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Out of 52 questions, you answered 42 correctly with a final grade of 81% 42 correct (81%) 10 incorrect (19%) 0 unanswered (0%)

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The correct answer for each question is indicated by a .

1 CORRECT

A product-costing system accumulates the costs incurred in a production process and assigns those costs to the organization's final production. A) True B) False Feedback: Product costs are needed for a variety of purposes in financial accounting, managerial accounting, and cost management. LO 1

2 CORRECT

product-costing system is of little value in financial accounting. A) True B) False Feedback: In financial accounting, product costs are needed to value the inventories on the balancesheet and to compute the cost-of-goods sold expense on the income statement. LO 1

3 CORRECT

Hospitals would have little need for a product-costing system. A) True B) False Feedback: For reimbursement of costs by insurance companies or the by the federal government under the Medicare program, hospitals keep track of the costs of medical procedures. LO 1

4 CORRECT

The need for product costs is not limited to manufacturing firms. A) True B) False Feedback: The producers of any type of inventoriable goods, service firms, and nonprofit organizations need information about the costs of producing inventory or services. LO 1

5 INCORRECT

When products are finished, the Work-in-Process account is reduced and the Cost of Goods Sold expense account is increased by the value of the finished products. A) True B) False Feedback: When products are completed, and the cost of materials, labor, and manufacturing overhead associated with the finished products is determined, their product costs are transferred from the Work-in-Process Inventory account to the FinishedGoods Inv entory account. LO 2

6 CORRECT

During the time period in which products are sold, the product cost of the inventory sold is removed from the FinishedGoods Inventory account and added to the Cost of Goods Sold account. A) True B) False Feedback: When products are sold, the Finished-Goods Inventory account is credited and the Cost of Goods Sold account is debited for the product costs of the finished goods. LO 2

7 CORRECT

A process-costing system is most likely used by companies that use continuous processes to produce identical units of product or services. A) True B) False Feedback: A process- costing system is a costing system that accumulates all the production for a large number of units of output and then these costs are averaged over all of the products. LO 3

8 CORRECT

A process-costing system treats each individual job as a unit of output. A) True B) False Feedback: A job- order costing system is a costing system that treats each individual job (or batch) as the unit of output, and assigns or allocates costs to each job (or batch) as resources are used. LO 3

9 CORRECT

The manufacturer of custom kitchen cabinets is most likely to use a job-order costing system.

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A) True B) False

True or False

Feedback: A job- order costing system is used by companies with job- shop operations or batch- production operations. LO 3

10 CORRECT

Determining a per-unit cost is not possible when using a job-order costing system. A) True B) False Feedback: When products are manufactured in batches, the per-unit cost is the total production costs of the batch divided by the number of units in the batch. LO 3

11 CORRECT

The costs of direct material, direct labor, and manufacturing overhead for a particular job or batch are maintained on a jobcost record. A) True B) False Feedback: A job- cost record is used to accumulate the costs of direct material, direct labor, and manufacturing overhead for a particular job or batch. LO 3

12 CORRECT

The Work-in-Process Inventory account has a subsidiary ledger in a job-order costing system. A) True B) False Feedback: The subsidiary ledger to Work-in-Process Inventory account is comprised of the job- cost records for all of the jobs in process. LO 3

13 INCORRECT

To request a release of raw materials for production, a production supervisor completes a bill of materials. A) True B) False Feedback: To request a release of raw materials for production, a production supervisor completes a m aterial requisition form .

14 CORRECT

For products and product components that are produced routinely, the required materials are known in advance based on a bill of materials. A) True B) False Feedback: The bill of m aterials is a list all the materials needed to manufacture a product or a product component. LO 3

15 CORRECT

Proactively working with some or all of the organizations in a company's supply chain is called supply chain management. A) True B) False Feedback: Supply chain m anagem ent is intended to improve service and manage or reduce costs by working with all of the organizations in a company's supply chain. LO 3

16 CORRECT

In complex manufacturing operations, in which production takes place in several stages, material-requirements planning (MRP) may be used. A) True B) False Feedback: MRP is an operations-management tool that assists managers in scheduling production in each stage of the manufacturing process. LO 3

17 CORRECT

A time record is used to record direct labor only. A) True B) False Feedback: The tim e record is used to record the time spent by an employee performing various tasks during the day. Tasks that are not directly related to production, such as cleanup, idle time, and machine setup are charged to manufacturing overhead as indirect labor. LO 3

18 CORRECT

The process of assigning manufacturing-overhead costs to production jobs is called overhead application. A) True B) False Feedback: It is necessary to assign manufacturing-overhead costs to jobs in order to have a complete picture of product costs. This assignment is called ov erhead application or ov erhead absorption. LO 3

19 CORRECT

A predetermined overhead rate is computed by dividing the budgeted manufacturing-overhead cost by the budgeted amount of cost driver (or activity base). A) True B) False Feedback: Some measure of productive activity is used as the basis for overhead application. This measure is usually some v olum ebased cost driv er (or activ ity base), such as direct-labor hours, direct-labor cost, or machine hours. LO 4

