a component of direct labour. Answer: )A.*' '>planation: Idle time is normally considered a component of indirect labour since it is usually not associated with a particular $ob. (iff: 2 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/4 5" -!ertime premium consists of the wages paid to all wor+ers Gfor both direct labour and indirect labour" in e>cess of their straight/time wage rates. Answer: T%&' (iff: 1 Type: T) *+ill: ,nowledge -b$ecti!e: .- 2/4
2/57
8" The total of the costs assigned to a particular product for a specific purpose is called A" direct cost. ?" in!entoriable cost. C" mar+eting cost. (" product cost. '" prime cost. Answer: ( (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/4 9" Ahich of the following statements is trueB A" Product costs and period costs are the same. ?" In!entoriable costs are e>pensed as incurred according to 0AAP. C" In!entoriable costs are costs that remain in in!entory after the product is sold. (" #Product costs# refers to the particular costs allocated to a product to ma+e a specific decision. '" Con!ersion costs are non/manufacturing costs. Answer: ( (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/4 :" Product costs used for pricing and product/mi> decisions generally include A" manufacturing costs only. ?" design costs plus manufacturing costs. C" all costs incurred along the !alue chain. (" distribution costs only. '" prime costs but not con!ersion costs. Answer: C (iff: 1 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/4 17" Product costs used for e>ternal reporting under 0AAP include A" manufacturing costs only. ?" design costs plus manufacturing costs. C" all costs incurred along the !alue chain. (" prime costs but not con!ersion costs. '" only con!ersion costs. Answer: A (iff: 2 Type: @C *+ill: ,nowledge -b$ecti!e: .- 2/4
2/51
11" Ahy is it possible that a raw material such as glue might be considered as an indirect material for one furniture manufacturer and as a direct material for another furniture manufactureB Answer: It is possible for a raw material such as glue to be considered as an indirect material by one furniture manufacturer and as a direct material by another furniture manufacturer. The decision is largely a choice by the manufacturer and depends on a number of factors including the materiality of the cost in <uestion the cost of gathering the information and the design of the manufacturing process. If the product in <uestion has an insignificant cost it might not be worth the trouble to trace the cost of the glue to each piece of furniture and the glue would be considered indirect. If the cost of tracing the cost of the glue is high in relation to the benefits recei!ed from tracing it the glue would li+ely be considered as indirect material. If the design of the manufacturing process easily permits all the glue to be traced to a single type of furniture then it would be easy for a company to consider that material to be direct. -!erall the direct;indirect classification is decided on a cost;benefit basis. (iff: 1 Type: '* *+ill: Application -b$ecti!e: .- 2/4 12" Ahen should the o!ertime premium of direct manufacturing labour be considered an indirect manufacturing costB A direct manufacturing costB Answer: The o!ertime premium of direct manufacturing labour should be considered an indirect manufacturing cost when it is attributable to the o!erall !olume of wor+ and a direct manufacturing cost when a #rush $ob# is the sole source of the o!ertime. (iff: 2 Type: '* *+ill: ,nowledge -b$ecti!e: .- 2/4
2/52

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Cost Accounting: A Managerial Emphasis, 6e Chapter 2 An Introduction to Cost Terms and Purposes

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Copyright 6 2711 Pearson Canada Inc.

Copyright 6 2711 Pearson Canada Inc.

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