Chapter 2

Cost Terms, Concepts, and Classifications

True/False
1.
F
Easy

Allcostsincurredinamerchandisingfirmareconsideredtobe
periodcosts.

2.
F
Medium

Depreciationisalwaysconsideredaproductcostforexternal
financialreportingpurposesinamanufacturingfirm.

3.
T
Medium

Inexternalfinancialreports,factoryutilitiescostsmaybe
includedinanassetaccountonthebalancesheetattheendof
theperiod.

4.
F
Medium

Advertisingcostsareconsideredproductcostsforexternal
financialreportssincetheyareincurredinordertopromote
specificproducts.

5.
T
Easy

Propertytaxesandinsurancepremiumspaidonafactory
buildingareexamplesofmanufacturingoverhead.

6.
F
Easy

Manufacturingoverheadcombinedwithdirectmaterialsisknown
asconversioncost.

7.
F
Medium

Iftheendinginventoryoffinishedgoodsisunderstated,net
incomewillbeoverstated.

8.
T
Medium

Inamanufacturingcompany,goodsavailableforsaleequalsthe
sumofthecostofgoodsmanufacturedandthebeginning
finishedgoodsinventory.

9.
F
Easy

Variablecostsarecostswhoseperunitcostsvaryasthe
activitylevelrisesandfalls.

10.
T
Easy

Onaperunitbasis,afixedcostvariesinverselywiththe
levelofactivity.

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11.
F
Easy

Thefollowingwouldtypicallybeconsideredindirectcostsof
manufacturingaparticularBoeing747tobedeliveredto
SingaporeAirlines:electricitytorunproductionequipment,
thefactorymanager'ssalary,andthecostoftheGeneral
Electricjetenginesinstalledontheaircraft.

12.
F
Hard

Thefollowingcostsshouldbeconsidereddirectcostsof
providingdeliveryroomservicestoaparticularmotherandher
baby:thecostsofdrugsadministeredintheoperatingroom,
theattendingphysician'sfees,andaportionoftheliability
insurancecarriedbythehospitaltocoverthedeliveryroom.

13.
T
Hard

Thefollowingcostsshouldbeconsideredbyalawfirmtobe
indirectcostsofdefendingaparticularclientincourt:rent
onthelawfirm'soffices,thelawfirm'sreceptionist'swages,
thecostsofheatingthelawfirm'soffices,andthe
depreciationonthepersonalcomputerintheofficeofthe
attorneywhohasbeenassignedtheclient.

14.
F
Easy

Acostthatdiffersfromonemonthtoanotherisknownasa
differentialcost.

15.
T
Easy

(Appendix)Somecompaniesclassifylaborfringebenefitsfor
directlaborworkersaspartofthedirectlaborcostandsome
classifythesecostsasmanufacturingoverhead.

Multiple Choice
16.
C
Easy

Thecorporatecontrollerssalarywouldbeconsidereda(n):
a.manufacturingcost.
b.productcost.
c.administrativecost.
d.sellingexpense.

17.
A
Medium

Thecostoffireinsuranceforamanufacturingplantis
generallyconsideredtobea:
a.productcost.
b.periodcost.
c.variablecost.
d.alloftheabove.

18.
A
Medium
CPA
adapted

Thecostofrentforamanufacturingplantisgenerally
consideredtobea:
PrimecostProductcost
a.NoYes
b.NoNo
c.YesNo
d.YesYes

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19.
C
Easy

Eachofthefollowingwouldbeaperiodcostexcept:
a.thesalaryofthecompanypresident'ssecretary.
b.thecostofageneralaccountingoffice.
c.depreciationofamachineusedinmanufacturing.
d.salescommissions.

20.
B
Easy
CPA
adapted

Foramanufacturingcompany,whichofthefollowingisan
exampleofaperiodratherthanaproductcost?
a.Depreciationoffactoryequipment.
b.Wagesofsalespersons.
c.Wagesofmachineoperators.
d.Insuranceonfactoryequipment.

21.
D
Medium

Whichofthefollowingwouldbeconsideredaproductcostfor
externalfinancialreportingpurposes?
a.Costofawarehouseusedtostorefinishedgoods.
b.Costofguidedpublictoursthroughthecompany's
facilities.
c.Costoftravelnecessarytosellthemanufacturedproduct.
d.Costofsandspreadonthefactoryfloortoabsorboilfrom
manufacturingmachines.

22.
D
Easy

WhichofthefollowingwouldNOTbetreatedasaproductcost
forexternalfinancialreportingpurposes?
a.Depreciationonafactorybuilding.
b.Salariesoffactoryworkers.
c.Indirectlaborinthefactory.
d.Advertisingexpenses.

23.
C
Easy

Transportationcostsincurredbyamanufacturingcompanytoship
itsproducttoitscustomerswouldbeclassifiedaswhichofthe
following?
a.Productcost
b.Manufacturingoverhead
c.Periodcost
d.Administrativecost

24.
B
Easy

Thesalaryofthepresidentofamanufacturingcompanywouldbe
classifiedaswhichofthefollowing?
a.Productcost
b.Periodcost
c.Manufacturingoverhead
d.Directlabor

25.
D
Easy

MicroComputerCompanyhassetupatollfreetelephonelinefor
customerinquiriesregardingcomputerhardwareproducedbythe
company.Thecostofthistollfreelinewouldbeclassifiedas
whichofthefollowing?
a.Productcost
b.Manufacturingoverhead
c.Directlabor
d.Periodcost

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26.
C
Medium

Thewagesoffactorymaintenancepersonnelwouldusuallybe
consideredtobe:
IndirectlaborManufacturingoverhead
a.NoYes
b.YesNo
c.YesYes
d.NoNo

27.
C
Medium
CPA
adapted

Directmaterialsareapartof:

28.
B
Medium
CPA
adapted

Manufacturingoverheadconsistsof:
a.allmanufacturingcosts.
b.allmanufacturingcosts,exceptdirectmaterialsanddirect
labor.
c.indirectmaterialsbutnotindirectlabor.
d.indirectlaborbutnotindirectmaterials.

29.
A
Medium

WhichofthefollowingshouldNOTbeincludedaspartof
manufacturingoverheadatacompanythatmakesoffice
furniture?
a.sheetsteelinafilecabinetmadebythecompany.
b.manufacturingequipmentdepreciation.
c.idletimefordirectlabor.
d.taxesonafactorybuilding.

30.
D
Hard
CMA
adapted

RossiterCompanyfailedtorecordacreditsaleattheendof
theyear,althoughthereductioninfinishedgoodsinventories
wascorrectlyrecordedwhenthegoodswereshippedtothe
customer.Whichoneofthefollowingstatementsiscorrect?
a.Accountsreceivablewasnotaffected,inventorywasnot
affected,saleswereunderstated,andcostofgoodssoldwas
understated.
b.Accountsreceivablewasunderstated,inventorywas
overstated,saleswereunderstated,andcostofgoodssold
wasoverstated.
c.Accountsreceivablewasnotaffected,inventorywas
understated,saleswereunderstated,andcostofgoodssold
wasunderstated.
d.Accountsreceivablewasunderstated,inventorywasnot
affected,saleswereunderstated,andcostofgoodssoldwas
notaffected.