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20 CORRECT

True or False
If the balance of the Manufacturing Overhead account is $450,000, the predetermined overhead rate is $10 per unit, and 44,000 units have been produced, then $450,000 should be added (debited) to the Work-in-Process Inventory account at the end of the accounting period. A) True B) False Feedback: When a manufacturer uses predetermined overhead rates rather than the actual manufacturing overhead cost for the application of manufacturing overhead, the manufacturing overhead is applied to the work-in-process at the predetermined rate. In this case, the Work-In-Process Inventory accounted is debited for $440,000 (= 44,000 x $10). LO 4

21 INCORRECT

The source document for the accounting entry to record the purchase of raw materials on account is a materials requisition. A) True B) False Feedback: The source docum ent is the vendor's invoice, which is supported by a purchase order. A m aterials requisition authorizes the release of raw materials from raw materials inventory to production. LO 5

22 CORRECT

When indirect materials are requisitioned, their cost is charged to the Manufacturing Overhead account. A) True B) False Feedback: The Manufacturing Overhead account is charged for indirect materials, indirect labor, and all other manufacturing costs except for direct materials and direct labor. LO 5

23 INCORRECT

When recording the direct labor cost of $140,000 for the production of 45,000 units of product, the accounting entry requires a debit to Wages Expense and a credit to Wages Payable. A) True B) False Feedback: The cost of direct labor is added (debited) to the Work-in-Process Inventory account.

24 CORRECT

For a manufacturing firm using a job-order costing system, there are no depreciation expense accounts for accumulating the depreciation expense on assets used in the production process. A) True B) False Feedback: Depreciation expense is charged directly to the Manufacturing Overhead account, with an offsetting credit to an appropriate accumulated depreciation account. LO 5

25 CORRECT

The monthly, expired portion of prepaid insurance on factory equipment is charged to the Manufacturing Overhead account. A) True B) False Feedback: With the exception of direct materials and direct labor, all other manufacturing costs are charged to the Manufacturing Overhead account. LO 5

26 CORRECT

At the end of the accounting period, the total value of the job-cost records representing unfinished work should be equal to the balance of the Work-in-Process account. A) True B) False Feedback: The Work-in-Process account is the control account to the subsidiary ledger of job-cost records of unfinished jobs. LO 5

27 CORRECT

The application of manufacturing overhead to the Work-in-Process Inventory account will always result in a zero balance in the Manufacturing Overhead account. A) True B) False Feedback: The Manufacturing Overhead account is debited for actual manufacturing overhead costs. The account is credited for the amount appliedm anufacturing ov erhead to the Work-in-Process account. This will usually result in a debit or credit balance in the Manufacturing Overhead account at the end of the year, before the closing entries are recorded. LO 5

28 INCORRECT

The expired portion of prepaid office rent is charged to the Manufacturing Overhead account. A) True B) False Feedback: Office rent is a period cost, not a product cost. Period costs are charged to the Selling and Administrative Expenses account. LO 5

29 CORRECT

When a perpetual Finished-Goods Inventory account is maintained, the sale of products requires two journal entries. A) True B) False Feedback: The first entry is a debit to Cash or Accounts Receivable and a credit to Sales. The second entry is a debit to Cost of Goods Sold and a credit to Finished-Goods Inventory.

30 CORRECT

When the application of manufacturing overhead exceeds the actual manufacturing overhead costs, the Manufacturing Overhead account is underapplied. A) True B) False Feedback: When the applied amount of manufacturing overhead exceeds the amount of the actual manufacturing overhead costs, the resulting credit balance of the Manufacturing Overhead account represents overapplied overhead. LO 5

31 CORRECT

If a firm's accountant makes a year-end accounting entry debiting Cost of Goods Sold and crediting Manufacturing Overhead, the Manufacturing Overhead account had been underapplied. A) True B) False Feedback: The most common method of disposing of overapplied or underapplied manufacturing overhead is to close it

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32 INCORRECT

True or False
directly to the Cost of Goods Sold account. LO 5 The proration of underapplied or overapplied manufacturing overhead is used by a large number of firms. A) True B) False Feedback: Proration of underapplied or overapplied manufacturing overhead is used by the small number of firms that are required to do so under the rules specified by the Cost Accounting Standards Board (CASB). LO 5

33 CORRECT

When preparing financial statements, the managerial accountant will first prepare a schedule of cost of goods manufactured. A) True B) False Feedback: The cost of goods sold shown in the income statement comes from the schedule of cost of goods sold. The cost of goods manufactured shown in the schedule of cost of goods sold is transferred from the schedule of cost of goods m anufactured. LO 6

34 INCORRECT

The schedule of cost of goods manufactured is used to report the total cost of direct material, direct labor, and manufacturing overhead. A) True B) False Feedback: The schedule of cost of goods m anufactured is a detailed report of the cost of direct materials, direct labor, and manufacturing overhead. LO 6

35 INCORRECT

The schedule of cost of goods manufactured reports the actual manufacturing overhead and the applied manufacturing overhead. A) True B) False Feedback: The actual total manufacturing overhead is adjusted for the amount of the underapplied or overapplied manufacturing overhead, resulting in the amount of overhead applied to the work in process. LO 6