ConversioncostManufacturingcostPrimecost
a.YesYesNo
b.YesYesYes
c.NoYesYes
d.NoNoNo

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31.
D
Hard

Ifthecostofgoodssoldisgreaterthanthecostofgoods
manufactured,then:
a.workinprocessinventoryhasdecreasedduringtheperiod.
b.finishedgoodsinventoryhasincreasedduringtheperiod.
c.totalmanufacturingcostsmustbegreaterthancostofgoods
manufactured.
d.finishedgoodsinventoryhasdecreasedduringtheperiod.

32.
D
Medium

Lastmonth,when10,000unitsofaproductweremanufactured,
thecostperunitwas$60.Atthislevelofactivity,variable
costsare50%oftotalunitcosts.If10,500unitsare
manufacturednextmonthandcostbehaviorpatternsremain
unchangedthe:
a.totalvariablecostwillremainunchanged.
b.fixedcostswillincreaseintotal.
c.variablecostperunitwillincrease.
d.totalcostperunitwilldecrease.

33.
B
Easy

Variablecost:
a.increasesonaperunitbasisasthenumberofunits
producedincreases.
b.remainsconstantonaperunitbasisasthenumberofunits
producedincreases.
c.remainsthesameintotalasproductionincreases.
d.decreasesonaperunitbasisasthenumberofunits
producedincreases.

34.
B
Medium

Withintherelevantrange,thedifferencebetweenvariable
costsandfixedcostsis:
a.variablecostsperunitfluctuateandfixedcostsperunit
remainconstant.
b.variablecostsperunitareconstantandfixedcostsper
unitfluctuate.
c.bothtotalvariablecostsandtotalfixedcostsare
constant.
d.bothtotalvariablecostsandtotalfixedcostsfluctuate.

35.
A
Medium

Whichofthefollowingstatementsregardingfixedcostsis
incorrect?
a.Expressingfixedcostsonaperunitbasisusuallyisthebest
approachfordecisionmaking.
b.Fixedcostsexpressedonaperunitbasiswillreactinversely
withchangesinactivity.
c.Assumptionsbyaccountantsregardingthebehavioroffixed
costsrestheavilyontheconceptoftherelevantrange.
d.Fixedcostsfrequentlyrepresentlongterminvestmentsin
property,plant,andequipment.

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36.
B
Easy

Anopportunitycostis:
a.thedifferenceintotalcostswhichresultsfromselecting
onealternativeinsteadofanother.
b.thebenefitforgonebyselectingonealternativeinsteadof
another.
c.acostwhichmaybesavedbynotadoptinganalternative.
d.acostwhichmaybeshiftedtothefuturewithlittleorno
effectoncurrentoperations.

37.
A
Medium

Thetermdifferentialcostrefersto:
a.adifferenceincostwhichresultsfromselectingone
alternativeinsteadofanother.
b.thebenefitforgonebyselectingonealternativeinsteadof
another.
c.acostwhichdoesnotentailanydollaroutlaybutwhichis
relevanttothedecisionmakingprocess.
d.acostwhichcontinuestobeincurredeventhoughthereis
noactivity.

38.
C
Easy

Whichofthefollowingcostsisoftenimportantindecision
making,butisomittedfromconventionalaccountingrecords?
a.Fixedcost.
b.Sunkcost.
c.Opportunitycost.
d.Indirectcost.

39.
B
Easy
CMA
adapted

Whenadecisionismadeamonganumberofalternatives,the
benefitthatislostbychoosingonealternativeoveranother
isthe:
a.realizedcost.
b.opportunitycost.
c.conversioncost.
d.accruedcost.

40.
D
Easy

Conversioncostconsistsofwhichofthefollowing?
a.Manufacturingoverheadcost.
b.Directmaterialsanddirectlaborcost.
c.Directlaborcost.
d.Directlaborandmanufacturingoverheadcost.

41.
A
Easy

Primecostconsistsofdirectmaterialscombinedwith:
a.directlabor.
b.manufacturingoverhead.
c.indirectmaterials.
d.costofgoodsmanufactured.

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42.
C
Hard

WhichoneofthefollowingcostsshouldNOTbeconsidereda
directcostofservingaparticularcustomerwhoordersa
customizedpersonalcomputerbyphonedirectlyfromthe
manufacturer?
a.thecostoftheharddiskdriveinstalledinthecomputer.
b.thecostofshippingthecomputertothecustomer.
c.thecostofleasingamachineonamonthlybasisthat
automaticallytestsharddiskdrivesbeforetheyare
installedincomputers.
d.thecostofpackagingthecomputerforshipment.

43.
A
Medium

WhichoneofthefollowingcostsshouldNOTbeconsideredan
indirectcostofservingaparticularcustomerataDairyQueen
fastfoodoutlet?
a.thecostofthehamburgerpattyintheburgertheyordered.
b.thewagesoftheemployeewhotakesthecustomer'sorder.
c.thecostofheatingandlightingthekitchen.
d.thesalaryoftheoutlet'smanager.

44.
D
Medium

GreenCompany'scostsforthemonthofAugustwereasfollows:
directmaterials,$27,000;directlabor,$34,000;sales
salaries,$14,000;indirectlabor,$10,000;indirectmaterials,
$15,000;generalcorporateadministrativecost,$12,000;taxes
onmanufacturingfacility,$2,000;andrentonfactory,
$17,000.Thebeginningworkinprocessinventorywas$16,000
andtheendingworkinprocessinventorywas$9,000.Whatwas
thecostofgoodsmanufacturedforthemonth?
a.$105,000
b.$132,000
c.$138,000
d.$112,000

45.
D
Medium

Amanufacturingcompanyprepaysitsinsurancecoveragefora
threeyearperiod.Thepremiumforthethreeyearsis$2,700and
ispaidatthebeginningofthefirstyear.Eightypercentofthe
premiumappliestomanufacturingoperationsand20%appliesto
sellingandadministrativeactivities.Whatamountsshouldbe
consideredproductandperiodcostsrespectivelyforthefirst
yearofcoverage?
ProductPeriod
a.$2,700$0
b.$2,160$540
c.$1,440$360
d.$720$180

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46.
D
Hard

Usingthefollowingdata,calculatethebeginningworkin
processinventory.
Costofgoodssold..........$70
Directlabor................$20
Directmaterials............$15
Costofgoodsmanufactured..$80
Workinprocessending......$10
Finishedgoodsending.......$15
Manufacturingoverhead......$30
Thebeginningworkinprocessinventoryis:
a.$20.
b.$15.
c.$55.
d.$25.

47.
A
Hard

DuringthemonthofMay,BennettManufacturingCompany
purchased$43,000ofrawmaterials.Themanufacturingoverhead
totaled$27,000andthetotalmanufacturingcostswere
$106,000.Assumingabeginninginventoryofrawmaterialsof
$8,000andanendinginventoryofrawmaterialsof$6,000,
directlabormusthavetotaled:
a.$34,000.
b.$38,000.
c.$36,000.
d.$45,000.

48.
B
Medium

UsingthefollowingdataforJanuary,calculatethecostof
goodsmanufactured:
Directmaterials.......................$38,000
Directlabor...........................$24,000
Manufacturingoverhead.................$17,000
Beginningworkinprocessinventory....$10,000
Endingworkinprocessinventory.......$11,000
Thecostofgoodsmanufacturedwas:
a.$89,000.
b.$78,000.
c.$79,000.
d.$80,000.

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49.
C
Hard

DuringthemonthofJune,ReardonCompanyincurred$17,000of
directlabor,$8,500ofmanufacturingoverheadandpurchased
$15,000ofrawmaterials.Betweenthebeginningandtheendof
themonth,therawmaterialsinventoryincreasedby$2,000,the
finishedgoodsinventoryincreasedby$1,500,andtheworkin
processinventorydecreasedby$3,000.Thecostofgoods
manufacturedwouldbe:
a.$38,500.
b.$40,500.
c.$41,500.
d.$43,500.

50.
B
Hard

MuellerCompanyreportedthefollowingdatafortheyearjust
ended:
Rawmaterialsusedinproduction.........$800,000
Directlabor.............................700,000
Totaloverheadcosts.....................900,000
Endingworkinprocessinventory.........400,000
Costofgoodsmanufactured...............2,500,000
Thebeginningworkinprocessinventorywas:
a.$300,000.
b.$500,000.
c.$1,300,000.
d.$100,000.

51.
A
Hard

WilliamsCompanysdirectlaborcostis25%ofitsconversion
cost.IftheManufacturingoverheadcostforthelastperiodwas
$45,000andthedirectmaterialscostwas$25,000,thedirect
laborcostwas:
a.$15,000.
b.$60,000.
c.$33,333.
d.$20,000.

52.
B
Hard

TheLyonsCompany'scostofgoodsmanufacturedwas$120,000
whenitssaleswere$360,000anditsgrossmarginwas$220,000.
Iftheendinginventoryoffinishedgoodswas$30,000,the
beginninginventoryoffinishedgoodsmusthavebeen:
a.$20,000.
b.$50,000.
c.$110,000.
d.$150,000.

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53.
C
Hard

ThegrossmarginforCushingCompanyforthefirstquarterof
lastyearwas$325,000whensaleswere$700,000.Thebeginning
inventoryoffinishedgoodswas$60,000andtheending
inventoryoffinishedgoodswas$85,000.Thecostofgoods
manufacturedforthefirstquarterwouldhavebeen:
a.$375,000.
b.$350,000.
c.$400,000.
d.$385,000.

54.
B
Hard

Lastmonthamanufacturingcompanyhadthefollowingoperating
results:
Beginningfinishedgoodsinventory.....$74,000
Endingfinishedgoodsinventory........$73,000
Sales..................................$464,000
Grossmargin...........................$52,000
Whatwasthecostofgoodsmanufacturedforthemonth?
a.$413,000
b.$411,000
c.$412,000
d.$463,000

55.
A
Hard

ThefollowinginformationwasprovidedbyWilsonCompanyforthe
yearjustended:
Beginningfinishedgoodsinventory...$150,750
Endingfinishedgoodsinventory......140,475
Sales................................475,000
Grossmargin.........................150,000
Thecostofgoodsmanufacturedfortheyearwas:
a.$314,725.
b.$335,275.
c.$325,000.
d.$335,275.

56.
A
Hard

ThefollowinginformationwasprovidedbyGrandCompanyforthe
yearjustended:
Beginningfinishedgoodsinventory.....$130,425
Endingfinishedgoodsinventory........125,770
Sales..................................500,000
Grossmargin...........................100,000
Thecostofgoodsmanufacturedfortheyearwas:
a.$395,345.
b.$95,345.
c.$104,655.
d.$404,655.

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57.
B
Hard
CMA
adapted

Thefollowinginventoryvaluationerrorswerediscoveredby
KnoxCorporation'snewcontrollerjustaftertheannual
financialstatementswerepublishedattheendofYear3.
>TheYear3endinginventorywasunderstatedby$17,000.
>TheYear2endinginventorywasunderstatedby$61,000.
>TheYear1endinginventorywasoverstatedby$23,000.
ThenetincomeforKnoxineachoftheseyearswas:
Year3Year2Year1
Netincome$168,000$254,000$138,000
Assumingtherewerenoincometaxes,thenetincomeineach
yearshouldbeadjustedto:
Year3Year2Year1
a.$212,000$170,000$161,000
b.$124,000$338,000$115,000
c.$90,000$338,000$161,000
d.$124,000$170,000$115,000

58.
C
Hard

DeltaMerchandising,Inc.,hasprovidedthefollowinginformation
fortheyearjustended:
Netsales..................$128,500
Beginninginventory........24,000
Purchases..................80,000
Grossmargin...............38,550
Theendinginventoryforthecompanyatyearendwas:
a.$65,450.
b.$24,500.
c.$14,050.
d.$9,950.

59.
C
Medium
CMA
adapted

ThebeginningbalanceoftheRawMaterialsinventoryaccount
forMaywas$27,500.TheendingbalanceforMaywas$28,750and
$128,900ofrawmaterialswereusedduringthemonth.The
materialspurchasedduringthemonthcost:
a.$131,300.
b.$127,650.
c.$130,150.
d.$157,650.

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60.
D
Easy

GabelInc.isamerchandisingcompany.Lastmonththecompany's
merchandisepurchasestotaled$63,000.Thecompany'sbeginning
merchandiseinventorywas$13,000anditsendingmerchandise
inventorywas$15,000.Whatwasthecompany'scostofgoods
soldforthemonth?
a.$91,000
b.$63,000
c.$65,000
d.$61,000

61.
B
Medium

HaackInc.isamerchandisingcompany.Lastmonththecompany's
costofgoodssoldwas$84,000.Thecompany'sbeginning
merchandiseinventorywas$20,000anditsendingmerchandise
inventorywas$18,000.Whatwasthetotalamountofthe
company'smerchandisepurchasesforthemonth?
a.$86,000
b.$82,000
c.$84,000
d.$122,000

62.
B
Easy

DuringJanuary,thecostofgoodsmanufacturedwas$93,000.The
beginningfinishedgoodsinventorywas$16,000andtheending
finishedgoodsinventorywas$20,000.Whatwasthecostof
goodssoldforthemonth?
a.$129,000
b.$89,000
c.$93,000
d.$97,000

63.
B
Medium

(Appendix)SallySmithisemployedintheproductionofvarious
electronicproducts,andearns$8perhour.Sheispaidtime
andahalfforworkinexcessof40hoursperweek.Duringa
givenweeksheworked45hoursandhadnoidletime.Howmuch
ofherweek'swageswouldbechargedtomanufacturingoverhead?
a.$60
b.$20
c.$40
d.$0

64.
C
Medium

(Appendix)DuringthefirstweekofApril,Gillianworkeda
totalof50hoursassemblingproductsandhadnoidletime.
Gillianispaid$15perhourforregulartime,andispaid
timeandahalfforallhoursinexcessofa40hourweek.The
amountofGillian'swagesthatshouldbechargedtodirect
laborfortheweekis:
a.$600.
b.$225.
c.$750.
d.$975.