36 INCORRECT

The cost of goods sold that is reported in the schedule of cost of goods sold is the total of the actual raw material used, direct labor, and actual manufacturing overhead. A) True B) False Feedback: The cost of goods manufactured reported in the schedule of cost of goods manufactured includes actual costs for direct material and direct labor but only the applied amount of manufacturing overhead. The cost of goods sold in the schedule of cost of goods sold is adjusted for the underapplied or overapplied manufacturing overhead so that the actual amount of manufacturing overhead is included in the cost of goods sold. LO 6

37 CORRECT

The major disadvantage of using an actual overhead rate is the timeliness of the information. A) True B) False Feedback: While an actual overhead rate provides accuracy, it cannot be computed until the end of the accounting period. Thus, it provides untimely product-costing information. LO 7

38 CORRECT

A major disadvantage of using an actual overhead rate is the month-to-month fluctuations that might occur. A) True B) False Feedback: A problem with using actual overhead is that some manufacturing costs may be affected seasonally, the volume-based cost driver may vary from period to period, and a variety of other fluctuations that can occur with manufacturing costs and cost drivers may occur that result in misleading signals for product pricing and decision making. LO 6

39 CORRECT

In order to smooth out fluctuations in the predetermined overhead rate, a normalized overhead rate is often calculated and used. A) True B) False Feedback: A norm alized ov erhead rate is a predetermined overhead rate calculated over a relatively long time period. LO 6

40 CORRECT

The product-costing system that uses the actual overhead rate is referred to as normal costing. A) True B) False Feedback: When manufacturing overhead is applied to the Work-in-Process Inventory account using a predetermined overhead rate, the product-costing system is referred to as norm al costing. The product costing system that uses the actual overhead rate is actual costing. LO 6

41 INCORRECT

Most companies use actual costing when adding direct labor, direct material, and manufacturing overhead to the work-inprocess. A) True B) False Feedback: Actual costing is used by few companies. The actual rate is subject to fluctuations if production volume and the length of the time periods in which it is determined. LO 6

42 CORRECT

When using actual costing, the amount added to the work-in-process for manufacturing overhead is calculated as the actual rate multiplied times the actual amount of cost driver used.

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A) True B) False

True or False

Feedback: With both actual costing and norm al costing, the amount of manufacturing overhead applied to work-in-process is an allocated amount. LO 6

43 CORRECT

There should be a correlation between the incurrence of overhead costs and the cost driver. A) True B) False Feedback: Products that indirectly cause large amounts of overhead costs also should require large amounts of the cost driver, and vice versa. LO 6

44 CORRECT

As automation reduces direct labor, firms are switching to machine hours, process time, or throughput time as the cost driver for allocating manufacturing-overhead costs. A) True B) False Feedback: Throughput tim e (or cycle tim e) is the average amount of time required to convert raw materials into finished goods ready for shipment to customers. LO 6

45 CORRECT

When a manufacturing firm has several production departments, the use of a plantwide overhead rate provides the most accurate assignment of overhead costs to the firm's products. A) True B) False Feedback: In some production processes, the relationship between overhead costs and the firm's products differs substantially across production departments. In such cases, departm ental ov erhead rates usually result in a more accurate assignment of overhead costs to the firm's products. LO 6

46 CORRECT

Departmental overhead centers do not include service departments. A) True B) False Feedback: Departm ental ov erhead centers are any departments to which overhead costs are assigned via overhead cost distribution (or sometimes cost allocation). LO 7

47 CORRECT

At the conclusion of the first stage of the two-stage cost allocation process, all manufacturing-overhead costs have been assigned to the production departments. A) True B) False Feedback: In the first stage, called cost distribution, all manufacturing overhead costs are assigned to departmental overheadcenters, which include both production and service centers. LO 7

48 CORRECT

The second part of the first stage of the two-stage allocation process is called service department cost allocation. A) True B) False Feedback: After the manufacturing costs have been assigned to the departmental overhead centers, all service department costs are reassigned to the production departments through a process called serv ice departm ent cost allocation. LO 7

49 CORRECT

The second stage of the two-stage cost allocation process, overhead absorption occurs. A) True B) False Feedback: The manufacturing-overhead costs accumulated in each production department are assigned to the production jobs of each department, a process known as ov erhead application or ov erhead absorption. LO 7

50 CORRECT

Job-order costing also is used in nonmanufacturing organizations. A) True B) False Feedback: Job-order costing is used in nonmanufacturing organizations. However the cost driver is unrelated to a production process. LO 8

51 CORRECT

Electronic data interchange (EDI) is the direct exchange of data between organizations via a computer-to-computer interface. A) True B) False Feedback: EDI is used to transmit such documents as purchase orders, invoices, shipping and receiving notices, and other production related data. EDI is now in widespread use. LO 8

52 CORRECT

Bar-code technology is becoming widely used in recording important events in manufacturing processes. A) True B) False Feedback: Bar codes represent one more instance where technology is changing both the production environment and the procedures used in accounting for production operations. LO 8

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