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65.
C
Medium

(Appendix)RobertSmithearns$6perhourassemblingproducts.
Foreachhourover40heworks,heispaidtimeandahalf.
Duringagivenweekheworked45hoursandhadnoidletime.
Howmuchofhisweeklywageswouldbechargedtothe
manufacturingoverheadaccount?
a.$30
b.$45
c.$15
d.$0

Reference:21
NOTETOTHEINSTRUCTOR:Questions66to69,70to73,and74to77are
differentversionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentakenfromthe
accountingrecordsofKarlingCorporationforthejustcompletedyear.
Sales...................................$990
Rawmaterialsinventory,beginning......$40
Rawmaterialsinventory,ending.........$70
Purchasesofrawmaterials..............$120
Directlabor............................$200
Manufacturingoverhead..................$230
Administrativeexpenses.................$150
Sellingexpenses........................$140
Workinprocessinventory,beginning....$70
Workinprocessinventory,ending.......$50
Finishedgoodsinventory,beginning.....$120
Finishedgoodsinventory,ending........$160
Usethesedatatoanswerthefollowingseriesofquestions.
66.
B
Medium
ReferTo:
21

Thecostoftherawmaterialsusedinproductionduringthe
year(inthousandsofdollars)was:
a.$190.
b.$90.
c.$150.
d.$160.

67.
A
Medium
ReferTo:
21

Thecostofgoodsmanufactured(finished)fortheyear(in
thousandsofdollars)was:
a.$540.
b.$500.
c.$570.
d.$590.

68.
B
Medium
ReferTo:
21

Thecostofgoodssoldfortheyear(inthousandsofdollars)
was:
a.$700.
b.$500.
c.$660.
d.$580.

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69.
B
Medium
ReferTo:
21

Thenetincomefortheyear(inthousandsofdollars)was:
a.$150.
b.$200.
c.$490.
d.$250.

Reference:22
NOTETOTHEINSTRUCTOR:Questions66to69,70to73,and74to77are
differentversionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentakenfromthe
accountingrecordsofKarlanaCorporationforthejustcompletedyear.
Sales...................................$910
Rawmaterialsinventory,beginning......$80
Rawmaterialsinventory,ending.........$20
Purchasesofrawmaterials..............$100
Directlabor............................$130
Manufacturingoverhead..................$200
Administrativeexpenses.................$160
Sellingexpenses........................$140
Workinprocessinventory,beginning....$40
Workinprocessinventory,ending.......$10
Finishedgoodsinventory,beginning.....$130
Finishedgoodsinventory,ending........$150
Usethesedatatoanswerthefollowingseriesofquestions.
70.
D
Medium
ReferTo:
22

Thecostoftherawmaterialsusedinproductionduringthe
year(inthousandsofdollars)was:
a.$180.
b.$40.
c.$120.
d.$160.

71.
B
Medium
ReferTo:
22

Thecostofgoodsmanufactured(finished)fortheyear(in
thousandsofdollars)was:
a.$530.
b.$520.
c.$500.
d.$460.

72.
B
Medium
ReferTo:
22

Thecostofgoodssoldfortheyear(inthousandsofdollars)
was:
a.$670.
b.$500.
c.$540.
d.$650.

ManagerialAccounting,9/e

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73.
B
Medium
ReferTo:
22

Thenetincomefortheyear(inthousandsofdollars)was:
a.$410.
b.$110.
c.$40.
d.$180.

Reference:23
NOTETOTHEINSTRUCTOR:Questions66to69,70to73,and74to77are
differentversionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentakenfromthe
accountingrecordsofKarlistCorporationforthejustcompletedyear.
Sales...................................$800
Rawmaterialsinventory,beginning......$60
Rawmaterialsinventory,ending.........$70
Purchasesofrawmaterials..............$180
Directlabor............................$100
Manufacturingoverhead..................$190
Administrativeexpenses.................$110
Sellingexpenses........................$150
Workinprocessinventory,beginning....$70
Workinprocessinventory,ending.......$80
Finishedgoodsinventory,beginning.....$120
Finishedgoodsinventory,ending........$160
Usethesedatatoanswerthefollowingseriesofquestions.
74.
C
Medium
ReferTo:
23

Thecostoftherawmaterialsusedinproductionduringthe
year(inthousandsofdollars)was:
a.$240.
b.$190.
c.$170.
d.$250.

75.
A
Medium
ReferTo:
23

Thecostofgoodsmanufactured(finished)fortheyear(in
thousandsofdollars)was:
a.$450.
b.$470.
c.$530.
d.$540.

76.
B
Medium
ReferTo:
23

Thecostofgoodssoldfortheyear(inthousandsofdollars)
was:
a.$610.
b.$410.
c.$490.
d.$570.

ManagerialAccounting,9/e

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77.
B
Medium
ReferTo:
23

Thenetincomefortheyear(inthousandsofdollars)was:
a.$390.
b.$130.
c.$70.
d.$190.

Reference:24
ThefollowingdatapertaintoHarrimanCompany'soperationsduringJuly:
July1July31
Rawmaterialsinventory.....0$5,000
Workinprocessinventory...?4,000
Finishedgoodsinventory....$12,000?
Otherdata:
Costofgoodsmanufactured........$105,000
Rawmaterialsused................40,000
Manufacturingoverheadcosts......20,000
Directlaborcosts................39,000
Grossprofit......................100,000
Sales.............................210,000
78.
A
Hard
ReferTo:
24

Thebeginningworkinprocessinventorywas:
a.$10,000.
b.$14,000.
c.$1,000.
d.$4,000.

79.
C
Hard
ReferTo:
24

Theendingfinishedgoodsinventorywas:
a.$17,000.
b.$12,000.
c.$7,000.
d.$2,000.

Reference:25
BergeronInc.reportedthefollowingdataforlastyear:
Workinprocessinventory,beginning..$100
Workinprocessinventory,ending.....$150
Finishedgoodsinventory,beginning...$180
Finishedgoodsinventory,ending......$200
Directlaborcost.....................$300
Directmaterialscost.................$500
Manufacturingoverheadcost...........$400
80.
B
Easy
ReferTo:
25

Theprimecostis:
a.$900.
b.$800.
c.$500.
d.$700.

ManagerialAccounting,9/e

26

81.
A
Easy
ReferTo:
25

Theconversioncostis:
a.$700.
b.$800.
c.$900.
d.$500.

82.
D
Medium
ReferTo:
25

Thecostofgoodsmanufacturedis:
a.$1,250.
b.$1,180.
c.$1,220.
d.$1,150.

Reference:26
GenevaSteelCorporationproduceslargesheetsofheavygaugesteel.The
companyshowedthefollowingamountsrelatingtoitsproductionfortheyear
justcompleted:
Directmaterialsusedinproduction...$110,000
Directlaborcostsfortheyear.......55,000
Workinprocess,beginning............22,000
Finishedgoods,beginning.............45,000
Costofgoodsavailableforsale......288,000
Costofgoodssold....................238,000
Workinprocess,ending...............16,000
83.
B
Hard
ReferTo:
26

Thebalanceofthefinishedgoodsinventoryattheendofthe
yearwas:
a.$95,000.
b.$50,000.
c.$193,000.
d.$45,000.

84.
D
Hard
ReferTo:
26

Manufacturingoverheadcostfortheyearwas:
a.$84,000.
b.$78,000.
c.$56,000.
d.$72,000.

85.
C
Hard
ReferTo:
26

Costofgoodsmanufacturedfortheyearwas:
a.$171,000.
b.$160,000.
c.$243,000.
d.$244,000.

ManagerialAccounting,9/e

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Reference:27
BoardmanCompanyreportedthefollowingdataforthemonthofJanuary:
Inventories:1/11/31
Rawmaterials.................$32,000$31,000
Workinprocess...............$18,000$12,000
Finishedgoods................$30,000$35,000
Additionalinformation:
Salesrevenue.................$210,000
Directlaborcosts............40,000
Manufacturingoverheadcosts..70,000
Sellingexpenses..............25,000
Administrativeexpenses.......35,000
86.
D
Medium
ReferTo:
27

Ifrawmaterialscosting$35,000werepurchasedduringJanuary,
thetotalmanufacturingcostsforthemonthwouldbe:
a.$145,000.
b.$144,000.
c.$151,000.
d.$146,000.

87.
B
Medium
ReferTo:
27

AssumethatcostofgoodssoldforJanuarywas$124,000.Thenet
incomeforJanuarywouldbe:
a.$61,000.
b.$26,000.
c.$51,000.
d.$25,000.

88.
A
Medium
ReferTo:
27

BoardmanCompanystotalconversioncostforJanuarywouldbe:
a.$110,000.
b.$170,000.
c.$135,000.
d.$130,000.

89.
C
Medium
ReferTo:
27

AssumethatcostofgoodssoldforBoardmanCompanyforJanuary
was$140,000.Whatwouldbethecostofgoodsmanufacturedfor
themonth?
a.$140,000
b.$135,000
c.$145,000
d.$139,000

Reference:28
Atasalesvolumeof32,000units,CDCompanystotalfixedcostsare
$64,000andtotalvariablecostsare$60,000.Therelevantrangeis30,000
to55,000units.

ManagerialAccounting,9/e

28

90.
C
Medium
ReferTo:
28

IfCDCompanyweretosell43,000units,thetotalexpectedcost
wouldbe:
a.$146,000.
b.$166,625.
c.$144,625.
d.$124,000.

91.
D
Medium
ReferTo:
28

IfCDCompanyweretosell50,000units,thetotalexpectedcost
perunit(roundedtothenearestcent)wouldbe:
a.$3.20.
b.$2.48.
c.$3.88.
d.$3.16.

ManagerialAccounting,9/e

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Essay

92.
Easy

StonyElectronicsCorporationmanufacturesaportableradio
designedformountingonthewallofthebathroom.Thefollowing
listrepresentssomeofthedifferenttypesofcostsincurredin
themanufactureoftheseradios:
1.Theplantmanagerssalary.
2.Thecostofheatingtheplant.
3.Thecostofheatingexecutiveoffices.
4.Thecostofprintedcircuitboardsusedintheradios.
5.Salariesandcommissionsofcompanysalespersons.
6.Depreciationonofficeequipmentusedintheexecutive
offices.
7.Depreciationonproductionequipmentusedintheplant.
8.Wagesofjanitorialpersonnelwhocleantheplant.
9.Thecostofinsuranceontheplantbuilding.
10.Thecostofelectricitytolighttheplant.
11.Thecostofelectricitytopowerplantequipment.
12.Thecostofmaintainingandrepairingequipmentintheplant.
13.Thecostofprintingpromotionalmaterialsfortradeshows.
14.Thecostofsolderusedinassemblingtheradios.
15.Thecostoftelephoneservicefortheexecutiveoffices.
Required:
Classifyeachoftheitemsaboveasproduct(inventoriable)cost
orperiod(noninventoriable)costsforthepurposeofpreparing
externalfinancialstatements.
Answer:
1.Product.
2.Product.
3.Period.
4.Product.
5.Period.
6.Period.
7.Product.
8.Product.
9.Product.
10.Product.
11.Product.
12.Product.
13.Period.
14.Product.
15.Period.

ManagerialAccounting,9/e

30

93.
Medium

BillPopehasdevelopedanewdevicethatissoexcitingheis
consideringquittinghisjobinordertoproduceandmarketit
onalargescalebasis.Billwillrentagaragefor$300per
monthforproductionpurposes.Utilitieswillcost$40per
month.Billhasalreadytakenanindustrialdesigncourseat
thelocalcommunitycollegetohelppreparehimselfforthis
venture.Thecoursecost$300.Billwillrentproduction
equipmentatamonthlycostof$800.Heestimatesthematerial
costperunitwillbe$5,andthelaborcostwillbe$3.He
willhireworkersandspendhistimepromotingtheproduct.To
dothishewillquithisjobwhichpays$3,000permonth.
Advertisingandpromotionwillcost$900permonth.
Required:
CompletethechartbelowbyplacinganXundereachheading
thathelpstoidentifythecostinvolved.TherecanbeXs
placedundermorethanoneheadingforasinglecost,e.g.,a
costmightbeasunkcost,anoverheadcostandaproductcost;
therewouldbeanXplacedundereachoftheseheadings
oppositethecost.

Oppor
tunity
Cost

Sunk
Cost

Vari
able
Cost

Fixed
Cost

Mfg.
Over
Head

Product
Cost

Selling
Cost

Differ
ential
Cost*

Garagerent
Utilities
Costofthe
industrial
design
course
Equipment
rented
Material
cost
Laborcost
Present
salary
Advertising

*Betweenthealternativesofgoingintobusinesstomakethedeviceornot
goingintobusinesstomakethedevice.

ManagerialAccounting,9/e

31

Answer:
Oppor
tunity
Cost

Sunk
Cost

Vari
able
Cost

Garagerent
Utilities
Costofthe
industrial
design
course

Fixed
Cost
X

Mfg.
Over
Head
X

Product
Cost
X

Selling
Cost

Differ
ential
Cost*
X

Equipment
rented
Material
cost

Laborcost

Present
salary

Advertising

94.
Hard

LoganProducts,asmallmanufacturer,hassubmittedtheitems
belowconcerninglastyear'soperations.Thepresident's
secretary,tryingtobehelpful,hasalphabetizedthelist.
Administrativesalaries................$2,400
Advertisingexpense....................1,200
Depreciationfactorybuilding.......800
Depreciationfactoryequipment......1,600
Depreciationofficeequipment.......180
Directlaborcost......................21,900
Rawmaterialsinventory,beginning.....2,100
Rawmaterialsinventory,ending........3,200
Finishedgoodsinventory,beginning....46,980
Finishedgoodsinventory,ending.......44,410
Generalliabilityinsuranceexpense....240
Indirectlaborcost....................11,800
Insuranceonfactory...................1,400
Purchasesofrawmaterials.............14,600
Repairsandmaintenanceoffactory.....900
Salessalaries.........................2,000
Taxesonfactory.......................450
Travelandentertainmentexpense.......1,410
Workinprocessinventory,beginning...1,670
Workinprocessinventory,ending......1,110

ManagerialAccounting,9/e

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Required:
a.PrepareascheduleofCostofGoodsManufacturedingood
formfortheyear.
b.DeterminetheCostofGoodsSoldfortheyear.
Answer:
a.
LOGANCOMPANY
ScheduleofCostofGoodsManufactured
Rawmaterialsused:
Beginninginventory...................$2,100
Purchases.............................14,600
Available...........................16,700
Lessendinginventory.................3,200$13,500
Directlabor............................21,900
Manufacturingoverhead:
Depreciationfactorybuilding......800
Depreciationfactoryequipment.....1,600
Indirectlaborcost...................11,800
Insuranceonfactory..................1,400
Repairsandmaintenance...............900
Taxesonfactory......................45016,950
Totalmanufacturingcost..........52,350
Addworkinprocessinventory,beginning1,670
54,020
Lessworkinprocessinventory,ending..1,110
Costofgoodsmanufactured..............$52,910
b.
Finishedgoodsinventory,beginning.....$46,980
Costofgoodsmanufactured(above)......52,910
Availableforsale....................99,890
Lessfinishedgoodsinventory,ending..44,410
Costofgoodssold......................$55,480
95.
Medium

LacoCompanyacquireditsfactorybuildingabout20yearsago.
Foranumberofyearsthecompanyhasrentedoutasmall,
unusedpartofthebuilding.Therenter'sleasewillexpire
soon.Ratherthanrenewingthelease,LacoCompanyis
consideringusingthespaceitselftomanufactureanew
product.Underthisoption,theunusedspacewillcontinueto
bedepreciatedonastraightlinebasis,asinpastyears.
Directmaterialsanddirectlaborcostforthenewproduct
wouldbe$50perunit.Inordertohaveaplacetostore
finishedunitsofthenewproduct,thecompanywouldhaveto
rentasmallwarehousenearby.Therentalcostwouldbe$2,000
permonth.Itwouldcostthecompanyanadditional$4,000each
monthtoadvertisethenewproduct.Anewproductionsupervisor
wouldbehiredtooverseeproductionofthenewproductwho

ManagerialAccounting,9/e

33

wouldbepaid$3,000permonth.Thecompanywouldpayasales
commissionof$10foreachunitofproductthatissold.
Required:
Completethechartbelowbyplacingan"X"undereachcolumn
headingthathelpstoidentifythecostslistedtotheleft.
Therecanbe"Xs"placedundermorethanoneheadingfora
singlecost.Forexample,acostmightbeaproductcost,an
opportunitycost,andasunkcost;therewouldbean"X"placed
undereachoftheseheadingsontheanswersheetoppositethe
cost.
Oppor
tunity
Cost

Sunk
Cost

Vari
able
Cost

Fixed
Cost

Product
Cost

Selling
&Admin
Cost

Differ
ential
Cost*

Renton
unused
factory
space
Depreciation
onthe
factory
space
Direct
material
anddirect
labor
Rentalcost
ofthesmall
warehouse
Advertising
cost
Production
supervisors
salary
Sales
commissions

*Betweenthealternativesof(1)rentingthespaceoutagainor(2)using
thespacetoproducethenewproduct.

ManagerialAccounting,9/e

34

Answer:

Renton
unused
factory
space
Depreciation
onthe
factory
space

Oppor
tunity
Cost
X

Sunk
Cost

Vari
able
Cost

Direct
material
anddirect
labor

Fixed
Cost

Product
Cost

Selling
&Admin
Cost

Differ
ential
Cost*

Rentalcost
ofthesmall
warehouse

Advertising
cost

Production
supervisors
salary

Sales
commissions

Wesuggestyoualloweitheranswer(ablankoranX)inthiscell.Some
expertswouldconsideranopportunitycosttobeadifferentialcostand
otherswouldnot.Itisallamatterofdefinitionandthedefinitionsgiven
inthetextdonotreallycoverthiscontingency.

ManagerialAccounting,9/e

35

96.
Hard

Alistofaccountsforamanufacturingcompanyforanaccounting
periodisgivenbelow.Findtheunknownamountsindicatedby
questionmarks.
Sales.....................................$39,000
Costofgoodssold........................?
Purchasesofdirectmaterials.............11,000
Directlabor..............................5,000
Finishedgoodsinventory,beginning.......5,000
Workinprocess,beginning................800
Workinprocess,ending...................3,000
Grossmargin..............................11,700
Finishedgoodsinventory,ending..........?
Accountspayable,beginning...............4,000
Accountspayable,ending..................2,800
Directmaterialsinventory,beginning.....1,000
Directmaterialsinventory,ending........3,000
Indirectlabor............................2,000
Indirectmaterialsused...................4,000
Utilitiesexpense,factory................3,000
Depreciationonfactoryequipment.........7,000
Answer:
Costofgoodssold=39,00011,700=27,300.
Directmaterialsused=1,000+11,0003,000=9,000.
Costofgoodsmanufactured=9,000+5,000+(2,000+4,000+
3,000+7,000)+8003,000=
27,800.
Finishedgoodsinventory,ending=5,000+27,80027,300=
5,500.

97.
Hard

Usethefollowinginformationtodeterminethegrossmarginfor
PacificStatesManufacturingfortheyearjustended(allamounts
areinthousands($000)ofdollars:
Sales.....................................$31,800
Purchasesofdirectmaterials.............7,000
Directlabor..............................5,000
Workinprocessinventory,1/1............800
Workinprocessinventory,12/31..........3,000
Finishedgoodsinventory,1/1.............4,000
Finishedgoodsinventory,12/31...........5,300
Accountspayable,1/1.....................1,700
Accountspayable,12/31...................1,500
Directmaterialsinventory,1/1...........6,000
Directmaterialsinventory,12/31.........1,000
Indirectlabor............................600
Indirectmaterialsused...................500
Utilitiesexpense,factory................1,900
Depreciationonfactoryequipment.........3,500

ManagerialAccounting,9/e

36

Answer:
Directmaterialsused=6,000+7,0001,000=12,000.
Costofgoodsmanufactured=12,000+5,000+(600+500+
1,900+3,500)+8003,000=
21,300.
Costofgoodssold=4,000+21,3005,300=20,000.
Grossmargin=31,80020,000=11,800
98.
Hard

ThefollowinginformationisfromMarchantManufacturingCo.
forSeptember:
Directmaterialsusedinproduction..$95,000
Directlabor.........................67,000
Totalmanufacturingcost.............234,000
Rawmaterialsinventory,Sept.1.....24,000
Workinprocessinventory,Sept.1...6,000
Finishedgoodsinventory,Sept.1....101,000
Purchasesofrawmaterials...........102,000
Costofgoodsmanufactured...........233,000
Administrativeexpense...............41,000
Sellingexpense......................56,000
Sales................................344,000
Grossmargin.........................127,000
Netincome...........................30,000
Required:
a.ComputetheCostofGoodsSold.
b.ComputethebalanceinFinishedGoodsInventoryatSeptember
30.
c.ComputethebalanceinWorkinProcessInventoryat
September30.
d.ComputethebalanceinRawMaterialsInventoryatSeptember
30.
e.Computethetotalmanufacturingoverhead.
(Hint:Theeasiestmethodofsolvingthisproblemistosketch
outtheincomestatementandthescheduleofcostofgoods
manufactured,enterthegivenamounts,andthenenterthe
unknownsasplugfigures.)

ManagerialAccounting,9/e

37

Answer:
MARCHANTMANUFACTURING
ScheduleofCostofGoodsManufactured
Directmaterialsused:
Inventory,Sept.1....................$24,000
Purchases.............................102,000
126,000
Inventory,Sept.30(d)plug.......31,000
Directmaterialsusedgiven....95,000
Directlabor............................67,000
Manufacturingoverhead(e)plug......72,000
Totalmanufacturingcostgiven..234,000
Inventoryofworkinprocess,Sept1....6,000
240,000
Inventoryofworkinprocess,Sept30
(c)plug............................7,000
Costofgoodsmanufacturedgiven.....$233,000
MARCHANTMANUFACTURING
IncomeStatement
Sales...................................$344,000
Costofgoodssold:
Finishedgoods,Sept1................$101,000
Costofgoodsmanufacturedabove...233,000
Availableforsale.................334,000
Finishedgoods,Sept30(b)plug...117,000
Costofgoodssold(a)plug.....217,000
Grossmargingiven...................127,000
Operatingexpenses:
Administrativeexpenses...............41,000
Sellingexpenses......................56,00097,000
Netincomegiven.....................$30,000
99.
Medium

NOTETOTHEINSTRUCTOR:Questions99,100and101aredifferent
versionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentaken
fromtheaccountingrecordsofLarsenCorporationforthejust
completedyear.
Sales.....................................$860
Purchasesofrawmaterials................$150
Directlabor..............................$110
Manufacturingoverhead....................$210
Administrativeexpenses...................$130
Sellingexpenses..........................$180
Rawmaterialsinventory,beginning........$40
Rawmaterialsinventory,ending...........$80
Workinprocessinventory,beginning......$20
Workinprocessinventory,ending.........$80
Finishedgoodsinventory,beginning.......$80
Finishedgoodsinventory,ending..........$150

ManagerialAccounting,9/e

38

Required:
a.PrepareaScheduleofCostofGoodsManufacturedingood
form.
b.ComputetheCostofGoodsSold.
c.Usingdatafromyouranswersaboveasneeded,preparean
IncomeStatementingoodform.
Answer:
a.Scheduleofcostofgoodsmanufactured
Directmaterials:
Rawmaterialsinventory,beginning........$40
Add:Purchasesofrawmaterials...........$150
Rawmaterialsavailableforuse...........$190
Deduct:Rawmaterialsinventory,ending...$80
Rawmaterialsusedinproduction..........$110
Directlabor..............................$110
Manufacturingoverhead....................$210
Totalmanufacturingcost..................$430
Add:Workinprocessinventory,beginning.$20
$450
Deduct:Workinprocessinventory,ending.$80
Costofgoodsmanufactured................$370
b.Computationofcostofgoodssold
Finishedgoodsinventory,beginning.........$80
Add:Costofgoodsmanufactured.............$370
Goodsavailableforsale....................$450
Deduct:Finishedgoodsinventory,ending....$150
Costofgoodssold..........................$300
c.Incomestatement
Sales.......................................$860
Less:Costofgoodssold....................$300
Grossmargin................................$560
Less:Administrativeexpenses...............$130
Less:Sellingexpenses......................$180
Netincome..................................$250

ManagerialAccounting,9/e

39

100.
Medium

NOTETOTHEINSTRUCTOR:Questions99,100and101aredifferent
versionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentaken
fromtheaccountingrecordsofLarnerCorporationforthejust
completedyear.
Sales.....................................$870
Purchasesofrawmaterials................$110
Directlabor..............................$130
Manufacturingoverhead....................$200
Administrativeexpenses...................$160
Sellingexpenses..........................$140
Rawmaterialsinventory,beginning........$30
Rawmaterialsinventory,ending...........$60
Workinprocessinventory,beginning......$50
Workinprocessinventory,ending.........$10
Finishedgoodsinventory,beginning.......$150
Finishedgoodsinventory,ending..........$140
Required:
a.PrepareaScheduleofCostofGoodsManufacturedingood
form.
b.ComputetheCostofGoodsSold.
c.Usingdatafromyouranswersaboveasneeded,preparean
IncomeStatementingoodform.

ManagerialAccounting,9/e

40

Answer:
a.Scheduleofcostofgoodsmanufactured
Directmaterials:
Rawmaterialsinventory,beginning........$30
Add:Purchasesofrawmaterials...........$110
Rawmaterialsavailableforuse...........$140
Deduct:Rawmaterialsinventory,ending...$60
Rawmaterialsusedinproduction..........$80
Directlabor..............................$130
Manufacturingoverhead....................$200
Totalmanufacturingcost..................$410
Add:Workinprocessinventory,beginning.$50
$460
Deduct:Workinprocessinventory,ending.$10
Costofgoodsmanufactured................$450
b.Computationofcostofgoodssold
Finishedgoodsinventory,beginning.........$150
Add:Costofgoodsmanufactured.............$450
Goodsavailableforsale....................$600
Deduct:Finishedgoodsinventory,ending....$140
Costofgoodssold..........................$460
c.Incomestatement
Sales.......................................$870
Less:Costofgoodssold....................$460
Grossmargin................................$410
Less:Administrativeexpenses...............$160
Less:Sellingexpenses......................$140
Netincome..................................$110

ManagerialAccounting,9/e

41

101.
Medium

NOTETOTHEINSTRUCTOR:Questions99,100and101aredifferent
versionsofthesamequestion.
Thefollowingdata(inthousandsofdollars)havebeentaken
fromtheaccountingrecordsofLarmontCorporationforthejust
completedyear.
Sales.....................................$990
Purchasesofrawmaterials................$100
Directlabor..............................$240
Manufacturingoverhead....................$210
Administrativeexpenses...................$100
Sellingexpenses..........................$140
Rawmaterialsinventory,beginning........$20
Rawmaterialsinventory,ending...........$80
Workinprocessinventory,beginning......$50
Workinprocessinventory,ending.........$30
Finishedgoodsinventory,beginning.......$160
Finishedgoodsinventory,ending..........$150
Required:
a.PrepareaScheduleofCostofGoodsManufacturedingood
form.
b.ComputetheCostofGoodsSold.
c.Usingdatafromyouranswersaboveasneeded,preparean
IncomeStatementingoodform.
Answer:
a.Scheduleofcostofgoodsmanufactured
Directmaterials:
Rawmaterialsinventory,beginning........$20
Add:Purchasesofrawmaterials...........$100
Rawmaterialsavailableforuse...........$120
Deduct:Rawmaterialsinventory,ending...$80
Rawmaterialsusedinproduction..........$40
Directlabor..............................$240
Manufacturingoverhead....................$210
Totalmanufacturingcost..................$490
Add:Workinprocessinventory,beginning.$50
$540
Deduct:Workinprocessinventory,ending.$30
Costofgoodsmanufactured................$510
b.Computationofcostofgoodssold
Finishedgoodsinventory,beginning.........$160
Add:Costofgoodsmanufactured.............$510
Goodsavailableforsale....................$670
Deduct:Finishedgoodsinventory,ending....$150
Costofgoodssold..........................$520

ManagerialAccounting,9/e

42

c.Incomestatement
Sales.......................................$990
Less:Costofgoodssold....................$520
Grossmargin................................$470
Less:Administrativeexpenses...............$100
Less:Sellingexpenses......................$140
Netincome..................................$230
102.
Medium

Thefollowingcostsrelatetoonemonth'sactivityinMartin
Company:
Indirectmaterials........................$300
Rentonfactorybuilding..................500
Maintenanceofequipment..................50
Directmaterialused......................1,200
Utilitiesonfactory......................250
Directlabor..............................1,500
Sellingexpense...........................500
Administrativeexpense....................300
Workinprocessinventory,beginning......600
Workinprocessinventory,ending.........800
Finishedgoodsinventory,beginning.......500
Finishedgoodsinventory,ending..........250
Required:
a.PrepareaScheduleofCostofGoodsManufacturedingood
form.
b.DeterminetheCostofGoodsSold.
Answer:
a.Directmaterials......................1,200
Directlabor..........................1,500
Manufacturingoverhead:
Indirectmaterials........$300
Rent......................500
Maintenance...............50
Utilities.................2501,100
Totalmanufacturingcosts.............3,800
Add:WIP,beginning...................600
4,400
Deduct:WIP,ending...................800
Costofgoodsmanufactured............$3,600
b.Finishedgoods,beginning.............$500
Add:Costofgoodsmanufactured.......3,600
Goodsavailableforsale..............4,100
Finishedgoods,ending................250
Costofgoodssold....................$3,850

ManagerialAccounting,9/e

43

103.
Hard

(Appendix)BrookeFosterisemployedbyWongLaboratories,Inc.,
andisdirectlyinvolvedinpreparingandpackagingthecompanys
leadingsleepaid,RestWell.Brookesbasicwagerateis$15per
hour,andsheispaidtimeandahalfforanyworkinexcessof
40hoursperweek.Additionally,WongLaboratoriesprovidesa
fringebenefitpackagethatcoststhecompany$5foreachhourof
employeetime(regularorovertime).Duringarecentweek,Brooke
worked49hoursbutwasidlefor3hoursduetomaterials
shortages.
Required:
a.AssumethatWongLaboratoriestreatsallfringebenefitsas
partofmanufacturingoverhead.ComputeBrookestotalwages
andfringebenefitsfortheweekandindicatehowmuchofher
wagesandfringebenefitsfortheweekwouldbeallocatedto
directlaborandhowmuchwouldbeallocatedtomanufacturing
overhead.
b.AssumethatWongLaboratoriestreatsthepartoffringe
benefitsrelatedtodirectlaborasacomponentofdirect
laborcost.ComputeBrookestotalwagesandfringebenefits
fortheweekandindicatehowmuchofherwagesandfringe
benefitswouldbeallocatedtodirectlaborandhowmuch
wouldbeallocatedtomanufacturingoverhead.
Answer:
a.
Regulartime:.................40hoursx$15=$600.00
Overtime:.....................9hoursx$22.50=202.50
Fringebenefits:..............49hoursx$5=245.00
Totalwagesandfringebenefits$1,047.50
Allocationofwagesandfringebenefits:
Directlabor:...............46hrs.x$15=$690.00
Manufacturingoverhead:
Idletime:....................3hrs.x$15=45.00
Overtimepremium:.............9hrs.x$7.50=67.50
Fringebenefit:...............49hrs.x$5=245.00
Totalwagesandfringebenefits$1,047.50

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b.Totalwagesandfringebenefitswouldbe$1,047.50asshown
above.

Allocationofwagesandfringebenefits:
Directlabor:
Wagecost:....................46hrs.x$15=$690.00
Fringebenefit:...........46hrs.x$5=230.00
Totaldirectlabor........$920.00
Manufacturingoverhead:
Idletime:................3hrs.x$15=$45.00
Overtimepremium:9x$7.50=67.50
Fringebenefits:..........3hrs.x$5=15.00
Totalmanufacturingoverhead$127.50
Totalwagesandfringebenefits$1,047.50
104.
Medium

(Appendix)FredAdamsisemployedbytheCedarManufacturing
Companyontheirassemblyline.Fredispaid$15perhourfor
regulartime,andtimeandahalfforallworkinexcessof40
hoursperweek.Duringthetwoweeksofthepayperiodjust
completedFredreportedthefollowing:
Week1:
Idletimeduetomachinebreakdowns....3hours
Idletimeduetomaterialshortages....2hours
Overtime...............................None
Week2:
Idletime..............................None
Overtime...............................9hours
Required:
ComputeFredswagesforeachweekandallocateFredswagesfor
eachweekbetweendirectlaborcostandmanufacturingoverhead.

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Answer:
Week1:
Fredswagesequal40hoursx$15perhour,or$600.
Fredswageswouldbeallocatedbetweendirectlaborand
manufacturingoverheadasfollows:
Directlaborcost:35hoursx$15=........$525.00
Manufacturingoverhead:5hoursx$15=....75.00
Total......................................$600.00
Week2:
Fredswagesequal:
40hoursx$15perhour=................$600.00
9hoursx$22.50perhour=.............202.50
TotalwagesforWeek2.....................$802.50
Fredswageswouldbeallocatedbetweendirectlaborand
manufacturingoverheadasfollows:
Directlaborcost:49hoursx$15perhour=$735.00
Manufacturingoverhead:9hoursx$7.50=67.50
Total.....................................$802.50

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